Treaanry Department : : : ureau of Interna Revenue

Interna Revenue uetn

Cumuatve uetn 19 1-2
ULY-D C M R 19S1
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
cprr T TTFNTTON s drected to the cautonary notce on ths page that puh-
arL| L fuuw Ishcd rungs o 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 19 1-2
ULY-D C M R 19 1
IN T IS ISSU
Introductory Notes U
Contents
Rungs Nos. 1361 -1373
Ta Court o the Unted States, The 1-6
Income Ta
Part I (Interna Revenue Code) 7-1 7
state and Gft Ta es 1 9-160
mpoyment Ta es 1ac o q
cse Ta es SS a
Msceaneous Rungs 221 o 2
Legsaton 1 2
Commttee Reports 3s7-6
Inde 6 -66
The rungs reported n the Interna Revenue uetn are for the nformaton of ta payers and ther counse as
showng the trend of offca 1 opnon n the admnstraton of the ureau of Interna Revenue; therttfogs other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do not commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
state of facta 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. st s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a
pertnent 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 pre-
vousy ssued.
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna
Revenue to pubsh a rungs and decsons, ncudng opnons of the Chef Counse for the ureau of Interna
Revenue, whch, because they announce a rung or decson upon a nove queston or upon a queston n regard
to whch there e sts no prevousy pubshed rung or decson, or for other reasons, are of such mportance as
to be of genera nterest. It s aso the pocy of the ureau to pubsh a rungs or dersons whch revoke,
modfy, amend, or affect n any manner whatever any pubshed rung or derson. In many nstances opnons
of the Chef Counse for the ureau of Interna Revenue arc not of genera nterest because they announce no
new rung or new constructon of the revenue aws bat smpy appy rungs aready made pubc to certan
stuatons of fact whch are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons.
Therefore the numbers assgned to the pubshed opnons of the Chef Counse for the ureau of Interna
Revenue are not consecutve. No unpubshed rung or decson w be cc or reed upon by any offcer or
empoyee of the ureau of Interna Revenue as a precedent n the dsposton of other cases. Unets 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 OFFIC ; W S INGTON : 19 2
For sae by Superntendent of Documents, U. S. Government Prntng Offce. Washngton 2 , D. C
See bach of tte for prces
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
The Interna Revenue uetn servce conssts of uetns ssued
every other week and semannua Cumuatve uetns.
The uetns contan the rungs and decsons whch are made
pubc and a Treasury Department decsons (known as Treasury
Decsons) pertanng to Interna Revenue matters. The semannua
Cumuatve uetns contan a rungs and decsons (ncudng
Treasury Decsons) pubshed durng the prevous 6 months.
The compete uetn servce may be obtaned on a subscrpton
bass from the Superntendent of Documents, Government Prntng
Offce, Washngton 2 , D. C, for 3.2 per year; foregn, .60. Snge
copes of the uetn, 1 cents each.
Certan ssues of Cumuatve uetns are out of prnt and are,
therefore, not avaabe. Persons desrng avaabe Cumuatve u-
etns may obtan them from the Superntendent of Documents at
prces as foows:
Year
Cumuatve uetn
Frst 6 months
Second 6 months
1920
2 0. 2
II-1 . 3
III-1 . 0
I -1 . 0
I-1 .30
-1 .
1939-1
3 0. 30
II-2 . 0
III-2 .
I -2 . 0
192
1929
1930
1932..
1936
-2 .
1939-2 . 60
1939
Part 1 . 0
1 Part 2 1. 00
19 0
19 0- 1 . 30
19 0- 2 .60
19 1
19 1- 1 .
19 1- 2 .60
19 2
19 2- 1 . 0
19 2- 2 . 60
19 3
1. 2
19 2
2. 2
1. 0
19
19 6
19 6- 1 . 0
19 6- 2 .7
19 7
19 7- 1 . 0
19 7- 2 .7
19 .
19 - 1 .7
19 - 2 1. 00
19 9
19 9- 1 .7
19 9- 2 . 7
19 0
19 0- 1 . 7
19 0- 2 1. 0
19 1
19 1- 1 .7
19 1- 2 L 0
Contans ony ncome ta rungs.
1 ouse, Senate, and conference reports on revenue bs enacted as the ct of October 3,
1913. the ct of October 22, 191 , and the Revenue cts of 1916 to 193 , ncusve, and on
amendments to such cts.
- Prnted n one voume.
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 19 (ncome ta rungs ony, pr 1919
to December 1921, ncusve), 0 cents; Dgest No. 13 (1922-2 ), 60
cents; Dgest No. 22 (192 -27), 3 cents; and Dgest (ncome ta
rungs ony, pr 1919 to December 1930, ncusve), 1. 0.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton 2 , D. C.
( )
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
INTRODUCTORY NOT S
Interna Revenue Cumuatve uetn 19 1-2, n addton to a
decsons of the Treasury Department (caed Treasury Decsons)
pertanng to Interna Revenue matters, contans opnons of the Chef
Counse for the ureau of Interna Revenue, rungs and decsons
pertanng to ncome, estate, gft, saes, e cess profts, empoyment,
soca securty, and msceaneous ta es, and egsaton affectng the
revenue statutes, as ndcated on the tte page of ths uetn, pub-
Ushed ;n uetns 1 to 26, ncus;ve, for the perod uy 1 to Decem-
ber 31, 19 1. It aso contans a cumuatve st of announcements
reatng to decsons of The Ta Court of the Unted States, pubshed
n the Interna Revenue uetn Servce from uy 1 to December 31,
19 1.
Income ta rungs are prnted n two parts. The rungs under the
Interna Revenue Code are prnted as part I, the aw headngs corre-
spondng wth the rectons of the Code, as amended, and the reguatons
headngs correspondng wth the secton headngs of Reguatons 111
or 103. Rungs under the Revenue ct of 193 and pror revenue acts
are prnted as part II, the aw head:ngs correspondng wth the secton
headngs of tho e revenue acts and the reguatons beadng: corre-
spondng wth the artce headngs of the appcabe reguatons.
Rungs under ttes III and I of the Soca Securty ct and
under subchapters and C, chapter 9, of the Interna Revenue Code
n force pror to anuary 1, 19 0, are pubshed unfer artce head-ngs
of Reguatons 91 and 90, respectvey; rungs under subchapters
and C, chapter 9, of the Code n force on or after anuary 1, 19 0, are
pubshed under the secton headngs of Reguatons 106 and 107,
respectvey; rungs under the Carrers Ta ng ct of 1937 and under
subchapter , chapter 9, of the Code for perods pror to anuary 1,
19 9, are pubshed under the artce headngs of Reguatons 100, and
rungs under subchapter , chapter 9. of the Code for perods subse-
quent to December 31, 19 , w be pubshed under the secton head-
ngs of Reguatons 11 .
R I TIONS
The foowng abbrev:atons 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.
m. T. Ta es mposed by the Soca Securty ct, the Carrers Ta ng ct of
1037, and subchapters , , C, D, and of the Interna Revenue Code.
()
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
I
. P. C. cess Profts Ta Counc rung or memorandum.
. T. state and Gft Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
I. R. C. Interna Revenue Code.
I. T. Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accordng
to conte t.
M m. M meograph.
MS. or M. T. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T. Saes Ta Dvson.
S. Sver Ta Dvson.
S. M. Soctor s memorandum.
Po. 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. dvsorv Ta oard recommendaton.
T. C. Ta Court of the Unted States.
T. D. Treasury Decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
NNOUNC M NT R L TINO TO D CISIONS OF T T COURT OF T
UNIT D ST T S
In order that ta payers and the genera pubc may be nformed
whether the Commssoner has acquesced n a decson of The Ta
Court of the Unted States dsaowng a dene ency n ta determned
by the Comm ssoner to be due, announcement w be made n the
Interna Revenue u etn at the earest practcabe date. (No an-
nouncements are made n the uetn wth respect to memorandum
opnons of the Ta Court.) Notce tha the Commssoner ha ac-
qu;esccd or nonacquesced In a decson of the Ta Court reates ony
to the ssue or ssues dec:ded adversey to the Government. Decsons
so acqu esced ,-n shoud be reed upon by offcers and empoyees o the
ureau of Interna Revenue as precedents n the dsposton of other
cases.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
CUMUL TI CONT NTS
Rung
Unted States Ta Court:
77
12319..
130 9...
1S020I
1 3 2...
1 992...
162 9...
162 0...
102 1...
16 ...
16 ...
17207...
17 6...
1S0 0...
Rung No.
20270..
20271..
19 1-1 -13619
19 1-1 -13620
19 1-16-13033
19 1-17-13G C
19 1-17-136 0
19 1-17-136 1
19 1-1 -136
19 1-1 -136 7
19 1-19-13002
19 1-20-13672
19 1-20-13671
19 1-21-1367
19 1-21-136 0
19 1-21-136 1
19 1-21-13679
19 1-23-1369
19 1-23-1369 )
19 1-23-13791
19 1-23-13702
19 1-2 -13709
19 1-2 -1371
19 1-2 -13716
19 1-2 -13717
19 1-2 -13729
19 1-20-1372
19 1-2 -13732
19 1-20-13731
19 1-22-136 6
1 1-2 -1371
19 1-2 -1370
19 1-1 -1362
19 1-20-13666
19 1-2 -1370
19 1-19-13660
10 1-26-13723
19 1-20-13666
19 1-19-13660
19 1-1 -1361
19 1-17-136 2
19 1-17-130 2
19 1-17-136 2
19 1-17-136 2
19 1-26-13723
19 1-20-13723
10 1-1 -1362
19 1-2S-13723
19 1-16-13631
19 1-1 -1361
19 1-2 -1370
19 1-1 -1302
19 1-19-13060
19 1-1 -1361
10 1-1 -1362
19 1-17-136 2
19 1-22-136
19 1-21-1 676
19 1-23-13092
19 1-17-136 2
19 1-20-13060
19 1-23-13692
19 1-23-13692
19 1-23-13692
19 1-23-13092
19 1-23-13692
19 1-23-13692
19 1-23-13092
19 1-26-13723
19 1-16-13631
19 1-2 -1370
Pago
176
332
239
7
233
23
63
9
0
20
1 1
SO
1 1)
ISO

17
1
2 1
M
2
97
0
76
27. ,
270
23
220

3
1

6
1,6
S

D
Z
3
:

2
t
I

C
3
3
. ,6
3
3
2

2
2

1
IUng
Unted States Ta Court-
Contnued
2071
20 60
20903
2111
21170
21171
21172
211 7
21 33
21 19
21 6
21670 ,
219 7
210 6 ,
22066 ,
222 1
22 9
22 7
22706
22763
227
227 6
22920
229
229
23079.
2316
23169
23170
231
231 9
2326
2327
232 .. .
2330
23 32
23 33
236 7
23710
237 9
23760
23761
23 9
23977..
2397 ..
23979..
239 0..
239 1..
239 2..
2 9 ..
239 ..
239 ..
239 ..
239 7..
239 ..
239 9.
23990..
2C99 ..
2399 ..
23996..
23997..
2399 ..
23999..
2 101..
2 102..
2 1 0..
2 7 ..
19 1-1 -1362
19 1-1 -13621
19 1-1 -1361
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
1961-1 -136 3
19 1-19-13660
19 1-19-13660
19 1-1 -136 3
19 1-22-136
19 1-26-13723
19 1-22-130
19 1-17-136 2
19 1-1 -1361
19 1-16-13631
19 1-1 -136 3
19 1-16-13631
19 1-22-136
19 1-20-13666
19 1-20-13666
19 1-21-13676
19 1-1 -1361
19 1-1 -1361
19 1-26-13723
19 1-1 -1362
19 1-19-13000
19 1-19-13660
16 1-23-13692
19 1-23-13692
10 1-2 -1370
19 1-22-136
19 1-21-13676
19 1-1 -1301
19 1-22-136
19 1-22-136
19 1-10-13631
19 1-17-136 2
19 1-17-136 2
19 1-17-136 2
19 1-17-136 2
19 1-1 -136 3
19 1-1 -1302
19 1-1 -1362
19 1-1 -1361
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1S-136 3
19 1-1 -136 3
19 1-1S-136 3
19 1-1 -136 3
19 1-1S-136 3
19 1-1S-136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -136 3
19 1-1 -130 3
19 1-1 -130 3
19 1-1 -136 3
19 1-1 -130 3
19 1-17-1S6 2
19 1-2 -1370
19 1-10-13031
Page
S
2

1
3
3

1
1
2

2,3
t

1
2
3
2

2
2
2

6
1
a
s

3
3
2

3
3
1
a
2
2
( )
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
I
Rung
Unted States Ta Court-
Contnued
2 2
2 26
2 27
2 1
2 9
2 0
2 7 ._
2 91
2611 ..
20139..
26166..
26172..
26 20..
26 21..
26 22..
26 23..
26 2 ..
26763
269 7.
269
269 9
27096.
2727
27319
27320
27:09
277 0...
102 0
102 07
111M1
1116 2
Offce decsons (L T.):
0 3
0
0
0 6
0 7
0
0 9
060
061
062
06
06
066
0( 7
Offce decsons ( . T :
Offce decsons (M. T.):
1.
2.
Rung No.
Pupo
19 1-17-136 2
:
19 1-17-136 2

19 1-17-136 2

19 1-23-13692
3
19 1-2 -1371

19 1-2 -1371

19 1-1 -1362
1
19 1-1 -1361
6
19 1-1 -136 3
2
19 1-19-1360
3
19 1-22-136
2
19 1-19-13660

19 1-20-13666
3
19 1-1 -136 3

19 1-23-13693
2
19 1-1 -136 3
1
19 1-10-13663
3
19 1-1 -136 3
3
19 1-1 -136 3

19 1-1 -136 3

19 1-2 -1371
2
19 1-2 -1371
2
19 1-19-13660
3
19 1-21-13676

19 1-21-13676

19 1-21-13676
2
19 1-21-13676
2
19 1-21-13676
1
19 1-21-13076
1
19 1-26-13723

19 1-23-13692
6
19 1-2 -1371
2
19 1-2 -1371
2
19 1-26-13723
,
19 1-22-136
6
19 1-19-13660
2,
19 1-19-13660
2,
19 1-1 -136 3
1 2
19 1-1 -136 3
2
19 1-1 -13616
3
19 1-1 -1362
36
19 1-16-13632
30
19 1-17-136 3

19 1-17-136
S3
19 1-1 -136
22
19 1-19-13661
2
19 1-20-13067
11
19 1-20-1366
13
19 1-20-13670
61
19 1-21-13677
2
19 1-23-13693
1
19 1-2 -1370
7
19 1-26-1372
26
19 1-26-1372

19 1-1 -136 6
213
19 1-21-136 2
216
19 1-.3-1369
21
. 1961-23-13699
21
19 1-2 -1370
21
Rung
Rung No. Page
Offce decsons (T.):
302
303.
30 ...
30
306
307
30
309
310
311
312
313
31
31
316
317
31
Offce decson (Tob.):
319
Department Crcuars:
9.
Mmeographs:
612 C mdt. 1)
6 1
66 2
66
6 60
666
66 3
66 6
669
6702..
6703.
671 .
6720:
6720 (Supp. 1)
6726
Crcuars:
22 9
2299
231
Legsaton.
ecutve Order:
10262
M soeUanceus. ..-.;r,
19 1-1 -13621
19 1-1 -13622
19 1-1 -13629
19 1-16-13639
19 1-16-136 1
19 1-17-136 2
19 1-1 -136
19 1-1 -136 9
19 1-19-1366
19 1-20-1367
19 1-21-136 3
19 1-21-136
19 1-22-13691
19 1-23-13703
19 1-2 -13713
19 1-2 -13721
19 1-2 -13722
19 1-26-13733
19 1-17-136
19 1-17-136 9
19 1-17-136 7
19 1-1 -13617
19 1-1 -1361
19 1-1 -13627
19 1-16-13626
19 1-17-136
19 1-20-13669
19 1-22-136 7
19 1-23-13696
19 1-2 -1370
19 1-2 -13706
19 1-26-13727
19 1-26-1373
19 1-26-1373
19 1-26-13726
19 1-19-13063
19 1-23-13697
19 1-2 -13719
19 1-1 -1 62
19 1-1 -13630
19 1-16-1363
19 1-16-1363
19 1-16-13636
19 1-16-13637
19 1-10-1363
19 1-16-136 0
19 1-19-1366
19 1-20-13673
19 1-20-1367
19 1-22-136
19 1-22-13 9
19 1-22-13690
19 1-2 -13710
19 1-2 -13711
19 1-1 -13623
(19 1-23-13700
19 1-2 -13712
19 1-2 -13720
19 1-26-13730
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
CONT NTS OF CUMUL TI ULL TINS (I. T.) 1 TO ; S T FOR 1920 ND 1921; INT RN L
R NU I-1,1-2.11-1, 11-2. 1II-1, U-2, 1 -1. 1 -2. -. -2, I-1, -2, U-1. I1-2, II1-1, II1-2,
1 -1. I -2, -. -2, 30-1, I-2. II-1, II-2. I1I-1, III-2, 1 -1, I -2, -1. -2, 1937-1,1937-2,
193 -1. 193 -2. 1939-1 (P RT 1 ND P RT ). 193C-2. 19 0-1. 19 0-2. 19 1-1, 19 1-2. 19 2-1. 19 2-2;
NNU L ULL TINS FOR 19 3, 19 , ND 19 : S MI NNU L ULL TINS 19 6-1. 19 G-2,
19 7-1. 19 7-2, 19 -1, 19 -2, 19 9-1. 19 9-2, 19 0-1, 1S 0-2, 19 1-1. ND 19 1-2
Cumuatve uetn
Rung Nos.
Income Ta :
December 1019 (No. 1)
anuary- une 1920 (No. 2). _.
uy-December 1910 (No. 3).
anuary- une 1921 (No. )._.
uy-December 1921 (No. ).
Sae Ta:
1920 (S. T. 1-20)
anuary- une 1921
uy-December 1921.
Interna Revenue uetn:
anuary- une 1922 (No. 1-1)
uy-December 1922 (No. 1-2)
anuary- une 1923 (No. II-)
uy-December 1923 (No. II-2)
anuary- une 192 (No. III-)
uy-December 192 (No. 111-2)
anuary- une 192 (No. I -)
uy-December 192 (No. 1 -2)
anuary- une 1920 (No. -)
uy-Deeember 1920 (No. -2)
anuary- une 1927 (No. I-1).
uy-December 1927 (No. I-2)
anuary- une 192 (No. I-1)
uy-December 192 (No. II-2)
anuary- une 1929 (No. I1I-1)
uy-December 1929 (No. TII-)
anuary- une 1930 (No. I -1)
uy-December 1930 (No. 1 -2)
anuary- une 1931 (No. -)
uy-December 1931 (No. -2)
anuary- une 1932 (No. I-1)
uy-December 1932 (No. I-2)
anuary- une 1933 (No. II-1)
uy-December 1933 (No. II-2)
anuary- une 193 (No. III-1)
uy-December 193 (No. III-2)
anuary- une 193 (No. I -1)
uy-December 193 (No. I -2)
anuary- une 1930 (No. -1)
uv-December 1936 (No. -2)
anuary- une 1937 (1937-1)
uy-December 1937 (1937-2)
anuary- une 193 (193 -1)
uy-December 193 (193 -2)
anuarv- unc 1939 (1939-1 part 1 and pert 2)
uy-December 1939 (1939-2)
anuary- une 19 0 (19 0-1)
uy-December 19 0 (19 0-2)
anuary- une 19 1 (19 1-1)
uy-December 19 1 (19 1-2)
anuary- une 19 2 (10 2-1) .
uy-December 19 2 (19 2-2).
_ 19 3 (12 months)
anuary-December 19 (12 months)
nuary-December 19 (12 months)
anuary- une 19 6 (19 6-1)
uy-December 19 6 (19 6-2)
anuary- une 19 7 (1 7-1)
uy-December 19 7 (19 7-2)
anuary- une 19 (19 -1)
uy-December 19 (19 -2)..
anuary- une 19 9 (19 9-1)
uy-December 19 9 (19 9-2)..
anuary- une 19 0 (19 C-1) ...
uy-December 19 0 (19 0-2).
anuary- une 19 1 (19 1-1)
uy-December 19 1 (19 1-2)..
( II)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
T T COURT OF T UNIT D ST T S
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T T COURT OF T UNIT D ST T S
PU LIS D IN T INT RN L R NU ULL TIN
S R IC FROM ULY 1, 19 1, TO D C M R 31, 19 1,
INCLUSI
19 1-26-13723
The Commssoner acquesces n the foowng decsons:
Ta payer
corn Whoesae Co
en, L. D
en, da
mercan Pad Te te Co., The
mercan Securty and Trust Co., trustee and trans-
feree of estate of Wam cae bbs 1
mercan Wre Fabrcs Corporaton
mphtrte Corporaton

ates Motor Transport Lnes, Inc

erand s Inc. of maro
erand s Inc. of Des Mones
erand s Inc. of Paso
erand s Inc. of Fort Worth
erand s Inc. of Indanapos
orand s Inc. of acksonve
erand s Inc. of Los ngees
erand s Inc. of Nebraska
erand s Inc. of New Me co
erand s Inc. of Sacramento
erand s Inc. of San ngeo
erand s Inc. of San ntono
erand s Inc. of South end
erand s Inc. of ermont Manchester.
erand s Inc. of Wchta Fas
erand s Seventh Street Corporaton
erand s S th Street Corporaton
erand s Sprngfed Inc
erand s West Madson, Inc
g Chef Drng Co..
owcn, Truman
razne, Car W
recher, eannctte
recher, Leo
Docket No.
2111
20 20
2 ; s
269 9
2029
111 1
2 G21
21 33
1 932
200 3
2397
239
239 7
23999
239
239 3
239 9
2399G
2399
239 1
239 0
23997
23977
23979
239 6
23990
2399
2399
239
23761
12319
22 7
2 26
2 27
Report
oume Pago
16
16
16
16
10
16
10
17
16
16
16
16
16
16
16
10
16
10
16
16
16
16
16
16
16
16
16
1
12
16
16
16
7
93
93
130
3
007
11 0
1 1
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
1 2
966
6
03
69
1 state a decson.
Nonacquoscencc pubshed :n Cumuatve uetn 19 9-2, page , wthdrawn.
(1)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
cquescences Contnued
Ta payer
Docket No.
oume Page
roadcast Measurement ureau, In:
rown, Foyd II
rown et u ., Foyd
urre Groves, Inc
Ca, Thomas Davd
Campbe Chan Co. (formery Internatona Chan
and Manufacturng Co.)
Cary et a., Guy, e ecutors and trustees under the ast
w and testament of Frank Work
Cedar aey Dstery, Inc
Comber, oward ., estate of
Comber, atherne It., e ecutr of estate of oward
. Comber
Crawford, Mary
Cry, dgar
Dfferenta Stee Car Co.

quno M.
Fearon, Chares, estate of
Fearon, Margaret ., e ecutr of estate of Chares
Fearon
th Street Paza Theatre, Inc --
Fannery, ohn S., trustee and transferee of estate of
Wam eae bbs 1 -
G
Gannon, Gans G.
Gannon, Mary P..
__
Good. ohn
Guf States Uttes Co.
II
echt, Sam D
echt, Susan
erder, Forence
erder, r., George, estate of
erder, III, George, admnstrator of estate of George
erder, r
errman, nna
bbs, Wam eae, estate of 1
oward, Lndsay C
owe, George ., estate of
utcheson, eanor T
utcheson, Pamer
state ta decson.
21 19
23 1
23 0
19 6
20270
2 91
102 0
102 07
227
20267
20267
2 7
236 7
23909
22706
19 60
19 60
2 2
111 2
26762
26763
2 2
26172
23169
23170
269 7
269 7
20269
111 1
111 2
20 60
2316
21670
27320
27319
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
cquescences Contnued
Ta payer
ohnson Lumber Corporaton, CD.

aufmann Department Stores, Ine

ay et a., I. M., statutory trustees of erand s Inc.
of acksonve
emon, George R
err-McGee O Industres, Inc
ne et u ., Cavton
ne, Leonard C
Lee Whoesae Co
Ley, r., Wam
Loewensten, Fredercka, estate of 1
Lowensten, Ma S., e ecutor of estate of Fredercka
Loewensten 1
M
M- - Drng Co., Inc., dssoved
MacMurray, athryn Ttus
Maddock et a., nne W., e ecutors of estate of
enrv . Maddock 1
Maddock, enrv ., estate of
Marsha, der W.
Marsha et u ., der W.
Mc erty et u ., Robert .
McDonne rcraft Corporaton3
Mutua Fre, Marne Inand Insurance Co., The
Myers, dward
N
etz, . C, e ecutor of estate of George . owe
Pau, Davd unt, admnstrator of estate of dth
Wson Pau
Pau, dth Wson, estate of
Pavne et a., Wam T., trustees of M- - Drng
Co., Inc., dssoved
Perce states, Inc
Pace, Roand P
Co
any, Inc., The.
Docket No.
77
23 9
230 3
2026
23760
2 162
2 161
21 170
26 21
20260
2 1
2 1
237 9
20137
22000
2 90
2.s; 0
23 32
23 33
26139
22763
1 0 0
1200
21670
19 61
19 61
237 9
26S3
23079
21171
26 22
17 6
oume
1 state ta decson.
Nonaequescence pubshed n Cumuatve uetn 19 0-1, page 7, wthdrawn.
1 Nonacquesccnce pubshed n Interna Revenue uetn 19 1-1 , page 1, wthdrawn.
N onacquescence pubshed n Cumuatve uetn 19 9-2, page , wthdrawn.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
cquescences Cont n ned
Ta payer
Rddesbarger, Rufus
Roeser Pendeton, Inc., transferee..
Ruud Manufacturng Co. (Deaware).
Ruud Manufacturng Co. (N. .)
Docket No.
S
Schuz, ames
730 ucd Corporaton
Sherman, r., et u ., oseph .
Shumn. erman
Smth, Wedon D.
South Te as Propertes Co
Stern rothers Co..
Tennessee Conso dated Coa Co.1.
Tppah Whoesae Co
U
Unon Pacfc Raroad Co. .
Unon Whoesae Co
W
Weeks, C. Francs
Wesman, Wam
Wes, fred D
Wesh, r., enry C
Wheeock, . N - -
Wheeock Wma -----
Whtney Manufacturng Co...
Wams, ma
Wams, R. L --
Wood, Thomas ---
Woodawn Park Cemetery Co.
Work, Frank, estate of
Young, Sarah
19 7
23710
16
16
222 1
239 2
22 9
2336
27 69
2611
19 79
13967
2022
211 7
26 2
1 992
21172
26 23
20903
227 6
20271
2026
2 9
2 0
10912
269
269
21 6
219 6
102 0
102 07
27096
oume Page


1 cquescence reates ony to the ssue whether n settement payment receved . rom a former empoyer
m 19 consttutes back pay under secton 107(d) of the Interna Revenue Code.
1 cquescence reates to a ssues e cept the ssue whether the freehod nterest of the pettoner and the
easehod nterests of other operators n mnera property consttute a snge property or separate propertes
or depcton purposes,
1 cquescence reates to the Issue whether modfcaton of the terms of atmore and Oho Raroad Co.
bonds under a court-approved pan resuted n a reorganzaton by way of recap ta raton. Nonacques-
cencc pubshed n Cumuatve uetn 1960-2, page 6, wthdrawn as to ths ssue ony.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
The Commss:oner docs NOT acqrescc n the foow ng decsons:
Ta payer
Docket No.
oume Ta e
pe ectrca Manufacturng Co., The.

um, Tc
oston evated Raway Co
rown Wamson Tobacco Corporaton.
Chesea Products, Inc
Crow- urngame Co
De oer et u ., . enry.
Federa Natona ank of Shawnee, Oka., The.
, Incorporated
Foerderer, Percva
Frame, Robert G
arroan Coa Corporaton, . _
artfcd. Gordon W
ea -, dwn
obbs, ohn W. F., estate of
obbs et a., Leon P., e ecutors and trustees of estate
of ohn . F. obbs
M
Mannng, Mrs. . Grady, trustee of II. Grady Man-
nng Trust
Mannng, Ruth.
Mannng Trust, . Grady
Mer, Cec
Moore, Mary Young
Mugan, ohn ., transferee
R
Reance Factorng Corporaton.
S
Scott, oy Mannng.
Smth, Wedon D._.
2727
130 9
12 93
1 020
19 9
22920
19 9
20166
1 3 2
1 6 0
219 7
2 1 0
232
229
229
231
231 9
231
231 9
162 9
162 0
162 9
2326
2 7
17207
193 3
2327
2071
162 1
27 69
Nonacqncscence reates to a ssues e cept the ssue whether a settement payment receved from a
ormer empoyer n 19 consttutes back pay under secton 107(d) of the Interna evenue Code.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
Nonacqthescences Contnued
Ta payer
T
Tayor, ascy W
Tennessee Consodated Coa Co.1
Tffany, Carter
Twogood, Frances F., e ecutr of estate of Frederck
ohn Twogood 1
Twogood, Frederck ohn, estate of 2
Docket No.
2 7 3
13967
2022
277 0
2063
2063
Report
oume I Page
16
1
16
1
1
376
2
1 3
9 0
9 9
1 Nonacquescence reates ony to the ssue whether the freehod nterest of the pettoner and the ease-
hod nterest of other operators n mnera property consttute a snge property or separate propertes
for depcton purposes.
2 state ta decson.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
INCOM T RULINGS. P RT I
INT RN L R NU COD
C PT R 1 INCOM T
SU C PT R . G N R L PRO ISIONS
P RT II. COMPUT TION OF N T INCOM
S CTION 22(a). GROSS INCOM : G N R L
D FINITION
Secton 29.22(a)-: What ncuded n gross 19 1-2 -1371
ncome. G. C. M. 27026
INT RN L R NU COD
Treatment for Federa ncome ta purposes of proceeds derved
from pubc entertanments conducted for the beneft of chartabe
organzatons.
n opnon s requested as to the treatment for Federa ncome ta
purposes of the proceeds derved from pubc entertanments con-
ducted for the beneft of chartabe organzatons.
It s a common practce for those engaged n the busness of
promotng sportng events, or other forms of pubc entertanment,
to desgnate events conducted on certan days as charty events, the
net proceeds beng turned over to specfc chartabe organzatons.
It s a we-estabshed prncpe, based on decsons of the Supreme
Court of Ihe Unted States, that an assgnment of ncome by the person
who earns t, or s otherwse entted to t, does not reeve hm from
ta on such ncome. When a person who s n the busness of pro-
motng sportng events, or other pubc entertanments, enters nto
an agreement wth a chartabe organzaton under the terms of whch
the factes of the former r.re operated by hm as agent for the char-
tabe organzaton, and a the proceeds from the event ess e penses
are receved by or on account of the atter, the promoter s n effect
assgnng to the chartabe organzaton earnngs derved by hm from
the operaton of the event. To aow the promoter n these crcum-
stances to e cude such amounts from hs gross ncome woud be to
gve effect to form rather than substance, and woud permt crcum-
venton of the specfc statutory mtatons, contaned n secton
23 (o) and (q) of the Interna Revenue Code, on the amount of char-
tabe contrbutons whch s deductbe n computng net ncome. Ths
(7)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.22(a)-2.

offce s accordngy of the opnon that f a professona promoter

woud, n the absence of an agreement between the partes, be entted
tc the proceeds of an event, such agreement w not operate to permt
hm to e cude the proceeds of the event from hs ncome for Federa
ncome ta purposes.
It s recognzed, however, that there are nstances n whch a char-
tabe organzaton s tsef the promoter of an event desgned to pro-
duce ncome to be used for ts purposes. azaars, amateur produc-
tons, and sportng events are. of course, frequenty promoted by such
organzatons. If the chartabe organzaton s actuay the promoter
of an event, the fact that servces and property are contrbuted or
factes oaned to the organzaton does not, of tsef, resut n ta
to the contrbutor or ender.
Determnaton of whether the chartabe organzaton s n sub-
stance the benefcary of profts earned by a professona promoter of
an event, or whether t s tsef the promoter, must depend on the
partcuar facts n each case, consderng the reates of the stuaton.
Chares Ophant,
Chef Counse, ureau of Interna Revenue.
Secton 29.22(a)-2: Compensaton for persona 19 1-17-136 3
servces. I- T. 0 6
( so Secton 22(b), Secton 29.22(b) (3)-.)
INT RN L R NU COD
Stpends receved under feowshp awards granted by the M
Foundaton are not e empt from Federa ncome ta as gfts under
secton 22(b)(3) of the Interna Revenue Code but are ncudbe
n gross ncome as compensaton for persona servces under secton
22(a) of the Code.
dvce s requested as to the treatment for Federa ncome ta pur-
1)oses of stpends receved under feowshp awards granted by the M
foundaton.
Numerous feowshp awards have been granted by the M Founda-
ton, and nformaton reatve to four representatve awards has been
submtted for consderaton. The facts wth respect to such represent-
atve awards are as foows:
n award was granted by the foundaton to , an assstant profes-
sor of physca chemstry n a unversty, for a perod of 9 months
wth a stpend of 3,000 to be pad n the manner desgnated by hm,
for nvestgaton n the fed of structura chemstry. had obtaned
a masters degree n une 19 , and he had competed hs doctorate n
May 19 7. Thereafter he engaged n research, and he apped for a
feowshp from September 19 0 to une 19 1. e s engaged n a
ong-term pro|ect whch was not competed wthn the term of the
feowshp. e pans to contnue the pro|ect wth the fnanca ad
of hs unversty s aumn research foundaton when he returns to the
unversty, as he beeves that the sub|ect matter of hs nvestgaton
w become an ncreasngy frutfu fed of research. Durng the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
29.22(a)-2.
19 to 19 , ncusve, numerous artces on the sub|ects covered
feowshp for creatve wrtng was awarded by the foundaton to
, a wrter, wth a stpend of 3, 00 for a 12-month perod begnnng
n the sprng; of 19 0. The purpose of the feowshp s to enabe the
recpent to fnsh a nove, or at east advance t to a pont at whch he
coud serousy dscuss pans for ts pubcaton. has prevousy
wrtten severa books, and t s contended that ths feowshp w
enabe the recpent to dscontnue short-range nonfcton pro|ects
and to proceed wth a work whch he hopes w be of ma|or mportance
n hs deveopment as a wrter.
feowshp award was granted by the foundaton to C, an assstant
professor of botany and mcroboogy at one of the unverstes, for
the study of the physoogy and bochemstry of aquatc fung. Ths
award was for 12 months commencng ugust 1,19 0, wth a stpend of
13, 00 whch was pad n fu n advance. The nformaton submtted
ndcates that C receved an . . degree n 19 3 and a Ph. D. degree
n 19 . C states that hs utmate am s to become suffcenty we
grounded n the boogca servces to be abe to teach botanca sub-
|ects from a dynamc and boogca pont of vew and more specfcay
to devote hs research to an nvestgaton of the tte-understood
actvtes of the water fung. Pror to the awardng of hs feowshp,
C had made severa contrbutons to scence whch were pubshed.
D receved an . . degree from one unversty n the year 1936 and
a Ph. D. degree from another unversty n 19 0. e was awarded a
feowshp |onty wth another grantee for purposes of research nto
de reatons between government and economc processes, wth
a stpend of 3, 00 for a perod of 12 months begnnng February 1,
19 1. e was prevousy engaged n research, and he has competed
the manuscrpt of a book whch w be or has been pubshed. rtces
on sub|ects reated to the proposed research have been pubshed by
hm. D and hs coworker pan to go to urope for a year to make
a systematc anayss of the sub|ect of ther research. It was for ths
partcuar research n urope that D apped for an M Foundaton
feowshp. Nether grantee has a contract guaranteeng pubcaton
of a book of reports or artces resutng from ther research, but
severa commerca pubshers have e pressed nterest n pubshng
such a book. owever, before pubcaton of such a book, t s e -
pected that portons of ther reports w be pubshed n professona
|ournas n the fed of economcs and potca scence. One of the
utmate purposes of D s research s stated to be that at the competon
of the present pro|ect n 19 2, he e pects to engage n research and
wrtng on partcuar probems rased durng the course of the |ont
research but not adequatey treated n the present pro|ect.
feowshp programs are orgnated by the prospectve grantees
and not by the foundaton, and t has never receved any rghts n
research or creatve work produced by the grantees. The foundaton
does not requre the grantees to submt reports of ther progress. The
awards are n no way contngent upon competon of the feowshp
programs, and the stpends are dsbursed at such tmes and n such n-
staments as may sut the grantees convenence.
9 016 2 2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.22(a)- .
10
Secton 22(a) of the Interna Revenue Code provdes n part as
foows:
(a) Genera Defnton. Gross Income Incudes gans, profts, and Income
derved from saares, wages, or compensaton for persona servces
of whatever knd and n whatever form pad and ncome derved from
any source whatever.
Secton 22(b) (3) of the Code provdes n part as foows:
(b) cusons from Gross Income. The foowng tems sha not be In-
cuded n gross ncome and sha be e empt from ta aton under ths chapter
chapter 1 of the Code :

(3) Gfts, bequests, devses, and nhertances. Th vaue of property
acqured by gft
The amount of a grant or feowshp award s ncudbe n gross
ncome uness t can be estabshed that such amount s a gft. If a
grant or feowshp award s made for the tranng and educaton of
an ndvdua, ether as a part of hs program n acqurng a degree or
n otherwse furtherng hs educatona deveopment, no servces beng
rendered as consderaton therefor, the amount of the grant or award
s a gft whch s e cudabe from gross ncome. owever, whsn the
recpent of a grant or feowshp appes hs sk and tranng to
advance research, creatve work, or some other pro|ect or actvty,
the essenta eements of a gft as contempated by secton 22(b) (3)
of the Interna Revenue Code are not present, and the amount of the
grant or feowshp s ncudbe n the recpent s gross ncome.
It seems apparent that the awards heren consdered were granted on
the bass of the quafcatons of the recpents to do the work requred
by ther pro|ects, whch pro|ects were approved by the M Foundaton
wth the e pectaton of resuts consstent wth the recpents quafca-
tons. To the e tent there s any donatve ntent present n the makng
of an award, t appears that the benefcary s socety at arge and not
the recpent of the award whose servces are e pected n return for
the grant.
It s evdent that n the four cases wth respect to whch the facts are
set forth above, the feowshps granted by the M Foundaton are not
for the tranng or educaton of the recpents. In the cases of , C,
and D, the feowshps were granted n furtherance of research, and n
the case of , the wrter, the feowshp was granted for the creaton
of a nove. The recpents appy ther respectve sks and tranng to
advance research or creatve work. Of. LeRoy . Robertson v. Unted
States, decded by the Unted States Court of ppeas for the Tenth
Crcut on uy 10,19 1.)
ccordngy, t s hed that stpends receved under feowshp
awards granted by the M Foundaton are not e empt from Federa
ncome ta as gfts under secton 22(b) (3) of the Interna Revenue
Code but are ncudbe n gross ncome as compensaton for persona
servces under secton 22(a) of the Code.
Secton 29.22 (a)- : Gross ncome from busness.
INT RN L R NU COD
Georga prvege or cense tu coected by vendors from purchasers
or consumers. .(See I. T. 0 , page 22.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
11 22(b).
Secton 29.22(a)- : Gross ncome from busness.
INT RN L R NU COD
South Carona saes and use ta es coected by vendors from pur-
chasers or consumers. (See I. T. 066, page 26.)
S CTION 22(b). GROSS INCOM : CLUSIONS
FROM GROSS INCOM
19 1-20-13667
L T. 060
INT RN L R NU COD
Dsabty beneft payments receved by empoyees pursuant to
artce 9 (known as the dsabty benefts aw) of the New York
workmen s compensaton aw are e cudabe from gross ncome
under secton 22(b) ( ) of the Interna Revenue Code and are not
sub|ect to wthhodng of ncome ta at the source on wages under
secton 1622 of the Code. Such payments w be deductbe by
empoyers under secton 23(a) (1) ( ) of the Code ony to the e tent
that they are made by the empoyers out of ther own funds.
dvce s requested whether (1) payments receved by empoyees
pursuant to artce 9 (added by Laws of New York, chapter 600,
approved and effectve pr 13,19 9), known as the dsabty benefts
aw, of the New York workmen s compensaton aw are e cudabe
from gross ncome under secton 22(b) ( ) of the Interna Revenue
Code, (2) such payments are sub|ect to wthhodng of ncome ta at
the source on wages under secton 1622 of the Code, and (3) such pay-
ments made by empoyers are deductbe as busness e penses under
secton 23(a) (1) ( ) of the Code.
The pertnent provsons of artce 9 of the New York workmen s
compensaton aw read as foows:
Secton 201. Defntons. s used n ths artce:

. Dsabty durng empoyment means the nabty of an empoyee, as a
resut of n|ury or sckness not arsng out of and n the course of an empoyment,
to perform the reguar dutes of hs empoyment or the dutes of any other
empoyment whch hs empoyer may offer hm at hs reguar wages and whch
hs n|ury or sckness does not prevent hm from performng. Dsabty
durng unempoyment means the nabty of an empoyee, as a resut of n|ury
or sckness not arsng out of and n the course of an empoyment, to perform
the dutes of any empoyment for whch he Is reasonaby quafed by tranng
and e perence.
9. enefts means the money aowances durng dsabty payabe to an
empoyee who s egbe to receve such benefts, as provded n ths artce.
10. Carrer sha Incude: the State fund, stock corporatons, mutua cor-
poratons and recproca nsurers whch nsure the payment of benefts provded
pursuant to ths artce; and empoyers and assocatons of empoyers or of
empoyees and trustees authorzed or permtted to pay benefts under the
Provsons of ths artce.

Sec 20 . Dsabty Durng mpoyment. 1. Dsabty benefts sha be
payabe to an egbe empoyee for dsabtes commencng after une thrteth,
nneteen hundred ffty, begnnng wth the eghth consecutve day of dsabty
and thereafter durng the contnuance of dsabty

Sec. 207. Dsabty Whe Unempoyed. 1. mpoyees entted to unempoy-
ment nsurance benefts. n empoyee whose empoyment wth a covered em-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
22(b).
12
poyer s termnated and who durng a perod of unempoyment wthn twenty-s
weeks mmedatey foowng such termnaton of empoyment sha become
negbe for benefts currenty beng camed under the unempoyment nsurance
aw soey because of dsabty commencng after une thrteth, nneteen hundred
ffty, and who on the day such dsabty commences s not empoyed or workng
for remuneraton or proft and s not then otherwse egbe for benefts under
ths artce, sha be entted to receve dsabty benefts as heren provded for
each week of such dsabty durng such twenty-s week perod, for whch
week he woud have receved unempoyment nsurance benefts f he were not
so dsabed.
2. mpoyees not egbe for unempoyment nsurance benefts. n empoyee
whose empoyment wth a covered empoyer s termnated and who was n
empoyment of one or more covered empoyers and was pad wages of at east
thrteen doars n such empoyment n each of twenty caendar weeks durng
the thrty caendar weeks mmedatey precedng the date he ast worked for
such covered empoyer, and who durng a perod of unempoyment wthn twenty-
s weeks mmedatey foowng such termnaton of empoyment s not egbe
to benefts under the unempoyment nsurance aw because of ack of quafyng
wages but who durng unempoyment has evdenced hs contnued attachment to
the abor market, sha be egbe for benefts under the provsons of ths sub-
dvson durng such twenty-s week perod for dsabty commencng after
une thrteth, nneteen hundred ffty. If such empoyee becomes dsabed and
contnues to be dsabed for at east eght consecutve days durng such twenty-
s week perod and on the day such dsabty commences he s not empoyed
or workng for remuneraton or proft and s not then otherwse egbe for
benefts under ths artce, he sha be entted to receve dsabty benefts, as
heren provded, begnnng wth the eghth consecutve day of such dsabty,
for each week of such dsabty thereafter durng such twenty-s week
perod.
3. Payment of benefts. The benefts payabe under ths secton sha be sub-
|ect to the provsons and mtatons generay appcabe to dsabty benefts
payabe under ths artce, and sha be pad by the charman charman of the
State workmen s compensaton board out of any assets n the fund created
by secton two hundred fourteen.

Sec. 211. Provson for Payment of enefts. covered empoyer sha,
wth hs own contrbutons and the contrbutons of hs empoyees, provde
dsabty benefts to hs empoyees n one or more of the foowng ways:
1. by nsurng and keepng nsured the payment of such benefts n the State
fund, or
2. by nsurng and keepng nsured the payment of such benefts wth any
stock or mutua corporaton or recproca nsurer authorzed to transact the
busness of accdent and heath nsurance n ths State, or
3. by furnshng satsfactory proof to the charman of hs fnanca abty
to pay such benefts, n whch case the charman sha requre the depost of
such securtes as the charman may deem necessary or the fng
of the bond of a surety company authorzed to do busness n ths State, con-
dtoned on the payment by the empoyer of hs obgatons under ths artce
and n form approved by the charman. The charman sha have
authorty to deny an appcaton to provde benefts pursuant to ths subdvson
or to revoke approva at any tme for good cause shown.
. by a pan n e stence on the effectve date of ths artce. The
charman may requre that the empoyer sha enter nto an agreement n wrtng
wth the charman that he w pay the assessments and that unt
the e praton of nnety days after he sha have fed wrtten notce wth the
charman of hs eecton to termnate such pan or agreement or to dscontnue
makng necessary contrbutons to ts cost, he w contnue to provde for the
payment of the dsabty benefts under such pan or agreement or w provde
for the payment of benefts deemed by the charman to be at east as favorabe
as the benefts provded under ths artce
. by a new pan or agreement. ny such pan or agreement sha
contnue unt the e praton of nnety days after wrtten notce fed wth the
charman of ntenton to termnate such pan or agreement, and any modfcaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
13
22(b).
of nch pan or agreement sna be sub|ect to the wrtten approva of the char-
man.

Sec. 213. Non-Compance or Defaut. Whenever a covered empoyer does
not compy wth ths artce by provdng for the payment of dsabty benefts
to hs empoyees n one or more of the ways provded n secton two hundred
eeven or whenever a carrer fas to pay the benefts requred by ths artce
to empoyees of a covered empoyer, then such empoyer sha be fuy and
drecty abe to each of hs empoyees for the payment of benefts provded by
ths artce. The amount of the benefts to whch empoyees of such empoyers
are entted under ths artce sha, on order of the charman, be pad out of
the fund estabshed under secton two hundred fourteen.
Sec. 21 . Speca Fund foe Dsabty kneftts. There s hereby created
a fund whch sha be known as the speca fund for dsabty benefts to provde
for the payment of dsabty benefts under sectons two hundred seven and two
hundred thrteen of ths artce.
Secton 22(b) ( ) of the Interna Revenue Code provdes n part as
foows:
(b) cusons from Gross Income. The foowng tems sha not be
Incuded n gross ncome and sha be e empt from ta aton under ths chapter
chapter 1 of the Code :
( ) Compensaton for n|ures or sckness. cept n the case of
amounts attrbutabe to (and not n e cess of) deductons aowed under
secton 23 ( ) n any pror ta abe year, amounts receved, through accdent
or heath nsurance as compensaton for persona n|ures or
sckness Itacs supped.
It s hed that dsabty beneft payments to empoyees, whether
made from the State nsurance fund, by an nsurance company pur-
suant to an nsurance contract, or under an approved sef-nsured
pan are e cudabe from the gross ncome of the recpents under
secton 22(b) ( ) of the Interna Revenue Code as amounts receved,
through accdent or heath nsurance as compensaton for
persona n|ures or sckness and do not consttute wages for purposes
of wthhodng of ncome ta at the source. (( /. I. T. 000, C. .
19 0-1,21. and I. T. 01 , C. . 19 0-1,23.)
It s hed further that dsabty beneft payments made by em-
poyers under approved sef-nsured pans, to the e tent that such
payments are not attrbutabe to contrbutons made by empoyees,
consttute deductbe busness e penses under secton 23(a)(1)( )
of the Code for the year n whch pad or accrued, dependng on the
method of accountng used by the empoyer. (See I. T. 010. C. .
19 0-1, 30.)
19 1-20-1366
I. T. 061
INT RN L R NU COD
Dsabty retrement pay receved by a retred commssoned
offcer of the Unted States Coast and Geodetc Survey s not e cud-
abe from gross ncome under secton 22(b) ( ) of the Interna
Revenue Code where such offcer was never transferred to duty
wth the Department of the rmy or the Department of the Navy
and he dd not render servce wthn the scope of secton 2 of the
ct of December 3, 19 2 ( 6 Stat. 103 ).
dvce s requested whether the dsabty retrement pay receved
by a retred commssoned offcer of the Unted States Coast and
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
22(b).
1
Geodetc Survey s e cudabe from gross ncome under secton
22(b) ( ) of the Interna Revenue Code where such offcer was never
transferred to duty wth the Department of the rmy or the Depart-
ment of the Navy and he dd not render servce wthn the scope of
secton 2 of the ct of December 3, 19 2 ( 6 Stat. 103 ).
In the nstant case, the ta payer was a hydrographc and geodetc
engneer wth the rank of eutenant n the Unted States Coast and
Geodetc Survey. e entered the servce of the Coast and Geodetc
Survey on September 1 , 192 . Pursuant to a recommendaton of
the medca survey board of the Pubc eath Servce, the ta payer
was retred on October 1, 19 2, because of a physca dsabty whch
was ncurred n ne of duty.
Secton 2 of the ct of December 3, 19 2 ( G Stat. 103 ), provdes
as foows:
Sec. 2. Commssoned offcers of th: Coast and Geodetc Survey who are
assgned, durng the perod of the present war, to duty on pro|ects for the War
Department or the Navy Department n areas outsde the contnenta Unted
States or n aska, or n coasta areas of the Unted States, determned by the
War or Navy Department to be of mmedate mtary hazard, sha, whe on,
such duty, be entted to the rghts and benefts provded by aw for offcers
of the Coast and Geodetc Survey who are actuay transferred to the servce
of the War Department or the Navy Department: Provded, That the benefts
of ths secton sha be appcabe aso to commssoned offcers of the Coast and
Geodetc Survey servng n the Phppne Isands on December 7, 19 1.
Secton 22(b)( ) of the Interna Revenue Code provdes n part
as foows:
(b) rc rsoNS from Gross Income. The foowng tems sha not be
ncuded n gross ncome and sha be e empt from ta aton under ths chapter
chapter 1 of the Code :

( ) Compensaton for n|ures or sckness. amounts re-
ceved as a penson, annuty or smar aowance for persona n|ures or
sckness resutng from actve servce n the armed forces of any country;
The Unted States Coast and Geodetc Survey s ordnary a cvan
agency under the Department of Commerce. (See secton , ct of
February , 1903. 32 Stat. 2 .) owever, the Presdent s author-
zed, whenever n hs |udgment a suffcent natona emergency e sts,
to transfer to the servce and |ursdcton of the Department of the
rmy, or the Department of the Navy, such personne of the Coast
and Geodetc Survev as he mav deem to be n the best nterest of the
country. (See secton 16, ct of May 22, 1917, 0 Stat. , at page
7.) Personne so transferred are, whe servng wth the Depart-
ment of the rmy or the Department of the Navy, consdered as mem-
bers of the mtarv and nava forces of the Unted States. (See I. T.
1 02, C. . 1-2, 72 (1922).)
In order for the nstant ta payer s retrement pay to be e empt
under the provsons of secton 22(b) ( ) of the Code, supra, hs
dsabty must have been ncurred whe servng wth the Department
of the rmy or the Department of the Navy under authorty of an
ecutve order, or hs dsabty must have been ncurred whe he
was entted to the benefts of secton 2 of the ct of December 3.1912,
supra.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
29.22(d)- .
The facts n the nstant case show that the ta payer was not n-
cuded n any ecutve orders transferrng personne from the Coast
and Geodetc Survey to the Department of the rmy or the Depart-
ment of the Navy, and that he dd not render servce wthn the scope
of secton 2 of the ct of December 3, 19 2, supra. ccordngy, t s
hed that the dsabty retrement pay receved by the ta payer s
not e cudabe from gross ncome under secton 22(b)( ) of the
Interna Revenue Code, supra. I. T. 36 (C. . 19 , 63) shoud
no onger be foowed nsofar as t unquafedy hods that comms-
soned offcers of the Unted States Coast and Geodetc Survey are
members of the mtary and nava forces of the Unted States wthn
the meanng of secton 3797(a) (1 ) of the Code.
Secton 29.22(b) (2)- : mpoyees annutes.
( so Reguatons 103.)
Reguatons 103 and 111 amended. (See T. D. 3, page 90.)
Secton 29.22(b) (3)-: Gfts and bequests.
Stpends receved under feowshp awards nvovng ony educaton
or tranng of the recpent. (See I. T. 0 6, uage )
S CTION 22(d). GROSS INCOM : IN NTORI S-
L CTI M T OD
Prce ndces for uy 19 1, pubshed by the ureau of Labor
Statstcs under date of September 10, 19 1, for use by department
stores empoyng the reta Inventory and eectve nventory
methods.
The foowng prce ndces for uy 19 1, pubshed by the ureau
of Labor Statstcs for use by department stores empoyng the reta
nventory and eectve nventory methods, are accepted by the ureau
of Interna Revenue pursuant to Treasury Decson 60 (C. .
19 -1, 16), approved March , 19 , and Mmeograph 62 (C. .
19 -1, 21), dated March 9, 19 , for approprate appcaton to n-
ventores for ta abe years of 12 months ended on une 30, 19 1,
and uy 31,19 1.
INT RN L R NU COD
INT RN L R NU COD
Secton 29.22 (d)-: Inventores under eec-
tve method.
19 1-23-13693
I. T. 06
INT RN L R NU COD
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.22(n)-.
16
ureau of Labor Statstcs, department store nventory prce ndces, by
department groups
( anuary 19 1 100
Group
uy 19 0
uy 19 1
uy 19 0 to
uy 19 1
percent
I. Pece goods, domestcs, and drapcrc --
II. Shoes
III. Lades underwear
I . Lades outerwear and grs wear
. Men s and boys wear
I. Furnture and beddng
II. ome furnshngs
III. Ma|or appances and eectrca goods..
I . Notons and toet artces
. Lades accessores
19 .6
19 .2
10 .9
107.
1S3.
1 6.1
173.
1 .3
1 .0
163.6
Tota, Groups I, II, III, I , , I , and ..
Tota, Groups L II, and III
Store tota.
17 .
173.
17 .
222.
222.
1 0.3
179.
203.3
209.
19 .0
167.3
16a 3
16 .3
193.7
19 .0
193.6
S CTION 22(n). GROSS INCOM : D FINITION OF
D UST D GROSS INCOM
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD
Georga prvege or cense ta pad by ndvduas n connecton
wth trade or busness. (See I. T. 0 , page 22.)
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD
New ersey cgarette ta pad by consumer n connecton wth cg-
arettes used n trade or busness. (See I. T. 0 9, page 2 .)
Secton 29.22(n)-: d|usted gross ncome.
INT RN L R NU COD
South Carona saes and use ta es pad by ndvduas n con-
necton wth trade or busness. (See I. T. 0C6, page 26.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
17
29.22(e)- .
S CTION 22(o). GROSS INCOM : D L RS IN
T - MPT S CURITI S
Secton 29.22 (o)-: Treatment of bond premums 19 1-23-1369
n case of deaers n ta -e empt securtes. T. D. 60
( so Secton 113(b), Secton 29.113(b) (1)-1;
Secton 12 , Sectons 29.12 -1 and 29.12 - .)
TITL 26 INT RN L R NU C PT R I, SU C PT R . P RT 20.
INCOM T ; T L Y RS GINNING FT R D C M R 1, 19 1
Reguatons 111 amended to conform to sectons 203 and 217
of the Revenue ct of 19 0.
Treasury Department,
Offce or Commssoner of Interna Revenue,
Washngton So, D. C.
To Coectors of Interna Revenue and Others Concerned:
On uy 11,19 1. notce of proposed rue makng regardng the pro-
vsons of secton 203, reatng to treatment of bond premum n case
of deaers n ta -e empt securtes, and secton 217, reatng to amort-
zaton of premum on convertbe bonds, of the Revenue ct of 19 0,
ghty-frst Congress, second sesson, approved September 23, 19 0,
was pubshed n the Federa Regster (16 F. R. 6720). fter con-
sderaton of a such reevant matter as was presented by nterested
persons regardng the rues proposed, the amendments set forth beow
are hereby adopted. Such amendments are necessary to conform
Reguatons 111 26 CFR, part 29 to the provsons of sectons 203
and 217 of the Revenue ct of 19 0.
Paragraph 1. There s nserted mmedatev after secton
29.22(n)-. as added by Treasurv Decson 2 C . 19 , 10, 1 ,
approved December 29,19 26 CFR 29.22(n)- , the foowng:
S C. 203. TR TM NT OF OND PR MIUM IN C S OF
D L RS IN T - MPT S CURITI S R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .
(a) mendment of Secton 22. Secton 22 s h reby amended by add-
ng at the end thereof the foowng new subsecton:
(o) Deaers n Ta - empt Securtes.
(1) d|ustment for bond premum. In computng the gross
ncome of a ta payer who hods durng the ta abe year a short-term
muncpa bond (as defned n paragraph (2) ( )) prmary for
sae to customers n the ordnary course of hs trade or busness
( ) f the gross ncome of the ta payer from such trade or
busness s computed by the use of nventores and hs nven-
tores are vaued on any bass other than cost, the cost of se-
curtes sod (as defned n paragraph (2)( )) durng such
year sha be reduced by an amount equa to the amortzabe
bond premum that woud be dsaowed as a deducton for such
year pursuant to secton 12 (a) (2) f the defnton n secton
12 (d) of the term bond dd not e cude such short-term
muncpa bond; or
( ) f the gross ncome of the ta payer from such trade
or busness s computed wthout the use of Inventores, or by
use of Inventores vaued at cost, and the short-term muncpa
bond s sod or otherwse dsposed of durng such year, the
ad|usted bass (computed wthout regard to ths subparagraph)
of the short-term muncpa bond sha be reduced by he amount
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.22(o)-.
IS
of the ad|ustment that woud be requred under secton
113(b) (1) ( ) f the defnton n secton 12 (d) of the term
bond dd not e cude such short-term muncpa bond.
(2) Defntons. For the purposes of paragraph (1)
( ) The term short-term muncpa bond means any ob-
gaton ssued by a government or potca subdvson thereof
f the nterest on such obgaton s e cudbe from gross n-
come; but such term does not ncude such an obgaton f ()
t s sod or otherwse dsposed of by the ta payer wthn
thrty days after the date of ts acquston by hm, or () ts
earest maturty or ca date s a date more than fve years
from the date on whch t was acqured by the ta payer.
( ) The term cost of securtes sod means the amount as-
certaned by subtractng the nventory vaue of the cosng
nventory of a ta abe year from the sum of () the nventory
vaue of the openng nventory for such year and () the cost
of securtes and other property purchased durng such year
whch woud propery be ncuded n the nventory of the ta -
payer f on hand at the cose of the ta abe year.

(c) ffectve Date. The amendments made by ths secton sha be
appcabe to ta abe years endng after une 30, 19 0, but n the case
of a ta abe year begnnng before and endng after such date the
amendments sha appy ony wth respect to obgatons acqured after
such date.
Sf.c 29.22(o)-. Treatment of Co d Premums n Case of Deaers n Ta -
empt Securtes. (n) In genera. Secton 22(o) requres certan ad|ust-
ments to be made by deaers n securtes wth respect to premums pad on short-
term muncpa bonds whch are hed for sae to customers n the ordnary
course of the trade or busness. The ad|ustments depend upon the method of
accountng used by the ta payer n computng the gross ncome from the trade
or busness. See (b) and (c) of ths secton. d|ustment under secton 22(o)
s requred ony for ta abe years endng after une 30, 1930, and, n the case of
a ta abe year begnnng before une 30, 19 0, and endng thereafter s requred
ony wth respect to obgatons acqured after une 30, 19 0.
The term short-term muncpa bond under secton 22(o) means any obga-
ton ssued by a government or potca subdvson thereof f the nterest on
the obgaton s e cudabe from gross ncome under secton 22(b) ( ). Such
term, however, does not ncude an obgaton the maturty or earest ca date
of whch s a date more than years from the date of acquston by the
ta payer, or an obgaton sod or otherwse dsposed of by the ta payer wthn
30 days after the date of acquston by hm. bond whch s otherwse wthn
the defnton of short-term muncpa bond s sub|ect to the provsons of
secton 22(o) f hed by the ta payer for a perod of more than 30 days, whether
or not such perod s entrey wthn one ta abe year.
(6) Inventores not vaued at cost. In the case of a deaer n securtes who
computes gross ncome from hs trade or busness by the use of nventores and
vaues such nventores on any bass other than cost, the ad|ustment requred
by secton 22(o) s the reducton of cost of securtes sod by the amount equa
to the nrnortznbe bond premum whch woud be dsaowed as a deducton under
secton 12 (a)(2) f the deaer were an ordnary nvestor hodng such bond.
Such amortzabe bond premum s computed under secton 12 (b) by reference
to the cost or other orgna bass of the bond on the date of acquston (de-
termned wthout regard to secton 113(a) (1), reatng to nventory vaue on a
subsequent date). If the date of acquston precedes uy 1,10 0, then, n com-
putng under secton 12 (b) the amount of such amortzabe bond premum,
there sha be made ad|ustments to bond premum proper to refect unamortzed
bond premum on such bond for the perod ncudng the hodng perod (as de-
termned under secton 117(h)) pror to the date as of whch secton 22(o) frst
becomes appcabe to the bond n the bauds of the ta payer. See secton
29.12 -2.
The precedng paragraph may be ustrated by the foowng e ampe:
, a deaer n securtes who vaues hs nventores on a bass other than
cost, makes hs ncome ta returns on the caendar year bass. On anuary 1,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
19
29.22(o)-.
19 9. he buys, for 1,060 each, three short-term muncpa bonds ( , , and C)
havng a face obgaton of 1,000, and maturng on anuary 1. 19 . On uy
1, 19 0, he buys, for 1,0 2 each, three more bonds ( , Y, and Z) of the same
ssue. onds and are sod on December 31, 19 0. onds and Y are sod
on December 31, 19 1. onds C and Z are sod on December 31, 19 2. The ad-
|ustment for each of the years 19 0,19 1, and 19 2 s as foows:
Date acqured
Date sod
d|ustment for
..
_.
( ..
an. 1,19 9.
an. 1,19 9.
an. 1, 19 9.
uy 1,19 ).
uv 1,19 ).
uy 1,
Tota..
Dec. 31, 19 0
Dec. 31,10 1
Dec. 31.19f2
Dec. 31,1SS0
Dec. 31,19 1
Dec. 31,19 2
None
None
Non
tt.00
6.00
0.00
1 .00
12.00 I.
12.00
66
12.00
.00 I
For the purpose of determnng such ad|ustment, the amortzabe bond premum
s computed under secton 12 (b) as foows:
ond , , or C ond , 7, or Z
ond premum 60 2
d|ustment for perod pror to frst date of appca-
ton of secton 22 (o):
ppcabe an. 1, 19 1 2
ppcabe uy 1, 19 0 0
mortzabe bond premum to maturty 36 2
mortzabe bond premum per month . 1 1
The term cost of securtes sod means the amount ascertaned by subtract-
ng the nventory vaue of the cosng nventory of a ta abe year from the sum
of the nventory vaue of the openng nventory for such year and the cost of
securtes and ether property purchased durng such year whch woud propery
be ncuded n the nventory of the ta payer f on hand at the cose of the ta -
abe year.
(c) Inventores not used or nventores vaued at cost. In the case of a deaer
n securtes who computes gross ncome from hs trade or busness wthout the
use of nventores or by use of nventores vaued at cost, the ad|ustment re-
qured by secton 22(o) s a reducton of the ad|usted bass of each short-term
muncpa bond sod or otherwse dsposed of durng the ta abe year. The
amount of such reducton Is the amount by whch the ad|usted bass of such bond
woud be requred to be reduced under secton 113(b)(1)( ) were such bond
sub|ect to the amortzabe bond premum provsons of secton 12 , that s, the
amount of the amortzabe bond premum whch woud be dsaowed as a de-
ducton under secton 12 (a) (2) f the ta payer were an ordnary nvestor.
If the bond was acqured before uy 1,19 0, the amount of the reducton sha
not ncude the amount of such amortzabe bond premum whch woud be ds-
aowed as a deducton under secton 12 (a)(2), f the ta payer were an ord-
nary nvestor, for any ta abe year begnnng before uy 1, 19 0. In the case
of such bond, the amortzabe bond premum whch woud be dsaowed as a
deducton under secton 12 (a)(2) s determned after makng ad|ustments to
bond premum proper to refect unamortzed bond premum on such bond for the
perod ncudng the hodng perod (as determned under secton 117(h)) pror
to the date as of whch secton 22(o) frst becomes appcabe to the bond n the
bands of the ta payer. See secton 29.12 -2.
The precedng paragraph may be ustrated by the foowng e ampe:
Y, a deaer n securtes who vaues hs Inventores on the bass of cost, makes
hs ncome ta returns on the caendar year bass. On anuary 1, 19 9, he
buys, for 1,060 each, three short-term muncpa bonds (D, , and F) havng a
face obgaton of 1,000, and maturng on anuary 1, 19 . On uy 1, 19 0, he
buys, for 1,0 2 each, three more bonds (U, , and W) of the same ssue. onds
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.22(o)-.
20
D and U are sod on December 31, 19 0. onds and are sod on December
31,19 1. onds F and W are sod on December 31, 19 2.
ond
Date acqured
Date sod
d|ustment or
19 0
19 1
19 2
D
an. 1, 19 9
Dec. 31,19 0
None
None
None
6.00
None
None

an. 1,19 9
Dec. 31,19 1
12.00
None
F
an. 1,19 9
Dec. 31, 19 2
n. 00
u
uy 1,19 0
Dec. 31, 19 0
1 . 66
None

uy 1, 19 0
Dec. 31, 19 1
w
uy 1, 19 0... ..
Dec. 31, 19 2
30. 00
For the purpose of determnng such ad|ustments, the amortzabe bond premum
s computed under secton 12 ;b as foows:
andD, .arF ond . .or
ond premum 60 2
d|ustment for perod pror to frst date of appca-
ton of secton 22(o):
ppcabe an. 1, 19 1 2
ppcabe uy 1, 19 0 0
mortzabe bond premum to maturty 36 2
mortzabe bond premum per month 1 1
Par. 2. There s nserted mmedatey precedng secton 29.113(b)
(1)-1 26 CF 29.113(b) (1)-1 the foowng:
S C. 203. TR TM NT OF OND PR MIUM IN C S OF
D L RS IN T - MPT S CURITI S R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .

(b) Technca mendments.
(1) Secton 113(b)(1) s hereby amended by addng at the end
thereof the foowng:
(I) n the case of any short-term muncpa bond (as de-
fned n secton 22(o)), to the e tent provded n secton
22(o) (1)( ).

(c) ffectve Date. The amendments made by ths secton sha be
appcabe to ta abe years endng after une 30, 19 0, but n the case
of a ta abe year begnnng before and endng after such date the
amendments sha appy ony wth respect to obgatons acqured after
such date.
Par. 3. Secton 29.113(b) (1)-1, as amended by Treasury Decson
02 C. . 19 . 229, 239 , approved September . 19 26 CFR
29.113(b) (1)-1 , s further amended by addng at the end thereof
the foowng:
For ad|ustment to bass of short-term muncpa bonds as denned n secton
22(o) (2) ( ), see secton 29.22(o)-.
Par. . There s nserted mmedatey precedng secton 29.12 -1
26 CF 29.12 -1 the foowng:
S C. 203. TR TM NT OF OND PR MIUM IN C S OF
D L RS IN T - MPT S CURITI S R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .

(b) Technca mendments.

(2) Secton 12 s hereby amended by addng at the end thereof
the foowng new subsecton:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
21
29.22(o)-.
(e) Dfaehs n Ta - empt Securtes. For speca rues app-
cabe, In the case of deaers n securtes, wth respect to premum at-
trbutabe to certan whoy ta -e empt securtes, see secton 22(o).
(c) ffectve Date. The amendments made by ths secton sha be
appcabe to ta abe years endng after une 30, 19 0, but n the case
of a ta abe year begnnng before and endng after such date the
amendments sha appy ony wth respect to obgatons acqured after
such date.
S C. 217. MORTIZ TION OF PR MIUM ON CON RTI L
OND R NU CT OF 19 0, PPRO D S PT M R 23,
19 0 .
(a) Premum ttrbutabe to Converson Features of ond. Sec-
ton 12 (b) (1) (reatng to determnaton of amount of bond premum)
s hereby amended by addng at the end thereof the foowng: In no
case sha the amount of bond premum on a convertbe bond ncude
any amount attrbutabe to the converson features of the bond.
(b) ffectve Date. The amendment made by subsecton (a) sha
be appcabe wth respect to ta abe years begnnng after une 1 ,
19 0, and sha aso appy, n the case of a ta abe year begnnng on
or before such date, wth respect to bonds acqured after such date.
Par. . Secton 29.12 -1, as amended by Treasury Decson 2
2G CFR 29.12 -1; C. . 19 ,10. 29 , s further amended by addng
at the end of (a) thereof the foowng sentence: See, however,
secton 29.22(o)-.
Par. 6. Secton 29.12 - 26 CFR 29.12 - s amended by strkng
teref rom the ast sentence and by nsertng at the end of such secton
the foowng new paragraphs:
convertbe bond Is wthn the scope of secton 12 f the opton to convert
on a date certan specfed n the bond rests wth the hoder thereof. owever,
for the purpose of determnng the amount of amortzabe bond premum on a
convertbe bond for a ta abe year begnnng after une 1 , 19 0, or for any
ta abe year n the case of a convertbe bond acqured after une 1 , 19 0,
the amount of bond premum sha not ncude any amount attrbutabe to the
converson features of the bond. For the purpose of ths rue, the term con-
vertbe bond ncudes a bond ssued wth detachabe stock-purchase warrants.
The vaue of the converson features of a partcuar bond sha be determned
by ascertanng the assumed prce at whch such bond woud be purchased on
the open market If wthout converson features, and by subtractng such as-
sumed prce from the cost of the bond. The determnaton of the assumed prce
of the bond wthout the converson features sha be made by ascertanng the
yed on whch bonds of smar character, not havng converson features, are
sod on the open market and ad|ustng the prce of the bond n queston to ths
yed. Ths ad|ustment may be made by the use of standard bond tabes. In
eectng quotatons for comparatve purposes, bonds of the same cassfcaton
and grade sha be used. The appcaton of the prncpes set forth In ths
paragraph may be ustrated as foows:
ampe. T purchased for 11 a 100 bond, maturng n years, on whch
nterest s payabe semannuay at the rate of 3. percent a year. Ths bond s
convertbe nto common stock at the opton of the hoder. It s found that bonds
of the same character, not havng converson features, were sod on the open
market on or about the tme of T s purchase on a bass to yed 2. 0 percent.
y recourse to a standard bond tabe, t s found that the cost of a 3 6 percent
-year 100 bond to yed 2. 0 percent woud have been 103.2 . Snce the ta -
payer pad 11 for the convertbe bond, the dfference between 11 and
103.2 , or 11.7 , represents the vaue of the converson features of the bond
at the tme of the purchase. The baance of 3.2 represents the bond premum
sub|ect to amortzaton under secton 12 .
If a convertbe bond acqured on or before une 1 , 19 0, s hed durng a
ta abe year begnnng after such date, the amortzabe bond premum for such
ta abe year sha be computed as f the provsons for the determnaton of the
bond premum wthout the ncuson of any amount attrbutabe to the converson
features of the bond were appcabe for each year for whch the bond was hed
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.23(c)- .
22
pror to such ta abe year. Thus, f n the e ampe n the precedng paragraph,
T had acqured the bond on anuary 1, 19 9, and f T makes hs ncome ta
returns on the bass of the caendar year, the amortzabe bond premum for
19 1 woud be 0.6 , determned as foows:
ond premum not attrbutabe to converson feature 3. 2
mortzabe bond premum for 19 9 and 19 0, determned by reference to
bond premum not attrbutabe to converson feature 1. 30
Porton of bond premum amortzabe over remanng fe of bond 1. 9
mortzabe bond premum for each of the remanng 3 years (one-thrd
of 1.9 ) 0.6
(Ths Treasury Decson s ssued under authorty contaned n sec-
tons 62 and 3791 of the Interna Revenue Code ( 3 Stat. 32. 67; 26
U. S. C. 62, 3791) and pursuant to the provsons of Pubc Law 1
( 1st Cong.), approved September 23,19 0.)
ohn . Dunap,
Commssoner of Interna Revenue.
pproved October 1 ,19 1.
. . Foey,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster October 23, 19 1, : a. m.)
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S
Secton 29.23(a)-1: usness e penses.
INT RN L R NU COD
Contrbutons by empoyer to provde dsabty benefts under
artce 9 of the New York workmen s compensaton aw. (See I. T.
060, page 11.)
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY
Secton 29.23 (c)-: Ta es. 19 1-1 -136
( so Secton 22(a), Secton 29.22(a)- ; I. T. 0
Secton 22 (n), Secton 29.22 (n)-.)
INT RN L revenue code
Deductbty for Federa ncome ta purposes of the ta mposed
by secton 2 of the Georga Retaers and Consumers Saes and Use
Ta ct approved on February 20, 19 1, effectve pr 1, 19 1.
dvce s requested as to the deductbty for Federa ncome ta
purposes of the ta mposed by secton 2 of the Georga Retaers and
Consumers Saes and Use Ta ct approved on February 20, 19 1,
whch became of fu force and effect on pr 1, 19 1.
The pertnent provsons of the Georga statute n queston read n
part as foows:
Sec. 2. There s hereby eved and mposed, n addton to a other ta es of
every knd now mposed by aw, a prvege or cense ta upon every person who
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
23
29.23(c)- .
engages In the busness of seng tangbe persona property at reta In ths
State, or who rents or furnshes any of the thngs or servces ta abe under ths
ct, or who stores for use or consumpton n ths State any tem or artce of
tangbe persona property as defned heren or who eases or rents such property
wthn the State of Georga, the same to be coected n the amount to be de-
termned by the appcaton of the foowng rates aganst gross saes, to wt:
(a) t the rate of three percent (3 ) of the saes prce of each tem or artce
of tangbe persona property when sod at reta n ths State; the ta to be
computed on gross saes for the purpose of remttng the amount of ta duo the
State, and to ncude each and every reta sae or amount of ta es coected
whchever be the greater.
(b) t the rate of three percent (3 ) of the cost prce of each tem or artce
cf tangbe persona property when the same s not sod but s used, consumed,
dstrbuted, or stored for use or consumpton n ths State; provded there sha
be no dupcaton of the ta .
(c) t the rate of three percent (3 ) of the gross proceeds derved from the
ease or renta of tangbe persona property, as defned heren, e cept the renta
of moton pcture fms, where the ease or renta of such property s an estab-
shed busness, or part of an estabshed busness, or the same s ncdenta or
germane to sad busness.
(d) t the rate of three percent (3 ) of the monthy ease or renta prce
pad by essee or rentee, or contracted or agreed to be pad by essee or rentee,
to the owner of the tangbe persona property.
(e) t the rate of three percent (3 ) of the gross saes of a servces ta abe
under ths ct.
(f) The sad ta sha be coected from the deaer

Sec. . e t further enacted, by the authorty aforesad, that the aforesad ta
at the rate of three percent (3 ) of the reta saes prce, as of the moment of
sae, or three percent (3 ) of the cost prce, as of te moment of purchase, as
the case may be, sha be coectbe from a persons engaged as
deaerr n the sae at reta, the use, the consumpton, the dstrbu-
ton, and the storage for use or consumpton n ths State, of tangbe persona
property.

very deaer makng saes, whether wthn or outsde the State, of tangbe
persona property, for dstrbuton, storage, use, or other consumpton, In ths
State, sha at the tme of makng saes, coect the ta mposed by ths ct
from the purchaser.

Sec. 12. e It further enacted, by the authorty aforesad, that:
(a) The prvege ta heren eved, measured by reta saes sha be co-
ected by the deaer from the purchaser or consumer.
(b) Deaers sha, as far as practcabe, add the amounts of the ta Imposed
under ths ct to the saes prce or charge, whch sha be a debt from the pur-
chaser or consumer to the deaer, unt pad, and sha be recoverabe at aw n
the same manner as other debts.

(e) person engaged n any busness ta abe under ths ct sha not adver-
tse or hod out to the pubc, n any manner, drecty or ndrecty that he w
absorb a or any part of the ta , or that he w reeve the purchaser of the pay-
ment of a or any part of the ta .
Secton 23(c)(1) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons ta e pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. Secton 29.23(c)-(a) of Reguatons 111 provdes that
n genera ta es are deductbe ony by the person upon whom they
are mposed. Secton 23(c) (3) of the Code provdes n part that a
ta mposed by any State, Terrtory, Dstrct, or possesson of the
Unted States, or any potca subdvson thereof, upon persons en-
gaged n seng tangbe persona property at reta, whch s meas-
ured by the gross saes prce or the gross recepts from te sae or
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.23(e)- .
2
whch s a stated sum per unt of such property sod, or upon persons
engaged n furnshng servces at reta, whch s measured by the
gross recepts for furnshng such servces, f the amount of such ta
s separatey stated, then to the e tent that the amount so stated s pad
by the consumer (otherwse than n connecton wth the consumer s
trade or busness) to hs vendor such amount sha be aowed as a
deducton n computng the net ncome of such consumer as f such
amount consttuted a ta mposed upon and pad by such consumer.
It s not necessary, for the purposes of secton 23(c) (3) of the Code,
that the purchaser be furnshed wth a saes sp, b, nvoce, or other
statement on whch the ta s separatey stated. Inasmuch as the aw
(secton 12(e) of the Georga Retaers and Consumers Saes and
Use Ta ct) prohbts the seer from absorbng the ta . t s pre-
sumed that the amount of the ta . n each nstance, s separatey stated.
(See secton 29.23(c)-(6) of Reguatons 111.)
In vew of the foregong, t s hed that the ta mposed by secton 2
of the Georga Retaers and Consumers Saes and Use Ta ct s
deductbe, under the provsons of secton 23(c) (1) of the Interna
Revenue Code, by the persons who engage n the busness of seng
tangbe persona property at reta n the State of Georga and by
persons e ercsng the respectve prveges set forth n the ct. If
such persons are ndvduas, the deducton must be taken n computng
ad|usted gross ncome. (See secton 22(n) (1) cf the Code.) In the
case of such persons who are net ndvduas, the deducton s aowabe
n determnng net ncome. Where ta payers coect the ta from
vendees, they must ncude the tota amounts so coected n ther
gross ncome for Federa ncome ta purposes.
It s further hed that to the e tent the ta mposed by secton 2 of
the Georga Retaers and Consumers Saes and Use Ta ct s pad
by the purchaser or consumer, otherwse than n connecton wth hs
trade or busness, t s deductbe by the purchaser or consumer under
secton 23(c) (3) of the Code, e cept n the case of an ndvdua who
eects to take the optona standard deducton. In case the purchaser
or consumer s an ndvdua, and the ta s pad n connecton wth
hs trade or busness, the ta must be deducted n computng ad|usted
gross ncome. (See secton 22(n) (1) of the Code.)
Deductbty for Federa ncome ta purposes of the ta mposed
by the Cgarette Ta ct of the State of New ersey (chapter 6 ,
P. L. 19 , as amended by chapter 13 , Laws of 19 0, effectve
uy 1, 19 0).
dvce s requested whether the ta on cgarettes mposed by the
Cgarette Ta ct of the State of New ersey (chapter 6 , P. L. 19 ,
as amended by chapter 13 , Laws of 19 0, effectve uy 1, 19 0) s
deductbe for Federa ncome ta purposes by the consumer.
Secton 23(c)(1) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
Secton 29.23(c)-1: Ta es.
( so Secton 22(n), Secton 29.22(n)-.)
19 1-19-13661
L T. 0 9
INT RN L R NU COD
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
M.23(c)-1.
matera. Secton 29.23(c)-1(a) of Reguatons 111 provdes that
n genera ta es are deductbe ony by the person upon whom they
are mposed.
In I. T. 39 2 (C. . 19 9-1, 61) t s hed that the New ersey cg-
arette ta mposed by chapter 6 , P. L. 19 , as amended, effectve
uy 1, 19 S, s deductbe for Federa ncome ta purposes under
secton 23(c) (1) of the Interna Revenue Code by censed dstrbu-
tors who purchase, aff , and cance the cgarette ta stamps and by
censed consumers who remt the ta drecty to the State, and s not
deductbe by purchasers under secton 23(c) (3) of the Code.
The pertnent provsons of the New ersey Cgarette Ta ct,
chapter 6 , P. L. 19 , as amended by chapter 13 , Laws of 19 0,
effectve uy 1,19 0, read as foows:
7. Ta Is Levy on Consumes.
The abty for, and the ncdence of, the ta on cgarettes s hereby decared
to be a evy on the consumer. Dstrbutors sha add the amount of the ta on
cgarettes presenty eved to the prce of cgarettes, and the dstrbutor may state
(be amount of the ta separatey from the prce of such cgarettes on a prce
dspay spns, saes or devery sps, bs and statements whch advertse or
ndcate the prce of such cgarettes. The provsons of ths secton sha n no
way affect the method of coecton of such ta on cgarettes as provded by
ths act.
In vew of the apparent ntent of the New ersey Legsature to
mpose the cgarette ta upon the consumer of cgarettes n the State
of New ersey, t s hed that the cgarette ta mposed by the State
of New ersey under the provsons of chapter 6 , P. L. 19 . as
amended by chapter 13 , Laws of 19 0, s deductbe on and after
uy 1,19 0, under secton 23(c) (1) of the Interna Revenue Code by
the consumer n computng net ncome, e cept that n the case of an
ndvdua who eects the optona standard deducton (see secton
23(aa) of the Code), the ta s not deductbe uness pad n connec-
ton wth cgarettes used n a trade or busness. In that event, the
ta s deductbe from gross ncome n computng ad|usted gross n-
come. (See secton 22(n) (1) of the Code.)
On and after uy 1,19 0, no deducton s aowabe to deaers and
dstrbutors on account of the purchase of cgarette ta stamps from
the State, and. accordngy, the porton of the prce pad by consumers
to deaers and dstrbutors for cgarettes whch represents the New
ersey cgarette ta s not ncudbe n the gross ncome of the deaers
and dstrbutors.
Secton 29.23 (c)-: Ta es. 19 1-21-13677
L T. 063
INT RN L R NU COD
The amount of gasone cense ta mposed by the Terrtory of
awa whch s pad by the consumer (otherwse than n connec-
ton wth the consumer s trade or busness) s deductbe by the
consumer n computng net ncome for ta abe years begnnng after
December 31, 10 0.
dvce s requested whether the gasone cense ta mposed by
the Terrtory of awa under the provsons of the awaan Fue
Ta ct, chapter 100 of the Revsed Laws of awa 19 , as amended,
s deductbe by the consumer under secton 23(c) (3) of the Interna
9 -OG 2 3
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.23(c)- .
26
Revenue Code, as amended by Pubc Law 29, ghty-second Con-
gress (C. . 19 1-1,1 3).
It s understood that t has not been the practce of reta dstrbu-
tors of gasone n awa to show the Terrtora ta separatey on
the gasone pumps, but t appears that the combned amounts of the
Federa and Terrtora gasone ta es have been shown on the pumps.
Secton 23(c)(3) of the Code, as amended, provdes n part that
n the case of a ta mposed by any State, Terrtory, Dstrct, or pos-
sesson of the Unted States, or any potca subdvson thereof, upon
persons seng gasone or other motor vehce fues ether at whoe-
sae or reta, whch s measured by the gross saes prce or the gross
recepts from the sae or whch s a stated sum per unt of such prop-
erty sod, f the amount of such ta s separatey stated, then to the
e tent that the amount so stated s pad by the consumer (otherwse
than n connecton wth the consumer s trade or busness) to hs
vendor such amount sha be aowed as a deducton n computng the
net ncome of such consumer as f such amount consttuted a ta m-
posed upon and pad by such consumer.
Secton 29.23(c)-(6) of Reguatons 111 provdes, among other
thngs, that the requrement of secton 23(c) (3) of the Code that the
amount of the ta must be separatey stated w be deemed comped
wth where t ceary appears that the ta was added to the saes
prce and coected or charged as a separate tem, and that t s not
necessary that the purchaser be furnshed wth a saes sp, b, n-
voce, or other statement on whch the ta s separatey stated.
In vew of the foregong, t s hed that the amount of gasone
cense ta mposed by the Terrtory of awa whch s pad by the
consumer (otherwse than n connecton wth the consumers trade
or busness) s aowabe as a deducton to the consumer n computng
net ncome for ta abe vears begnnng after December 31, 19 0.
In I. T. 337 (C. . 19 0-1, 36) t was hed that the cense ta on
gasone mposed by the Terrtory of awa s deductbe by the
dstrbutor. Snce the awaan gasone cense ta contnues to be
mposed upon and payabe by the dstrbutor, t contnues to be de-
ductbe by the dstrbutor under the provsons of secton 23(c)(1)
of the Interna Revenue Code. ncome receved by dstrbutors
by reason of passng on the ta by ncreased saes prces contnues to
be ncudbe n gross ncome. In I. T. 337 t was aso hed that the
ta was not deductbe by the consumer. ffectve for ta abe years
begnnng after December 31,19 0, that concuson s modfed to con-
form to the nstant rung.
Secton 29.23 (c) -1: Ta es. 19 1-26-1372
( so Secton 22(a), Secton 29.22 (a)- ; L T. 066
Secton 22 (n), Secton 29.22(n)-.)
INT RN L R NU COD
Deductbty for Federa ncome ta purposes of the ta es m-
posed by subartces III and I of Ue South Carona Saes and
Use Ta ct, effectve uy 1, 19 1.
dvce s requested as to the deductbty for Federa ncome ta
purposes of the ta es mposed by subartces III and I of the South
Carona Saes and Use Ta ct, effectve uy 1,19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
27
29.23(c)- .
The pertnent provsons of the South Carona statute n queston
read n part as foows:
SU RTICL III
(1) Saes Ta . In addton to a other censes, ta es, and charges now
Imposed there s hereby eved for the support of the pubc schoos of South
Carona;
(a) Upon every person, or company engaged, or contnung wthn ths
Sate, n the busness of seng at reta any tangbe persona property what-
soever, ncudng merchandse and commodtes of every knd and character (not
ncudng, however, bonds or other evdences of debt or stocks) an amount equa
to three (3 ) percent of the gross proceeds of saes of the busness,
Provded, however, that any person engagng or contnung n busness as a re-
taer, and whoesaer or |obber sha pay the ta requred on the gross proceeds
of reta saes of such busness at the rates specfed, when hs books arc kept
so as to show separatey the gross proceeds of saes of each busness, and when
hs books are not so kept he sha pay the ta as a retaer, on the gross saes
of the busness.

(3) Ta es Due Monthy: ffort. ceptons. The ta es eved under the
provsons of ths artce, e cept as otherwse provded, sha be due and payabe
n monthy nstaments on or before the twenteth day of the month ne t suc-
ceedng the month In whch the ta accrues.
( ) Ta racketed to be dded to Purchase Prce. very person or com-
pany engaged n or contnung wthn ths State n the busness for whch n
cense or prvege ta s requred by ths artce may add to the saes prce
and coect from the purchaser on a saes upon the gross recepts or gross
proceeds of whch there s eved by ths artce a saes ta at the rate of three
(3 ) percent an amount equa to the foowng: It sha b3 un-
awfu for any person, or company descrbed n ths subartce to fa or refuse
to add to the saes prce and coect from the purchaser tc amount requred by ths
subartce to be so added to the saes prce and coected from the purchaser;
and t sha kewse be unawfu to refund or offer to refund a or any part of
the amount coected, or to absorb or advertse drecty or ndrecty the absorp-
ton or refund of the amount requred to be added to the saes prce and coected
from the purchaser, or any porton of such amount. The provsons
of ths subartce that there may be added to the saes prce and coected from
the purchaser the amounts provded heren sha n no way reeve the person,
or company descrbed n ths subartce of the ta eved by ths artce; nor
sha the nabty, mpractcabty, refusa, or faure to add to the saes prce
and coect from the purchaser the amounts provded heren reeve such person,
or company from the ta eved by ths artce.
Srn Tcr. I
(1) Use Ta . n e cse ta Is hereby mposed on the storage, use or other
consumpton n ths .State of tangbe persona property purchased at reta on
or after uy 1, 10 1, for storage, use or other consumpton n ths Stae at the
rate of three (3 ) percent of the saes prce of such property, regardess of
whether the retaer s or s not engaged n busness n ths Sate,
very person storng, usng or otherwse consumng n ths Sate tangbe per-
sona property purchased at reta sha b abe for the ta mposed by ths
artce, and (e abty sha not be e tngushed unt the ta has been pad
to ths State;

( ) Seer to Co.ect Ta ; Reguatons: Penatt. very such seer mak-
ng saes of tangbe persona property for storage, use or other consumpton n
ths State, sha, at the tme of makng such saes or, f the storage,
use or other consumpton of the tnngbe persona property s not then ta abe
hereunder, at the tme such storage, use or other consumpton becomes ta abe
hereunder, coect the ta mposed by ths artce from the purchaser, and gve
to the purchaser a recept therefor n the manner and form prescrbed by the
Ta Commsson. The ta requred to be coected by the seer from the pur-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.23(c)- .
2S
chaser sha be dspayed separatey from the st, advertsed n the premses,
marked or other prce on the saes check or other proof of saes. It sha be un-
awfu for any such seer to advertse or hod out or state to the pubc or to
any customer, drecty or ndrecty, that the ta or any part thereof mposed
by ths artce w be assumed or absorbed by the seer or that t w not be
added to the seng prce of the property sod, or If added that t or any part
thereof w be refunded. The ta heren requred to be coected by the seer
she consttute a debt owed by the seer to ths State.
-
SU RTICL
(1) The ta es mposed by ths ct are due and sha be pad to the Ta Com-
msson at the same tme that the return requred by Subartces III and I of
ths ct s fed, provded, that whenever the return s fed and the ta es shown
due thereon are pad n fu, on or before the fna due date provded by ths ct,
the ta payer sha be aowed a dscount equa to three (3v ) percent of the ta es
shown due by sad return,
Secton 23(c)(1) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. Secton 29.23(c)-(a) of Reguatons 111 provdes that n
genera ta es are deductbe ony by the person upon whom they are
mposed. Secton 23(c)(3) of the Code provdes n part that a ta
mposed by any State. Terrtory. Dstrct, or possesson of the Unted
States, or any potca subdvson thereof, upon persons engaged n
seng tangbe persona property at reta, whch s measured by the
gross saes prce or the gross recepts from the sae or whch s a stated
sum per unt of such property sod, or upon persons engaged n fur-
nshng servces at reta, whch s measured by the gross recepts for
furnshng such servces, f the amount of such ta s separatey stated,
then to the e tent that the amount so stated s pad by the consumer
(otherwse than n connecton wth the consumer s trade or busness)
to hs vendor such amount sha be aowed as a deducton n comput-
ng the net ncome of such consumer as f such amount consttuted a
ta mposed upon and pad by such consumer.
The saes ta mposed by subartce III of the South Carona Saes
and Use Ta ct, effectve uy 1, 19 1, s specfcay mposed upon
every person or company n the busness of seng tangbe persona
property at reta. The abty for the use ta mposed by subartce
I s specfcay mposed on the person storng, usng, or otherwse
consumng tangbe persona property purchased at reta, that s, the
consumer or purchaser.
ccordngy, t s hed that the saes ta mposed by subartce III
of the South Carona Saes and Use Ta ct s deductbe by the
retaer under secton 23(c)(1) of the Interna Revenue Code. If
the vendor (retaer) s an ndvdua, the ta s deductbe from gross
ncome n arrvng at ad|usted gross ncome. (See secton 22(n) (1)
of the Code.) In the case of vendors other than ndvduas, the ta
s deductbe n determnng net ncome. The saes ta coected by
a vendor from a purchaser must be ncuded n the vendor s gross
ncome for Federa ncome ta purposes. It s not necessary, for the
purposes of secton 23(c) (3) of the Code, that the purchaser be fur-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29
29.23()-2.
nshed wth a saes sp, b, nvoce, or other statement on -whch the
ta s separatey stated. Inasmuch as the aw (paragraph ( ) of
subartce III of the South Carona Saes and Use Ta ct) prohbts
the seer from absorbng the ta , t s presumed that the amount of
the ta , n each nstance, s separatey stated. (See secton 29.23(c)-
1(6) of Reguatons 111.) To the e tent that such ta s pad by the
purchaser, otherwse than n connecton wth hs trade or busness,
t s deductbe by the purchaser under secton 23(c) (3) of the Code,
e cept n the case of an ndvdua who eects to take the optona
standard deducton. Where the saes ta s pad wth respect to
property purchased for use n the purchaser s trade or busness, t s
deductbe by hm as a busness e pense f the cost of the property
acqured s propery chargeabe to e pense, or t must be treated as a
capta tem where the cost of the property s propery captazed.
Where the purchaser s an ndvdua and the saes ta s deductbe
as a busness e pense, the ta s deductbe from gross ncome n
determnng hs ad|usted gross ncome. (See secton 22(n)() of
the Code.) In the case of purchasers (other than ndvduas) en-
gaged n trade or busness, where the ta s aowabe as a busness
e pense t s deductbe from gross ncome n determnng net ncome.
It s aso hed that the use ta mposed bv subartce I of the South
Carona Saes and Use Ta ct. effectve uy 1.19 1, s deductbe by
the purchaser under secton 23(c) (1) of the Code, e cept that n the
case of an ndvdua who eects the optona standard deducton, no
deducton s aowabe under secton 23(c)(1) of the Code. Where
the use ta s attrbutabe to a trade or busness carred on by an
ndvdua, the amount of such ta s deductbe from gross ncome
n computng ad|usted gross ncome. Where the use ta s attrbut-
abe to a trade or busness carred on by other than an ndvdua,
the use ta s deductbe from frross ncome n determnng net n-
come. Where the use ta s pad wth respect to property purchased
for use n the purchaser s trade or busness, t may not be captazed
e cept as provded n secton 21(a)(7) of the Code. The amount
of use ta coected by a vendor from a purchaser shoud not be n-
cuded n the vendor s gross ncome, e cept that amounts retaned
by the vendor, aowed by the South Carona Saes and Use Ta
ct as dscount for prompt payment of or compensaton for coectng
the ta , shoud be ncuded n gross ncome, and no deducton s
aowabe to the vendor wth respect to the amount of such ta re-
mtted by hm to the State.
S CTION 23(1). D DUCTIONS FROM GROSS
INCOM : D PR CI TION
Secton 29.23(1)-2: Deprecabe property.
INT RN L U COD
Motor vehces temporary used as demonstrators by deaers.
(See I. T. 062, page G.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.23(p)-10.
30
S CTION 23(p). D DUCTIONS FROM GROSS INCOM :
CONTRI UTIONS OF N MPLOY R TO N M-
PLOY S TRUST OR NNUITY PL N ND COMP NS -
TION UND R D F RR D-P YM NT PL N
Secton 29.23(p)-10: Contrbutons of an 19 1-16-13632
empoyer to a stock bonus or proft- L T. 0
sharng trust (Secton 23(p) (1) (C)).
INT RN L R NU COD
Deductons for contrbutons to an empoyees proft-sharng trust,
e empt under secton 16 (a) of the Interna Revenue Code, are
aowabe under the condtons and wthn the mtatons of secton
23(p) (1) (C) of the Code ony to the e tent requred by the terms
of the pan of whch the trust s a part. Payments n e cess of the
requred amounts are not avaabe as carry-overs and are not
deductbe n a subsequent year.
dvce s requested as to the amounts whch are deductbe for
Federa ncome ta purposes under secton 23(p)()(C) of the
Interna Revenue Code under the crcumstances herenafter stated.
corporate empoyer fes ts Federa ncome ta returns on a
caendar-year bass and uses the accrua method of accountng. It
estabshed a proft-sharng pan effectve anuary 1,19 . whch pan
meets the requrements of secton 16 (a) of the Interna Revenue
Code. The pan provdes, among other thngs, for annua contrbu-
tons on the part of the empoyer equa to the esser of 10 percent of
net profts or 1 percent of compensaton otherwse pad or accrued
to partcpants. The pan aso provdes for an aocaton of such con-
trbutons among partcpants n proporton to the compensaton
payabe to them. The appcabe percentages of profts and compen-
saton for 19 and 19 9 were as foows:
Year
10 percent of
net profts
1 percent of
compensaton
Requred
contrbuton
19 ..
S30, 000
3 , 000
0, 000
2 , 000
30,000
2 ,000
19 9
Instead of contrbutng the smaer amounts requred by the proft-
sharng pan, the empoyer contrbuted 0,000 (1 percent of com-
pensaton) n 19 and 3 ,000 (10 percent of net profts) n 19 9.
Secton 23(p) (1) (C) of the Code provdes n part as foows:
S C. 23. D DUCTION S FROM GROSS INCOM .
In computng net ncome there sha be aowed as deductons:

(p) Contrbutons of an mpoyer to n mpoyees Trust ob nnuty
Pan and Compensaton Under a Deferred-Payment Pan.
(1) Genera rue. If contrbutons are pad by . n empoyer to or
under a stock bonus, penson, proft-sharng, or annuty pan, or f compen-
saton s pad or accrued on account of any empoyee under a pan deferrng
the recept of such compensaton, such contrbutons or compensaton sha
not be deductbe under subsecton (a) but sha be deductbe, If deductbe
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
31
29.23(p)-10.
under subsecton (a) wthout regard to ths subsecton, under ths sub-
secton but ony to the foowng e tent:
#
(C) In the ta abe year when pad, f the contrbutons are pad
nto a stock bonus or proft-sharng trust, and f such ta abe year
ends wthn or wth a ta abe year of the trust wth respect to whch
the trust s e empt under secton G (a), n an amount not n e cess of
1 per centum of the compensaton otherwse pad or accrued durng
the ta abe year to a empoyees under the stock bonus or proft-
sharng pan. If n any ta abe year begnnng after December 31,
19 1, there s pad nto the trust, or a smar trust then n effect,
amounts ess than the amounts deductbe under the precedng sen-
tence, the e cess, or f no amount s pad, the amounts deductbe, sha
be carred forward and be deductbe when pad n the succeedng
ta abe years n order of tme, but the amount so deductbe under
ths sentence n any such succeedng ta abe year sha not e ceed 1
per centum of the compensaton otherwse pad or accrued durng sue
succeedng ta abe year to the benefcares under the pan. In add-
ton, any amount pad nto the trust n a ta abe year begnnng after
December 31. 10 1, n e cess of the amount aowabe wth respect
to such year under the precedng provsons of ths subparagraph sha
be deductbe n the succeedng ta abe years n order of tme, but the
amount so deductbe under ths sentence n any one such succeedng
ta abe year together wth the amount aowabe under the frst sen-
tence of ths subparagraph sha not e ceed 1 per centum of the
compensaton otherwse pad or accrued durng such ta abe year to
the benefcares under the pan. tacs supped.
Thus, the deducton for contrbutons may be as much as. or ess
than, but not n e cess of, 1 percent of compensaton. (See The
Wooster Rubber Co. v. Commssoner, 1 T. C. 1192, reversed on other
grounds by the Unted States Court of ppeas for the S th Cr-
cut on une , 19 1.) ccordngy, snce the requred contrbutons
under the pan were 30,000 for 19 and 2 ,000 for 19 9. such
amounts represent the ma mum deductons whch may be aowed
for those years. The empoyer, however, contends that contrbu-
tons n e cess of the amounts requred under the pan are avaabe
as contrbuton carry-overs and deductbe n succeedng years under
the thrd sentence of secton 23(p) (1) (C) of the Code.
The ntent of secton 23 (p) (1) (C) of the Code s that the pan sha
govern the contrbutons snce a deducton s aowabe under the
appcabe mtatons f the contrbutons are pad nto a
proft-sharng trust e empt under secton 10 (a). To be
entted to e empton under secton 16 (a) of the Code, a proft-
sharng trust must be part of a pan whch s based on a defnte
predetermned formua for determnng the profts to be shared (sec-
ton 29.16 -1 (a) of Reguatons 111), and the pan must be foowed
n operaton. Contrbutons n e cess of the amount requred under
the pan are purey vountary. The ntent of the contrbuton carry-
over provsons of secton 23(p) (1) (C) s to save or hep those em-
poyers who are requred under the terms of ther pans to contrbute
n a partcuar year amounts n e cess of the 1 percent mtaton.
It was not ntended to beneft empoyers who vountary contrbute
more than ther commtment under the pan.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 2-6. 32
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING
S CTION 2. P RIOD IN W IC IT MS OF
GROSS INCOM INCLUD D
Secton 29. 2-6: Nonnterest-bearng obga- 19 1-17-136
tors ssued at dscount. D. C.
Reguatons Governng Optons Open to Owners of Maturng Unted States
Savngs onds of Seres
10 1. Department Crcuar No. . Fsca Servce. ureau of the Pubc Debt
Treasury Department,
Offce of the Secretary,
Washngton, March 26. 19 1.
Subpart
. Offerng to Owners of Seres Savngs onds eretofore or ereafter
Issued.
. Further Interest /fter Maturty.
C. change for Seres G onds earng Speca Par Redempton Prvege.
D. Federa Income Ta .
. Genera Provsons.
SU P RT . OFF RING TO OWN RS OF S RI S S INGS ONDS R TOFOR
OR R FT R ISSU D
Secton 329.1. Pursuant to secton 22(b) (2) of the Second Lberty
ond ct, as amended (31 U. S. C. 7 7c(b) (2)1), the Secretary of the
Treasury offers to owners of Unted States Savngs onds of Seres
(herenafter referred to as onds of Seres ) who wsh to contnue
ther nvestment beyond maturty, the optons herenafter set forth.
onds of Seres were frst ssued on May 1. 19 1, and w mature
begnnng on May 1, 19 1. Such optons are hereby granted for the
beneft of owners of onds of Seres heretofore or hereafter ssued
and are as bndng on the Unted States as f e pressy set forth n the
te t of the bonds. The term owners as used n these reguatons s
defned n Subpart .
Sec. 329.2. The provsons of Subpart hereof do not n any way
restrct the rght of owners of onds of Seres to cash ther bonds
at any tme n accordance wth the terms of such bonds.
SU P RT . FURT R INT R ST FT R M TURITY
Sec 329.3. Owners of onds of Seres . whch mature on and
after May 1, 19 1, have the opton of retanng the matured bonds
for a further 10-year perod and earnng nterest upon the maturty
vaues thereof to accrue at the rate of 2 percent smpe nterest per
annum for the frst 7 years and at a hgher rate thereafter so that
the aggregate return for the 10-year e tenson perod w be about
2.9 percent compounded semannuay. No acton s requred of
OWN RS D SIRING TO T D NT G OF TII T NSION. M R LY Y
CONTINUING TO OLD T IR ONDS FT R M TURITY OWN RS WILL RN
FURT R INT R ST IN CCORD NC WIT TII SC DUL S T FORT IN
T T L T T ND OF T S R GUL TIONS.
1 ct of March 20, 1031.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 2-6.
Sec. 329. . Interest hereunder accrues at the end of the frst haf-
year perod foowng maturty and each successve haf-year perod
thereafter. If the bonds are redeemed before the end of the frst
haf-year perod foowng maturt| , the owner s entted to payment
ony at the face vaue thereof.
SU P RT C C NG FOR S RI S G ONDS RING SP CI L P R
R D MPTION PRI IL G
Sec. 320. . Owners of onds of Seres whch mature on and after
May 1, 19 1, who prefer to have an nvestment payng current ncome
rather than to e ercse ther rght to request cash, or to retan the bonds
under Subpart , have the opton of presentng ther matured bonds n
amounts of 00 (maturty vaue) or mutpes thereof n e change
for Seres G bonds whch w bear the speca prvege of redempton
at par at a t ttme at the owner s opton as set forth n secton 329.6.
The e change w be governed by the rues set forth n secton 329.7.
cept as set forth n ths subpart, the Seres G bonds ssued upon e -
change w n a other respects be the same as the Seres G bonds
currenty on sae whch mature 12 years from ssue date and bear
nterest at the rate of 2y2 percent per annum payabe semannuay by
check drawn to the order of the regstered owner.
Sec. 329.6. The Seres G bonds ssued upon e change w be spe-
cay stamped to ndcate that they are uncondtonay redeemabe
by the owner at par at any tme after 6 months from the ssue date
upon one caendar month s notce to a Federa Reserve bank or branch
or to the Treasury Department. The Seres G bonds currenty on sae
for cash subscrpton may not be redeemed at par pror to maturty
e cept n the event of death as set forth n the reguatons governng
Unted States Savngs onds.
Sec. 329.7. The foowng rues govern the e change under ths sub-
part: (1) The Seres G bonds w be regstered n the names of the
owners of the matured onds of Seres n any authorzed form of
regstraton; (2) Seres G bonds w be ssued upon e change ony
n denomnatons of 00, 1,000, ,000. and 10,000 (maturty
vaue) : (3) the onds of Seres used n the e change must be pre-
sented to a Federa Reserve bank or branch or to the Treasury De-
partment, Washngton 2 , D. C., not ater than two caendar months
after the month of maturty and the bonds of Seres G ssued upon
e change w be dated as of the frst day of the month n whch the
onds of Seres matured; but ( ) f an owner desres to accumuate
a number of onds of Seres for e change to bonds of Seres G n
any authorzed denomnaton set forth n (2) he may accumuate
such bonds durng any 12 consecutve caendar months and present
them for e change not ater than two caendar months after the month
of maturty of the ast bond n the group to be e changed and the
Seres G bonds ssued upon such e change w be dated on a weghted
average datng bass whch w afford an adequate nterest ad|ustment
for the perod durng whch the owner has accumuated the onds of
Seres for the e change; and ( ) cash subscrptons n whoe or n
part w not be accepted for the Seres G bonds offered under ths
subpart.
subpart d. federa ncome ta
Sec. 329. . ta payer who has been reportng the ncrease n re-
dempton vaue of hs onds of Seres , for Federa ncome ta pur-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 2-6.
3
poses, each year as t accrues, must contnue to do so f he retans the
bonds under Subpart , uness n accordance wth ncome ta regua-
tons (Reguatons 111, secton 29. 2-6) the ta payer secures perms-
son from the Commssoner of Interna Revenue to change to a
dfferent method of reportng ncome from such obgatons. ta -
payer who has not been reportng the ncrease n redempton vaue of
such bonds currenty for ta purposes may n any vear pror to fna
maturty, and sub|ect to the provsons of secton 2(b) of the Interna
Revenue Code and of the reguatons prescrbed thereunder, eect for
such year and subsequent years to report such ncome annuav.
oders of onds of Seres who have not reported the ncrease m
redempton vaue currenty are requred to ncude such amount n
gross ncome for the ta abe vear of actua redempton or for the ta -
abe year n whch the perod of e tenson ends, whchever s earer.
Sec. 329.9. Ta payers who e change ther matured onds of Seres
for Seres G bonds under the provsons of Subpart C must report
the dfference between the purchase prce of ther Seres bonds and
the maturty vaue thereof n ther returns for the year n whch the
bonds mature to the e tent to whch such dfference has not been
reported n prevous returns. The nterest payabe on the Seres G
bonds ssued upon e change must be reported as ncome for the ta abe
year n whch receved or accrued.
Sec. 329.10. If further nformaton concernng the ncome ta s
desred, nqury shoud be addressed to the coector of nterna revenue
of the ta paver s dstrct or to the ureau of Interna Revenue, Wash-
ngton 2 , D. C.
SU P RT G N R L PRO ISIONS
Sec. 329.11. Defnton of Terms. (a) The term onds of Seres
as used n these reguatons ncudes a onds of Seres ssued
as Unted States Defense Savngs onds, Unted States War Savngs
onds, and a those ssued as Seres savngs bonds wthout speca
desgnaton; (6) The term owners as used n these reguatons n-
cudes regstered owners, coowners, survvng benefcares, ne t of kn
and egatees of a deceased owner, and persons who have acqured bonds
pursuant to |udca proceedngs aganst the owner, e cept that |udg-
ment credtors, trustees n bankruptcy, and recevers of nsovents
estates w have the rght ony to payment of onds of Seres n
accordance wth the reguatons governng Unted States Savngs
onds.
Sec. 329.12. Rght To Purchase onds of Sertes and G Cur-
renty. The amount of matured onds of Seres retaned after
maturty and the amount of bonds of Seres G ssued upon e change
n accordance wth these reguatons w not be ncuded n the m-
taton on hodngs appcabe to the amount of bonds of such seres
whch may be purchased by an nvestor each caendar year; e cept
that nothng heren contaned sha be construed to permt the current
purchase of savngs bonds of Seres for the. account of organza-
tons and fducares or the purchase of savngs bonds of ether seres
for the account of persons who are not entted to have them on org-
na ssue, contrary to the provsons of the reguatons governng
Unted States Savngs onds.
Sec. 329.13. Modfcaton of Other Crcuars. The provsons
of these reguatons sha be consdered as amendatory of and suppe-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
29. 2-6..
SSSS SSS2 S3S3SS RSSS S S
C p cc p pS c psmkm c | r t - r
2 c
o o
2 c o a
0,0 0 u
SIS
sss
g
t- f) M
I
3 g
t- o
wen
S M

e-: o
nor-
gas
not.
It
3 S

1
I
6|
to
C

c

o

C :t r- cr-1 - o c - c o O
or orcrt t- --r-- tc r--r-acoo o
e c-I c c c c c c e c p p p e p p p r
SSgS SSSS SSSS SSSS SSSS
2 c SS S| : 1 m S
e c c - ccwn
c. c o o o cc cncw C c O M Cn r-
c n r- cwt.- o p - Pt.- rt orf
I SSs sSSs SsS ssf
SSSS SS 3 gS sg Ss S-L oS
Ssp f wc|wpI P S S3 frNe-c cccS
OOC 0 OOCO C O M79S
IS M tttt S Ss 3
c n o c n o c cn c cmoc p: r- r-a
-.cpqc --n tcp ao o t - rt p o
S o o S c tS feS oSSs STS: S
c c c n c p - o r- - c-; r- rs
SSCsfS SSS t S-SSS Sf|g 3
e o c - p c - c : t. a nkc- n
- p e ; cc c-wra c-o Nooco
c cTo o o - - - - - p prpc| m
_ _ p-, - r . nnr
C 2 C CC CCC t t 2
cercc: aercc; edrtrt cr rt a I
c--oo op o og s|ooa 1 C. y ; g
v -S M rtNT - v 0 N - M00
s S3 3S 3Sa .s7-s sa a 1s
SS sSy Ss S S - . as
2 r y
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 3-2.
3G
mentary to the offerng crcuar for savngs bonds of Seres (De-
partment Crcuar No. 6 3 and ts revsons), the offerng crcuar
for savngs bonds of Seres G (Department Crcuar No. 6 and ts
revsons), and the crcuar contanng the reguatons governng
Unted States Savngs onds,2 whch crcuars are hereby modfed
to accord wth the provsons hereof.
Sec. 329.1 . Othek Crcuars Generay ppcabe. cept as
provded n these reguatons, the crcuars referred to n the precedng
secton w contnue to be generay appcabe.
Sec. b29.1 . Suppements and mendments. The Secretary of
the Treasury may at any tme or from tme to tme suppement or
amend the terms of these reguatons, or of any amendment or sup-
pement thereto.
ohn W. Snyder,
Secretary of the Treasury.
S CTION 3. F RIOD FOR W IC D DUCTIONS
ND CR DITS T N
Secton 29. 3-2: When charges deductbe. 19 1-1 -1362
L T. 0
INT RN L R NU COD
Deductbty of payment made n advance of due date of en-
tucky State ncome ta and before the cose of the cnendar year by
a ta payer who keeps accounts and fes Federa and State Income
ta returns on the cash and caendar year bases.
dvce s requested whether an advance payment of entucky State
ncome ta by a ta payer who keeps accounts and fes Federa and
State ncome ta returns on the cash and caendar year bases s de-
ductbe n hs Federa ncome ta return for the ta abe year n whch
such payment s made.
On December 31, 19 6, the nstant ta payer fed a tentatve en-
tucky State ncome ta return for the caendar year 19 6, and on the
same date pad the amount of the ta abty shown thereon. The
ta payer s fna State ncome ta return for 19 6 was fed n pr
19 7.
Under the provsons of chapter 1 1, tte I, of the entucky
Revsed Statutes of 19 6, the entucky State ncome ta becomes a
f ed charge or abty at the end of the ta abe year, and such ta
for a caendar year s not due unt pr 1 of the year foowng the
caendar year. There s no provson n entucky aw whch specf-
cay permts advance payments of State ncome ta , but the State
ta authortes ssued a etter to the effect that advance payments
woud be accepted.
Under secton 23(c) of the Interna Revenue Code, State ncome
ta es consttute an aowabe deducton n computng net ncome for
Federa ncome ta purposes, and secton 1 of the Code provdes
that net ncome sha be computed upon the bass of the ta payer s
The reguatons currenty In force governng Unted States Savngs onds are set forth
In Department Crcuar No. S30. S th Revson, as amended.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
37
29. 1-2.
annua accountng perod n accordance wth the method of account-
ng reguary used by the ta payer. Secton 3 of the Code, reatng
to the perod for whch deductons and credts are taken, provdes
n part as foows:
The deductons and credts provded for n ths chapter chapter 1
of the Code sha be taken for the ta abe year n whch pad or accrued or
pad or ncurred, dependent upon the method of accounng upon the bass
of whch the net ncome s computed,
In the case under consderaton the ta payer made an advance
payment of what purported to be hs entucky State ncome ta -
abty for 19 6. whch payment was accepted by the entucky State
ta authortes, n accordance wth ther e press approva and consent,
and credted to hs account pror to the cose of hs ta abe year n
such manner as to consttute a bona fde payment of ta es wthn the
meanng of secton 23(c) of the Interna Revenue Code, supra.
In Lan acon Gasse et a. v. Commssoner (12 T. C. 232. ac-
quescence. C. . 19 9-2, 2) and state of aron Lowensten. Frst
Natona ank of Mobe, ecutor, v. Commssoner (12 T. C. 09 ,
acquescence, C. . 19 9-2, 2), the Ta Court hed that advance pay-
ments of State ncome ta es n Lousana and abama, respectvey,
made pursuant to specfc provsons of State aw authorzng such
payments, consttuted deductbe tems n the Federa ncome ta re-
turns fed for the years n whch such payments were made. ppar-
enty, the ony vad dstncton between those cases and the nstant
case s the fact that there s no specfc provson of entucky aw
permttng advance payments of State ncome ta es. owever, the
fact that the entucky State ta authortes accepted an advance pay-
ment n the nstant case brngs t wthn the rue ad down by the
Ta Court n the Gasse and Lowensten cases.
ccordngy, t s hed that the amount pad wth the tentatve
entucky State ncome ta return s aowabe as a deducton for
Federa ncome ta purposes for the caendar year 19 G.
P RT . R TURNS ND P YM NT OF T
S CTION 1. INDI IDU L R TURNS
Secton 29. 1-2: Form of return. 19 1-26-1372
Mm.C72G
Schedue and coumn reference appearng on .ne 3 of Schedue C
Summary, page 2, of return Form 10 0 for 19 1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
SYashngton 2 , D. C, December 3,19 1.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. Lne 3 of Schedue C Summary on page 2 of Form 10 0 for
19 1, on whch there s to be reported partnershp proft or oss from
Form 106 , makes reference to Schedue , Coumn 10. The ref-
erence shoud read Schedue , Coumn 3.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 2-1.
3
2. In the nstructons accompanyng partnershp return Form 106
the foowng statement s made page :
ach partner shoud be advsed by the partnershp of hs proportonate share
of the ncome and credts as shown n Schedue of the partnershp return.
In vew of the foregong nstructon, the partners n preparng ther
returns Form 10 0 w have no need to refer to the partnershp return
Form 106 . owever, t s essenta that a members of your offce
engaged n assstng ta payers shoud be prepared to answer nqures
rased wth respect to the correct schedue and coumn reference on
ne 3, Schedue C Summary of Form 10 0 for 19 1.
ohn . Dr L P,
Commssoner.
S CTION 2. CORPOR TION R TURNS
Secton 29. 2-1: Corporaton returns. 19 1-17-136
Mm. 666
Computaton of corporaton ncome ta for ta abe years begn-
nng after une 30, 1900.
Treasury Department,
Offce of Commssoner of Interna Reve t|e.
Washngton 2 , D. C. uy 17, 19 1.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. The cess Profts Ta ct of 19 0. approved anuary 3, 19 1,
contans amendments to ncome ta sectons of the Interna Revenue
Code wth respect to the computaton of ncome ta affectng corporate
ta payers. Form 1120 and Form 1120FY currenty n use for ta -
abe years begnnng on and after anuary 1, 19 0, do not refect
computatons whch are deemed necessary to compy wth appcabe
provsons of such amendments. The nformaton contaned n ths
mmeograph s suppementa to nstructons contaned n 19 0 In-
structons for Form 1120 and other drectons reatng to the use
of such forms and reated schedues.
2. The prncpa ncome ta sectons of the Interna Revenue Code
whch are amended by the cess Profts Ta ct of 19 0 appear
beow as so amended.
Secton 1 (b)(1) as amended:
S C. 1 . SURT ON CORPOR TIONS.

(b) Imposton of Ta .
(1) Ta abe teabs begnnng after |une 30, 19 0. In the case of ta -
abe years begnnng after une 30, 19 0, there sha be eved, coected, and
pad for each ta abe year upon the corporaton surta net Income of every
corporaton (e cept a corporaton sub|ect to a ta mposed by.secton 231(a),
Suppement G, or Suppement ) a surta of 22 per centum of the amount
of the corporaton surta net ncome n e cess of 2 ,000.
Secton 207(a) (3) ( ) () as amended:
S C. 207. MUTU L INSUR NC COMP NI S OT R T N LIF OR
M RIN .
(a) Imposton of Ta . There sha be eved, coected, and pad for each
ta abe year upon the ncome of every mutua nsurance company
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
39
29. 2-1.
(other than a fe or a marne nsurance company or a fre nsurance company
sub|ect to the ta mposed by secton 20 ) whch s an nternsurer or recproca
underwrter, a ta computed under paragraph (3) :

(3) In the case of an nternsurer or recproca underwrter, f the cor-
poraton surta net ncome s over 0,000 a ta computed as foows:
( ) Ta abe Tears egnnng fter une 30, 19 0. In the case of
ta abe years begnnng after une 30, 19 0

() Surta . surta on the corporaton surta net ncome,
computed as provded n secton 1 (b) (1), or 33 per centum of the
amount by whch the corporaton surta net ncome e ceeds
0,000, whchever s the esser.
Secton 3G2(b) ( ) as amended:
S C. 362. T ON R GUL T D IN STM NT COMP NI S.

(b) Method of Ta aton of Companes and Sharehoders. In the case of
a reguated nvestment company whch dstrbutes durng the ta abe year to
ts sharehoders as ta ube dvdends other than capta gan dvdends an
amount not ess than CO per centum of ts net ncome for the ta abe year com-
puted wthout regard to net ong-term and net short-term capta gans, and com-
pes for such year wth a rues and reguatons prescrbed by the Commssoner,
wth the approva of the Secretary, for the purpose of ascertanng the actua
ownershp of ts outstandng stock:

( ) In the case of ta abe years begnnng after une 30. 1930. there
sha be eved, coected, and pad for each ta abe year upon ts Suppe-
ment surta net ncome a ta equa to 22 per centum of the amount
thereof n e cess of 2 ,000. In the case of ta abe years begnnng after
December 31, 19 9, and before uy 1, 19 0. there sha be eved, coected,
and pad for each ta abe year upon ts Suppement surta net ncome
a ta equa to 19 per centum of the amount thereof n e cess of 2 ,000.
Secton 10 (f) (2) as amended:
S C. 10S. FISC L Y R T P Y RS.

(f) Certan Ta abe Years of Corporatons egnnng efore uy 1,19 0,
and ndng fter une 30,19 0. In the case of a ta abe year (other than one
begnnng on anuary 1, 19 0 and endng on December 31, 19 0) of a corporaton
begnnng before uy 1, 19 0, and endng after une SO, 19 0, the ta mposed
by sectons 13,1 , and 1 sha he an amount equa to the sum of

(2) that porton of a tentatve ta , computed under the provsons of
sectons 13(b) (1) and 1 (b) (1), as f such provsons (and the provsons
of sectons 26(b)(2)( ). 26(h)(1)( ), and 26(1) (1)) were appcabe to
such ta abe year, whch the number of days n such ta abe year after une
30, 19 0, bears to the tota : umber of days n such ta abe year. For the
purposes of ths paragraph, the provsons of sectons 1 (b) (1), 26(h) (1),
and 26(1) (1) sha be apped wthout regard to the amendments made to
such provsons by Tte II of the cess Fronts Ta ct of 19 0.
Secton 26 (h) (1) ( ) and () (1) as amended:
S C. 26. CR DITS OF CORPOR TIONS.
In the case of a corporaton the foowng credts sha be aowed to the e tent
provded n the varous sectons mposng ta

(h) Credt fob Dvdends Patd on Certan Pbeferred Stock.
(1) mount of credt. In the case of a pubc utty, the amount of
dvdends pad durng the ta abe year on ts preferred stock, e cept that
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 2-1.
0
( ) n the case of any ta abe year begnnng after une 30, 10 0,
ony an nmonnt equa to 30 per centum of the ower of () the amount of
dvdends pad durng such ta abe year on ts preferred stock or () the
ad|usted net ncome for such ta abe year mnus the credt for dvdends
receved provded n subsecton (b) for such year. For the purposes of the
credt provded n ths subsecton the amount of dvdends pad sha not
ncude any amount dstrbuted n the current ta abe year wth respect to
dvdends unpad and accumuated n any ta abe year endng pror to Octo-
ber 1,19 2. mounts dstrbuted n the current ta abe year wth respect to
dvdends unpad and accumuated for a pror ta abe year sha for the
purposes of ths paragraph be deemed to be dstrbuted wth respect to the
earest year or years for whch there are dvdends unpad and accumuated.
The credt provded n ths subsecton sha be subtracted from the basc
surta credt provded n secton 27.

(1) Western emsphere Trade Corporatons. In the case of a western
hemsphere trade corporaton (as denned n secton 109)
(1) Ta abe years begnnng after |cne 30, 19 0. In the case of any
ta abe year begnnng after une 30, O ). an amount equa to 30 per centum
of ts norma-ta net ncome computed wthout regard to the credt provded
n ths subsecton.
3. new form desgnated Schedue FY (Form 1120) v be prnted
and dstrbuted to coectors of nterna revenue. In the case of cor-
porate ta payers havng ta abe rears begnnng after une 30, 19 0,
and endng before December 31.19 1. such schedue shoud be used for
the purpose of computng the norma ta and surta , and the aterna-
tve ta f net ong-term capta gans e ceed net short-term capta
osses. The tota norma ta and surta on e cess profts net ncome
whch s requred to be entered on ne 30 of Schedue P (Form 1120)
shoud be computed n the manner and at the rates set forth n Schedue
FY (Form 1120) f the corporate ta abe vear begns after une 30,
19 0, and ends before December 31,19 1. owever, the e cess profts
net ncome shoud be substtuted for the surta net ncome on nes
and 10 of Schedue FY (Form 1120). Inasmuch as mutua nsurance
companes (other than fe or marne nsurance companes or fre n-
surance companes ssung perpetua poces) are requred to compute
net ncome on the caendar year bass and fe Form 1120M for the
caendar year, the amendment made to secton 207(a) (3) ( ) () of
the Code w not generay affect the computaton set forth on Form
1120M for the caendar year 19 0. Wth respect to reguated nvest-
ment companes havng a ta abe year whch begns after une 30,
19 0. and ends before December 31, 19 1, the surta s an amount
equa to 22 percent of the Suppement net ncome n e cess of 2 ,000
nstead of 20 percent as stated on page of 19 0 Instructons for
Form 1120. The amendment made to secton 10 (f) (2) of the Code
provdes that for the purposes of computng the norma ta and sur-
ta wth respect to corporate ta abe years begnnng before uy 1,
19 0, and endng after une 30, 19 0, the amendments made to secton
1 (b)(1) of the Code (reatng to the rate of surta n the case of
ta abe years begnnng after une 30, 19 0), secton 26(h) (1) of the
Code (reatng to credt for dvdends pad on certan preferred stock),
and secton 26() (1) of the Code (reatng to credt of Western em-
sphere trade corporatons) sha not be appcabe.
. In the case of a corporate ta payer havng an e cess of net ong-
term capta gan over net short-term capta oss, the aternatve ta
shoud be computed by usng ne numbers 10 to 1 on Schedue FY
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
29. 2-3.
(Form 1120) n eu of the computaton outned on Schedue C (Form
1120) and the computaton nstructons set forth on Form 1120FY.
The resut of the computaton shoud be carred through the severa
schedues as so ndcated. Lne numbers 1 through 11 appearng on
Schedue C (Form 1120) shoud be used to report a capta gans and
osses to be taken nto account for the ta abe year.
. ny return heretofore fed for a short ta abe year begnnng
after une 30, 19 0. and endng before the ssuance of Schedue FY
(Form 1120) s sub|ect to ad|ustments for changes made by amend-
ments contaned n the cess Profts Ta ct of 19 0 f the corporate
ta payer used secton ( ) of Form 1120FY to compute the ta .
Such ad|ustments shoud be made by the fng of amended returns
on Form 1120 whch shoud contan a computaton of the norma ta
and surta , or the aternatve ta f appcabe, made on Schedue FY
(Form 1120) n accordance wth the appcabe nstructons.
6. Corporate ta payers shoud fe any such amended returns, or
ther orgna returns when due, for the ta abe years covered by cur-
renty ssued forms even though pendng egsaton may contan
retroactve features affectng credts aganst net ncome and rates of
ta and make necessary the fng of addtona schedues or forms
for the purpose of gvng effect to any changes contaned n subse-
quenty enacted egsaton affectng such years.
7. Correspondence reatng to ths mmeograph shoud refer to ts
number and the symbos ndcated: Coectors of nterna revenue,
C: Co; nterna revenue agents n charge, IT: IM.
Geo. . Scoeneman,
Commssoner.
Secton 29. 2-3: Certan corporaton returns for 19 1-23-1369
ta abe years endng after une 30, 19 0, and T. D. 61
before December 31, 19 0.
( so Secton 3, Sectons 29. 3-1 and 29. 3-3; Sec-
ton 6, Secton 29. 6-1; Secton 1 3, Secton
29.1 3-7.)
TITL 26 INT RN L R NU . C PT R T, SU C PT R , P RT 20.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1
Payment of Income ta by nstament payments and of ta
wthhed at source from nonresdent aens. Returns of estates,
trusts, and corporatons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. O.
To Coectors of Interna Revenue and Others Concerned:
On une 6,19 1, notce of proposed rue makng regardng amend-
ments to conform Reguatons 111 26 CFR, part 29 to certan sec-
tons of the Revenue ct of 19 0 (Pubc Law 1 , 1st Cong., 2d
sess.), approved September 23, 19 0, and the cess Profts Ta
ct of 19 0 (Pubc Law 909, 1st Cong., 2d sess.), approved anuary
3. 19 1, was pubshed n the Federa Regster (16 F. R. 3 3). No
ob|ecton to the rues proposed havng been receved, the amendments
set forth beow are hereby adopted.
9 016 2
t
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
20. 2-.3
2
Paragraph 1. There s nserted mmedatey precedng secton
29. 2-1 _26 CFR 29. 2-1 the foowng:
S C. 30 . FILING OF R TURNS FOR T L T RS NDING
FT R UN 30, 19 0, ND FOR D C M R 31. 1930 -
C SS PROFITS T CT OF 19 0, PPRO D NU RY 3,
19 1 .
In the case of a corporaton sub|ect to the ta mposed by subchapter
D of chapter 1 of the Interna Revenue Code for a ta abe year endng
after une 30, 19 0, but pror to December 31, 1930. such corporaton
sha after e date of the enactment of ths ct and before March 1 ,
19 1, make a return for such ta abe year wth respect to the ta mposed
by chapter 1 of the Interna Revenue Code for such ta abe year. The
return requred by ths secton for such ta abe year sha consttute
the return fcr such ta abe year for a purposes of the Interna Reve-
nue Code; and no return for such ta abe year, wth respect to any ta
mposed by chapter 1 of su h Code, fed on or before the date of the en-
actment of ths ct sha be consdered for any of such purposes as a
return for such year. The ta es mposed by chapter 1 of such Code (de-
termned wth the amendments made by ths ct) for such ta abe year
sha be pad on March 1 , 1P 1, n eu of the tme prescrbed n secton
0(a) of such Code. payments wth respect to any ta for such
ta abe yenr mposed by chapter 1 of such Code under the aw n effect
pror to the enactment of tr.s ct. to the e tent that such payments have
not been credted or refunded, sha be deemed payments made at the
tme of the fng of the return requred by ths secton on account of the
ta for such ta abe year under chapter 1 determned wth the amend-
ments made by ths ct.
Par. 2. There s nserted mmedatey after secton 29. 2-2 26 CFR
29. 2-2 the foowng:
Sfc. 29.32-3. Certan Corporaton Returns for Ta abe Years ndng fter
une 30, 1930, and efore December 31, 19 0. The return of a corporaton
(other than a corporaton e empt from the e cess profts ta under secton )
for a ta abe year endng after une 30, 19 0, and before December 31. 19 0, sha
be fed after anuary 3. 19 1 (the data of enactment of the cess Profts Ta
ct of 19 0), and on or before March 1 , 19 1. Such return sha consttute the
return for such tn abe year, and no return for such ta abe year fed on or
before anuary 3, 19 1, sha he consdered as a return for such year. The ta es
for such ta abe yea sha be pad on or before March 1 , 19 1. payments
of tn (ncudng nterest, penates, and addtons to the ta ) for such ta abe
year made on or before anuary 3, 19 1, sha be deemed to be payments of ta
made at the tme of the fng of the return requred by ths paragraph to be
fed on or before March 13, 19 1, e cept to the e tent any such payments are
credted or refunded pror to the tme such return s fed. The provsons of
secton 29. 0-1 (a) sha appy wth respect to the payment of such ta by nsta-
ment payments, and for such purpose, the date prescrbed for the payment of
the ta as a snge payment s March 1 , 19 1.
Par. 3. There s nserted mmedatey precedng secton 29. 3-1
26 CFR 29. 3-1 the foowng:
S C. 20 . P YM NT OF INCOM T Y INST LLM NT
P YM NTS. ND R TURNS OF ST T S ND TRUSTS
R NU CT OF 19 0, PPRO D S PT M R 23, 19 0 .

(b) Fng of Returns and Payment of Ta by Fducares of
states and Trusts.
(1) Secton 3(a)(1) (reatng to tme for fng returns) s
hereby amended to read as foows:
(1) Genera rue. Returns made on the bass of the caendar
year sha be made on or before the ffteenth day of March foowng
the cose of the caendar year, e cept that n the case of the return
of the fducary of an estate or trust, the return sha be made on or
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
L3
29. 2-3.
before the ffteenth day of pr foowng the cose of the caendar
year. Returns made on the bass of a fsca year sha be made
on or before the ffteenth day of the thrd month foowng the
cose of the fsca year, e cept that n the case of the return of the
fducary of an estate or trust, the return sha be made on or before
the ffteenth day of the fourth month foowng the cose of the
fsca year.

(3) The amendments made by ths subsecton sha be appcabe
ony wth respect to ta abe years endng after the date of the
enactment of ths ct.
Par. . Secton 29. 3-1, as amended by Treasury Decson 1G
C. . 19 0-2. 62 , approved December , 19 0 20 CFR 29. 3-1 , s
further amended as foows:
( ) y nsertng mmedatey after subparagraph (7) of the frst
paragraph thereof the foowng:
( ) In the case of a return of a fducary of an estate or trust for a ta abe
year endng after September 23, 19 0, on or before the 1 th day of the fourth
month foowng the cose of such year.
( ) y nsertng at the end thereof the foowng paragraph:
For provsons reatng to the tme for fng certan corporaton returns for
ta abe years endng after une 30, 10 0, and before December 31, 19 0, see
secton 29. 2-3.
Par. . Paragraph (b) of secton 29. 3-3 26 CFR 29. 3-3 s
amended by nsertng after December 31, 19 1, the foowng:
and endng before December 31,19 1,: .
Par. 6. There s nserted mmedatey precedng secton 29. 6-1
26CFR 29. 6-1 the foowng:
S C. 20 . P YM NT OF INCOM T Y INST LLM NT
P YM NTS, ND R TURNS OF ST T S ND T CSTS
R NU CT OF 19 0, PPRO D S PT M R 23, 19 0 .
(a) Payment of Income Ta by Instament Paymfnts. ffectve
wth respect to ta abe years endng on or after December 31, 19 0,
secton 6(b) (reatng to nstament payments of ncome ta ) s
hereby amended to read as foows:
(b) Instament Payments.
(1) states or decedents. In the case of the estate of a de-
cedent, the fducary may eect to pay the ta n four equa
nstaments.
(2) Ccepobatons In the case of a corporaton
( ) Ta abe Years ndn|: efore December 31. 19 . The
ta payer may eect wth respect to any ta abe year endng
before December 31, 19 , to pay the ta n four nstaments,
and n such case the amount of the ta pad by each nstament
sha be determned as foows:
If the ta abe year ends
each of the frst
two n trWIments
sha be the
foowng
pereentace
of the ta
and each of tbo
ast two nsta-
ments sha be
the foowng
percentage
of the ta
on or after
and before
December 31. 19 0
December 31, 19 1
30
3
0

20
16
10

twmber 31, 1961

Decern ber 31, 19 2
December 31. 19 2
December 31, 19 3
December 31,19
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 2-3.

( ) Ta abe Tears ndng on or fter December 31, 10 .
The ta payer may eect wth respect to any ta abe year endng
on or after December 31, 19 , to pay tbe ta n two equa
nstaments.
(3) Dates for nstament payments.
( ) Four Instaments. In any case In vheh the ta may
be pad n four nstaments, the frst nstament sha be pad
on the date prescrbed for the payment of the ta by the ta -
payer, the second nstament sha be pad on the th day of
the thrd month, the thrd nstament on the 13th day of the
s th month, and the fourth nstament on the 1 th day of the
nnt) month, after such date.
( ) Two Instaments. In any case n whch the ta may
be pad n two nstaments, the frst nstament sha be pad
on the date prescrbed for the payment of the ta by the ta -
payer, and the second nstament sha be pad on the 1 th day
of the thrd month after such date.
( ) Requrement for payment. If any nstament s not pad
on or before the date f ed for ts payment, the whoe of the ta
unpad sha be pad upon notce and demand from the coector.
(b) F ng of Returns and Payment of Ta by Fducares of
states and Trusts.

(2) Secton 0(a) (r atng to tme for payment of ta ) s hereby
amended by nsertng before the perod at the end thereof the foow-
ng: , e cept that n the case of the ta mposed upon an estate or
trust the ta sha be pad on the ffteenth day o pr foowng
the cose of the caendar year, or, f the return shoud be made on
the bass of a fsca year, then on the ffteenth day of the f.urth
month foowng the cose of the fsca year .
(3) The amendments made by ths sub|ecton sha be appcabe
ony wth respect to ta abe years endng after the date of the
enactment of ths ct.
Par. 7. Secton 20. 6-1. as amended by Treasury Decson S16 26
CFR 29. 6-1 . s further amended as foows:
( ) y strkng out so much of such secton as precedes the frst
sentence and by nsertng n eu thereof the foowng:
Sec. 29. 0-1. Date on Wncn Ta Sha e Pad. (a) Ta abe years endng
before December SI. IOoO. The provsons of ths paragraph sha appy ony
wth respect to ta abe years endng before December 31, 19 0.
( ) y addng at the end thereof the foowng:
Notwthstandng the precedng provsons of ths paragraph (a), n the case
of an estate or trust the ta abe yonr of whch end after September 23. 19 0.
the ta sha be pad on or before the 1 th day of the fourth month foowng
the ccse of such year, or, f pad n nstaments, sha be pad n equa nsta-
ments on or before such date and on or before the 1 th day of the thrd, s th,
and nnth month foowng such date.
(6) Ta abe years endng on or after December St. 19 0. (1) In genera.
Wth respect to ta abe years endng on or after December 31, 19 0, the ta ,
uness t s requred to be wthhed at the source under secton 1G22, s tc be
pad on or before the 1 th day of March foowng the cose of the caendar year,
or, f the return s made on the bass of a fsca year, on or before the 1 th day of
the thrd month foowng the cose of such fsca year. See, however, (2) of
ths subsecton wth respect to estates and trusts.
In any case n whch an ndvdua ta payer s entted to eect, and does so
eect, to fe as hs return Form 10 0 , as provded n secton 29. 1-2, the amount
of the ta determned by the coector s to be pad wthn 30 days after the date
of mang by the coector to the ta payer of a notce statng the amount payabe
by the ta payer and makng demand upon tbe ta payer therefor.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

29. 2-3.
In the case of a return (other than a retnrn by a nonresdent aen ndvdua
who does not have wages sub|ect to wthhodng under secton 1622 or a non-
resdent foregn corporaton) for a fractona pnrt of a year, the ta s to be
pad on or before the ast day prescrbed for the fng of the return (see secton
29. 3-1). ut see secton 29. 3-3.
For the tme of payment of ta by a nonresdent aen ndvdua (e cept a
bona fde resdent of Puerto Rco sub|ect to the provsons of secton 220) who
does not have wages sub|ect to wthhodng under secton 1622, see secton 21 .
In the case of a nonresdent aen ndvdua who s a bona fde resdent of Puerto
Rco durng the entre ta abe year and thus sub|ect to the provsons of secton
220, the ta for ta abe years begnnng after December 31, 1930, s to be pad
at the tme provded In the case cf Unted States ctzens and resdents.
For the tme of payment of ta by a nonresdent foregn corporaton, see
secton 236.
(2) states and trusts. In the case of the ta mposed upon an estate or
trust, the ta sha be pad on or before the 1 th day of pr foowng the cose
of the caendar year, or, f the return s made on the bass of a fsca year, on
or before the 1 th day of the fourth month foowng the cose of the fsca year.
(3) Instament payments. () states of decedents. Wth respect to estates
of decedents, the fducary may eect to pay the ta n four equa nstaments.
Instead of n a snge payment, n whch case the frst nstament sha be pad
on or before the date prescrbed for the payment of the ta as a snge payment,
the second nstament sha be pad on or before the 1 th day of the thrd
month, the thrd nstament on or before the 1 th day of the s th month, and
the fourth nstament on or before the 1 th day of the nnth month, after such
date.
() Corporatons Ta abe years endng before December St, 19 ). Wth
respect to ta abe years of corporatons endng on or after December 31, 19 0,
and before December 31, 19 , the ta payer may eect to pay the ta n four
nstaments, and n such case the amount of the ta pad by each nstament
sha be as foows:
If the ta abe year ends
each of the frst
two nstaments
sha be the
foowng
perccntfpe
of the ta
and each of the
ast two nsta-
ments sha be
the foowng
percentage
of the ta
on or after
and before
December 31. 10 0
December 31. 1C.11
30
3
0

20
1
10
t
December 31, 10 1
December 31, n 2
December 31, 19 2
December 31. 19 3
December 31. 19 3
December 31, 19
The frst nstament sha be pad on or before the date prescrbed for the
payment of the ta as a snge payment, the second nstamenC sha be pad
on or before the 1 th day of the thrd month, the thrd nstament on or before
the 1 th day of the s th month, and the fourth nstament on or before the 1 th
day of the nnth month, after such date.
() Corporatons Ta abe year endng on or after December SI, 19 . Wth
respect to ta abe years of corporatons endng on or after December 31. 19 ,
the ta payer may eect to pay the ta n two equa nstaments, n whch case
the frst nstament sha be pad on or before the date prescrbed for the pay-
ment of the ta as a snge payment and the second nstament on or before
the 1 th day of the thrd month after such date.
(v) In genera. If the ta payer eects to pay the ta n nstaments, any
nstament may be pad, at the eecton of the ta payer, pror to the date pre-
scrbed for ts payment. If an nstament s not pac n fu on or before the
date f ed for ts payment ether by the Interna Revenue Code or by the Com-
mssoner n accordance wth the terms of an e tenson, the whoe amount of
the ta unpad sha be pad upon notce and demand from the coector.
In the case of ta payers other than estates of decedents, and other than cor-
poratons, the prvege of nstament payments of the ta does not appy wth
respect to ta abe years endng on or after December 31, 19 0.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 3-2.
6
Par. . There s nserted mmedatey precedng secton 29.1 3-1
26 CFR 29.1 3-1 the foowng:
S C. 219. P IM NT OP T WIT LD T SOURC FROM
NONR SID NT LI NS R NU CT OF 19 0, PPRO D
S PT M R 23, 19 0 .
The frst sentence of secton 1 3(c) s hereby amended to read as
foows: very person requred to deduct and wthhod any ta under
ths secton sha, on or before Match 1 of each year, make return
thereof aud pay the ta to the coector desgnated n secton 3(b).
Par. 9. Secton 29.1 3-7 26 CFR 29.1 3-7 s amended by strkng
out the frst sentence of the thrd paragraph and by nsertng n eu
thereof the foowng:
In every case the ta wthhed durng a caendar year pror to the caendar
year 19 0 must be pad to the coector on or before une 1 of the foowng
year. In every case the ta wthhed durng a caendar year subsequent to the
caendar year 19 9 must be pad on or before March 1 of the foowng year.
(Ths Treasury Decson s ssued pursuant to the authorty con-
taned n secton 62 of the Interna Revenue Code ( 3 Stat. 32; 26
U. S. C. 62).)
ohn . Dun ap,
Commssoner of Interna Revenue.
pproved October 1 , 19 1.
. . Foey,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster October 23, 19 1, : a. m.)
S CTION 3. TIM ND PL C FO FILING R TURNS
Secton 29. 3-1: Tme for fng returns.
nterna revenue code
Reguatons 111 amended. (See T. D. 61, page 1.)
Secton 29. 3-2: tensons of tme for fng 19 1-20-13669
returns. Mn. 66 3
Fng of returns by corporatons for ta abe years endng after
une 30,19 0, and before February 1,19 1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, September 6,19 1.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. Due to the probems facng corporatons as the resut of the
enactment of the cess Profts Ta ct of 19 0, e tensons of tme
have been secured by many corporatons for fng ther ncome ta
returns for ta abe years endng after une 30,19 0, and before Feb-
ruary 1, 19 1, to September 1 , 19 1, or October 1 ,19 1, n the case
of fsca years endng anuary 31,19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
11 .
2. Snce secton 3(a) (2) of the Interna evenue Code mt e -
tensons of tme for fng returns to 6 months, no e tenson of tme
beyond September 1 , 19 1, or October 1 , 19 1, as the case may be,
may be granted wth respect to such ta abe years. owever, pro-
posed egsaton s pendng whch woud e tend the perod for whch
the Commssoner may grant e tensons of tme for such ta abe years
n the case of corporatons sub|ect to the e cess profts ta mposed
by the cess Profts Ta ct of 19 0. ccordngy, n the case of
a corporaton sub|ect to the e cess profts ta whch has been granted
an e tenson of tme to September 1 , 19 1, or October 1 , 19 1, as
the case may be, wth respect to a ta abe year descrbed n paragraph
1, above, coectors may entertan appcatons for an e tenson of
tme, not beyond November 1 , 19 1, for fng returns of the ta es
mposed by chapter 1 of the Code for such ta abe year. Coectors
may grant such e tensons condtoned, however, upon the enactment
of egsaton authorzng such e tensons. The e tensons w take
effect ony f such egsaton s enacted.
3. corporatons are sub|ect to e cess profts ta wthn the
meanng of paragraph 2 e cept those specfcay e empted under
secton of the Code.
. Correspondence regardng ths mmeograph shoud refer to
ts number and the symbos IT: P: C .
ohn . Dunap,
Comm. ssoner.
Secton 29. 3-3: tensons of tme n the case of
foregn organzatons, certan domestc corpora-
tons, ctzens of Unted States resdng or trave-
ng abroad, and nonta abe returns of fducares
for estates or trusts.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. G1, page 1.)
S CTION . PU LICITY OF R TURNS
19 1-17-136 6
T. D.
TITL 26 INT RN L R NU . C PT R I, SUP.Cn PT , P RT .
INSP CTION OF R TURNS
Inspecton of ncome, e cess-profts, decared vnue e cess-profts,
capta stock, estate, and gft ta returns by the Senate Commttee
on pendtures In the ecutve Departments.
Treasury Department,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
Sec. .307. Inspecton of Returns by Senate Commttee on
pendtures n the ecutve Departments. (a) Pursuant to the
provsons of sectons (a), 0 ,603,729(a), and 120 of the Interna
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
.

Revenue Code ( 3 Stat. 20, 111, 171; Stat. 9 9,100 : Stat. 722;
2G U. S. C. (a). 0 . 00 , 729(a), and 120 ), and of the ecutve
order ssued thereunder, any ncome, e cess-profts, decared vaue
e cess-profts, capta stock, estate, or gft ta return for the years
19 to 19 0, ncusve, whch contans nformaton necessary to the
nvestgaton of the sae of tanker shps by the Unted States Martme
Commsson, sha, durng the frst sesson of the ghty-second Con-
gress, be open to nspecton by the Senate Commttee on pendtures
n the ecutve Departments or the duy authorzed subcommttee
thereof for the purpose of nvestgatng the sae of tanker shps by
the Unted States Martme Commsson, as a part of the study of
the operaton of Government actvtes wth a vew to determnng ts
economy and efcency.
The nspecton of returns heren authorzed may be made by the
commttee or such duy authorzed subcommttee thereof, actng d-
recty as a commttee or as a subcommttee, or by or through such
e amners or agents as the commttee or the subcommttee may desg-
nate or appont n ts wrtten request herenafter mentoned. Upon
wrtten request by the charman of the commttee or of the authorzed
subcommttee to the Secretary of the Treasur , gvng the names and
addresses of the ta payers whose returns t s necessary to nspect,
the ta abe perods covered by the returns, and the reasons why. as a
part of the aforesad study of the operaton of Government actvtes,
nspecton of the returns s necessary to the nvestgaton of the sae
cf tanker shps by the Unted States Martme Commsson, the Sec-
retary and any offcer or empoyee of the Treasury Department sha
furnsh such commttee or subcommttee wth any data reatng to
or contaned n any such return, or sha make such return avaabe
for nspecton by the commttee or the subcommttee or by such e -
amners or agents as the commttee or the subcommttee may desgnate
or appont, n the offce of the Commssoner of Interna Revenue. ny
nformaton thus obtaned by the commttee or the subcommttee
thereof sha be hed confdenta: Provded, kocever, That any por-
ton or portons thereof reevant or pertnent to the purpose of the
nvestgaton may be submtted by the commttee to the Unted States
Senate.
(b) ecause of the mmedate need of the sad commttee to nspect
the ta returns heren mentoned, t s found that t s mpractcabe
and contrary to the pubc nterest to ssue ths Treasury Decson wth
notce and pubc procedure thereon under secton (a) of the dmn-
stratve Procedure ct, approved une 11, 19 0, or sub|ect to the
effectve date mtaton of secton (c) of that ct.
(c) Ths Treasury Decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
o W. Snyder,
Secretary of the Treasury.
pproved uy 2 , 19 1.
arry S. Truman,
2 he Whte ouse.
(Fed wth the Dvson of the Federa Regster uy 2 ,19 1,11: G a. n.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
.
INSP CTION OF INCOM . C SS-PROFITS, D CL R D LU C SS-PROFITS.
C PIT L STOC , ST T . ND GIFT T R TURNS Y TI1 S N T COM-
MITT ON P NDITUR S IN T CUTI D P RTM NTS
y vrtue of the authorty vested n me by sectons (a). 0 , G03,
729(a), and 120 of the Interna Revenue Code ( 3 Stat. 29. I, 171;
Stat. 9 9,100 ; Stat. 722; 26 U. S. C. (a), 0 , 603, 729(a), and
120 ), t s hereby ordered that any ncome, e cess-profts, decared
vaue e cess-profts, capta stock, estate, or gft ta return for the
years 19 to 19 0, ncusve, whch contans nformaton necessary
to the nvestgaton of the sae of tanker shps by the Unted States
Martme Commsson, sha, durng the frst sesson of the ghty-
second Congress, be onen to nspecton by the Senate Commttee on
pendtures n the ecutve Departments or the duy authorzed
subcommttee thereof for the purpose of nvestgatng the sae of
tanker shps by the Unted States Martme Commsson, as a part
of the study of the operaton of Government actvtes wth a vew to
determnng ts economy and effcency, sub|ect to the condtons stated
n the Treasury Decson reatng to the nspecton of such returns by
that commttee, approved by me ths date.
Ths ecutve order sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
arry S. Truman.
The Whte ouse.
uy 2 ,10 1.
( . O. 1027 )
(Fed wth the Dvson of the Federa Regster uy 2 , 19 1,11: 6 a. m.)
19 1-1 -136 7
T. D. 2
TITL 26 INT RN L R NU . C PT R I, SUP.C PT R , P RT .
INSP CTION OF R TURNS
Inspecton of ncome, e cess-prcfts. decared vaue e cess-profts,
capta stock, estate, and gft ta returns for an| perod to and n-
cudng 19 0 by the Senate Speca Commttee to Investgate Organ-
zed Crme n Interstate Commerce.
Treasury Department,
11 ashngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Pursuant to the provsons of sectons (a), 0 ,
603.729(a), and 120 of the Interna Revenue Code ( 3 Stat. 29. I,
171; Stat. 9 9,100 ; Stat. 722; 26 U. S. C. (a), 0 , 603,729 (a),
and 120 ), and of the ecutve order ssued thereunder, openng
ncome, e cess-profts, decared vaue e cess-profts, capta stock,
estate, and gft ta returns for any perod to and ncudng 19 0 to
nspecton by the Speca Commttee to Investgate Organzed Crme
n Interstate Commerce, estabshed pursuant to Senate Resouton
202 ( 1st Cong., 2d sess.), Treasury Decson 793 C. . 19 0-2, 37 ,
approved by me on une 17,19 0 26 CFR .30 , s hereby amended
by strkng out 19 9 and nsertng n eu thereof 19 0 .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
.1
0
Par. 2. ecause of the mmedate need of the sad Speca Com-
mttee to nspect such ta returns for 19 0, t s found that t s
mpractcabe and contrary to the pubc nterest to ssue ths Treasury
Decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11, 19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad ct.
Par. 3. Ths Treasury Decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
ohn W. Snyder,
Secretary of the Treasury.
pproved ugust 16,19 1.
arry S. Truman,
The Whte ouse.
(Fed wth te Dvson of tbe Federa Regster ugust I , 19 1, : 0 p. m.)
INSP CTION OF INCOM . C SS-PROFITS D CL R D LU C SS-PROFITS.
C PIT L STOC . ST T . ND GIFT T R TURNS FOR NY P RIOD TO ND
INCLUDING 1U 0 Y T S N T SP CI L COMMITT TO IN STIG T
ORG NIZ D CRIM IN INT RST T COMM RC
y vrtue of the authorty vested n me by sectons (a). 0 , 603,
729(a), and 120 of the Interna Revenue Code ( 3 Stat. 29. 111. 171;
Stat. 9 9, 100 ; Stat. 722; 26 U. S. C. (a), 0S, G03, 729(a),
and 120 ), t s hereby ordered that any ncome, e cess-profts, de-
cared vaue e cess-profts, capta stock, estate, or gft ta return for
any perod to and ncudng 19 0 sha be open to nspecton by the
Speca Commttee estabshed pursuant to Senate Resouton 202
( 1st Cong., 2d sess.), for the purpose of carryng out the provsons
of the sad Senate Resouton, sub|ect to the condtons stated n
Treasury Decson 793, approved une 17, 19 0, as amended by the
Treasury Decson approved by me ths date, reatng to the nspecton
of such returns by that commttee.
Ths ecutve order sha be effectve upon ts fng for pubcaton
n the Federa Regster.
arry S. Truman.
Thf. Whte ouse,
ugust 16,19 1.
( . O. 10279)
(Fed wth te Dvson of the Federa Regster ugust 17, 19 1, 9:32 a. m.)
19 1-2 -13716
T. D. S66
TITL 26 INT RN L R NU . C PT R I. SU C PT R . P RT .
INSP CTION OF R TURNS
Inspecton of Income, e cess-profts, decared vaue e cess-profts,
capta stock, estate, and gft ta returns by the Senate Commttee
ou the Dstrct of Coumba.
Treasury Department,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
Sec. .30 . Inspecton of Returns by Senate Commttee on
the Dstrct of Coumba. (a) Pursuant to the provsons of sec-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
.
tons (a), 0 , 60S. 729(a), and 120 of the Interna Revenue Code
( 3 Stat. 29, 111, 171; Stat. 9 9, 100 ; Stat. 722; 26 U. S. C.
(a), 0 , 603, 729(a), and 120 ), and of the ecutve order ssued
thereunder, any ncome, e cess-profts, decared vaue e cess-profts,
capta stock, estate, or gft ta return for any perod to and ncud-
ng 19 0 sha be open to nspecton by the Senate Commttee on the
Dstrct of Coumba or any duy authorzed subcommttee thereof,
for the purpose of carryng out the provsons of Senate Resouton
136 ( 2d Cong., 1st sess.).
The nspecton of returns heren authorzed may be made by the
commttee or a duy authorzed subcommttee thereof, actng drecty
as a commttee or as a subcommttee, or by or through such e am-
ners or agents as the commttee or subcommttee may desgnate or
appont n ts wrtten request herenafter mentoned. Upon wrtten
request by the charman of the commttee or of the authorzed sub-
commttee to the Secretary of the Treasury, gvng the names and
addresses of the ta payers whose returns t s necessary to nspect and
the ta abe perods covered by the returns, the Secretary and any
offcer or empoyee of the Treasury Department sha furnsh such
commttee or subcommttee wth any data reatng to or contaned n
any such return, or sha make such return avaabe for nspecton by
(he commttee or subcommttee or by such e amners or agents as
the commttee or subcommttee may desgnate or appont, n the offce
of the Commssoner of Interna Revenue. ny nformaton thus
obtaned by the commttee or subcommttee thereof sha be hed
confdenta: Provded, hocever, That any porton or portons thereof
reevant or pertnent to the purpose of the nvestgaton may be
submtted by the commttee to the Unted States Senate.
(b) ecause of the mmedate need of the sad Senate Commttee
on the Dstrct of Coumba to nspect the ta returns heren men-
toned, t s found that t s mpractcabe and contrary to the pubc
nterest to ssue ths Treasury Decson wth notce and pubc
procedure thereon under secton (a) of the dmnstratve Proce-
dure ct, approved une 11,19 6, or sub|ect to the effectve date m-
taton of secton (c) of sad ct.
(c) Ths Treasury Decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
ohn T . Snyder,
Secretary of the Treasury.
pproved November 12, 19 1.
arry S. Truman,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster November 1 , 19 1, 3:19 p. m.)
INSP CTION OF INCOM , C SS-PROFITS. D CL R D LU C SS-PROFITS,
C PIT L STOC ST T . ND GIFT T R TURNS Y T S N T COM-
MITT ON T DISTRICT OF COLUM I
y vrtue of the authorty vested n me by sectons (a), 0 , 603,
729(a), and 120 of the Interna Revenue Code ( 3 Stat. 29, 111, 171;
Stat. 9 9, 100 ; Stat. 722; 26 U. S. C. (a), 0 , 603, 729(a),
and 120 ), t s hereby ordered that any ncome, e cess-profts, decared
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 7-1.) 2
vaue e cess-profts, capta stock, estate, or gft ta return for any
perod to and ncudng 19 0 sha be open to nspecton by the Senate
Commttee on the Dstrct of Coumba or any duy authorzed sub-
commttee thereof for the purpose of carryng out the provsons of
Senate Resouton 136 ( 2d Congress, 1st sesson), sub|ect to the
condtons stated n the Treasury Decson reatng to the nspecton
of such returns by that commttee, approved by me ths date.
Ths ecutve order sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
arry S. Truman.
The Whte cuse,
November 12, 10 1.
( . 0.1030 )
(Fed wth the Dvson of the Federa Regster November 1 , 19 1, 3:19 p. m.)
S CTION 6. P YM NT OF T
Secton 29. 6-1: Date on whch ta sha be pad.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. SG1, page 1.)
S CTION 7. MIN TION OF R TURN ND
D T RMIN TION OF T
Secton 29. 7-1: amnaton of return and 19 1-17-136 7
determnaton of ta by the Commssoner. Mn. 612
( mendment 1)
Procedure wth respect to fed determnatons of tn abty
agreed to by ta payers whch are dsapproved by post-revew
authortes n Washngton.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C, uy 19, 19 1.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. Mmeograph 612 (C. . 19 7-1, 0), dated March 12, 19 7, s
hereby amended by changng the number of the present concudng
taragraph thereof from to , and by nsertng, mmedatey pre-
cedng such paragraph, a new paragraph readng as foows:
. The procedure outned n subparagraphs (6), (c), and d) of paragraph 3
of ths mmeograph w not be appcabe n cases where e ceptons to fed
cosngs are based upon recommendatons of the otoe of the Chef Counse for
the ureau of Interna Revenue n connecton wth the revew of proposed
overnssessmeuts n e cess of 200,000, t beng tne practce of that offce n those
cases to grant the ta payer or hs representatve an opportunty for a con-
ference before t makes such recommendatons.
Geo. . Schoeneman,
Commssoner.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 29.101 CD 1.
SU C PT R C SUPPL M NT L PRO ISIONS
SUPPL M NT . R T S OF T
S CTION 101. MPTION S FROM T
ON CORPOR TIONS
Secton- 29.101 (7)-: usness eagues, eham- 19 1-1 -13616
bers of commerce, rea estate boards, and I. T. 0 3
boards of trade.
INT RN L R NU COD
corporaton composed of deaers n n certan make of auto-
mobe, such deaers beng ocated n a desgnated area, s organzed
and operated for the prmary purpose of promotng the sae of
automobes by fnancng genera advertsng campagns from funds
contrbuted by deaer-members. ed, the corporaton s prmary
a servce organzaton for ts members, and t s not entted to
e empton from Federa ncome ta as a busness eague under
secton 101(7) of the Interna Revenue Code.
dvce s requested whether a corporaton whch s prmary
organzed and operated for the purpose of advertsng and promot-
ng the sae of a partcuar make of automobe s entted to e emp-
ton from Federa ncome ta under secton 101(7) of the Interna
Revenue Code.
Membershp n the corporaton n queston s restrcted to deaers
who hod franchses for the sae of a certan make of automobe
n a desgnated area. The corporaton was organzed for the purpose
of untng such deaers n that area and promotng the sae of auto-
mobes, parts, and servces by fnancng genera advertsng cam-
pagns from funds contrbuted by deaer-members. These contrbu-
tons, consttutng the ony source of ncome of the corporaton, are
based upon the number of automobes purchased from the manufac-
turer by each member. Part of the corporaton s advertsng s pub-
shed over the names of ts members.
Secton 101(7) of the Interna Revenue Code provdes for the
e empton of:
(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;
Secton 29.101 (7)- of Reguatons 111, n defnng a busness eague,
states n part as foows:
busness eague s an assocaton of persons havng some common busness
nterest, the purpose of whch s to promote such common nterest and not
to engage n a reguar busness of a knd ordnary carred on for proft. It
Iran organzaton of the same genera cass as a chamber of commerce or board
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 perform-
ance of partcuar servces for ndvdua persons.
In the nstant case, the corporaton, nstead of engagng n actv-
tes for the mprovement of busness condtons n the automotve
ndustry as a whoe, s performng partcuar servces for ts members
by advertsng a certan make of automobe whch s sod by ts
deaer-members. ccordngy, t s hed that the corporaton heren
nvoved s prmary a servce organzaton for ts members, and t
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.107-1.

s not entted to e empton from Federa ncome ta as a busness
eague under secton 101(7) of the Interna Revenue Code.
S CTION 107. COMP NS TION FOR S R IC S R N-
D R D FOR P RIOD OF T IRTY-SI MONT S OR
MOR ND C P Y
Secton 29.107-1: Persona servces. 19 1-22-13G 6
G. C. M. 2G993
INT RN L R NU COD
Income receved by n partner as hs share of compensaton for
servces rendered by te partnershp over a perod of 36 months or
more s sub|ect to aocaton over the entre perod under secton 107
of the Interna Revenue Code, as amended, notwthstandng the fact
that part of the servces was rendered pror to the partner s adms-
son to the partnershp.
G. C. M. 2 79o (C. 1 . 19 S-2, CI) revoked.
Reconsderaton as been gven to G. C. M. 2 79 (C. . 19 -2, G)
n the ght of the decsons n Commssoner v. der IF. Marsha
et u . (1 Fed. (2d) G7 ). Commssoner v. Sgvad Neson et war.
(1 7 Fed. (2d) 233), and Commssoner v. urnham nersen et u .
(1 7 Fed. (2d) 233).
Pror to ts amendment by secton 139(a) of the Revenue ct of
19 2, secton 107 of the Interna Revenue Code was appcabe to cases
n whch compensaton was receved for persona servces rendered
by an ndvdua n hs ndvdua capacty, or as a member of a
partnershp, and coverng a perod of fve caendar years or more
from the begnnng to the competon of such servces. It was hed
n Raph G. Lndstrom v. Commssoner (3 T. C. GSG, affrmed, 1 9
Fed. (2d) 3 ) that a new partner coud not nvoke secton 107 of
the Cede where nether he as an ndvdua, nor the partnershp after
he became a member, had performed persona servces for the necessary
mnmum perod of years. The ta payer there was not permtted
to add to hs servces as a partner the ndvdua servces of the other
partners rendered pror to the creaton of the partnershp.
Secton 139(a) of the Revenue ct of 19 2 amended secton 107 of
the Interna Revenue Code so that t now appes to ncome receved
or accrued n one ta abe year by an ndvdua or a partnershp.
G. C. M. 2 79 , supra, n ercct took the poston that the decson n
the Lndstrom case was appcabe to cases nvovng ta abe years
covered by the amendment of secton 107 of the Code and hed that
each ndvdua who had been a partner for 36 caendar months or
more at the tme a fee was receved by the partnershp for persona
servces rendered by the partnershp over a perod of 3G months or
more was entted to the benefts of secton 107(a) of the Code, but.
that an ndvdua who became a partner n the year of recept of
such fee was not entted to the benefts of secton 107(a) of the Code
wth respect to hs share of the fee.
In der W. Marsha et u . v. Commssoner (1 T. C. 90. nonacqu-
escence wthdrawn and acquescence substtuted, page 3 ths ue-
tn), the Ta Court sad:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
29.109-1.
Snce t s te status of the recpent of the ncome n the year of recept,
and not ether hs status n pror years, Federco StaOforth, 6 T. C. 1 0, or the
dentty of the ndvdua who contrbuted the servces that s made to govern
the appcaton of secton 107 n ts present form, we are satsfed that under
the facts of ths proceedng pettoner correcty computed hs ta by use of
ts provsons.
The decsons n the Neson and nersen eases are to the same effe; t
In each of these cases the admsson of the new partner was a genune
transacton wth a proper busness purpose, not motvated by ta
consderatons.
In vew of the foregong, t s the opnon of ths offce that ncome
receved by a partner as hs share of compensaton for servces
rendered by the partnershp over a perod of 36 months or more s
sub|ect to aocaton over the entre perod under secton 107 of the
Interna Revenue Code, as amended, notwthstandng the fact that
part of the servces was rendered pror to the partner s admsson
to the partnershp. ccordngy, G. C. M. 2 79 , supra, s hereby
revoked.
Chares Ophant,
Chef Counse, ureau of Interna Revenue.
S CTION 109. W ST RN MISP R TR D
CORPOR TIONS
Secton 29.109-1: Western emsphere trade 19 1-26-13726
corporatons. I. T. 067
INT RN L R NU COD
The rgn Isands consttute a country n the West Indes wthn
the meanng of secton 109 of the Interna Revenue Code, reatng to
Western emsphere trade corporatons.
dvce s requested whether the rgn Isands consttute a country
n the West Indes wthn the meanng of secton 109 of the Interna
Revenue Code, reatng to Western emsphere trade corporatons.
Under the provsons of secton 1 (b) of the Interna Revenue Code,
a domestc corporaton quafyng as a Western emsphere trade
corporaton s e empt from the surta mposed by that secton upon
corporatons generay. Secton 109 of the Code provdes that for the
purposes of chapter 1 of the Code, the term western hemsphere trade
corporaton means a domestc corporaton a of whose Dusness s
done n any country or countres n North, Centra, or South mer-
ca, or n the West Indes, or n Newfoundand, and whch satsfes
certan specfed condtons. The frst of these condtons s that 9
percent or more of the gross ncome of such domestc corporaton for
the 3-year perod mmedatey precedng the cose of the ta abe year
(or for such part of such perod durng whch the corporaton was n
e stence) was derved from sources other than sources wthn the
Unted States. Secton 29.109-1 of Reguatons 111 provdes n part
that gross ncome from sources wthout the Unted States and wthn
the Unted States sha be determned (for the purposes of secton 109
of the Code) as provded n secton 119 of the Code and the reguatons
prescrbed thereunder. Secton 29.119- of Reguatons 111 provdes
u part that a possesson of the Unted States consttutes a country,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.112(b) (7)- .
3
wthn th . meanng of that secton of the reguatons, separate and
dstnct from the Unted States. For Federa ncome ta purposes,
the rgn Isands consttute a possesson of the Unted States e cept
n connecton wth sectons 2 1 and 2 2 of the Interna evenue Code.
In vew of the foregong and snce the rgn Isands are geograph-
cay ocated n the Lesser ntes, a part of the West Indes, t s
hed that the rgn Isands consttute a country n the West Indes
wthn the meanng of secton 109 cf the Interna Revenue Code.
SUPPL M NT . COMPUT TION OF N T INCOM
S CTION 112(b). R COGNITION OF G IN OR LOSS:
C NG S SOL LY IN IND
Secton 29.112(b) (7)-: Corporate quda- 10 1-21-1367
tons n caendar month n 19 or 19 1. T. D. S G
( so Sectons 29.112(b) (7)-2, 29.112(b)
(7)- , 29.112(b) (7)- ; Secton 113(a).
Secton 29.113(a) (1 )-1; Secton 1 , Sec-
tons 29.1 -2 and 29.1 S-3.)
TITL 26 INT RN L R NU . C PT R I. SU C PT R . P RT 29.
INCOM T ; T L RS NDING FT R D C M R 31. 19 1
Reguatons 111 amended to conform to secton 20C of the Revenue
ct of 19 0.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 26, D. C.
To Coectors of Interna Revenue and Others Concerned:
On une 22, 19 1, notce of proposed rue marng regardng the
provsons of secton 20G, reatng to eecton as to recognton of gan
n certan corporate qudatons, of the Revenue ct of 19 0 ( 1st
Cong. 2d sess.), approved September 23, 19 0, was pubshed n the
Federa Regster (16 F. R. 9 2). No ob|ecton to the rues proposed
havng been receved, the amendments set forth beow are hereby
adopted. Such amendments are necessary n order to conform Regua-
tons 111 26 CFR, part 29 to the provsons of secton 206 of the Reve-
nue ct of 19 0.
Paragraph 1. There s nserted mmedatev precedng secton
29.112(b) (7)- 26 CFR 29.112(b) (7)- the foowng:
S C 20 . L CTION S TO R COGNITION OF G IN IN C R-
T IN CORPOR T LI UID TIONS R NU CT OF 19 0,
LTRO D S PT M R 23, 19 0 .
(a) mendment of Secton 112(b) (7). Secton 112(b) (7) (reatng
to recognton of gan n certan corporate qudatons) s hereby
amended as foows:
(1) Causes () and () cf subparagraph ( ) are hereby amended
to rend as foows:
() the qudaton Is made n pursuance of a pan of
qudaton adopted after December 31, 19 0, whether the ta -
abe year of the corporaton began on, before, or nfter anuary
1, 19 1; and
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
o7
20. 2;b)C7;-.
() the dstrbuton s n compete canceaton or redemp-
ton of the stock, and the transfer of a the property under
the qudaton occurs wthn some one caendar month n
19 1 .
(2) Subparagraph ( ), cause () of subparagraph ( ), and
cause (1) cf subparagraph (F) are each amended by strkng out
December 10, 19 3 and nsertng n eu thereof ugust 1 ,19 0 .

(c) ffectve Date. The amendments made by ths secton sha be
appcabe ony to ta abe years endng after December 31, 19 0.
Par. 2. Secton 29.112(b (7)-. as added bv Treasury Decson
3 6 fC. . 19 , 220 , approved pr 19, 19 26 CFR 29.112(b)
(7)- , s amended as foows:
( ) y nsertng n the headng and n the secton mmedatey
after n 19 , wherever n 19 appears theren, the foowng:
or 19 1 .
( ) y nsertng n the frst sentence of (b), mmedatey after
February 2 , 19 , the foowng:
, f the qudaton occurs wthn one caendar month n 191 , and after De-
cember 31, 19 0, f the qudaton occurs wthn one caendar month n 19 1
(C) y strkng therefrom the second sentence of (b) and nsertng
n eu thereof the foowng:
In the case of a qudaton occurrng n 191 , the pan may be adopted at any
tme after February 2 , 19 , and before the frst dstrbuton under he quda-
ton occurs. In the case of a qudaton occurrng n 19 1, the pan may be
adopted at any tme after December 31, 19 0, and before the frst dstrbuton
under the pan occurs.
Par. 3. Secton 29.112(b) (7)-2, as added bv Treasury Decson
3 6 26 CF 29.112(b) (7)-2 , s amended as foows:
( ) y nsertng n the frst sentence mmedatey after December
10, 19 3 , the foowng:
(In the case of a qudaton occurrng wthn one cafnr ar month n 19 ), or
ugust 1 . 19 0 (n the case of a qudaton occurrng wthn one caendar
month n 19 1)
( ) y strkng from the frst sentence of the e ampe 19 and
nsertng n eu thereof the foowng: 19 1 .
Par. . Secton 29.112(b) (7 - . as added by Treasury Decson 3 C
26 CFR 29.112(b) (7)- , s amended as foows:
( ) y nsertng n the frst sentence of (b) mmedatey after
December 10, 19 3 the foowng:
(n the case of a qudaton occurrng wthn one caendar month n 19 ), or
after ugust 1 , 19 0 (n the case of a qudaton occurrng wthn one caendar
month n 19 1)
( ) y strkng therefrom the second sentence of (b) and nsertng
n eu thereof the foowng:
The mere repacement after December 10, 19 3, or after ugust 1 , 19 1, whch-
ever date s appcabe, of ost or destroyed certfcates or nstruments acqured
on or before such date, or the mere converson of certfcates or nstruments nto
certfcates or nstruments of arger or smaer denomnaton w not consttute
an acquston wthn the meanng of the phrases acqured after December 10,
M . and acqured after ugust 1 , 19 0
0 016 2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.112(b)(7)-.
(C) y nsertng mmedatey before the perod at end of (b) the
foowng:
, or from the ssuance after ugust 1 , 19 0, of certfcates of stock n connecton
wth a subscrpton made and accepted on or before ugust 1 , 19 0
(D) y strkng from the e ampe n (c) of such secton December
10.19 3, wherever December 10,19-13, appears n such e ampe and
nsertng n eu thereof ugust 1 .19 0,r; and by strkng from such
e ampe 19 and nsertng n eu thereof 19 1 .
Par. . Secton 29.112(b) (7)- . as added by Treasury Decson
C 6 26 CFR 29.112(b) (7)- . s amended by nsertng mmedatey
after December 10.19 3 the foowng:
, n the cnse of a qudaton occurrng n 10 , or after ugust 1 , 1930, In the
case of a qudaton occurrng n 19 1
Par. 6. There s nserted mmedatey precedng secton 29.113(a)
(1 )-1 26 CFR 29.113(a) (1 )-1 the foowng:
S C. 206. L CTION S TO R rOGNITION OF G IN IN CFRT IN
CORPOR T LI UID TIONS R NU CT OF 19 0, P-
PRO D S PT M R T3, 19 0 .

(b) ass or Property. Secton 113(a) (IS) (reatng to bass o
property receved n certan corporate qudatons s hereby amended
by nsertng after the word Chapter the foowng (whether before
or after ts amendment by the Revenue ct of 19 0) .
(c) ffectve Date. The amendments made by ths secton sha be
appcabe ony to ta abe years endng after December 31, 10 0.
Par. 7. Secton 29.113(a) (1 )-1. as amended bv Treasury Decson
3 6 20 CFR 29.113(a) (1 )-1 , s further amended as foows:
( ) y strkng and at the end of (a) (2) () and nsertng n
eu thereof the foowng:
, or
() pursuant to a pan of qudaton adopted after December 31,
19 0, n accordance wth whch the dstrbuton s n compete cancea-
ton or redempton of a the stock and the transfer of a the property
n the qudaton occurs wthn some one caendar month of the caendar
year 19 1; and
( ) y nsertng mmedatey before the perod at the end of (n)
the foowng:
, or after ugust 1 ,19 0, f subdvson () s appcabe
Par. . Secton 29.1 -2. as amended by Treasury Decson 3 C
26 CFR 29.1 -2 , s amended as foows:
( ) y nsertng n the headng of (b) (2) mmedatey after of
19 , the foowng: or 19 1 .
( ) y strkng from the frst sentence of (b) (2) . adopted after
February 2 , 19 , and by nsertng n such sentence mmedatey
after caendar year 19 the foowng: or 19 1 .
(C) y nsertng n (b)(2) () mmedatey after sharehoders
as of December 10, 19 3 , the foowng:
(n the case of a qudaton wthn one caendar month n 19 ) or as of
ugust 1 , 19 0 (n the case of a qudaton wthn one caendar month
n 19 1)
(D) y nsertng n (b) (2) (), mmedatey after between De-
cember 10. 19 3, the foowng: or ugust 2 . 19 0, whchever date
s appcabe,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9 2G.113(a)(S)-.
Par. 9. Secton 29.1 S-3. as amended bv Treamrv Decson 6S7
C. . 19 9-1, 9, 3 , approved February 16, 19 9 26CFR 29.1 -3 ,
s further amended by strkng: from the second sentence of the second
paragraph thereof adopted after February 2 . 19 . : and by nsert-
ng n such sentence mmedatey after caendar year 19 the fo-
owng : or 19 1 .
(Ths Treasury Decson s ssued under authorty contaned n sec-
tons 62 and 3791 of the Interna Revenue Code ( 3 Stat. 32. 67;
26 U. S. C. 62. 3791) and pursuant to the provsons of Pubc Law
61 ( 1st Cong.), approved September 23. 19 0.)
Fred S. Martn1,
ctng Commssoner of Interna Revenue.
pproved September 1 . 19 1.
Thomas . Lynch,
ctng Secretary of the Treamtray.
(Fed wth the Dvson of the edern Regster September 20,1031, : a. m.)
Secton 29.112(b) (7)-2: uafed eectng share-
hoder.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 3 C. page 6.)
Secton 29.112(b) (7)- : Treatment of gan.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6, page 6.)
Secton 29.112(b) (7)- : Records to be kept
and nformaton to be fed wth return.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. S 6, page 6.)
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY
Secton 29.113(a) (1 )-1: ass of property receved
n certan corporate qudatons.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6, page 6.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.117-7. 60
S CTION 113(b). D UST D SIS FO D T RMINING
G IN OR LOSS: D UST D SIS
Secton 29.113(b) (1)-1: d|usted bass: Genera
rue.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. S60, page 17.)
S CTION 117. C PIT L G INS ND LOSS S
Secton 29.117-7: Gans and osses from nvoun- 19 1-1 -13626
tary conversons and from the sae or e change of Mm. 6660
certan property used n the trade or busness.
Treatment under secton 117(|) of the Interna Revenue Code of
proceeds from the sae of vestock used for dary, breedng, or other
purposes.
I. T. 3GCC (C. 1 . 19 , 270) and I. T. 3712 (C. . 19 3, 176)
revoked.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C, une 27, 19 1.
Coectors of Interna Revenue. Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others Con-
cerned:
1. Under secton 117(a)(1)( ) of the Interna Revenue Code,
property used n the ta payer s trade or busness of a character whch
s sub|ect to the aowance for deprecaton provded n secton 23(1)
of the Code s e cuded from the defnton of the term capta assets.
owever, under secton 117(|) (2) of the Code, gans and osses from
saes or e changes of such property hed for more than 6 months may.
under certan crcumstances, be treated as gans and osses from saes
or e changes of capta assets. Secton 117(|) (1) of the Code specf-
cay e cudes from the treatment prescrbed by secton 117(|) (2)
( ) property hed by the ta payer prmary for sae to customers n
the ordnary course of hs trade or busness. Lvestock used for
draft, dary, or breedng purposes consttutes property used n the
trade or busness of a character whch s sub|ect to the aowance for
deprecaton, and the queston has been rased whether gans reazed
upon the sae of such anmas cued from the herds are sub|ect to the
favorabe ta treatment prescrbed bv secton 7(|) of the Code.
(See I. T. 3666, C. . 191 . 270. and I. T. 3712. C. . 19-1 . 176.)
2. In R. W. brght v. Unted States (173 Fed. (2d) 339), t was
hed that the profts (there beng no offsettng osses) derved from the
sae of catte (hed for more than 6 months) cued from a dary herd
and from the sae of breedng herds of swne (hed for more than C
months) were sub|ect to treatment as capta gans pursuant to secton
117 (|) of the Interna Revenue Code. The court hed, n effect, that a
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
CI
20.117-7.
dary herd and that breedng herds of swne do not consttute prop-
erty hed by the ta payer prmary for sae to customers n the ord-
nary course of hs trade or busness wthn the meanng of secton
117(|) (1)( ) of the Code. InUnted Satesv. ohn M. ennett et a.
(1 6 Fed. (2d) 07) . the same resut was reached wth respect to catte.
In Leonard C. ne et a. v. Commssoner (1 T. C. 09 ), t was hed
that od cows whch had been acqured, bred once, and then sod were
property hed by the ta payer prmary for sae to customers n the
ordnary course of hs trade or busness wthn the meanng of secton
117(|) (1) ( ) of the Code and that the profts derved from the saes
were ordnary ncome.
3. In vew of the decsons n the above-cted case , the ureau has
ree amned ts poston wth respect to the appcaton of secton
117(|) of the Interna Revenue Code to the proceeds derved from
saes of vestock used for dary, draft, or breedng purposes as set
forth n I. T. 3GG6. supra, and n I. T. 3712, supra.
. It s the present poston of the ureau that gans derved from
the sae of dary, draft, or breedng anmas are to be recognzed as
comng wthn the purvew of secton 7(|) of the Interna Revenue
Code f the ta payer estabshes th:t the partcuar anmas sod
were actuay used for dary, draft, or breedng purposes for substan-
tay ther fu perod of usefuness. If such anmas are sod pror
to such fu perod of usefuness, the ta payer must show that they
were added to the herd for substanta use n such herd and not tem-
porary wth the ob|ect n vew of an eary sae. Gans derved from
the sae of breedng anmas whch were used for the producton of
ony one offsprng or tter of offsprng w not be sub|ect to the
capta gans treatment prescrbed by secton 7(|) of the Code.
nmas whch are used ony temporary as breeders or producers,
ncudng ordnary hogs, chckens, and turkeys, w not D3 sub|ect
to the capta gans treatment prescrbed by secton 117 (|) of the Cede.
. I. T. 366G. supra, and I. T. 3712, supra, are hereby revoked.
6. Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos ndcated: Coectors of nterna revenue.
C:Co; nterna revenue agents n charee, IT: IM; heads of
fed dvsons of the Technca Staff, TS: CY S.
Geo. . Scof. eman ,
Commssoner.
Secton 20.117-7: Gans and osses from nvo- 19 1-20-13070
untary conversons and frcm the sae or e - I. T. 0G2
change of certan property used n the trade
or busness.
( soSecton 23(1), Secton 29.23()-2.)
INT RN L R NU COD
Motor vehces acqured by n deaer n te nsnn course of
purchase for resae, whch vehces are temporary used as dem-
onstrators, are presumaby hed for sae to customers n the ord-
nary course of busness and are propery ncudbe n the nventory
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.117-7.
62
of the deaer If on hand at the cose of the ta abe year. Such
vehces are not sub|ect to the aowance for deprecaton provded
n secton 23(1) of the Interna Revenue Code, nor do they con-
sttute property used n the trade or busness, and any gan on
the sae thereof may not be treated as capta gan under sec-
ton 117 (|) of the Code:
dvce s requested whether motor vehces acqured by a deaer
n the usua course of purchase for resae, whch vehces are tem-
porary used as demonstrators, consttute property sub|ect to the
aowance for deprecaton under secton 23(1) of the Interna Reve-
nue Code, and whether any gan reazed on the subsequent sae of
such vehces may be treated as capta gan under secton 117 (|) of
the Code.
deaer n motor vehces s presumed to hod a such vehces
owned by hm prmary for sae to customers n the ordnary course
of hs trade or busness, and those vehces whch are on hand at
the cose of the ta abe year are propery ncudbe n the nventory
of the deaer. (See secton 29.22(c)-, Reguatons 111.) ow-
ever, ths presumpton may be overcome where a deaer can estab-
sh that a certan vehce (for e ampe, a tow truck) was acqured
and used n the operaton of the busness.
motor vehce acqured by a deaer n the usua course of pur-
chase for resae does not become property used n the trade or busness
when t s merey used for a temporary perod as a demonstrator.
Merchandse hed for sae and. therefore, consttutng a part of the
ta payer s stock n trade s not property used n the busness, and a
ta payer s not entted to a deducton for deprecaton n respect
thereof. (See Iten scut Co. v. Commssoner. 2 . T. . 70.)
Decreases n vaue of merchandse are refected n the ta payer s
cosng nventory n whch a artces of merchandse must be ncuded
ether at ther cost, or at cost or market vaue, whchever s ower.
(See ppea of The Munsng Motor Co.. 1 . T. . 2S6.) Under the
provsons of secton 29.23(1)-2 of Reguatons 111. the aowance for
deprecaton does not appy to nventores or stock n trade.
ccordngy, t s hed that motor vehces acqured by a deaer
n the usua course of purchase for resae, whch vehces are tem-
porary used as demonstrators, are presumaby hed for sae to
customers n the ordnary course of busness and are propery n-
cudbe n the nventory of the deaer f on hand at the cose of
the ta abe year. Such vehces are not sub|ect to the aowance
for deprecaton provded n secton 23(1) of the Interna Revenue
Code, nor do they consttute property used n the trade or busness,
and any gan on the sae thereof may not be treated as capta gan
under secton 117(|) of the Code. (See W. I . Stephens Co. v. Com-
mssoner, Ta Court memorandum opnon dated ugust , 19 1.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
03
29.12 -1.
S CTION 12 . MORTIZ TION D DUCTION
Secton 29.12 -1: Introductory. 19 1-1 -130
( so Sectons 29.12 -2, 29.12 -3, 29.12 - , T. D. 1
29.12 - , 29.12 -6, 29.12 -7, 29.12 - ,
and 29.12 -9: Secton 117, Secton 29.117-9;
Secton 172, Secton 29.172-1; Secton 190,
Secton 29.190-1.)
TITL 26 INT R L R NU . C PT R I. SU C PT R . P RT 29.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 10 1
Reguatons 111 amended to conform to secton 21G of the Revenue
ct of 19 0, reatng to amortzaton of emergency factes.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2- , D. G.
To Coectors of Interna Revenue and Others Concerned:
On pr 13,19 1, notce of proposed rue makng, regardng amend-
ments to Recuatons 111 26 L FR, part 29 made necessary by secton
216 of the Revenue ct of 19 0, approved September 23, 19 0, was
| ubshed n (he Federa Regster (16 F. R. 32 6). fter consdera-
ton of a such reevant matter as was presented by nterested persons
regardng the rues proposed, the amendments to such reguatons set
forth beow are hereby adopted.
Paragraph 1. There s nserted mmedatey foowng secton 23 (t)
the foowng:
S C. 216. MORTIZ TION OF M RG NCY F CILITI S R -
NU CT OF 19 0, PPRO D S PT MS U 23, 19 0 .

(b) Technca mendments. Secton 23(t) s hereby amended 1 y
strkng ou: secton 12 and nsertng n eu thereof secton 12 and
secton 12 .

(d) ffectve Dates. The amendments made by ths secton sha
be appcabe wth respect to ta abe years endng after December 31,
19 9.
Par. 2. There s nserted mmedatey foowng secton 29.12 -10
26 CFR 29.12 -10 the foowng:
S C. 210. MORTIZ TION OF M RG NCY F CILITI S R -
NU CT OF 19 0, PPRO D S PT M 2:t, 19 0 .
(a) mortzaton Deducton. Chapter 1 s hereby amended by
nsertng after secton 12 the foowng:
S C. 12 . MORTIZ TION D DUCTION.
(a) Genera Rue. very person, at hs eectcn, sha be entted
to a deducton wth respect to the amortzaton of the ad|usted bass
(for determnng gan) of any emergency facty (as defned n sub-
secton (d)), based on a perod of s ty months. Such amortzaton
deducton sha be an amount, wth respect to each month of such perod
wthn the ta abe year, equa to the ad|usted bass of the facty at
the end of such month dvded by the number of months (ncudng the
month for whch the deducton s computed) remanng n the perod.
Such ad|usted bass at the end of the month sha be computed wthout
regard to the amortzaton deducton for such month. The amortza-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
I29.12 -1.
0
ton deducton above provded wth respect to any month sha, e cept
to the e tent provded n subsecton (f) of ths secton, be n eu of
the deducton wth respect to such facty for such month provded by
secton 23(1), reatng to e hauston, wear and tear, and obsoescence.
The s ty-month perod sha begn as to any emergency facty, at the
eecton of the ta payer, wth the month foowng tbe month n whch
the facty was competed or acqured, or wth the succeedng ta abe
year.
(b) ecton of mortzaton. The eecton of the ta payer to
take the amortzaton deducton and to begn the s y-month perod
wth the month foowng the month n whch the facty was competed
or acqured, or wth the ta abe year succeedng the ta abe year n
whch such facty was competed or acqured, sha be made by fng
wth the Secretary, n such manner, n such form, and wthn such
tme, as the Secretary may by reguatons prescrbe, a statement of
such eecton.
(c) Termnaton of mortzaton Deducton. ta payer whch
has eected under subsecton (b) to take the amortzaton deducton
provded n subsecton (a) may, at any tme after makng such eecton,
dscontnue the amortzaton deductons wth respect to the remander
of the amortzaton perod, such dscontnuance to begn as of the be-
gnnng of any month specfed by the ta payer n a notce n wrtng
fed wth the Secretary before the begnnng of . uch month. The de-
ducton provded under secton 23(1) sha be aowod. begnnng w;th
the frst mor.th as to whch the amortzaton deducton s not appcabe,
and the ta payer sha not be entted to any furthtr amortzaton
deductons wth respect to such emergency facty.
(d) Defnuc s.
(1) mergenct facty. s used n ths secton, the term
emergency facty means any facty, and, budng, machnery,
or equpment, or any part thereof, the constructon, reconstructon,
erecton, nstaaton, or acquston of whch was competed after
December 31, 10 ). and wth respect to whch a certfcate under
subsecton (e) has been made. In no event sha an amortzaton
deducton be aowed n respect of any emergency facty for any
ta abe year uness a certfcate n respect thereof tnder ths para-
graph sha have been made pror to the fng of the ta payer s
return for such ta nbe year, or, n the case of an emergency
facty competed or acqured by a ta payer after December 31,
10 9. and before the date of enactment of the Revenue ct of 10 0.
uness a certfcate n respect thereof under ths paragraph sha .I
have been made pror to the e praton of tweve months after the
date of enactment of the Revenue ct of 19 0.
(2) mergency perod. s used n ths secton, the term
emergency perod means the perod begnnng anuary 1. 10 0, and
endng cn the date on whch the Presdent procams that the ut-
zaton of a substanta porton of the emergency factes wth
respect to whch certfcatons under subsecton (e) have be sc
made s no onger requred n the nterest of natona defense.
(e) Determnaton of d|usted ass of mergency Facty. In
determnng, for the purposes of subsecton (a) or subsecton (g), the
ad|usted bass of an emergency facty
(1) There sha be ncuded ony so much of the amount of the
ad|usted bass of such facty (computed wthout reg.rd to ths
secton) as s propery attrbutabe to such constructon, recon-
structon, erecton, nstaaton, or acquston after December 31,
10 9. as the certfyng authorty, desgnated by the Presdent by
ecutve order, has certfed as necessary n the nterest of natona
defense durng the emergency perod, and ony such porton of
such amount as such authorty has certfed as attrbutabe to
defense purposes. Such certfcaton sha be under such reguatons
as may be prescrbed from tme to tme by such certfyng authorty
wth te approva of the Presdent. n appcaton for a certfcate
must be fed at such tme and n such manner as may be prescrbed
by such certfyng authorty under such reguatons but n no
event sha such certfcate have any effect uness an appcaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
C
29.12 -.
therefor s fed before the e praton of s months after the begn-
nng of such constructon, reconstructon, erecton, or nstaaton
or the date of such acquston, or before the e praton of s
months after the date of enactment of the Revenue ct of 10 0,
whchever s ater.
(2) fter the competon or acquston of any emergency fa-
cty wth respect to whch a certfcate under paragraph (1) has
been made, auy e pendture (attrbutabe to such facty and to
the perod after such competon or acquston) whch does not
represent constructon, reconstructon, erecton, nstaaton, or
acquston ncuded n such certfcate, but wth respect to whch a
separate certfcate s made under paragraph (1), sha not be
apped n ad|ustment cf the bass of such facty but a separate
bass sha be computed therefor pursuant to paragraph (1) as f t
were a new and separate emergency facty.
(f) Deprecaton Deducton. If the ad|usted bass of the emer-
gercy facty (computed wthout regard to ths secton) s n e cess
of the ad|usted bass computed under subsecton (e), the deducton pro-
vded by secton 23(1) sha, despte the provsons of subsecton (a) cf
ths secton, be aowed wth respect to such emergency facty as f ts
ad|usted bass for the purpose of such deducton were an amount equa
to the amount of such e cess.
(g) TM NT Y UNIT D ST T S OF UN MORTIZ D COST CF F CTLTTT.
If an amount Is propery ncudbe n the gross ncome of the ta payer or.
account of a payment wth respect to an emergency facty and such
payment s certfed as provded n paragraph (3). then, at the eecton
of the ta payer n ts return for the ta abe year n whch such amouDt
s so ncudbe
(1) The amortzaton deducton for the month n whch such
amount s so ncudbe sha (n eu of the amount of the deduc-
ton for such month computed under subsecton (a)) be equa to
the amount so ncudbe but not n e cess of the ad|usted bass
of the emergency facty as of the end of such month (computed
wthout regard to any amortzaton deducton for such month).
Payments referred to n ths paragraph sha be payments the
amounts of whch are certfed, under such reguatons as the Pres-
dent may prescrbe, by the certfyng authorty desgnated by the
Presdent as compensaton to the ta payer for the unamortzed cost
of the emergency facty made because
( ) a contract wth the Unted States nvovng the nse
of the facty has been termnated by ts terms or by cance-
aton, or
( ) the ta payer had reasonabe ground (ether from pro-
vsons of a ccntract wth the Unted States nvovng the use
of the facty, or from wrtten or ora representatons made
under authorty of the Unted States) for antcpatng future
contracts Invovng the use of the facty, whch future con-
tracts have not been made.
(2) In case the ta payer s not entted to any amortzaton
deducton wth respect to the emergency facty, the deducton
aowabe under secton 23(1) on account of the mouth n whch
such amount s so ncudbe sha be ncreased by such amount,
but such deducton on account of such month sha not be n e cess
of the ad|usted bass of the emergency facty as of the end of such
month (computed wthout regard to any amount aowabe, on
account of such month, under secton 2.3(1) or ths paragraph).
(h) Lfe Tenant and Remanderman. In the case of property hed
by one person for fe wth remander to another person, the deducton
sha be computed as f the fe tenant were the absoute owner of the
property and sha be aowabe to the fe tenant.
() Cross Reference. For speca rue wth respect to gan derved
from the sae or e change of property the ad|usted bass of whch s
determned wth regard to ths secton, see secton 117(g) (3).

(d) ffectve Dates. The amendments made by ths secton sha he
appcabe wth respect to ta abe years endng after December 31, 10 0.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S 29.12 -1. 66
Sec. 29.12 -1. Introductory Sectons 29.12 -2 to 29.12 -9, Incusve,
whch are appcabe ony wth respect to ta abe years endng after December
31, 19 9, comprse the reguatons under secton 12 of the Interna Revenue
Code, reatng to the amortzaton of emergency factes, and are to be ds-
tngushed from the reguatons under secton 12 of the Code (sectons 29.12 -1
to 29.12 -10, ncusve), reatng to the amortzaton of emergency factes
durng Word War II. For the rght of estates and trusts to amortze emer-
gency factes, see secton 172 and secton 29.172-1. For the aowance of
amortzaton deducton n the case of emergency factes of partnershps, see
secton 190 and secton 29.190-1. For ncome ta treatment of gan from the
sae or e change of an emergency facty for whch an amortzaton deducton
has been taken, see secton 117(g) (3) and secton 29.117-9.
Sec. 29.12 -2. Defntons. s used n ths secton and sectons 29.12 -3
to 29.12 -9, ncusve, the term
(a) Certfyng authorty means the certfyng authorty desgnated by the
Presdent by ecutve order.
(6) mergency facty means any facty, and, budng, machnery, or
equpment, or any part thereof, the acquston of whch occurred after December
31, 19 9, or the constructon, reconstructon, erecton, or nstaaton of whch
was competed after suc. date, and wth respect to whch a certfcate under
secton 12 (o) has been made. In the case of an appcaton for a certfcate
under secton 12 (e) wh;eh s fed after March 23, 1931, ony the part of any
such facty whch s constructed, reconstructed, erected, or nstaed by any
person not earer than 6 months pror to the fng of such appcaton, and whch
s certfed n accordance wtn secton 12 (e), sha be deemed to be an emergency
facty, notwthstandng that the other part of such facty was constructed,
reconstructed, erected, or nstaed earer than 0 months pror to the 31ng of
such appcaton. The term emergency facty, as so d fned, may ncude,
among other thngs, mprovements of and, such as the constructon of roads,
brdges, and arstrps, and the dredgng of channes.
(c) mergency perod means the perod begnnng on anuary 1, 19 0. and
endng on the date on whch the Presdent procams that the utzaton of a
substanta porton of the certfed emergency factes s no onger requred
n the nterest of natona defense.
Sec. 29.12 -3. mortzaton Deducton Genera Rue. (a) person Is
entted, at ts eecton, to a deducton wth respect to the amortzaton of the
ad|usted bass (for determnng gan) of an emergency facty, such amortzaton
to be based on a perod of 00 months. s to the ad|usted bass of an emergency
facty, see secton 29.12 -6. The ta payer may. wth respect to an emergency
facty, eect to begn the 00-monrh amortzaton perod wth (1) the month
foowng the month n whch such facty was competed or acqured, or (2) the
ta abe year succeedng that n whch such facty was competed or acqured
(see secton 29.12 - ). The date on whch, or the month wthn whch, an
emergency facty s competed or acqured s to be determned upon the facts
n the partcuar case. Ordnary, the ta payer s n possesson of a the facts
and, therefore, n a poston to ascertan such date. statement of the date
ascertaned by the ta payer, together wth a statement of the pertnent facts
reed upon, shoud be ted wth the ta payer s eecton to take amortzaton
deductons wth respect to such facty.
(6) In no event sha an amortzaton deducton e aowed wth espect to
an emergency facty for any ta abe year uness such facty has been certfed
pror to the date of fng of the ta payer s return for such ta abe year, or, n
the case of an emergency facty competed or acqured after December 31. 19 9,
and before September 23, 1930, uness certfed on or before September 23, 19 1,
or the date on whch the return s fed, whchever s ater. See secton
12 (d)().
(c) In genera, wth respect to each month of the 60-month perod whch fas
wthn the ta abe year, the amortzaton deducton s an amount equa to the
ad|usted bass of the facty at the end of such month dvded by the number of
months (ncudng the partcuar month for whch the deducton s computed)
remanng n the 00-month perod. The ad|usted bass of the facty at the
end of any month sha be computed wthout regard to the amortzaton deduc-
ton wth respect to such facty for such month. The tota amortzaton deduc-
ton wth respect to an emergency facty for a partcuar ta abe year s the
sum of the amortzaton deductons aowabe wth respect to such facty for
each month of the 60-month perod whch fas wthn such ta abe year. The
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
07
29.12 -1.
nmortzaton deducton wth respect to an emergency facty taken for any
month s n eu of the deducton for deprecaton whch woud otherwse be
aowabe under secton 23(1) wth respect to such facty for such month. See,
however, secton 29.12 -7, reatng to deprecaton wth respect to any amount
not sub|ect to amortzaton,
(d) Ths secton may be ustrated by the foowng e ampes:
ampe (1). On uy 1, 19130, the Corporaton, whch makes ts ncome ta
returns on the caendar-year bass, begns the constructon of an emergency
facty whch s competed on September 30. 19 0. at a cost of 2 0,000. The
certfcate covers the entre constructon. The Corporaton eects to take
amortzaton deductons wth respect to the facty and to begn the 60-month
amortzaton perod wth October, the month foowng ts competon. The ad-
|usted bass of the facty at the end of October s 210,G00. The a owabe
amortzaton deducton wth respect to such facty for the ta abe year 19 0
s 12,000, computed as foows:
Monthy amortzaton deductons:
October: 2 0,000 dvded by 60 C . C-00
November: 230,000 ( 2 0,000 mnus ,000) dvded by 9 . W0
December: 232,000 ( 230,000 mnus ,000) dvded by S .000
Tota amortzaton deducton for 19 0 12,000
ampe (). The Y Corporaton, whch makes ts nccme ta returns on the
bass of a fsca year endng November 30. purchases an emergency facty
(No. 1) on uy 29. 19 1. On une 1 , 19 1, t begns the constructon of an
emergency facty (No. 2) whch s competed on ugust 2, 19 1. The entre
acquston and constructon of such factes are covered by the certfcate.
The Y Corporaton eects to take amortzaton deductons wth respect to borh
factes and to begn the 60-mcnth amortzaton perod n each case wth the
month foowng the month of acquston or competon. t the end of the
frst month of the amortzaton perod the ad|usted bass of facty No. 1 s
S300.000 and the ad|usted bass of facty o. 2 s ,000. In September
19 1 facty o. 1 s damaged by fre, as a resut of whch ts ad|usted bass s
propery reduced by 2 ,370. The aowabe amortzaton deducton wth respect
tc such factes for the ta abe year endng ovember 30, 19 1, Is 21, 10, com-
puted as foows:
F CILITY SO. 1
Monthy amortzaton deductons:
ugust: 300,000 dvded by 60 ,000
September: 269,630 ( 300,000 mnus ,000 and 2 ,370)
dvded by 9 . 70
October: 26 ,000 ( 269,630 mnus , 70) dvded bv , 70
November: 260, 90 ( 26 ,060 mnus , 70) dvded by 7 , 70
mortzaton deducton for 19 1 1 ,710
F CILITY NO. 2
Motthy amortzaton deductons:
September: ,000 dvded by 00
October: 3,100 dvded by 9 00
November: 2,200 dvded by 900
mortzaton deducton for 19 1 2,700
Tota amortzaton deducton for 19 1 21, 10
ampe (3). On une 1 , 19 1. the Z Corporaton, whch makes ts ncome
ta returns on the caendar-year bass, competes the constructon of an emer-
gency facty at a cost of 110,000. In ts Income ta return for 19 1, fed on
March 1 , 19 2, the Z Corporaton eects to take amortzaton deductons wth
respect to such facty and to begn the 00-month amortzaton perod wth uy,
the month foowng ts competon. No certfcate wth respect to such facty
Is made unt pr 10.19 2, and therefore no amortzaton deducton wth respect
to such facty s aowabe for any month n the ta abe year 19 1. The Z
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.12 -1.
6
Corporaton s entted, however, to take a deducton for deprecnton of such
facty for the ta abe year 19 1, such deducton beng assumed, for the pur-
poses of ths e ampe, to be 2,000. ccordngy, the ad|usted bass of such
facty at the end of anuary 19 2 (wthout regard to the amortzaton deduc-
ton for such month) s 10 ,000 ( 110,000 mnus 2,000). For the ta abe year
19 2, the Z Corporaton s, wth respect to such facty, entted to an amortza-
ton deducton of 2 ,000, computed as foows:
Monthy amortzaton deductons:
anuarv: 10 ,000 dvded by 2,000
Februarv: 100,000 ( 10 ,000 mnus 2 000) dvded by 3 2. 000
March: 10 ,000 ( 106,000 mnus 2,000) dvded by 32 2.000
For the remanng nne months (smary computed) 1 ,000
Tota amortzaton deducton for 19 2 2 , 000
Snce the Z Corporaton eected n ts return for 10 1 to take amortzaton de-
ductons wth respect to such facty and to begn the (O-month amortzaton
perod wth uy 19 1, t must compute ts amortzaton deductons for the 12
months n the ta abe year 19 2 on the bass of the remanng months of the
estabshed 60-month amortzaton perod, as ndcated n the above computaton.
Sec. 29.12 - . ecton of mortzaton. (n) Genua rue. n eecton by
the ta payer to take amortzaton deductons wth respect to an emergency
facty and to begn the 60-month amortzaton perod ether wth the month
foowng the month n whch such facty was competed or acqured, or wth
the ta abe year succeedng the ta abe year n whch such facty was com-
peted or acqured, sha be made by a statement to that effect n ts return for
the ta abe year n whch fut, the trst month of the 60-month amortzaton
perod so eected.
(6) Speca rues n case return fed on or before ugust 1 , 19 1. In the case
of an emergency facty competed or acqured by a ta payer after December 31,
19 9. and wthn a ta abe year for whch a return was ted on or before ugust
1 , 19 1, an eecton by the ta payer to take amortzaton deductons wth respect
thereto for such ta abe year sha be made by a statement n wrtng to that
effect fded wth the Commssoner of Interna Revenue, Washngton 2 , D. C,
on or before September 1, 19 1. statement of eecton by the ta payer n a
return fed on or before ugust 1 , 19 1, sha e consdered as the statement
of eecton provded for by ths paragraph uness the ta payer does make the
statement of eecton provded for by ths paragraph.
(c) ecton not made n prescrbed manner. If the statement of eecton s
not made by the ta payer as prescrbed n paragraph (a) or (6) of ths secton,
t may. n the dscreton of the Commssoner and for good cause shown, be made
n such manner and form and wthn such tme as may be approved by the
Commssoner.
(d) Other requrements and consderatons. No method of makng such
eecton other than those prescrbed n ths secton s permtted. ny statement
of eecton shoud contan a descrpton ceary dentfyng each emergency fa-
cty for whch an amortzaton deducton s camed. ta payer whch does
not eect, n the manner proscrbed n ths secton, to take amortzaton de-
ductons wt respect to an emergency facty sha not be entted to amortza-
ton deductons wth respect to such facty. See aso the ast sentence of
secton 12 (d) (1) and secton 29.12 -3(6). restrctng aowance of amortza-
ton deducton to cases where the facty has been certfed pror to certan
appcabe dates.
Sec 29.12 - . r cnoN to Dscontnue mortzaton. (a) If a ta payer
has eected to take amortzaton deductons wth respect to an emergency facty,
t may, after such eecton and pror to the e praton of the 60-month amortza-
ton perod, dscontnue the amortzaton deductons wt respect to such fa-
cty for the remander of the 60-month perod. n eecton to dscontnue the
amortzaton deductons sha be made by a notce n wrtng fed wth the Com-
mssoner of Interna Revenue, Washngton 2 . D. C. specfyng the month as
of the begnnng of whch the ta payer eects to dscontnue such deductons.
Such notce sha be fed before the begnnng of the month specfed theren,
nnd shoud contan a descrpton ceary dentfyng the emergency facty wth
respect to whch the ta payer eects to dscontnue the amortzaton deductons.
If the ta payer so eects to dscontnue the amortzaton deductons wth respect
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
CO
29.12 -1.
to an emergency facty, t sha not be entted to any further amortzaton
deductons wth respect to such facty.
(6) ta payer whch thus eects to dscontnue amortzaton deductons wth
respect to nn emergency facty s entted, f such facty s deprecabe property
under secton 23(1) and the reguatons thereunder, to n deducton for depre-
caton wth respect to such facty. The deducton for deprecaton sha begn
wth the frst month as to whch the amortzaton deducton s not appcabe,
and sha be computed on the ad|usted bass of the pro erty as of the begnnng
of such month (see secton 113(b) and the reguatons thereunder).
(c) Ths secton may be ustrated by the foowng e ampe:
ampe. On uy 1, 19 0, the Corporaton, wnch makes ts ncome ta
returns on the caendar-year bass, purchases an emergency facty, consstng
of and wth a budng thereon, nt a cost of 306,000 of whch 00,00() s aocabe
to the and and 2 0,001) to the budng. The certfcate covers the entre ac-
quston. The corporaton eects to take amortzaton deductons wth respect
to the facty and to begn the GO-mcnth amortzaton perod wth te ta abe
year 19 1. Deprecaton of the budng n the amount of 6,000 s deducted
and aowed for the ta abe year 10 0. On March 2 , 19 2, the corporaton fes
notce wth the Commssoner of ts eecton to dscontnue the amortzaton de-
ductons begnnng wth the month of pr 10 2. The ad|usted bass of te
facty on anuary 31, 19 1. s . 300,000. or the cost of the facty ( 300,00(1)
ess the deprecaton aowed for 19 0 ( 0,000). The amortzaton deductons fur
the ta abe year 19 1 and the months of anuary, February, and March 1C 2,
amount to 7 ,000. or ,000 per month for 1 months. Snce, at the begnnng
of the amortzaton perod ( anuary 1, 19 1). the ad|usted bass of the and s
one-ffth of the ad|usted bass of the entre facty and snce th re are no ad-
|ustments to bass other than on account of amortzaton durng the perod, th
ad|usted bass of the and shoud be reduced by 1 ,000. or one-ffth of the entre
amortzaton deducton, and the ad|usted bass of the budng shoud be reduced
by 60,000, or four-ffths of the entre amortzaton deducton. ccordngy, the
ad|usted bass of the facty as of pr 1, 19 2. s 22 ,000, of whch SISO. OO
s aocabe to the budng for the purpose of deprecaton deductons un or
secton 23(1), and ,000 s aocabe to the and.
Sec. 29.12 -6. d|usted ass of mergency Facty. (a) Ir genera. (1)
The ad|usted bass of an emergency facty for the purr/ose of computng The
amortzaton deducton may dffer from what woud otherwse consttute the
ad|usted bass of such emergency facty, n that t sha be the ad|usted bass
fcr determnng gan (see secton 113) and n that t may be ony a porton of
what woud otherwse consttute the ad|usted bass. Ir w be ony a porton cf
such other ad|usted bass f ony a pcrton of the bass (unad|usted) s attrb-
utabe to certfed constructon, reconstructon, erectcn, nstaaton, or acqus-
ton takng pace after December 31, 19 9. so, t w be ony a porton of
what wcud otherwse consttute the ad|usted bass of the em rg ncy facty
f ony a porton of the bass (unad|usted) s certfed as attrbutabe to defense
purposes. It s therefore necessary frst to determne the unad|usted bass of
the emergency facty from whch the ad|usted bass for amortzaton purposes
s derved.
(2) The -|nad|usted bass for ancrtzton purposes s the same as the unad-
|usted bass otherwse determned ony when the entre constructon, recon-
structon, erecton, nstaaton, or acquston takes pace after December 31,
19 9. and s certfed n ts entrety by the certfyng authorty.
(3) In cases n whch ony a porton of the constructon, reconstructon, erecton,
nstaaton, or acquston attrbutabe to the facty takos pace after December
31. 19 9. and that porton s certfed n ts entrety by the certfyng authorty,
the unad|usted bass for the purpose of amortzaton s so much of the entre
unad|usted bass as s attrbutabe to the certfed constructon, reconstructon,
erecton, nstaaton, or acquston whch takes pace after December 31, 19 9.
For e ampe, the Corporaton begns the constructon of a facty on November
1 , 19 9. and such facty s competed on pr 1. 19 0. at a cost of 00,000, of
whch 300,000 s attrbutabe to. constructon after December 31, 19 9. The
entre constructon after December 31, 19 9. s certfed by the certfyng authorty.
The unad|usted bass of the emergency facty for amortzaton purposes s
therefore 300,000. For deprecaton of the remanng porton of the cost ( 200-
000) see secton 29.12 -7.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.12 -1.
70
) If the certfyng authorty certfes ony a porton of the constructon,
reconstructon, erecton, nstaaton, or acquston of property whch takes
pace after December 31, 19 9, the unad|usted bass for amortzaton purposes s
mted to such porton so certfed. ssumng the same facts as n the e ampe
n subparagraph (3), e cept that ony 0 percent of the constructon, reconstruc-
ton, erecton, nstaaton, or acquston after December 31. 19 9. s certfed, the
unad|usted bass for amortzaton purposes s 0 percent of 300,000, or 1 0,000.
( ) The ad|usted bass of an emergency facty for amortzaton purposes s
the unad|usted bass for amortzaton purposes ess the ad|ustments propery
appcabe thereto. Such ad|ustments are those specfed n secton 113(b),
e cept that no ad|ustments are to be taken nto account whch ncrease the
ad|usted bass. (See paragraph ( 6) of ths secton.) If the ta payer constructs,
reconstructs, erects, nstas, or acqures an emergency facty pursuant to a
cost renbursement contract wth ar. obgaton for rembursement by the Unted
States of a or a part of the cost of such facty, the unad|usted bass of sncb
facty for amortzaton purposes sha not ncude that part of the cost for
whch the ta payer s entted to rembursement, and the amount receved as
rembursement sha bo treated as a capta recept. owever, amounts receved
by a ta payer whch represent n fact compensaton by rea on of termnaton
of a Government contract or payment for artces under such a contract, though
denomnated rembursements for a or a part of the cost of an emergency facty,
are not to be treated as capta recepts but are to be taken nto account n com-
putng ncome, and are therefore not to be apped n reducton of the bass of
such facty.
(6) The foowng e ampes w ustrate the computaton of the ad|usted
bass of an emergency facty for amortzaton purposes:
ampe (1). The Corporaton competes an emergency facty on uy
1. 19 0. the entre unad|usted bass of whch s 00,000. and the unad|usted
bass of whch for the purpose of amortzaton s 300,000. The Corporaton
eects to begn amortzaton as of . anuary 1. 19 1. The ony ad|ustment to
bass for the perod uy 1. 10 0, to anuary 31, 19 1. other than deprecaton
or amortzaton for anuary 19 1. s ,000 for deprecaton for the ast 6 months
of 19 0. The adusted bass for the purpose of amortzaton s therefore 300,000
ess 3,000 ( 300,000/ 00.000 ,000). or 297,000.
ampe (2). On uy 31, 19 , the T Corporaton has an emergency facty
(a budng) whch was competed on uy 1, 19 0. the entre bass of whch
s 00,000, and the unad|usted bass of whch for the purpose of amortzaton
s 300,000. The corporaton eected to begn amortzaton as of anuary 1,
19 1, at whch tme t was entted to ,000 deprecaton for the ast 6 months
of 19 0. On uy 1, 19 . the facty was damaged by re, as the resut of whch
ts ad|usted bass s propery reduced by 200,000. The ad|usted bass of the
emergency facty as of uy 19 for the purpose of amortzaton and depreca-
ton, and the ad|usted bass for other purposes, are 23,S 9.1S, 9,2 0.S2, and
73,100.00, respectvey, computed as foows:
For amor-
tzaton
For depre-
caton
For other
300.000. 00
200. 000. 00 00. 000
2. 000.00 ,000
purposes
U ss deprecaton to anuary 1, 19 1
a. ooo. oo
CUT. . 00
207. 900. Oo
193,000.00
9 .000
107, MO
1 .000
. 6oo.66
9 100.00
6 . 2 0. S2
1 .00.1.00
13 . 7 9. IS
273.100
roo.uoo
23, S 9. 1
9,2 0.00
73.100
The 200,000 fre oss s apped aganst the ad|usted bass for the purpose of
amortzaton and the ad|usted bass for the purpose of deprecaton n the
proporton that each such ad|usted bass at the tme of the fre bears to ther
sum. . e., 9,100/273,100 200,000 or 0 ,2 0. 2, aganst the amortzaton bass,
and 1S ,000/273,100 200,000, or 13 ,7 9.1 , aganst the deprecaton ba-s.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
71
29.12 -1.
(Z ) Capta addtons. It, after the competon or acquston of an emer-
gency facty whch has been certfed by the certfyng authorty, further e -
pendtures are made for constructon, reconstructon, erecton, nstaaton, or
acquston attrbutabe to such facty but not covered by such certfcaton,
such e pendtures sha not be added to the ad|usted bass of the emergency
facty for amortzaton purposes under such certfcaton. If such further
e pendtures are separatey certfed n accordance wth the provsons of sec-
ton 12 (e)() and ths secton, they are treated as certfed e pendtures n
connecton wth a new and separate emergency facty and, f proper eecton
s made, w be taken nto account n computng the ad|usted bass of such new
and separate emergency facty for the purpose of amortzaton.
ampe. On March 1, 19 1, the certfyng authorty certfes as an emer-
gency facty a heatng pant proposed to be constructed by the Z Corporaton.
Such facty s competed on uy 1, 19 1. The Z Corporaton, on ugust 1,
19 1, begns the nstaaton n the pant of an addtona boer, whch s not
ncuded n the certfcaton for the pant but s certfed as a new and separate
emergency facty. For amortzaton purposes, the ad|usted bass of the
heatng pant s determned wthout ncudng the cost of the addtona boer.
Such cost s taken nto account n computng the ad|usted bass of the new and
separate emergency facty (the boer), as to whch the ta payer has a sep-
arate eecton for amortzaton purposes and a separate amortzaton perod.
Sec. 29.I2 -7. Deprecaton of Porton of mergency Facty Not Sud|ect
to mortzaton. (a) The rue set forth n secton 12 (a) (see secton
29.12 -3), that an amortzaton deducton wth respect to an emergency facty
s n eu of any deducton for deprecaton whch woud otherwse he aowabe
under secton 23(1) wth respect to such facty, s sub|ect to the e cepton pro-
vded n secton 12 (f). Under ths e cepton, f the property consttutng such
facty s decrecabe property under secton 23(1) and the reguatons there-
nn er and f the ad|usted bass of such facty as computed under secton 113(b)
for purposes other than the amortzaton deductons (see secton 29.113 (6) (1)-1)
s n e cess of the ad|usted bass computed under secton 12 (e) for the pur-
pose of the amortzaton deductons (see secton 29.12 -C), then the e cess
sha be charged off over the usefu fe of the facty and recovered through
deprecaton deductons. Thus, f the constructon of an emergency facty s
begun on or before December 31, 19 9, and competed after such date, no amort-
zaton deductons are aowabe wth respect to the amount attrbutabe to such
constructon on or before such date (see secton 29.12 -C). owever, f the
property consttutng such facty s deprecabe property under secton 23(1)
and the reguatons thereunder, then the deprecaton deducton provded by
such secton and reguatons s aowabe wth respect to the amount attrbutabe
to such constructs n on or before December 31, 19 9.
(6) Smary, f ony a porton of the constructon, reconstructon, erecton,
nstaaton, or acquston after December 31, 19 9, of an emergency facty
has been certfed by the certfyng authorty, and f sue .-, facty s deprecabe
property under secton 23(1) and the reguatons thereunder, then the deprecaton
deducton provded by such secton and reguatons s aowabe wth respect to
the porton whch has not been so certfed.
(c) For ustraton of the treatment of a deprecabe porton of an emergency
facty, see e ampe (2) n secton 29.12 -6(a).
Sec. 29.12 -S. Payment ny Unted Statcs of Unamortzed Cost of Fa-
cty. (n) Secton 12 (g) contempates that certan payments may be made
by the Unted States to a ta payer as compensaton for the unamortzed cost
of an emergency facty. If any such payment s propery ncudbe n gross
Income and |ns been certfed, as provded n secton 12 (g). as havng )cen
pad under the crcumstances descrbed theren, a ta payer whch s recoverng
the ad|usted bass of an emergency facty through amortzaton rather than
deprecaton may eect to take an amount equa to such payment as an amortza-
ton deducton wth respect to such facty for the month n whch such payment
s so ncudbe. Such amortzaton deducton sha be n eu of the amortzaton
deducton otherwse aowabe wth respect to such facty for such month,
but It sha not n any case e ceed the ad|usted bass of such facty (see secton
29.12 -0) as of the end of such month (computed wthout regard to nny
amortzaton deducton for such month). The eecton referred to n ths para-
graph sha be made n the return for the ta abe yenr n whch the amount
of such payment s ncudbe n gross ncome.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.12 -1.
72
(6) If a ta payer s recoverng the ad|usted bass of an emergency facty
through deprecaton rather than amortzaton, the deprecaton deducton aow-
abe under secton 23(1) for the month n whch the amount of any such payment
s ncudbe n gross ncome sha, at the ta payer s eecton, be ncreased by
such amount; but the tota deducton wth respect to the certfed porton of
such facty sha not n any case e ceed the ad|usted bass of such facty
(computed as provded n secton 12 (e) and secton 29.12 -G for amortzaton
purposes) as of the end of such month (computed wthout regard to any amount
aowabe for such month under secton 23(1) cr 12 fg) (2)). The eecton
referred to n ths paragraph sha be made n the return for the ta abe year
n whch the amount of such payment s ncudbe n gross ncome.
(c) Ths secton may be ustrated by the foowng e. ampes:
ampe (1). On anuary 31, 19 1, the Corporaton purchases nr emer-
gency facty at a cost of 1 00.000. The certfcate covers the entre acquston.
The Corporaton eects to take amortzaton deductons wth respect to such
facty and to begn the 60-month amortzaton perod wth February 19 1, the
month foowng the month of acquston. On uy 1 . 19 2, as a resut of
the canceaton of certan contracts wth the Corporaton, the Unted States
makes a payment of 300,000 to the corporaton as con pensaton for the un-
amortzed cost of such facty v 300,000 payment s ncudbe n the
Corporaton s gross ncome for uy 19 2. The ad|usted bass of such facty
for amortzaton purposes as of the end of uy 10 2. computed wthout regard
to any amortzaton deducton for such month, s 30,000. ccordngy, the
corporaton s entted to take an amortzaton deducton of 300,000 for such
month, n eu of the 10,000 amortzaton deducton whch s otherwse aowabe.
ampe (2). On November 30, 19 1, the Y Corporaton purchases an ener-
gencv facty, consstng of and wth a budng thereon, at a cost of 00,000,
of whch 200,000 s aocabe to the and and 300,000 to the budng. The
certfcate covers the entre acquston. The Y Corporaton does not eect
to take amortzaton deductons wth respect to such facty, but s entted
to a deprecaton deducton wth respect to the budng at the rate of 3 percent
per annum, or 7 0 per month. On ugust 12, 19 3, as a resut of cancea-
ton of certan contracts, the Unted States makes a payment of 00,000 to
the corporaton as compensaton for rhe unreccvered cost of such facty. The
00,000 s ncudbe n the Y Corporaton s gross ncome for ugust 19 3. The
ad|usted bass of the facty as of the end of ugust 19 3, computed wthout
the fu amount of the 00,000 payment.
Sec. 20.12 -9. Ltfe Tenant and Remanderman. In the case of an emer-
gency facty hed by one person for fe wth remander to another person, the
amortzaton deducton sha be computed as f the fe tenant were the abso-
ute owner of the facty and sha be aowabe to the fe tenant durng hs
fe.
Par. 3. There s nserted mmedatey precedng secton 29.117-1
the foowng:
S C. 21 . MORTIZ TION OF M RG NCY F CILITI S R -
NU CT OF 19 0, PPRO D S PT M R 23, 19 0 .

(c) Gan ttrbutau.k to mortzaton Deducton. Secton 117(g)
s hereby amended by strkng out the perod at the end of paragraph (2)
and nsertng n eu thereof ; and , and by nsertng after paragraph
(2) the foowng new paragraph:
(3) gan from the sae or e change of property, to the e tent
that the ad|usted bass of such property s ess than ts ad|usted
bass determned wthout regard to secton 12 (reatng to
amortzaton deducton), sha be consdered as gan from the sae
or e chnnge of property whch s nether a capta asset nor
property descrbed n subsecton (|).
(d) ffectve Dates. The amendments made by ths secton sha
be appcabe wth respect to ta abe years endng after December 31,
19 9.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
73
29.12 -1.
Par. . There s nserted mmedatey foowng secton 29.117-
the foowng:
Sec. 29.117-9. Gan ttrbutabe to mortzaton Deducton. ( ) Secton
117(g) (3) provdes that gan from a sae or e change of property, to the e tent
that the ad|usted bass of such property s ess than ts ad|usted bass deter-
mned wthout regard to secton 12 , sha be consdered as ordnary ncome.
For e ampe, on December 31, 19 0, a ta payer makng hs ncome ta returns
on the caendar-year bass acqures at a cost of 10,000 an emergency facty
fused n hs busness) whch normay woud have n usefu fe of 20 years.
Tender secton 12- he eects to begn the 60-month amortzaton perod on an-
uary 1, 19 1. e takes amortzaton deductons n the amount of ,000 for
the years 19 1 and 19 2 (2 months). On December 31, 19 2, he ses the
facty for 9, 00. The ad|usted bass of the facty on that date s 0,000
( 10,000 cost ess ,000 amortzaton). Wthout regard to secton 12 , the
facty woud have been deprecated at the rate of 00 a year and ts ad|usted
bass on December 31, 19 2, woud have been 9,000 ( 10,000 cost ess 1,000
deprecaton 1. The dfference between the facty s actua ad|usted bass
( 6,000) and ts ad|usted bass determned wthout regard to secton 12
( 9,000) s 3,000. ccordngy, 3,000 of the 3, 00 gan on the sae of the
facty ( 9, 00 sae prce ess 6,000 ad|usted bass) woud be treated as ord-
nary ncome and the remanng 00 woud be sub|ect to the provsons of
secton 117 ( ).
(6) If the ta payer acqures other property n an e change for an emergency
facty wth respect to whch amortzaton deductons have been aowed, and
f the bass n hs hands of such other property s determned by reference to
the bass of the emergency facty, then the bass of such other property Is de-
termned wth regard to secton 12 , and therefore the provsons of secton
117(g)(3) appy wth respect to gan reazed on a sae or e change of such
other property. The provsons of secton 117(g) (3) kewse appy wth respect
to gan reazed on the sae cr e change of an emergency facty (or other
property acqured, as descrbed n the precedng sentence, n an e change for an
emergency facty) by a ta payer n whose hands the bass of such facty (or
other property) s determned by reference to the bass thereof n the hands
of another person who was aowed deductons wth respect to such facty under
secton 12 .
Par. . Secton 29.172-1 26 CFR 29.172-1 s amended by strkng
out the second sentence and nsertng n eu thereof the foowng:
The same rue s appcabe n the case of an emergency facty, as defned n
secton 12 (d). acqured or competed by an estate or trust after December
31. 19 9. See secton 23(t) and sectons 12 and 12 and the reguatons
thereunder.
Par. 6. Secton 29.190-1 2G CFR 29.190-1 s amended by strkng
cut the second sentence and nsertng n eu thereof the foowng:
The same rue s appcabe n the case of an emergency facty, as defned n
secton 12 (d). acqured or competed by a partnershp after December 1, 19 9.
See secton 23(t) and sectons 12 and 12 and the reguatons thereunder.
(Ths Treasury Decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code ( 3 Stat. 32, 26 U. S. C. 62)
and correspondng provsons of pror nterna revenue aws.)
on . Dunap,
Com nssoner of Interna Revenue.
pproved ugust 10, 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster ugust 1 , 19 1, : 2 a. m.)
9 010 2 0
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.131-1. 7
S CTION 12 . MORTIZ L O D PR MIUM
Secton 29.12 -1: In genera.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. SC0, page 17.)
Secton 29.12 - : Caabe and convertbe bonds.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 60, page 17.)
SUPPL M NT C CR DITS G INST T
S CTION 131. T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S
Secton 29.131-1: nayss of credt for 19 1-2 -1370
ta es. L T. 0G
INT RN L R NU COD
The ta mposed by artce 21, chapter I of Cuban Law No. 2,
approved Say 22, 19 1. on the surpus from operatons or unds-
trbuted profts of corporatons, fas wthn the Unted States
concept of an ncome ta and s aowabe as a credt aganst Unted
States ncome ta under secton 131 of the Interna Revenue Code.
dvce s requested whether the ta mposed by artce 21. chapter
I of Cuban Law No. 2, approved May 22. 19 1, on the surpus from
operatons or undstrbuted profts of corporatons, fas wthn the
I nted States conc pt of an ncome ta and s aowabe as a credt
aganst Unted States ncome ta under secton 131 of the Interna
Revenue Code.
The pertnent provsons of the Cuban aw n queston read n part
as foows:
rtce 21. four percent ( Cr) ta s hereby eved, ony once, on the sur-
pus from operatons cr undstrbuted profts of every corporaton, to the e tent
of ts e cess over a sum equvaent to thrty orcent (309,.) of the pad capta
thereof, as represented by ts ssued and outstandng capta stock.
Ths ta sna not be assessed n the cases where before the frst day of uy,
30,11. t Is resoved to dstrbute, and the dstrbuton s actuay consummated
of, the above specfed prcporton of sad surpus.In any form that w render
t sub|ect to the Dvdend Ta assessabe under Tarff Second of rtce 3 of
Chapter I of the Law of anuary 29. 1931. ns hereby amended. In ths case
sha be requste that such Dvdend Ta be pad wthn the frst ffteen
caendar days of uy, 19 1.
The ta mposed by the frst paragraph of ths rtce sha be computed cn
the frst day of u;-, 19 1, on the bass of the fgures ap earng on the hooks
of each corporaton as of une 30th of the same year, and sha be pad through
certfed returns whch must be fed by the affected corporatons wthn the frst
ffteen caendar days of uy, 19 1.

The tota of the revenues coected as a resut of the assessment of the ta
eved under the frst paragraph of ths rtce sha be deposted n a Speca
I und and paced at the |ont dsposa of the grcutura and Industra
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
29.1 3-1.
Deveopment rnk and the Mnstry of grcuture, whch sha appy t to the
acquston, deveopment and dstrbuton of and among sma farmers, or to
factate the acquston and deveopment of and hy the same, or to the pay-
ment of such amounts as may be necessary n order to prevent evctons.
Secton 131 of the Interna evenue Code provdes n part as
foows:
(a) owance of Credt. If the ta payer chooses to have the benefts of
ths secton, the ta mposed by ths chapter chapter I of the Code ,
sha be credted wth :
(1) Ctzens and domestc corporatons. In the case of a
domestc corporaton, the amount of any ncome ta es pad or
accrued durng the ta abe year to any foregn country
In order for a ta pad to a foregn country to be aowabe as
a credt aganst Unted States ncome ta under secton 131 of the
Code, supra, t must be shown that the ta mposed by the foregn
aw s a ta on ncome wthn the Unted States concept, or s a ta
n eu of an ncome ta .
The Cuban ta under consderaton, mposed by the Cuban Govern-
ment on surpus from operatons or undstrbuted corporate profts
nnd paced n a Government fund for the purpose of effectuatng
agraran reform, s deemed to consttute a ta wthn the Unted States
concept. ta on undstrbuted profts s n the nature of a ta
on ncome. ccordngy, t s hed that the ta mposed by artce
21, chapter I of Cuban Law No. 2, approved May 22, 19 1. on the
surpus from operatons or undstrbuted profts of corporatons, fas
wthn the Unted States concept of an ncome ta and s aowabe
as a credt aganst Unted States ncome ta under secton 131 of
the Interna Revenue Code.
SUPPL M NT D. R TURNS ND P YM NT OF T
S CTION 113. WIT OLDING OF T T SOURC
Secton- 29.113-1: Wthhodne ta at source. 19 1-2 -13717
( so Secton 1 , Secton 29.1 -1.) T. D. 07
TITL 20 INT RN L R NU . C PT R 1. SU C PT R . P RT 7.
T TION PURSU NT TO TR TI S. SL UT SWITZ RL ND, R GUL -
TIONS FF CTI NU Y 1, 19 1
Reease of e cess ta wthhed, and e empton from, or reducton
n rate of, wthhodng under sectons 1 3 and 1 of the Interna
Revenue Code n the case of resdents of Swtzerand and of Swss
corporatons, as affected hy the recproca Income ta conventon
between the Unted States and The Swss Confederaton procamed
by the Presdent of the Unted States on October 1,10 1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2- , D. C.
To Coectors of Interna Revenue and Others Concerned:
Tabe of Contents
Swton
7.300. Introductory.
7.301. Dvdends.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.1 3-1.
76
Secton
7.302. Interest.
7.303. Patent and copyrght royates and fm rentas.
7. 0 . Pensons and fe annutes.
7.30 . Natura resource royates and rea property rentas.
7 03. Reease of e cess ta wthhed at source.
7.307. ddressee not actua owner.
7.. 0 . Return of ta wthhed and nformaton return wth respect to persons
whose addresses are n Swtzerand.
7.C09. enefcares of a domestc estate or trust.
Sectok 7.300. I trodcctort. The ncome ta conventon be-
tween the Unted States and The Swss Confederaton, sgned May
, 19 1, procamed by the Presdent of the Unted States on October
1. 19 1, and effectve as to ta abe years begnnng after December
31, 19 0 (herenafter referred to as the conventon), provdes n part
as foows:
btce I
(1) The ta es referred to n ths conventon are:
(a) In the case of the Unted States of merca :
The Federa ncome ta es, ncudng surta es and e cess profts
ta es.
(b) In the case of The Swss Confederaton:
The federa, cantona and communa ta es on ncome (tota ncome,
earned ncome, ncome from property, ndustra and commerca
profts, etc.).
(2) The present conventon sha aso appy to any other ncome or proft s
r. of a substantay smar character mposed cy ether contractng state
subsequenty to the date of sgnature of the present conventon.
utce II
(1) s used n ths conventon:
(a) The term Unted States means the Unted States of merca, and
when used n a geographca sense means te States, the Terrtores of
aska and awa, and the Dstrct of Coumba.
(b) The term Swtzerand means The Swss Confederaton.
(c) The term permanent estabshment means a branch, effee, factory,
workshop, warehouse or other f ed pace of busness, but does not ncude
the casua and temporary use of merey storage factes, nor does t n-
cude an agency uness the agent has and habtuay e ercses a genera
authorty to negotate ar.d concude cont-acts on behaf of an enterprse
or has a stock of merchandse from whch he reguary fs orders on ts
behaf. n enterprse of enc of the contractng states sha not be deemed
to have a permanent estabshment n the other state merey because t
carres on busness deangs n tuch other state through a commsson
agent, broker or custodan or other ndependent agent actng n the ord-
nary course of hs busness as such. The fact that an enterprse of one
of the contractng states mantans n the other state a f ed pace of
busness e cusvey for the purchase of goods or merchandse sha not
of tsef consttute such f ed pace of busness a permanent estabshment
of such enterprse. The fact that a corporaton of one contractng state
has a subsdary corporaton whch s a corporaton of the other state or
whch s engaged n trade or busness In the other state sha not of tsef
consttute that subsdary corporaton a permanent estabshment of ts
parent corporaton. The mantenance wthn the terrtory of one of the
contractng states by an enterprse of the other contractng state of a
warehouse for convenence of devery and not for purposes of dspay
sha not of tsef consttute a permanent estabshment wthn that terr-
tory even though offers of purchase have been obtaned by an agent of the
enterprse n that terrtory and transmtted by hm to the enterprse for
acceptance.
(d) The term enterprse of one of the contractng states means, as
the case may be, Unted States enterprse or Swss enterprse.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
77
29.1 3-1.
(e) The term Unted States enterprse means an Industra or com-
merca enterprse or undertakng carred on n the Unted States by a
resdent (ncudng an ndvdua, fducary and partnershp) of the Unted
States or by a Unted States corporaton or other entty; the term Unted
States corporaton or other entty means a corporaton or other entty
created or organzed under the aw of the Unted States or of any State
or Terrtory of the Unted States.
(f) The term Swss enterprse means an ndustra or commerca
enterprse or undertakng carred on n Swtzerand by an ndvdua res-
dent n Swtzerand or by a Swss corporaton or other entty: the term
Swss corporaton or other entty means a corporaton or nsttuton or
f ndaton havng |urdca personaty, or a partnershp (assocaton
en nam coectf or en commandte ), or other assocaton wthout
|urdca personaty, created or organzed under Swss aws.
(g) The term competent authortes means, n the case of the Unted
States, the Commssoner of Interna Revenue as authorzed by the Secretary
of the Treasury; and n the case of Swtzerand, the Drector of the Fed-
era Ta dmnstraton as authorzed by the Federa Department of
Fnances and Customs.
(h) The term ndustra or commerca profts ncudes manufacturng,
mercante, mnng, fnanca and nsurance profts, but does not ncude
ncome n the form of dvdends, nterest, rents or royates, or remunera-
ton for persona servces: Provded, however, that such e cepted tems of
ncome sha, sub|ect to the provsons of ths conventon, be ta ed sep-
aratey or together wth ndustra or commerca profts n accordance
wth the aws of the contractng states.
(2) In the appcaton of the provsons of the present conventon by one
of the contractng states any term not otherwse defned sha, uness the con-
te t otherwse requres, have the meanng whch such term has under ts own
ta aws.

rtce I
1 The rate of ta mposed by one of the contractng states upon dvdends
derved from sources wthn such state by a resdent or corporaton or other
entty of the other contractng state not havng a permanent estabshment n
the former state sha not e ceed 1 percent: Provded, however, that ths para-
graph sha have no appcaton to Swss ta n the case of dvdends derved
from Swtzerand by a Swss ctzen (who s not aso a ctzen of the Unted
States) resdent n the Unted States.
(2) It s agreed, however, that such rate of ta sha not e ceed percent
f the sharehoder s a corporaton controng, drecty or ndrecty, at east
). pen ent of the entre votng power n the corporaton payng the dvdend, and
f not more than 2 percent of the gross ncome of such payng corporaton s
derved from nterest and dvdends, other than nterest and dvdends receved
from ts own subsdary corporatons. Such reducton of the rate to percent
sha not appy f the reatonshp of the two corporatons has been arranged
or s mantaned prmary wth the ntenton of securng such reduced rate.
(3) Swtzerand may coect ts ta wthout regard to paragraphs (1) and (2)
of ths artce but w make refund of the ta so coected n e cess of the ta
computed at the reduced rates provded n such paragraphs.
rtce II
(1) The rate of ta mposed by one of the contractng states on nterest on
bonds, securtes, notes, debentures or on any other form of ndebtedness (n-
eudng mortgages or bonds secured by rea property) derved from sources
wthn such contractng state by a resdent or corporaton or other entty of
the other contractng state not havng a permanent estabshment n the former
state sha not e ceed 3 percent: Provded, hocercr, that ths paragraph sha
have no appcaton to Swss ta n the case of nterest derved from Swtzerand
by a Swss ctzen (who s not aso a ctzen of the Unted States) resdent n
the Unted States.
(2) Swtzerand may coect ts ta wthout regard to paragraph (1) of ths
artce but w make refund of the ta so coected n e cess of the ta computed
at the reduced rate provded n such paragraph.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.1 3-1.
7
TICI. III
Royates and other amounts derved, as consderaton for the rght to use
copyrghts, artstc and scentfc works, patents, desgns, pans, secret processes
and formuae, trade-marks, and other ke property and rghts (ncudng rentas
and ke payments n respect to moton pcture fms or for the use of ndustra,
commerca or scentfc equpment), from sources wthn cne of the contractng
st.tes by a resdent or corporaton or other entty of the other contractng state
not havng a permanent estabshment n the former state sha be e empt from
ta aton n such former state.
btce I
(1) Income from rea property (ncudng gans derved from the sae or
e change of such property but not ncudng nterest from mortgages or bonds
secured by rea property) and royates n respect of the operaton of mnes,
quarres, or other natura resources, sha be ta abe ony n the contractng state
n whch such property, mnes, quarres, or other natura resources are stuated.
(2) resdent or corporaton or other entty of one of the contractng states
dervng any such ncome from such property wthn the other contractng state
may, for any ta abe year, eect to be sub|ect to the ta of such other contractng
state, on a net bass, as f such resdent or corporaton or entty were engaged
n trade or busness wthn such other contractng states through a permanent
estabshment theren durng such ta abe year.

btce I

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

btce I
(1) Dvdends and nterest pad by a corporaton other than a Unted States
domestc corporaton sha be e empt from Unted States ta where the recpent
s a nonresdent aen as to the Unted States resdent In Swtzerand or a Swss
corporaton, not havng a permanent estabshment n the Unted States.
(2) Dvdends and nterest pad by a corporaton other than a Swss corpora-
ton sha be e empt from Swss ta where the recpent s a resdent or corpora-
ton of the Unted States, not havng a permanent estabshment n Swtzerand.

btce I
(1) The competent authortes of the contractng states sha e change such
nformaton (beng nformaton avaabe tnder the respectve ta aton aws of
the contractng states) as s necessary for carryng out the provsons of the
present conventon or for the preventon of fraud or the ke n reaton to the
ta es whch are the sub|ect of the present conventon. ny nformaton so e -
changed sha be treated as secret and sha not be dscosed to any person other
than those concerned wth the assessment and coecton of the ta es whch are
the sub|ect of the present conventon. No nformaton sha be e changed whch
woud dscose any trade, busness, ndustra or professona secret or any
trade process.
(2) ach of the contractng states may coect such ta es mposed by the
other contractng state as though such ta es were the ta es of the former
stae as w ensure that the e empton or reduced rate of ta granted under
rtces I, II, III and I(2) of the present conventon by such other suae
sha not be en|oyed by persons not entted to such benets.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
79
29.1 3-1.
(3) In no case sna the provsons of ths artce be construed so as to mpose
upon ether of the contractng states the obgaton to carry out admnstratve
measures at varance wth the reguatons and practce of ether contractng
state or whch woud be contrary to ts soveregnty, securty or pubc pocy or
to suppy partcuars whch are not procurabe under ts own egsaton or that
of the state makng appcaton.

rtce I
(1) The competent authortes of the two contractng states may prescrbe
reguatons necessary to carry nto effect the present conventon wthn the
respectve states.
(2) The competent authortes of the two contractng states may communcate
wth each other drecty for the purpose of gvng effect to the provsons of ths
conventon.
rtce
(1) The present convent on sha be ratfed and the nstruments of ratfca-
ton sha be e changed at erne as soon as possbe. It sha have effect for
the ta abe years begnnng on or after the 1st day anuary of the year n
whch such e change takes pace: Provded, however, that f such e change
takes pace on or after October 1 of such year, rtce I (e cept paragraph C2)
thereof) and rtce II of the conventon sha have effect ony for ta abe
years begnnng on or after the 1st day of . anuary of the year mmedatey fo-
owng the year n whch such e change takes pace.
(2) The present conventon sha con;uue effectve for a perod of 3 years
begnnng wth the caendar year n whch the e change of the nstruments of
ratfcaton takes pace and ndefntey after that perod, but may e termnated
by ether of the contractng states at the end of the -year perod, or at any
tme thereafter, provded that at east C months pror notce of termnaton
has been gven and, n such event, the present conventon sha cease to be
effectve for the ta abe years begnnng on or after the 1st day of anuary ne t
foowng the e praton of the 0-month perod.

s used n ths Treasury Decson, uness the conte t otherwse
requres, the terms defned n the above artces of the conventon sha
have the meanngs so assgned them.
Sec. 7.301. Dvdends. (a) Genera. Under rtce I of the con-
venton, the rate of ta mposed wth respect to dvdends by secton
211(a) of the Interna Revenue Code (reatng to nonresdent aen
ndvduas not engaged n trade or busness wthn the Unted States)
and by secton 231(a) of the Interna Revenue Code (reatng to for-
egn corporatons not engaged n trade or busness wthn the Unted
States) s reduced to 1 percent n the case of dvdends receved n
ta abe years begnnng on or after anuary 1, 19 1, from sources
wthn the I|nted States by a nonresdent aen (ncudng a nonres-
dent aen ndvdua, fducary, and partnershp) who s a resdent
of Swtzerand or by a Swss corporaton f such aen or corporaton
at no tme durng the ta abe year had a permanent estabshment
wthn the Unted States. s to what s a Swss corporaton, see
rtce 11(1) (f) of the conventon. Thus, f a nonresdent aen who
s a resdent of Swtzerand performs persona servces wthn the
Unted States durng the caendar year 10 2, but has at no tme dur-
ng such year a permanent estabshment wthn the Unted States,
he s entted to the reduced rate of ta wth respect to dvdends
derved n that year from Unted States sources, as provded n rtce
I of the conventon, even though, by reason of hs havng rendered
persona servces wtn the Unted States, he s engaged n trade or
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.1 3-1.
SO
busness theren n that year wthn the meanng of secton 211(b)
of the Interna evenue Code. s to what consttutes a permanent
estabshment, see rtce 11(1) (c) of the conventon.
In the case of dvdends pad on or after anuary 1, 19 1, by any
foregn corporaton to a nonresdent aen who s a resdent of Swt-
zerand or to a Swss corporaton, not havng a permanent estabsh-
ment n the Unted States, no wthhodng of Unted States ta s
requred. See rtce I of the conventon.
b) Dvdends pad by a Unted States subsdary corporaton.
Under the provsons of rtce I(2) of the conventon, dvdends
from sources wthn the Unted States pad by a domestc corpora-
ton to a Swss corporaton controng, drecty or ndrecty, at the
tme the dvdend s pad, 9 percent or more of the entre votng power
n such domestc corporaton are, when receved n ta abe years be-
gnnng on or after anuary 1, 19 1, sub|ect to ta at the rate of ony
percent, f (1) not more than 2 percent of the gross ncome of such
payng corporaton for the 3-year perod mmedatey precedng the
ta abe year n whch the dvdend s pad conssts of dvdends and
nterest (other than dvdends and nterest pad to such domestc
corporaton by ts own subsdary corporatons, f any), (2) the rea-
tonshp between such domestc corporaton and such Swss corpora-
ton has not been arranged or mantaned prmary wth the ntenton
of securng such reduced rate of percent, and (3) such Swss cor-
poraton at no tme durng the ta abe year had a permanent estab-
shment wthn the Unted States.
ny domestc corporaton whch cams or contempates camng
that dvdends pad or to be pad by t on or after anuary 1, 19 1, are
sub|ect ony to the percent rate sha fe, as soon as practcabe, wth
the Commssoner of Interna Revenue, the foowng nformaton:
(1) The date and pace of ts organzaton; (2) the number of out-
standng shares of stock of the domestc corporaton havng votng
power and the votng power thereof; (3) the person or persons bene-
fcay ownng such stock of the domestc corporaton and ther re-
atonshp to the Swss corporaton; ( ) the amount of gross ncome,
by years, of the payng corporaton for the 3-year perod mmedatey
precedng the ta abe year n whch the dvdend s pad; ( ) the
amount of nterest and dvdends, by years, ncuded n the gross n-
come of such domestc corporaton and the amount of nterest and
dvdends, by years, receved by such corporaton from ts subsdary
corporatons, f any: and (G) the reatonshp between the domestc
corporaton and the Swss corporaton to whch t pays the dvdends.
s soon as practcabe after such nformaton s fed, the Com-
mssoner of Interna Revenue w determne whether the dvdends
concerned fa wthn the provsons of rtce I(2) of the conven-
ton and may authorze the reease of e cess ta wthhed wth respect
ro dvdends whch come wthn such provsons. In any case n whch
the Commssoner of Interna Revenue has notfed such domestc cor-
poraton that the dvdends come wthn such provsons, the reduced
wthhodng rate of percent w appy to any dvdends subsequent-
y pad by such corporaton to the Swss corporaton uness the stock
ownershp of the domestc corporaton, or the character of ts ncome,
materay changes, or uness the Commssoner of Interna Revenue
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
SI
29.1 3-1.
determnes that the reatonshp between the two corporatons s beng
mantaned prmary wth the ntenton of securng such reduced
rate; and, f such change n stock ownershp or character of ncome
occurs, such corporaton sha prompty notfy the Commssoner of
Interna Revenue of the then e stng facts wth respect to such stock
ownershp or ncome.
(c) ffect of address n Swtzerand on wthhodng n case of dv-
dends. For the purpose of wthhodng of the ta n the case of
dvdend , every nonresdent aen (ncudng a nonresdent aen n-
dvdua, fducary, and partnershp) whose address s n Swtzerand
sha be deemed by Unted States wthhodng agents to be a resdent
of Swtzerand not havng a permanent estabshment n the Unted
States; and every corporaton whose address s n Swtzerand sha
be deemed by such wthhodng agents to be a Swss corporaton not
havng a permanent estabsment n the Unted States.
(d) ate of wthhodng. On and after anuary 1, 19 1, wth-
hodng n the case of dvdends pad to nonresdent aens (ncudng
a nonresdent aen ndvdua, fducary, and partnershp) and to
foregn corporatons, whose addresses are n Swtzerand, sha be at
the rate of 1 percent n every case e cept (1) that n whch, pror to
the date of payment of such dvdends, the Commssoner of Interna
Revenue has notfed the payng corporaton that such dvdends fa
wthn the provsons of rtce I(2) of the conventon and (2) that
n whch the Commssoner of Interna Revenue has, pror to the date
of payment of such dvdends, notfed the wthhodng agent that
the reduced rate of ta sha not appy.
The precedng provsons reatve to resdents of Swtzerand and
to Swss corporatons are based upon the assumpton that the payee
of the dvdend s the actua owner of the capta stock from whch
the dvdend s derved and consequenty s the person abe to the
ta upon such dvdend. s to acton by the recpent who s not the
owner of the dvdend, see secton 7.307.
Sec. 7.302. Interest. (a) Genera. Interest on bonds, securtes,
notes, debentures, or anv other form of ndebtedness (ncudng nter-
est on obgatons of the Unted States, obgatons of nstrumentates
of the Unned States, and mortgages and bonds secured by rea prop-
erty) receved n ta abe years begnnng cn or after anuary 1, 19 1,
from sources wthn the Unted States by a nonresdent aen (ncud-
ng a nonresdent aen ndvdua, fducary, and partnershp) who s
a resdent of Swtzerand, or by a Swss corporaton, s sub|ect to
Unted States ta at the reduced rate of percent under the provsons
of rtce II of the conventon f such aen or corporaton at no
tme durng the ta abe year had a permanent estabshment n the
Unted States.
(6) ppcaton of reduced rate at source. To secure the reduced
rate of ta at the source n the case of coupon bond nterest, the non-
resdent aen resdent n Swtzerand or the Swss corporaton sha
submt Form 1001-S, n dupcate, to the payng agent wth each
presentaton of nterest coupons. Such form sha be sgned by the
owner of the nterest, trustee, or agent and sha show the name and
address of the obgor, the name and address of the owner of such
nterest, and the amount of such nterest. Such form sha contan
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.1 3-1.
2
a statement that the owner s a resdent of Swtzorand or a Swss
corporaton and that such owner has no permanent estabshment n
the Unted States.
The reducton n the rate of Unted States ta contempated by
nterest, s appcabe ony to the owner of such nterest. The person
presentng such coupen or on whose behaf t s presented sha, for
the purpose of the reducton, be deemed to be the owner of the nterest
ony f he s. at the tme the coupon s presented for payment, the
owner of the bond from whch the coupon has been detached. If the
person presentng the coupon s not the owner of the bond, Form 1001,
and not Form 1001-S. sha be e ecuted.
The orgna and dupcate ownershp certfcates. Form 1001-S,
must be forwarded to the Commssoner of Interna Revenue by the
wthhodng agent wth the quartery return. Form 1012, as provded
n e stng reguatons wth respect to Form 1001. See secton 29.1 3-7
of (hs chapter (Reguatons 111). Form 1001-S need not be sted
on Form 1012.
In the case of nterest coupons presented n Swtzerand by a non-
resdent aen who s not a resdent of Swtzerand, or by a foregn
corporaton other than a Swss corporaton, ownershp certfcates.
Form 1001, sha be fed as provded n e stng reguatons wthout
reference to the provsons of the conventon. See secton 29.113- of
ths chapter (Reguatons 111).
To secure the reduced rate of ta at the source n the case of nterest,
other than nterest payabe by means of coupons, the nonresdent aen
who s a resdent of Swtzerand or the Swss corporaton sha fe
Form 1001 -S. n dupcate, wth the wthhodng agent n the Unted
States. Such form sha be sgned by the owner of the nterest,
trustee, or agent and sha show the name and address of the obgor
and the name and address of the owner of such nterest. Such form
sha contan a statement that the owner s a resdent of Swtzerand,
or s a Swss corporaton, not havng a permanent estabshment n
the Unted States.
Form 1001 -S must be fed for each three-caendar-year perod,
and the frst such form fed by the ta payer wth any wthhodng
agent sha be fed not ater than 20 days precedng the date of the
frst payment of ncome n such perod. If the ta payer fes such
form wth the wthhodng agent n the caendar year 19 1, or n any
subsequent caendar year, no addtona Form 1001 -S need be fed
pror to the end of the two caendar years mmedatey foowng the
caendar year n whch such form s so fed uness the Commssoner
of Interna Revenue notfes the wthhodng agent that an addtona
Form 1001 -S must be fed by the ta payer at any earer date. If,
after fng such form, the ta payer ceases to be egbe for the beneft
of the conventon, he must prompty notfy the wthhodng agent.
When any change occurs n the ownershp of record of the ncome on
the books of the payor, the reducton n the rate of Unted States ta
w no onger appy uness Form 1001 -S s duy e ecuted and fed
wth the payor by the new owner of record of such ncome.
The dupcate of Form 1001 -S must be mmedatey forwarded by
the wthhodng agent to the Commssoner of Interna Revenue,
Records Dvson, Washngton 2 , D. C.
rtce II of the conventon,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S3
29.1 3-1.
In the case of nterest pad on or after anuary 1,19 1, by any for-
egn corporaton to a nonresdent aen who s a resdent of Swtzer-
and or to a Swss corporaton, not havng a permanent estabshment
n the Unted States, no wthhodng of Unted States ta s requred.
See rtce I of the conventon.
Sec. 7.1303. Patent and Copyrght Royates and Fm Rentas.
Royates and other amounts receved n ta abe years begnnng on or
after anuary 1,19 1. from sources wthn the Unted States by a non-
resdent aen (ncudng a nonresdent aen ndvdua, fducary, and
partnershp) who s a resdent of Swtzerand or by a Swss corpora-
ton, as consderaton for the rgh, to use copyrghts, artstc and
scentfc works, patents, desgns, pans, secret processes and formuae,
trade-marks, and other ke property and rghts (ncudng rentas
and ke payments n respect to moton pcture fms or for the use of
ndustra, commerca, or scentfc equpment), are e empt from
Unted States ta under the provsons of rtce III of the conven-
ton f such aen or corporaton at no tme durng the ta abe year n
whch such royates or other amounts are receved has had a perma-
nent estabshment wthn the Unted States. Such tems are. there-
fore, not sub|ect to the wthhodng provsons of the Interna Revenue
Code. s to what consttutes a permanent estabshment, see rtce
11(1) (c) of the conventon.
To obvate wthhodng at the source n the case of such tems, 1he
nonresdent aen who s a resdent of Swtzerand or the Swss cor-
poraton sha fe Form 1001 -S, n dupcate, wth the wthhodng
agent n the Unted States. The provsons of secton 7.302 (b) of
these reguatons reatng to the e ecuton and effectve perod of such
form wth respect to nterest are equay appcabe wth respect to the
ncome fang wthn the scope o ths secton.
The dupcate of Form 1001 -S must be mmedatey forwarded by
the wthhodng agent to the Commssoner of Interna Revenue,
Records Dvson, Washngton 2 . D. C.
Sec. 7.30 . Pensons and Lfe nnutes. rtce I(2) of the
conventon provdes that prvate pensons and fe annutes derved
n ta abe years begnnng on or after anuary 1, 19 1, from sources
wthn the Unted States by a nonresdent aen ndvdua who s a
resdent of Swtzerand sha be e empt from Unted States ta .
The person payng such ncome sha be notfed by etter from the
resdent of Swtzerand that the ncome s e empt from ta aton under
the provsons of rtce I (2) and (3), or T (2) and ( ), as the
case may be, of the conventon. Such etter sha contan the address
of the ndvdua and a statement that such ndvdua s a resdent of
Swtzerand. The etter of notfcaton, or a copy thereof, sha be
mmedatey forwarded by the recpent to the Commssoner of
Interna Revenue, Records Dvson, Washngton 2 , D. C. Such
etter sha consttute authorzaton to the payor of the ncome to pay
such ncome wthout deducton of the ta at the source uness the
Commssoner subsequenty notfes such payor that the ta shoud be
wthhed wth respect to payments made after such notfcaton.
Sec. 7.30 . Natura Resource Royates and Rea Property
Ren tas. The conventon does not change the rate of ta mposed
under e stng aw upon natura resource royates and rea property
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.1 3-1.
SI
rentas. The wthhodng of the ta wth respect to such tems de-
rved from sources wthn the Unted States by nonresdent aens who
are resdents of Swtzerand and by Svnss corporatons s not affected
by the conventon. See sectons 211(a) and 231(a) of the Interna
Revenue Code and rtce I of the conventon.
Sec. 7.306. Reease of cess Ta Wthhed at Source. (a)
Genera. In order to brng the conventon nto force and effect at
the earest practcabe date,
(1) the reduced rate of ta of 1 percent to be wthhed at the
source on dvdends,
(2) the reduced rate of ta cf percent to be wthhed at the
source on nterest, and
(3) the e empton from ta otherwse wthhed at the source
on patent royates, copyrght royates, fm rentas, and the ke,
are hereby made effectve begnnng anuary 1, 19 1, n any case n
whch such dvdends, nterest, patent royates, copyrght royates,
fm rentas, and the ke, are derved from sources wthn the Unted
States by a nonresdent aen (ncudng a nonresdent aen nd-
vdua, fducary, and partnershp) who s a resdent of Swtzerand
or by a Swss corporaton.
In the case of every such ta payer who furnshes to the wthhod-
ng agent Form 1001 -S, as prescrbed n secton 7.302(6) or sec-
ton 7.303 of these reguatons, where ta at the rate of 30 percent has
been wthhed on or after anuary 1, 19 1, there sha be reeased by
the wthhodng agent and pad over to the person from whom wth-
hed (1) n the case of nterest (other than coupon bond nterest), an
amount equa to 2 percent of such nterest, and (2) n the case of
patent royates, copyrght royates, fm rentas, and the ke, an
amount equa to the ta so wthhed.
In the case of every such ta payer who furnshes to the wthhodng
agent Form 1001-S, n dupcate, where ta at the rate of 2 percent
or 30 percent, as the case may be. has been wthhed on or after an-
uary 1, 19 1, from coupon bond nterest, there sha be reeased by
the wthhodng agent and pad over to the person from whom t
was wthhed an amount equa to 2 percent of such nterest. Form
1001-S, ceary marked Substtute n order to repace any Forms
1001 prevousy fed, s to be used soey for such reease cf e cess ta
wthhed n 19 1. One Form 1001-S. n dupcate, may be used to
repace two or more Forms 1001 prevousy fed n such year. The
use of Form 1001-S wth each presentaton of nterest coupons for
the purpose of securng the reduced rate of ta s set forth n secton
7.302( ) of these reguatons.
In the case of dvdends pad to a nonresdent aen (ncudng a
nonresdent aen ndvdua, fducary, and partnershp) whose ad-
dress at the tme of payment was n Swtzerand, or to a Swss cor-
poraton whose address at the tme of payment was n Swtzerand,
where ta at the rate of 30 percent has been wthhed on or after an-
uary 1, 19 1, from such dvdends, there sha be reeased by the wth-
hodng agent and pad over to the person from whom t was wth-
hed an amount equa to 1 percent of such dvdends.
(b) Prvate pensons ana fe annutes pad n 19 1 or subsequent
years. In order to brng the conventon nto force and effect at the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S
29.1 3-1.
earest practcabe date, the e empton from ta otherwse wthhed
at the source on prvate pensons and fe annutes s hereby made
effectve begnnng anuary 1, 19 1. n any case n whch such pen-
sons and fe annutes are derved from sources wthn the Unted
States by a nonresdent aen ndvdua who s a resdent of Swtzer-
and.
The person payng such ncome sha be notfed by etter from the
resdent of Swtzerand that the ncome s e empt from ta aton under
the provsons of rtce I (2) and (3), or I (2) and ( ). as the
case may be. of the conventon. See secton 7.30 of these reguatons.
Such etter sha consttute authorzaton to the payor of such ncome,
where ta at the rate of 30 percent has been wthhed on or after an-
uary 1, 19 1, to reease and pay over to the person from whom t was
wthhed an amount equa to the ta so wthhed.
(c) Subsdary s dvdends. Wth respect to a dvdend pad on or
after anuary 1, 19 1, by a domestc corporaton to a Swss corpora-
ton whose address s n Swtzerand, ta sha be wthhed n accord-
ance wth the provsons of secton 7.301 of these reguatons uness
pror to the date of payment of such dvdend the Commssoner of
Interna Revenue has notfed the payng corporaton that such dv-
dend fas wthn the scope of rtce I(2) of the conventon. s
soon as practcabe after nformaton requred under secton 7.301(6)
of these reguatons s fed, the Commssoner of Interna Revenue-
w determne whether the dvdend nvoved fas wthn the scope
cf rtce I(2) and may authorze the reease of the e cess ta wth-
hed wth respect to dvdends whch come wthn the scope of such
provson.
Sec. 7.307. ddressee Not ctua Owner. If the frst recpent
wth an address n Swtzerand of any dvdend from sources wthn
the Unted States s a nomnee or representatve through whom the
dvdend fows to a thrd person, such recpent n Swtzerand w
wthhod an addtona amount of Unted States ta equvaent to
the dfference between the Unted States ta whch woud have been
wthhed had the conventon not been n effect (30 percent as at the
date of approva of ths Treasury Decson) and the 1 percent wth-
hed at the source wth respect to such dvdend pursuant to secton
7.301 (d) of these reguatons.
In any case n whch a fducary or a partnershp wth an address
n Swtzerand receves, otherwse than as a nomnee or representa-
tve, a dvdend from Unted States sources, f a benefcary of such
fducary or a partner n such partnershp s not entted to the re-
duced rate of ta provded n rtce I of the conventon, the fdu-
cary or partnershp w wthhod an addtona amount of Unted
States ta wth respect to the porton of such dvdend ncuded n
such benefcary s or partner s net dstrbutve share of the ncome of
such fducary or partnershp, as the case may be. The amount of
the addtona ta s to be cacuated n the same manner as under
the precedng paragraph.
The amounts so wthhed by such wthhodng agents n Swtzer-
and, as we as the amount of ta reeased wth respect to the caendar
year 19 1 by the wthhodng agent n the Unted States n the case
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.1 3-1.
6
of a dvdend fowng to a thrd person through a nomnee or repre-
sentatve whose address s n Swtzerand, w be deposted bv such
agents n Swss francs wth the Federa Ta dmnstraton, erne,
Swtzerand, ccount: Zustzcher Steuerrckbehat US ( dd-
tona ta wthhodngs US ); and the approprate Swss form
w be fed therewth. The Federa Ta dmnstraton has ar-
ranged that the amounts so deposted w, after ad|ustment for ta
refunded to persons entted to the reduced rate of 1 percent, be
perodcay remtted by draft n Unted States doars to the Co-
ector of Interna Revenue, atmore. Md., U. S. .
Sec. 7.30 . Return of Ta Wthhed and Informaton Return
Wth Respect to Persons Whose ddresses re n Swtzerand.
very Unted States wthhodng agent sha make and fe wth the
coector, n dupcate, an nformaton return on Form 10 2F, n add-
ton to the wthhodng return. Form 10 2, for the caendar year 19 1
and each subsequent caendar year, wth respect to:
(a) dvdends from whch a ta of 1 percent was wthhed
from persons whose addresses are n Swtzerand ( percent n the
case of dvdends fang wthn the scope of the provsons of
rtce I(2) of the conventon);
(6) nterest (other than coupon bond nterest reported on Form
1001-S) from whch a ta of percent was wthhed from persons
who have furnshed to the wthhodng agent Form 1001 -S;
(c) royates and ke amounts from whch no ta was wth-
hed from persons who have furnshed to the wthhodng agent
Form 1001 -S; and
(d) a other f ed or determnabe annua or perodca ncome
pad to such persons.
Sec. 7.309. enefcares of a Domestc state or Trust. non-
resdent aen who s a resdent of Swtzerand and who s a bene-
fcary of a domestc estate or trust sha be entted to the e empton
from ta , or reducton n the rate of ta . as the case may be, provded
n rtces I. II, and III of the conventon wth respect to dv-
dends, nterest, and royates to the e tent such tem or tems are n-
cuded n hs dstrbutve share of the ncome of such estate or trust.
In such case such benefcary must, n order to be entted to the e -
empton from, or reducton n the rate of, ta n the case of nterest
or royates, e ecute Form 1001 -S and fe such form wth the fdu-
cary of such estate or trust n the Unted States.
ecause t s necessary to brng nto effect at the earest practcabe
date the rues of ths Ireasury Decson respectng reduced rates of,
or e emptons from, ta and the rues respectng reease of amounts
heretofore wthhed durng the caendar year 19 1 n e cess of such
reduced rates, or wth respect to e empt ncome, t s hereby found
that t s mpractcabe to ssue ths Treasury Decson wth notce
and pubc procedure thereon under secton (a) of the dmnstra-
tve Procedure ct, approved une 11, 19 C, or sub|ect to the effectve
date mtaton of secton (c) of that ct.
(Ths Treasury Decson s ssued under the authorty contaned
n sectons 62 and 3791 ( 3 Stat. 32 and G7; 20 U. S. C. 62 and 3791)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
29 1 7-3.
of the Interna Revenue Code and n rtce I of the ncome ta
conventon between the Unted States and The Swss Confederaton.)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved November 21, 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 26, 1901, : 0 a. m.)
Secton 29.1 3-7: Return and payment of ta wthhed.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 661, page 1.)
S CTION 1 . P YM NT OF CORPOR TION INCOM
T T SOURC
Secton 29.1 -1: Wthhodng n the case of
nonresdent foregn corporatons.
INT RN L R NU COD
Reease of e cess ta wthhed, and e empton from, or reducton
n rate of, wthhodng n the case of Swss corporatons, as affected by
the recproca-ncome ta conventon between the Unted States and
Swtzerand. (See . D. 67, page 7 .)
S CTION 1 7. INFORM TION T SOURC
Secton 29.1 7-1: Return of nformaton a to pay-
ment of 600 ( 00 for years pror to 19 ).
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 9, page .)
Sectcn 29.1 7-7: Return of nformaton as to
foregn tems.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 9, page .)
Secton 29.1 7- : Informaton as to actua owner.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 9, page .)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.1 - .
S CTION 1 . INFORM TION Y CORPOR TIONS
Secton 29.1 -1: Return of nformaton as 19 1-21-13679
to payments of dvdends. T. D. 9
( so Secton 29.1 -3; Secton 1 7, Sec-
tons 29.1 7-1, 29.1 7-7, and 29.1 7- .)
TITL 2 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 19 1
Reguatons 111 amended wth respect to the requrement that n-
formaton returns be furnshed by corporatons payng dvdends,
and wth respect to the date for fng such returns.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
Notce of proposed rue makng n respect of a proposed Treasury
Decson amendng Reguatons 111 wth respect to the fng of nfor-
maton returns by corporatons payng dvdends was pubshed n the
Federa Regster on anuary 20, 19 1 (1G F. R. 2). fter carefu
consderaton of a reevant matter presented by nterested persons,
both n communcatons and n conferences, the foowng amendments
are hereby adopted:
Paragraph 1. Secton 29.1 7-1, as amended by Treasury Decson
G 7 C. . 19 9-1, 9, 32 , approved February 1G, 19 9 26 CFR
29.1 7-1 , s further amended by strkng out February 1 n the
frst sentence, and by nsertng n eu thereof February 2S .
Par. 2. Secton 29.1 7-7, as amended by Treasury Decson GS7
26 CFR 29.1 7-7 , s further amended as foows:
( ) y strkng from the frst sentence 00 . and nsertng n
eu thereof 60(F; and
( ) y strkng out February 1 n the second sentence, and
nsertng n eu thereof February 2 .
Par. 3. Secton 29.1 7-S, as amended by Treasury Decson GS7
2( CFR 29.1 7- , s further amended by strkng out February
1 n the frst paragraph, and nsertng n eu thereof February
2 .
Par. . Secton 29.1 -1 (a). as amended bv Treasury Decson G 7
26 CFR 29.1 -1 (a) , s further amended as foows :
( ) y revsng the frst sentence thereof to read as foows:
cept as provded In paragraph (6) of ths secton, every domestc cor-
poraton or foregn corporaton engaged n busness wthn the Unted States or
havng an offce or pace of busness or a fsca or payng agent n the Unted
States, makng payments of dvdends and dstrbutons (other than dstrbutons
n qudaton) to any sharehoder who s an ndvdua (ctzen or resdent of
(e Unted States), a resdent fducary, or a resdent partnershp any member
of whch s a ctzen or resdent, sha render an nformaton return on Forms
1006 and 1009, e cept that for caendar years precedng 1. such return sha
be rendered ony n the case of payments amountng to 100 or more durng each
caendar year.
( ) y strkng out February 1 n the ast sentence of the frst
paragraph, and nsertng n eu thereof February 2S .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S9
29.1 -3.
Pak. a. Secton 29.1 S-1( ). as amended by Treasurv Decson
6 7 26 CFR 29.1 -1 (b) , s further amended by addng at the end
thereof the foowng:
In the cese of a budng and oan assocaton, a cooperatve bank, a homestead
assocaton, a credt unon, a savngs and oan assocaton, or a corporaton de-
scrbed n secton 101 (10), (11), (12), or (13), makng a payment of a dvdend
or a dstrbuton to any sharehoder, the nformaton return on Fcrms 1096 and
1099 sha be rendered ony n the case of payments amountng to 100 or more
durng the caendar year.
Par. . Secton 29.1 -3. as amended by Treasury Decson GS7
26 CFR 29.1 -3 , s further amended as foows:
( ) y strkng from the frst sentence of the frst paragraph
00 . and nsertng n eu thereof 600 ; and
( ) y strkng out February 1 n the frst sentence of the sec-
ond pa -agraph. and nsertng n eu thereof February 2 .
(Ths Treasury Decson s ssued under the authorty contaned
n sectons 62. 1 , and 3791 of the Interna Revenue Code ( 3 Stat.
32, 6 . 67 ; 26 U. S. C. 62,1 , 3791).)
oh . Dt| ap,
Commssoner of Interna Revenue.
pproved September 20. 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September 2 , 19 1, : a. m.)
Secttc 29.1 S-2: Return of nformaton respectng
contempated dssouton or qudaton.
nterna revenue code
Reguatons 111 amended. (See T. D. 6, page 6.)
Secto 29.1 -3: Return of nformaton respectng
dstrbutons n qudaton.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 6, page 6.)
Secto 29.1 -3: Return of nformaton respectng
dstrbutons n qudaton.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 9, page .)
0 016 2 7
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.16 -7.
90
SUPPL M NT . ST T S ND TRUSTS
S CTION 16 . MPLOY S TRUSTS
Secton 29.16 -6: Ta abty of benefcary
under a trust whch meets the requrements
of secton 16 (a).
( so Reguatons 103.)
nterna: revenue code
Reguatons 103 and 111 amended. (See T. D. 3, beow.)
Secton 29.16 -7: Treatment of benefcary of 19 1-19-13662
a trust not e empt under secton 16 (a).- T. D. 3
( so Secton 29.16 -6; Secton 22(b), Sec-
ton 29.22(b) (2)- ; and Reguatons 103.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 19
ND P RT 29
Reguatons 111 and 103 amended to conform to Pubc Law 37
( 1st Cong., 1st sess. C. . 19 9-2, 27 ) reatng to ta aton of
empoyee benefcares of certan penson trusts.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
On May 2. 19 1. notce of proposed rue makng regardng secton
of Pubc Law 37 . 1st Congress C. . 19 9-2, 27 , 277 . approved
October 2 , 19 9. reatng to ta aton of empoyee benefcares of
certan penson trusts, was pubshed n the Federa Regster (16
F. R. 6 6 ). fter consderaton of a such reevant matter as was
presented by nterested persons regardng the rues proposed, the
amendments to Reguatons 111 26 CFR. part 29 , and Reguatons
103 26 CFR, part 19 set forth beow are hereby adopted. Such
amendments are necessary n order to conform such reguatons to
secton of Pubc Law 37 , 1st Congress.
R GUL TIONS 111 26 CFR, P RT 291
Paragraph 1. Secton 29.22(b) (2)- 26 CFR 29.22(b) (2)- s
amended as foows:
( ) y amendng the thrd sentence of such secton to read as
foows:
cept as provded n secton 163(d), f an empoyer purchases an annuty con-
tract whch s not under a pan vth respect to whch hs contrbuton s deduct-
be under secton 23(p)()( ). the amount of such contrbuton sha be
ncuded n the ncome of the empoyee n the ta be year durng whch such
contrbuton s made, f the empoyees rghts under the annuty contract are
nonforfetabe, e cept for faure to pay future premums, at the tme the
contrbuton s made.
( ) y nsertng mmedatey after the frst paragraph of such
secton the foowng new paragraph:
If an empoyer has purchased annuty contracts and transferred the same
to a trust or f an empoyer has made contrbutons to a trust for the purpose
of provdng annuty contracts for hs empoyees as provded n secton 16 (d)
(see secton 29.16 -7), the amount so pad or contrbuted s not requred to be 1
Incuded n the ncome of the empoyee, but any amount receved or made ava-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
01
11 20.16 -7.
abe to the empoyee under the annuty contract sha be Incudbe n the gross
ncome of the empoyee n the ta abe year n whch receved or made avaabe.
In such case the amount pad or contrbuted by the empoyer sha not consttute
consderaton pad by the empoyee for such annuty contract n determnng
the amount of annuty payments requred to be ncuded n hs gross ncome under
secton 22(b) (2) uness the empoyee has pad ncome ta for any ta abe year
begnnng pror to anuary 1, 19 9, wth respect to such payment or contrbu-
ton by the empoyer for such year and such ta s not credted or refunded
to the empoyee. In the event such ta has been pad and not credted or
refunded the amount pad or contrbuted by the empoyer for such year sha
consttute consderaton pad by the empoyee for the annuty contract n deter-
mnng the amount of the annuty requred to be ncuded n the ncome of the
empoyee under secton 22(b)(2) ( ). For e ampe, an empoyer n 1939 pur-
chased and transferred to a trust meetng the requrements of secton 16 (d)
a fe annuty contract (payabe n annua nstaments of ,000) for an em-
poyee at a cost to the empoyer of 0,000. If the empoyee ncuded the 0,000
u hs gross ncome for such year and pad a ta wth respect thereto and f
t be assumed that such year s cosed so that the amount so pad cannot be
credted or refunded, ony 1, 00 of each ,000 yeary annuty payment to the
empoyee w be requred to be ncuded n hs gross ncome (3 percent of
0,000), 3, 00 beng e empt. If the empoyee shoud ve ong enough to receve
as e empt 0,000, then a amounts he receves thereafter under the annuty
contract woud be ncuded n gross ncome. If, n the foregong case, the
empoyee s ta abe year 1939 was not cosed and the empoyee secured a refund
or credt of the ta prevousy pad wth respect to the 0,000 premum pay-
ment made by hs empoyer then a amounts receved under the annuty contract
w be requred to be ncuded n hs gross ncome.
Par. 2. There s nserted mmedatey precedng secton 29.16 -1
the foowng:
PU LIC L W 37 ( 1st CONG.. 1st S SS.), PPRO D
OCTO R 2 , 19 9
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed.

S C. . MPLOY NNUITY CONTR CTS.
(a) Secton 16 of the Interna Revenue Code (reatng to empoyees
trusts) s hereby amended by addng at the end thereof the foowng new
subsecton:
(d) Cebtan mpoyees nnutes. Notwthstandng subsecton
(c) or any other provson of ths chapter, a contrbuton to a trust by
an empoyer sha not be ncuded n the ncome of the empoyee n the
year n whch the contrbuton s made f
(1) such contrbuton s to be apped by the trustee for the pur-
chase of annuty contracts for the beneft of such empoyee; .
(2) such contrbuton s made to the trustee pursuant to a wrtten
agreement entered nto pror to October 21, 19 2, between the em-
poyer and the trustee, or between the empoyer and the empoyee;
and
(3) under the terms of the trust agreement the empoyee s not
entted durng hs fetme, e cept wth the consent of the trustee, to
any payments under annuty contracts purchased by the trustee
other than annuty payments.
The amount so contrbuted by the empoyer sha not consttute consd-
eraton pad by the empoyee for such annuty contract n determnng
the amount of annuty payments requred to be ncuded n hs gross
ncome under secton 22(b) (2) ; e cept that f the ta mposed by ths
chapter for any ta abe year begnnng before anuary 1, 19 9, has been
pad by the empoyee wth respect to such contrbuton for such year, and
not credted or refunded, the amount so contrbuted for such year sha
consttute consderaton pad by the empoyee for such annuty contract.
Ths subsecton sha have no appcaton wth respect to amounts con-
trbuted to a trust after une 1. 19 9, f the trust on such date was
e empt under subsecton (a). For the purposes of ths subsecton,
amounts pad by an empoyer for the purchase of annuty contracts whch
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
129 e-7.|
92
are transferred to the trustee sha be deemed to be contrbutons made
to a trust or trustee and contrbutons apped by the trustee for the pur-
chase of annuty contracts; the term annuty contracts purchased by
the trustee sha ncude annuty contracts so purchased by the em-
poyer and transferred to the trustee; and the term empoyee sha
ncude ony a person who was n the empoy of the empoyer, and was
covered by the agreement referred to n paragraph (2), pror to October
21, 19 2.
-(b) The amendment made by subsecton (a) sha be appcabe to
ta abe years begnnng after December 31,193 .
Par. 3. The frst sentence of secton 29.16 -6 26 CFR 29.16 -6
s amended to read as foows:
Secton 10 (b), (c), and (d) reates to the ta aton of the benefcary of an
empoyee s trust.
Par. . Secton 29.16 -7 26 CF 29.16 -7 s amended as foows:
( ) y strkng out the headng and the frst sentence of such sec-
ton and nsertng n eu thereof the foowng:
Treatment or enefcary of a Trcst Not empt Under Secton 16 (a).
(o) In genera. Generay, any contrbuton made by an empoyer on behaf
of an empoyee to a trust durng a ta abe year of the empoyer whch ends
wthn or wth a ta abe year of the trust for whch the trust s not e empt
under secton 16 (a), sha be ncuded n ncome of the empoyee for hs ta abe
year durng whch the contrbuton s made f the empoyee s benefca nterest
n the contrbuton s nonforfetabe at the tme the contrbuton s made. ut
see secton 16 (d) and paragraph (6) of ths secton.
( ) y addng at the end of such secton the foowng new para-
graph:
(6) ffect of secton /6 (d). If the requrements of secton 16 (d) are met,
a contrbuton made by an empoyer on behaf of an empoyee to a trust whch
s not e empt under secton 16 (a) sha not be ncuded n the ncome of the
empoyee n the year n whch the contrbuton s made. Such contrbuton w
be ta abe to the empoyee, when receved n ater years, as an annuty. (See
secton 20.22(b) (2)- .) The ntent and purpose of secton 16 (d) s to gve
those empoyees, covered under certan none empt trusts to whch such secton
appes, essentay the same ta treatment as those covered by trusts quafyng
under secton 16 (a).
very person camng the beneft of secton 16 (d) must be abe to demon-
strate to the satsfacton of the Commssoner that a of the provsons of such
secton are met. The ta payer must produce suffcent evdence to prove:
(1) That, pror to October 21, 19 2, he was empoyed by the partcuar
empoyer makng the contrbuton n queston and was at such tme defntey
covered by a wrtten agreement, entered nto pror to October 21, 19 2, be-
tween hmsef and the empoyer, or between the empoyer and te trustee
of a trust estabshed by the empoyer pror to October 21, 19 2, and that the
contrbuton by the empoyer was made pursuant to such agreement. The
fact that an empoyee may have been potentay covered s not suffcent.
vdence that the empoyment was entered nto, or the agreement e ecuted,
as of a date pror to October 21, 19 2, or that the agreement or trust n-
strument whch dd not tber:-tofore meet the requrements of secton 16 (d)
was modfed or amended after October 20, 19 2, so as to come wthn the
provsons of such secton, w not satsfy the requrements of secton
16 (d).
(2) That such contrbuton, pursuant to the terms of such agreement, was
to be apped for the purchase of an annuty contract for the ta payer. In
the case of a contrbuton by the empoyer of an annuty contract purchased
by such empoyer and transferred by hm to the trustee of the trust, evdence
shoud be presented to prove that such contract was purchased for the ta -
payer by the empoyer pursuant to the terms of a wrtten agreement between
the empoyer and th empoyee or between the empoyer and the trustee,
entered nto pror to October 21, 19 2.
(3) That under the wrtten terms of the trust agreement the ta payer Is
not entted durng hs fetme, e cept wth the consent of the trustee,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
93
29.211-
to any payments other than annuty payments under the annuty contract
or contracts purchased by the trustee or by the empoyer and transferred to
the trustee, and that the trustee may grant or wthhod such consent free
from contro by the ta payer, the empoyer or any other person (for defn-
ton of annuty payments, see secton 29.22(b) (2)-2). owever, such con-
tro w not be presumed from the fact that the trustee s hmsef an offcer
or empoyee of the empoyer. s used n secton 16 (d) the phrase f
under the terms of the trust agreement the empoyee s not entted
means that the trust nstrument must make t mpossbe for the prohbted
dstrbuton to occur, whether by. operaton or natura termnaton of the
trust, whether by power of revocaton or amendment, other than wth the
consent cf the trustee, whether by the happenng of a contngency, by co-
atera arrangement, or any other means. It s not essenta that the em-
poyer renqush a power to modfy or termnate the trust but t must be
mpossbe, e cept wth the consent of the trustee, for any payments under
annuty contracts purchased by the trustee, or by the empoyer and trans-
ferred to the trustee, to be receved by the ta payer, drecty or ndrecty,
other than as annuty payments.
( ) The nature and amount of such contrbuton and the e tent to whch
ncome ta es have been pad thereon pro to anuary 1, 19-19, and not
credted or refunded.
( ) If t s camed that secton 16 (d) appes to amounts contrbuted
to a trust after une 1, 19 9, the ta payer must prove to the satsfacton
of the Commsscner that the trust dd not, on une 1, 19 9, quafy for
e empton under secton 16 (a). Where an empoyer buys an annuty con-
tract whch s transferred to the trustee, the date of the purchase of the
annuty contract and not the date of the transfer to the trustee s the con-
trong date n determnng whether or not the contrbuton was made to
the trust r.fter une 1, 19 9.
R GUL TIONS 103 126 CFR, P RT 19
Par. . The above amendments to Reguatons 111 26 CFR, part
29 . whch reguatons are appcabe to ta abe years begnnng after
December 31, 19 1, are hereby made appcabe to any ta abe year
begnnng after December 31,193 , and pror to anuary 1,19 2, whch
s covered by Reguatons 103 26 CFR, part 19 .
(Ths Treasurv Decson s ssued under authorty contaned n
secton 62 of the Interna Revenue Code ( 3 Stat. 32; 26 U. S. C. 62)
and pursuant to the provsons of Pubc Law 37 ( 1st Cong., 1st sess.) f
approved October 2 ,19 9.)
G O. . Sc O N M N,
Commssoner of Interna Revenue.
pproved ugust 29,19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September ,19 1, : 0 a. m.)
SUPPL M NT . NONR SID NT LI N INDI IDU LS
S CTION 211. T ON NONR SID NT LI N
INDI IDU LS
Secton 29.211- : Loss of resdence by aen. . 19 1-17-136
I. T. 0 7
INT RN L R NU COD
n aen who has acqured resdence the Unted States and
who upon eavng the Unted States obtans a vad permt to reenter
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.211- .1
9
the Unted States retans, n the absence of e ceptona crcum-
stances, hs status as a resent of the Unted States for Federa
ncome ta purposes unt the perod covered by hs reentry permt
or any e tenson thereof has e pred, or unt some defnte acton
s taken by hm whch shows that he has abandoned hs resdence
n the Unted Sates.
dvce s requested reatve to the status for Federa ncome ta
purposes of aens who are abroad and who hod vad permts to re-
enter the Unted States. The precse queston presented s whether
resdent aens who obtaned reentry permts pror to ther departure
from the Unted States shoud be treated as resdent aens for
Federa ncome ta purposes unt the e praton of the perod of
tme granted for reentry or of such perod as e tended.
The ncome of a resdent aen s sub|ect to Federa ncome ta even
though such ncome s derved n whoe or n part from sources wth-
out the Unted States. (See sectons 29.11-2 and 29.211-1 of Regua-
tons 111.) Ths s true notwthstandng the fact that the aen may
be absent from the Unted States durng the entre ta abe year or
years or for ony a porton of the ta abe year. (See Federco Sta-
forth v. Commssoner, 30 . T. . 6, affrmed, 77 Fed. (2d) ,
certorar dened. 296 U. S. 606; L. . L. Thomas v. Commssoner, 33
. T. . 72 ; Water . aer y. Commssoner, 6 T. C. 119 .)
Secton 29.211- of Reguatons 111 provdes n part as foows:
n aen who has acqured resdence n the Unted States retans hs status
as a resdent unt he abandons the same and actuay departs from the Unted
States. n ntenton to change hs resdence does not change hs status as a
resdent aen to that of a nonresdent aen.
It appears from the above that a resdence n the Unted States,
once acqured, s not ost e cept through a physca departure from
the Unted States couped wth an ntenton to abandon the Unted
States resdence. Such ntenton may be ascertaned from the per-
son s decaratons and hs acts. It s we estabshed that the ques-
ton of resdence s one to be determned by a of the facts and
crcumstances n each case.
Under the mmgraton aws of the Unted States, an aen about
to depart temporary from the Unted States may make appcaton
to the Commssoner of the Immgraton and Naturazaton Servce
for a permt to reenter the Unted States, and the vadty of such
permt may be e tended for such perod or perods, and under such
condtons, as sha be by reguatons prescrbed. The ssuance of
such a permt to an aen awfuy admtted to the Unted States for
permanent resdence has no effect under the mmgraton aws e cept
to show that the aen to whom t s ssued ntends to depart from the
Unted States for a temporary vst abroad. The ength of tme an
aen s absent from the Unted States s not aone determnatve of
whether he s returnng from a temporary vst abroad. (See L. .L.
Thomas v. Commssoner, 33 . T. . 72 ,736.) In Serpco v. Trude
( 6 Fed. (2d) 669), an aen went abroad n 191 to compete hs
educaton, eavng hs parents and other members of hs famy n
the Unted States. In 192 , after the competon of hs educaton,
he sought to return to the Unted States. It was hed that athough
he had been absent 11 years he was returnng from a temporary vst
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
1 29.391-1.
abroad and was entted to be admtted to the Unted States. (See
L. . L. Thomas v. Commssoner, supra.)
ccordngy, t s hed that an aen who acqured resdence n the
Unted States and who upon eavng the Unted States obtaned a
vad permt to reenter the Unted States retans, n the absence of
e ceptona crcumstances, hs status as a resdent of the Unted States
for Federa ncome ta purposes unt the perod covered by hs re-
entry permt or any e tenson thereof has e pred. ceptona cr-
cumstances mght be shown by proof of acts and statements of the
aen showng that snce the date of ssuance of the reentry permt or
the date of the ast renewa thereof he has taken steps to acqure a
resdence esewhere, or proof that the aen has apped for ctzenshp
n some other country snce the date of ssuance of the reentry permt
or the date of the ast renewa thereof, or some other proof of defnte
acton on the part of the aen whch shows that he has abandoned hs
resdence n the Unted States.
SUPPL M NT S. T OF S R OLD RS OF P RSON L S R IC CORPOR TIONS
S CTION 391. PPLIC ILITY OF SUPPL M NT
Secton 29.391-1: ppcabty of Suppe- 19 1-23-13702
ment S. T. D. 63
( so Secton 393, Secton 29.393-1; Secton
39 , Secton 29.39 -1.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 20.
INCOM T ; T I ; Y RS GINNING FT R D C M R 31. 19 1
Reguatons 111 amended to conform to secton 30 of the cess
Profts Ta ct of 1900 (Pubc Law 909, 1st Cong.), approved
anuary 3, 19 1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
On uy 2 , 19 1, notce of proposed rue makng regardng the
amendment of Reguatons 111 to conform to secton 30 (f) and (g)
of the cess Profts Ta ct of 19 0 (Pubc Law 909, 1st Cong.),
approved anuary 3, 19 1, was pubshed n the Federa Regster
(16 F. R. 72 ). No ob|ecton to the rues pubshed havng been
receved, the amendments set forth beow are hereby adopted.
Paragraph 1. There s nserted mmedatey precedng secton
29.391-1 26 CFR 29.391-1 and secton 29.396-1 26 CFR 29.396-1
the foowng:
S C. 30 . T C NIC L M NDM NTS C SS PROFITS T
CT OF 19 0, PPRO D NU RY 3, 19 1 .

(f) Suppement S of chapter 1 of such Interna Revenue Code s
hereby amended by strkng out secton 72 wherever appearng
theren and nsertng n eu thereof secton 9 .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.393-1.
96
(g) The amendments made by ths secton sha be appcabe wth
respect to ta abe years endng after une 30,1930.
Par. 2. Secton 29.391-1 26 CF 29.391-1 s hereby amended as
( ) y strkng out (as defned n secton 72 and the reguatons
thereunder) and (See secton 72 (b)) .
( ) y addng at the end of the secton the foowng sentences:
For defnton of a persona servce corporaton and for method of ecton for
ta abe years to whch the e cess profts ta mposed by subchapter D of chap-
ter 1 of the Interna Revenue Code s appcabe, see secton 9 and the regu-
atons thereunder. For such defnton and the metbo of eecton for ta abe
years to whch the e cess profts ta mposed by subchapter of chapter 2 of
the Code was appcabe, see secton 72 and the reguatons thereunder.
Par. 3. Secton 29.393-1, as amended by Treasury Decson
C. . 19 , , , approved une 1 , 19 26 CFR 29.393-1 s
( ) y strkng cut 19 2 n the e ampe at the end of the secton
and substtutng n eu thereof 19 1 .
( ) y strkng out 76,000 , 9 ,000 and 106,000 n the
e ampe at the end of the secton and substtutng n eu thereof,
respectvey, wherever appearng theren, S3, 00; , 6,200 , and
S 00
Par. . Secton 29.39 -1 26 CFR 29.39 -1 s hereby amended by
strkng out that porton of the frst sentence whch precedes the
undstrbuted Suppement S net ncome and substtutng n eu
thereof the foowng:
If a persona servce corporaton s e empt from the e cess profts ta mposed
under subchapter D of chapter 1 of the Interna Revenue Cede for any ta abe
year by reason of an eecton under secton 9, or s e empt from the e cess
profts ta mposed under subchapter of chapter 2 for any ta abe year
begnnng before anuary 1, 19 6, by reason of an eecton under secton 72 ,
(Ths Treasury Decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code ( 3 Stat. 32, 26 U. S. C. 62)
and correspondng provsons of pror nterna revenue aws.)
Fred S. Martn ,
ctng Commssoner of Interna Revenue.
pproved October 2 . 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster October 30,19 1, : 3 a. m.)
S CTION 393. SUPPL M NT S N T INCOM
Secton 29.393-1: Suppement S net ncome.
foows:
INT RN L R NU COD
Reguatons 111 amended. (See T. D. 63, page 9 .)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
97 0. 61-1.
S CTION 39 . CORPOR TION INCOM T D TO
S R OLD RS
Secton 29.39 -1: Ta abty of sharehoders.
INT RN L R NU COD
Reguatons 111 amended. (See T. D. S63, page 9 .)
SU C PT R D. C SS PROFITS T
P T II. C SS PROFITS CR DIT S D ON INCOM IN CONN CTION WIT
C RT IN C NG S
S CTION 61. D FINITIONS
Secton 0. 61-1, Reguatons 130: Purpose 19 1-2 -1371S
and scope of Part II. T. D. S6
TITL 26 INT RN L R NU . C PT R I, SU C PT R . T RT 0.
C SS PROFITS T S ; 1 L Y RS NDING FT R UN 30, 19 0
Part II of the cess Profts Ta ct of 19 0 cess profts
credt based oa ncome n connecton wth certan e changes.
Tbeascry Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
On ugust 16, 13 1, notce of proposed rue makng was pubshed
n the Federa Regster (16 F. R. 11 ). n order to conform Regua-
tons 130 26 CFR. part 0 to Part II of the cess Profts Ta ct
of 19 0, approved anuary 3, 19 1, whch part, consstng of sectons
61 through 6 of the Interna Revenue Code, s set forth n Regua-
tons 130 mmedatey after secton 0. S-3. fter consderaton of
a such reevant matter as was presented by nterested persons regard-
ng the proposa, the amendments to Reguatons 130 26 CFR, part
0 set forth beow are hereby adopted.
Paragraph 1. There s nserted mmedatey after secton 61, the
foowng:
Sec. 0. 61-1. Pcbpose and Sccpe of Pat II. (a) The term Part II when
used n these reguatons, means sectons 61 through 0 . Part II provdes
rues appcabe to the use of the e cess profts credt based on ncome and the
method of computng such credt, n the case of acqurng corporatons and
of component corporatons. n acqurng corporaton s a domestc corpora-
ton whch has acqured property from a domestc corporaton, partnershp, or
soe propretorshp n a transacton meetng the requrements set forth n sec-
ton 61(a), whch transacton s sometmes referred to n these reguatons
as a Part II transacton. ach corporaton, partnershp, or soe propretorshp
the propertes of whch are acqured by a corporaton n a transacton descrbed
n secton 61(a) s desgnated a component corporaton of the acqurng corpora-
ton. Furthermore, speca rues are provded for the case n whch an acqur-
ng corporaton ater becomes a component corporaton o another acqurng
corporaton. foregn corporaton cannot be an acqurng corporaton, and
nether a foregn corporaton, a foregn partnershp, nor a foregn soe pro-
pretorshp can be a component corporaton.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S 0. 61-1.
9
(b) Part II provdes the rues for determnng the base perod e perence
and the capta changes of the transferee corporaton by reference to the ncome
e perence and the capta changes of the transferor. For certan purposes.
Part II treats an acqurng corporaton whch was not actuay n e stence for
part or a of ts base perod as havng been n e stence and havng had ta abe
years for the perod durng whch ts component corporaton was actuay n
e stence. Speca rues are provded for appyng secton 3 (e), 2, 3, ,
, or 6. Part II s aso appcabe to component corporatons.
(c) very corporaton whch s a party to a Part II transacton, whether
as an acqurng corporaton or as a component corporaton, must compute ts
e cess profts credt based on ncome un.er the provsons of Part II. owever,
n certan cases specfcay set forth n secton 62 (b) and (c), the average
base perod net ncome of an acqurng corporaton determned under the gen-
era average method of secton 3 (d) or under the growth aternatve of sec-
ton 3 (e), may be determned unrer Part II ether wth or wthout reference
to the recomputaton of e cess profts net ncme under Part II, dependng
upon whchever determnaton produces the esser e cess profts ta . No
smar aternatve s avaabe n the case of a component corporaton or n the
case of an acqurng corporaton computng ts average base perod net ncome
under an aternatve method provded n secton 2, 3, , , or 6. In
any case n whch the determnaton of the average base perod net Income of
the acqurng corporaton Is made wthout reference to the recomputaton of
e cess profts net ncome under Part II. the base perod capta addton and
the net capta addton or reducton of the acqurng corporaton sha not be
ad|usted nnder art II.
Sec. 0. 61-2. cqurng Corporatons. (a) The types of transactons
whereby a corporaton becomes an acqurng corporaton are specfed n sec-
ton 61(a). In addton to statutory mergers and consodatons and the ac-
quston of property n a compete qudaton n whch gan or oss s not
recognzed because of the provsons of secton 112(b)(6), ony the foowng
types of transactons are ncuded:
(1) Under secton 61(a)(1)( ), the acquston by one corporaton, n e -
change n whoe or n rnrt for a of ts stock (e cept quafyng shares) of
a casses, of substantay a the propertes of another corporaton. See sec-
ton 112(g) (1) (D).
(2) Under secton 61(a)(1)( ), the acquston by one corporaton. In e -
change soey for a or a part of ts votng stcck, 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. See secton 112(g) (1) (C).
(3) Under secton 61(a)(1)(C). the acquston before December 1. 19 0,
by one corporaton of propertes of another corporaton soey as pad-n sur-
pus or as a contrbuton to capta n respect of votng stock of the aequ rng
corporaton owned by the transferor corporaton; but, n determnng whether
the acquston s soey as pad-n surpus or as a contrbuton to capta, 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. In ths
type of transacton the transferor -corporaton must be forthwth competey
qudated pursuant to the pan under whch the transfer of propertes was
made and the transacton of whch the transfer s a part must have the effect
of a statutory merger or consodaton.
( ) Under secton 61(a)(1)(D), the acquston of substantay a the
propertes of a partnershp n an e change to whch secton 112(b)( ), or so
much of secton 112 (c) or (e) as refers to secton 112(b)( ), s appcabe.
For the purpose of ths paragraph, each busness owned by a soe propretor-
shp sha be consdered as owned by a separate partnershp. For ths purpose,
the term busness means a gong busness unt for whch adequate and separate
records were mantaned.
( ) Under secton 61(a) (1) ( ), the acquston of a part, as dstngushed
from a or substantay a, of the propertes of a corporaton (other than
a corporaton e empt under secton 101) or of a partnershp n an e change,
not otherwse descrbed n ths secton or secton 01(a), to whch secton
112(b) ( ) or 112(b) ( ), or so much of secton 112 (c) or (e) as refers to sec-
ton 112(b)( ) or 112(b)( ), s appcabe. Types of transactons under sec-
ton 61(a)(1)( ) ncude: () The transfer by the component corporaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
09
0. G1-1.
of a part of Its propertes to an acqurng corporaton and the retenton of the
remanng part by the component corporaton; () The transfer of a or sub-
stantay a of the propertes of a component corporaton to two or more
separate acqurng corporatons; and () The transfer of part of the propertes
to two or more separate acqurng corporatons and the retenton of the re-
manng part by the component corporaton. transacton whch quafes as
a Part II transacton wthout regard to secton 61(a) (1) ( ), s not a trans-
acton descrbed n secton 61(a)(1)( ) for the purpose of any speca rue
under Part II pertanng to transactons descrbed n secton 61(a) (1) ( ).
(b) The types of transactons set forth In secton 61(a), other than those set
forth n secton 01(a)(1)(C), ether are embraced wthn the defnton of a
reorganzaton contaned n secton 112(g)(1), are transfers to a controed
corporaton wthn the meanng of secton 112(b) ( ) and reated sectons, or are
compete qudatons wthn the meanng of secton 112(b)(6). Snce Part II
appes ony to eases where there s a suffcent contnuty of nterest to |ustfy
treatng a corporaton whch has acqured the assets of another corporaton, a
partnershp, or a busness owned by a soe propretorshp, as standng n the
pace of ts predecessor, such transactons must satsfy a the requrements of
the reguatons prescrbed under secton 112 wth respect to such transactons n
order that the transferee corporaton may be treated as an acqurng corporaton.
The fact that the property transferred conssts soey of cash w not prevent the
transacton from quafyng as a transfer to whch secton 112(b) ( ) s
appcabe.
Sec. 0. 61-3. Component Cobpobato s. (a) In genera. (1) Secton
61 (c) (1). If a corporaton s a component corporaton n a transacton de-
scrbed n secton 61(a) (other than a transacton descrbed n secton
61(a)(1)( )), ts base perod e perence for the perod before the day after
such transacton s made avaabe to the acqurng corporaton n such trans-
acton or to an acqurng corporaton of whch the frst acqurng corporaton s a
component corporaton. If such component corporaton remans n e stence,
t w not (after the transacton) receve any beneft from ts e perence on the
day of and pror to such transacton, nor can ts e perence on the day of and
pror to such transacton be mcdc avaabe to anotner acqurng corporaton n a
subsequent Part II transacton nvovng such component corporaton, regard-
ess of whether the frst acqurng corporaton actuay utzes such e perence.
owever, the base perod e perence of the component corporaton occurrng
after such frst transacton may be avaabe to another acqurng corporaton
n a subsequent Part II transacton nvovng such component corporaton. The
same rues are appcabe to the capta changes of the component corporaton.
These rues are appcabe to each successve Part II transacton descrbed n
secton 61(a) (other than a transacton descrbed n secton 61(a)(1)( )).
Secton 01(c) (1) appes to a such types of Part II transactons, whether or
not compete qudaton of the component corporaton s specfcay requred n
connecton therewth.
(2) Secton |61 (c) (3). If a corporaton s a component corporaton n a trans-
acton descrbed n secton 61(a)(1)( ), ts base perod e perence for the
perod before the day after such transacton, tc the e tent aocabe to the proper-
tes transferred, s made avaabe to the acqurng corporaton n such trans-
acton or to an acqurng corporaton of whch the frst acqurng corporaton s a
component corpo-aton. If the component corporaton remans n e stence,
t w not (after the transacton) receve any beneft from that porton of ts
base perod e perence whch It made avaabe to the acqurng corporaton,
regardess of whether the acqurng corporaton actuay utzes such e perence.
Furthermore, ony that part of the e perence whch s not made avaabe to the
acqurng copuraton may be avaabe to another acqurng corporaton n
a subsequent Part II transacton nvovng such component corporaton. ow-
ever, any part of the base perod e perence of the component corporaton occur-
rng after such frst transacton may be avaabe to another acqurng corpora-
ton n a subsequent Part II transacton nvovng such component corporaton.
The same rues are appcabe to the capta changes of the component corpora-
ton. These rues are appcabe to each successve Part II transacton descrbed
In secton 01(a) (1) ( ).
(b) Rues for appcaton of secton 61(c). (1) For ta abe years of the
compouent corporaton begnnng after the Part II transacton (uness such
transacton s descrbed n secton 01(a) (1) ( ), n whch case see (3) and ( )
beow), the e cess profts credt based on ncome of the component corporaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
100
sha be determned wthout regard to ts base perod e perence for the perod
endng wth the day of the Part II transacton and wthout regard to the capta
changes of the component corporaton occurrng before such transacton. Thus,
n such cases, any computatons whch secton 3 (f), reatng to the base perod
capta addton, requres to be made as of a tme precedng the transacton sha,
nstead, be made as of the tme mmedatey after the transacton. Smary,
n computng the net capta addton or reducton, f the transacton occurs
after the begnnng of the frst ta abe year endng after une 30, 19 0, the com-
putatons whch secton 3 (g) requres o be made as of the frst day of such
ta abe year sha, nstead, be made as of the tme mmedatey after the
transacton.
(2) For the ta abe year of the component corporaton n whch occurs the
Part II transacton (other than a transacton descrbed n secton 61(a) (1) (. ),
n whch case, see (3) and ( ) beow), f such ta abe year ends after une 30,
10 0, and f the component corporaton does not termnate ts e stence n such
transacton, the average base perod net ncome and the base perod capta
addton of the component corporaton sha be mted to amounts whch are
the same portons of ts average base perod net ncome and ts base perod
capta addton, respectvey, as the number of days n such ta abe year before
the day after such transacton s of the tota number of days n such ta abe
year. The net capta addton or reducton, as the case may be, for such ta -
abe year sha be the sum of the foowng amounts (or the dfference between
such amounts f one amount s a net capta addton and the other amount s a
net capta reducton) :
() n amount whch bears the same rato to the net capta addton or
reducton computed as f the ta abe year ended on the day of the trans-
acton as the number of days n the porton of the ta abe year endng wth
the day of the transacton bears to the tota number of days n the ta abe
year, and
() n amount whch bears the same rato to the net capta addton
or reducton computed under (1), above, as f the ta abe year began on
the day after such transacton as the number of days n the ta abe year
after the day of the transacton bears to the tota number of days n the
ta abe year.
If the component corporaton Is, by reason of the transacton, entted to appy
secton , It may Incude n ts e cess profts credt a porton (determned on
the bass of the number of days n the ta abe year after the transacton) of
the e cess profts credt determned by the appcaton of secton . See sec-
ton 0. 61- (b) for the rues appcabe In any such case. If the component
corporaton goes out of e stence on the day of such Part II transacton wth
the resut that ts ta abe year ends on the day of such transacton, the com-
ponent corporaton for the purpose of computng ts e cess profts credt for
such year s not requred to prorate ts average base perod net ncome or ts
base perod capta addton and s not requred to recompute ts net capta
addton or reducton. (For a correspondng provson In the case of the acqur-
ng eorporaton and for an ustraton of the appcaton of such correspondng
provson and of secton 61(c) (2), see secton 62(|) (2) and secton 0. 62-11.)
(3) For ta abe years of the component corporaton begnnng after a Part II
transacton descrbed n secton 61(a) (1) ( ) (that s, a transacton nvovng
a transfer of ony a part, as dstngushed from a transfer of a or substantay
a, of the propertes of the component corporaton), the e cess profts credt
based on Income of the component corporaton sha be determned wthout
regard to that porton of ts base perod e perence for the perod endng wth
the day of . : Part II transacton whch s aocabe to the acqurng corpora-
ton, and wthout regard to that porton of the capta changes of the component
corporaton occurrng before such transacton whch Is aocabe to the acqur-
ng corporaton. See secton 0. 61-7 for the method of appyng ths rue.
( ) For the ta abe year of the component corporaton n whch occurs a
Part II transacton descrbed In secton 61(a) (1) ( ) (that Is, a transfer by
the component corporaton of ony a part, as dstngushed from a or substan-
tay a, of Its propertes), f such ta abe year ends after une 30, 19 0, the
average base perod net ncome of the component corporaton sha be mted
to the sum of () an amount whch s the same porton of ts average bas perod
net ncome as the number of days n such ta abe year before the day after such
transacton Is of the tota number of days In such ta abe year, and () an
amount whch s the same porton of ts average base perod net ncome aocabe
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
101
0. 61-1.
to t after the appcaton of (3), above, as the number of days n such ta abe
year after the day of such transacton s of the tota number of days n such
ta abe year. smar rue appes wth respect to the base perod capta
addton of the component corporaton. The net capta addton or reducton,
as the case may be, for such ta abe year sha be the sum of the foowng
amounts (or the dfferences between such amounts f one amount s a net capta
addton and the other amount s a net capta reducton) :
() n amount whch bears the same rato to the net capta addton or
reducton computed as f the ta abe year ended on the day of the transac-
ton as the number of days n the porton of the ta abe year endng wth
the day of the transacton bears to the tota number of days n the ta nbe
year, and
() n amount whch bears the same rato to the net capta addton or
reducton computed under (3) of ths secton as f the ta abe year began
on the day after such transacton as the number of days n the ta abe year
after the day of the transacton bears to the tota number of days n the
ta abe year.
( ) Secton 61(c) provdes that the acqurng corporaton sha not take nto
account, for the purpose of determnng Its average base perod net ncome, the
base perod e perence of the component corporaton for any perod begnnng
wth the day after the Part II transacton.
(c) Proraton of e cess profts net ncome. If the Part II transacton, e cept
a transacton descrbed n secton 61(a) (1) ( ), occurred n a ta abe year of
the component corporaton begnnng wth or wthn ts base perod, the e cess
profts net ncome of such component corporaton for the porton of the ta abe
year after the transacton and for the pror porton of the ta abe year (whch
pror porton s to be taken nto account ony by the acqurng corporaton n such
transacton) sha be computed on the bass of ts ncome as shown by ts books
f the accounts are so kept that e cess profts net ncome for each of such portons
can be ceary and accuratey determned. If the accounts are not so kept, the
e cess profts net ncome for the porton of the ta abe year after the transacton
sha be consdered to be an amount whch bears the same rato to the e cess
profts net ncome for such ta abe year as the number of days n such ta abe
year after such transacton benrs to the tota number of days n such ta abe
year, and the e cess profts net ncome for the pror porton of such ta abe
year sha be consdered to be the baance of the e cess profts net ncome for
such ta abe year. owever, f tems of ncome and deducton are ceary and
accuratey determned to be attrbutabe to partcuar portons of the ta abe
year, such tems may be emnated before the above proraton s made, and
after the proraton s made such tems w be added to (f tems of ncome)
or deducted from (f deductbe tems) the e cess profts net ncome determned
by the proraton for the perod to whch such tems are attrbutabe.
(d) ampe of appcaton of secton 61 c) (I) and (2). The appcaton
of the provsons of secton 61(c) (1) and (2) may be ustrated by the foow-
ng e ampe:
ampe. The Corporaton, the Corporaton, and the C Corporaton,
whch corporatons make ther ncome ta returns on the caendar year bass,
commenced busness before anuary 1, 19 6. On December 31, 19 7, the
Corporaton acqured the propertes of the Corporaton n a transacton de-
scrbed n secton 61(a)(1)( ). The Corporaton subsequenty converted
nto new propertes the stock of the Corporaton whch t receved n such
transacton. It operated such new propertes unt October 19, 19 1, when they
were transferred to the C Corporaton n a transacton descrbed n secton
61(a) (1) ( ). The Corporaton contnued n busness throughout 19 1 and
19 2, operatng propertes whch t purchased wth the proceeds of the conver-
son of the stock receved n the second transacton. The operaton of secton
61(c) (1) and (2) s as foows:
(1) s to the Corporaton. In determnng ts average base perod net
ncome under Part II for the purpose of the e cess profts ta for 19 0 and ater
e cess profts ta ta abe years, the Corporaton takes nto account the
Corporaton s base perod e perence for 19 6 and 19 7. Inasmuch as the trans-
acton nvovng the Corporaton occurred pror to 19 , there s no base perod
capta addton of the Corporaton that coud be transferred to the Cor-
poraton. See secton 6 and secton 0. 6 -1.
(2) s to the Corporaton. In determnng ts average base perod net
ncome for the purpose of ts e cess profts ta for 19 0, the Corporaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
102
takes nto account ts base perod e perence for 19 and 19 9, but cannot
use ts base perod e perence for 19 6 and 19 7. The Corporaton takes nto
account, for the purpose of computng ts e cess profts credt for 19 1, ony
four-ffths (the rato of the number of days n the perod anuary 1, 19 1 to
October 19, 19 1, ncusve (292), over the number of days n 19 1 (36 )) of
ts average base perod net ncome determned wthout regard to ts base perod
e perence for 19 6 and 19 7. The Corporaton aso takes nto account for
such purpose for 19 1 ony four-ffths of ts base perod capta addton. See
(b) (2) of ths secton for the computaton of the net capta addton |r reduc-
ton for 19 1. owever, such corporaton may be entted to compute ts average
base perod net ncome under secton as a new corporaton, snce for the
purpose of that secton a corporaton that transfers substantay a of ts
propertes n a Part II transacton s deemed not to have commenced busness
unt after the day of such transacton. See secton 61(d). ssumng that the
Corporaton may quafy under Secton as a new corporaton wth respect
to both Part II transactons (the one on December 31, 19 7, and the one on
October 19, 19 1) t w compute ts e cess profts credt for 19 1 by takng nto
account four-ffths of ts e cess profts credt determned by appyng secton
as f t commenced busness on the day after the frst Part II transacton
(and ended ts ta abe year on October 19, 19 1), and one-ffth of ts e cess
profts credt determned by appyng secton as f t commenced busness
on the day after the second Part II transacton (and as f ts ta abe year be-
gan on October 20, 19 1). See secton 0. 61-(b). The Corporaton w
be entted to use the credt based on Invested capta f such credt resuts n
ess ta . The Corporaton determnes ts e cess profts credt for 19 2, wth-
out regard to Its base perod e perence, ts base perod capta addton, f any,
and ts net capta addtons or reductons pror to the transacton on October
19, 19 1. Thus, for the purpose of secton 3 (g) (3) t, ), ts equty capta at
the begnnng of anuary 1, 19 2, Is compared wth ts equty capta at the
begnnng of October 20, 19 1.
(3) s to the C Corporaton. Secton 61(c) frst affects the C Corporaton
wth respect to 19 1. In determnng ts average base perod net Income under
Part II for the purpose of ts e cess profts ta for that year, the C Corporaton
takes nto account one-ffth of the Corporaton s base perod e perence for
19 S and 19 9 and one-ffth of ts base perod capta addton. See secton
62(|)(2) and secton 0. 62-11. In determnng the C Corporaton s average
base perod net ncome under Part II for the purpose of ts e cess profts ta
for 19 2, the C Corporaton takes nto account a of the Corporaton s base
perod e perence for 19 and 19 9. Snce the C Corporaton commenced bus-
ness before anuary 1, 19 6, t may not use any average base perod net ncome
of the Corporaton determned under secton by reference to the frst
Part II transacton, e cept to the e tent that such average bnse perod net
ncome may be avaabe to the C Corporaton under sectons 0. 62-3(c) and
1. 62-11. For computatons by the C Corporaton nvovng the Corporaton s
capta addtons and reductons, see secton 63, secton 0. 63-1, secton 6 ,
and secton 0. 6 -1.
(e) ampe of appcaton of secton 61(c) (S) and ( ). The appcaton
of the provsons of secton 61(c) (3) and ( ) may be ustrated by the foow-
ng e ampe:
ampe. The Corporaton and the Corporaton, whch corporatons
make ther ncome ta returns on :he caendar year bass, commenced busness
before anuary 1, 19 6. On December 31, 19 7, the Corporaton acqured
part of the propertes of the Corporaton n a transacton descrbed In secton
61(a)(1)( ). The Corporaton subsequenty converted nto new proper-
tes the stock n the Corporaton whch t receved n such transacton. It
operated such new propertes, together wth the retaned part of ts od prop-
ertes, unt October 19, 19 1, when, n a transacton descrbed n secton 61(a)
(1) ( ), t transferred part of ts propertes to the C Corporaton, a corpora-
ton created ncdent to the transacton. The Corporaton contnued n bus-
ness throughout 19 1 and 19 2. The operaton of secton 61(c) (3) and ( )
s as foows:
(1) s to the Corporaton. In determnng Its average base perod net
ncome under Part II for the purpose of the e cess profts ta for 19 0 and
ater e cess profts .ta ta abe years, the Corporaton takes nto accrunt
that porton of the Corporaton s base perod e perence for 19 6 and 1017
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
103
0. G1-1.
whch Is aocabe under secton 62(1) and secton 0. 62-9 to the propertes
whch the Corporaton transferred to the Corporaton. Inasmuch as the
transacton nvovng the Corporaton occurred pror to 19 , there s no
base perod capta addton of the Corporaton that coud be transferred to
the Corporaton. See secton 6 and secton 0. 6 -1.
(2) s to the Corporaton. In determnng ts average base perod net
ncome for the purpose of ts e cess profts ta for 19 0, t takes nto account
ts entre base perod e perence for 19 S and 19 9, and that porton of ts base
perod e perence for 19 6 and 19 7 whch s aocabe under secton 62()
and secton 0. 62-9 to the propertes retaned by the Corporaton. Inasmuch
as the transacton nvovng the Corporaton occurred pror to 19 S, the base
perod capta addton of the Corporaton s not affected by the transacton.
The Corporaton takes nto account, for the purpose of computng ts e cess
profts credt for 19 1, the sum of the foowng: (1) an amount whch s
four-ffths (the rato of the number of days n the perod anuary 1, 19 1, to
October 19, 19 1, ncusve (292), over the number of days n 19 1 (36 )), of ts
average ta.se perod net ncome determned wthout regard to that porton of
ts base perod e perence for 19 6 and 19 7 whch s aocabe to the Corpora-
ton, and () an amount whch s one-ffth of that porton of ts average base
perod net ncome so determned under () as Is aocabe under secton 62()
md secton 0. 62-9 to the propertes retaned by the Corporaton. smar
determnaton s made wth respect to the base perod capta addton of the
Corporaton. See (b)( ) of ths secton for the computaton of the net capta
addton or reducton for 19 1. The Corporaton w be entted to use the
credt based on nvested capta f such credt resuts n ess ta . The Cor-
poraton determnes ts e cess profts credt for 19 2 wthout regard to those
portons of ts base perod e pereuce, ts base perod capta addton, f any,
and Its capta addtons and reductons pror to the transacton on October 19,
19 1, as are aocabe to the Corporaton or the C Corporaton. Thus, for the
purpose of secton 3 (g) (3) ( ), proper ad|ustment sha be made n determn-
ng the e cess of equty capta at the begnnng of anuary 1, 19 2, over equty
capta at the begnnng of anuary 1, 19 0.
(3) s to the C Corporaton. Secton 61(c) frst affects the C Corporaton
wth respect to 19 1. - In determnng ts average base perod net ncome under
art II for the purpose of ts e cess profts ta for that year, the C Corporaton
takes nto account that porton of the Corporaton s base perod e perence
for 19 6 and 19 7 whch s aocabe under secton 62() and secton 0. 02-9
to those propertes of the Corporaton whch were not transferred to the
Corporaton, and whch s aocabe to the propertes of the Corporton trans-
ferred to the C Corporaton, and that porton of the Corporaton s base perod
e perence for 19 S and 19 9 whch s aocabe under secton 02(1) and secton
0. 02-9 to the propertes of the Corporaton transferred to the C Corporaton.
See secton 02(|) (2) and secton 0. 02-11 for the rues appcabe f the ta abe
year of the C Corporaton began pror to October 19, 19 1, the date of the Part II
transacton. The C Corporaton s average base perod net ncome under Part II
for the purpose of ts e cess profts ta for 19 2, s smary determned e cept
that secton C2(|)(2) and secton 0. 02-11 are not appcabe. The C Cor-
poraton s not egbe to compute ts average base perod net ncome under
secton . See sectons (g), 02(g) (3), nnd 0. 62-7. For computatons
by the C Corporaton nvovng the Corporaton s capta addtons and reduc-
tons, see secton G3. secton 0. 63-1, secton 6 , and secton 0. 6 -1.
Sec. 0. 61- . stence of cqurng and Component Corporatons. (a)
n acqurng corporaton s consdered, for certan purposes, to have been n
e stence and to have had ta abe years for any perod durng whch t or any
of ts component corporatons was n e stence and to have commenced busness
on the earest date on whch t or any of ts component corporatons commenced
busness. cept as otherwse e pressy provded n secton 02, the above
rue appes for the purpose of secton 3 (e) (aternatve based on growth),
secton 2 (abnormates durng base perod), secton 3 (change n products
or servces), secton (ncrease n capacty for producton or operaton),
secton (new corporatons), and secton 0 (depressed ndustry subgroups).
Thus, f the component corporaton (but not the acqurng corporaton) was n
e stence and commenced busness before the frst day of the base perod of the
acqurng corporaton, the acqurng corporaton w be consdered to have been
n e stence and to have commenced busness pror to such frst day, and secton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
10
3 (e), 2, 3, , or 0, but not secton , may (sub|ect to the rues of
secton C2) be appcabe to the acqurng corporaton. In the case of aa
acqurng corporaton whch becomes a component corporaton of another acqur-
ng corporaton, effect s gven to the constructve e stence of the frst acqurng
corporaton n determnng the constructve e stence of the second acqurng
corporaton. Durng the perod of constructve e stence, the ta abe years of
the acqurng corporaton w be determned on the bass of the annua accountng
perod estabshed for ts frst ta abe year of actua e stence.
(b) cept for the purpose of (a) above, a component corporaton In a Part
II transacton, other than a transacton descrbed n secton 61(a) (11 ( ),
sha be deemed not to have been n e stence or to have commenced busness
pror to the day after such Part II transacton In determnng the appcabty
to such corporaton after such transacton of secton 3 (e), 2, 3, , ,
or 6. Under ths rue, a component corporaton whch transferred substantay
a of ts propertes n a Part II transacton occurrng durng or after ts base
perod may quafy for the benefts of secton as a new corporaton. If the
ta payer was a component corporaton n two or more Part II transactons
(other than transactons of a type descrbed n secton 61(a) (1) ( )) occurrng
pror to the ta abe year for whch the e cess profts credt s computed, then
for the purpose of determnng the appcabty of secton 3 (e), 2, 3, ,
1 , or 6, the component corporaton sha be deemed not to have been n e -
stence nor to have commenced busness pror to the day after the ast such
Part II transacton. If the Part II transacton occurs durng a ta abe year
endng after une 30, 19 0, and f the component corporaton s entted to ap-
py secton 1 as f It becan e stence and commenced busness on the day after
such transacton, the e cess profts credt of the component corporaton for such
ta abe year (f determned wth such appcaton of secton ) sha be the
sum of the foowng amounts of e cess profts credt, each such amount beng
frst reduced to an amount whch s such porton thereof as the number of days
n the perod for whch such credt s computed s of the number of days n the
ta abe year n whch the transacton occurred:
(1) The e cess profts credt determned as f the porton of the ta abe year
endng on the date of snch transacton were a ta abe year, and determned
wthout resard to such appcaton of secton (but wth regard to any smar
appcaton of secton n respect to a prevous Part II transacton) ; and
(2) The e cess profts credt determned wth such appcaton of secton
as f the porton of the ta abe year after the day of the transacton were a
ta abe year.
Sec. 0. 61- . Partnershps and Soe Propretorshps Under Part IT.
partnershp (or a busness owned by a soe propretorshp) can be a component
corporaton n certan types of Part II transactons. partnershp may be a
component corporaton ony n a secton 01 (a)(1) (D) or ( ) type transacton.
See secton 61(b) ( ) and (6) and secton 0. 61-2(a) ( ) and ( ). busness
owned by a soe propretorshp can be a component corporaton ony n a secton
61(a)(1)(D) type transacton. See secton 61(f). partnershp (or a
busness owned by a soe propretorshp) cannot be an acqurng corporaton
and, therefore, the base perod e perence of nny predecessor of a partnershp
(or a busness owned by a soe propretorshp) s not made avaabe to the
acqurng corporaton of whch such partnershp (or such busness) s a com-
ponent corporaton.
Sec. 0. 61-6. Component Corporaton Whch: Was an cqurng Corporaton
n a Prevous Transacton. Secton 0. 62-1 (a) provdes the method by
whch an acqurng corporaton, n a transacton descrbed n Part II, determnes
ts average base perod net ncome under secton 3 (c) for the purpose of the
e cess profts credt based on ncome. In the event that such an acqurng cor-
poraton becomes a component corporaton n a subsequent Part II transacton,
the rues set forth n secton 62(a) and n secton 0. 62-1 (a) are sub|ect to
the provsons of secton 61 ( ) whch secton provdes that, for the purpose of
such subsequent Part II transacton,
(a) If the subsequent Part II transacton occurs pror to the cose of the base
perod of the acqurng corporaton n such transacton, the base perod e per-
ence of the component corporaton n such transacton s to be determned after
the appcaton of Part II wth respect to the prevous transacton;
(b) If the subsequent Part II transacton occurs after the cose of the base
perod of the acqurng corporaton n such transacton,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
10
0. 61-1.
(1) The average base perod net Income of the component corporaton In
snch transacton s to be determned under secton 3 (d), secton 3 (e),
or secton 2(c), wth the appcaton to the prevous transacton of secton
62(b) and of secton 62 (c) or (d) (where appcabe). and
(2) The average base perod net ncome of the component corporaton n
snch transacton s to be determned under secton 2(d), secton 3,
secton , secton , or secton 6, wth the appcaton to the prevous
transacton of secton 62 (d), (e), (f), (g), or (h) (where appcabe).
For rue9 reatng to the constructve e stence of such component corporaton
n certan cases, see secton 0. 61- . For the purpose of the reguatons under
Part II, where a corporaton created ncdent to a prevous Part II transacton
s a party to a subsequent Part II transacton, such corporaton sha, wth
respect to the subsequent transacton, be treated n the same manner as f ts
actua e stence corresponded to that of ts most recenty organzed component
corporaton.
Sec. 0. 61-7. Provsons Generay ppcabe Under Part II. (a) Defn-
ton of base perod e perence . s used n the reguatons under Part II, the
term base perod e perence refers to the e cess profts net ncome, to the
average base perod net ncome f computed under aecton 2, 3, , , or
6, and to any factor enterng nto the determnaton of an average base perod
net ncome.
(b) ppcaton of Part II n certan types of transactons descrbed n secton
61(a)(1)( ). In the case of a Part II transacton descrbed n secton
61(a) (1) ( ) whch nvoves
(1) transfer by a component corporaton to an acqurng corporaton
whch was not created ncdent to the transacton, or
(2) transfer to an acqurng corporaton, whether or not the acqurng
corporaton was created ncdent to the transacton, of propertes by more
than one component corporaton, where one or more of such component
corporatons transferred ess than substantay a of ts propertes,
the acqurng corporaton sha compute ts e cess profts credt under Part II
as though each component corporaton n any such transacton whch trans-
ferred ess than substantay a of ts propertes had transferred those prop-
ertes to a corporaton created ncdent to the transacton n a transacton
descrbed n secton 61(a) (1) ( ) and such corporaton had mmedatey there-
after transferred a of such propertes to the acqurng corporaton n a Part II
transacton other than a transacton descrbed n secton 61(a)(1)( ). See
secton 01(e), reatng to component corporatons whch were acqurng cor-
poratons n a prevous Part II transacton.
(c) cess profts credt of component corporatons n Part II transactons
descrbed n secton 01(a) (1) ( ). (1) In genera. The e cess profts credt
of a component corporaton n a transacton descrbed n secton 61(a) (1) ( )
sha be determned under Part II, for ta abe years begnnng after the day
of such transacton (and, to the e tent provded n secton 0. 61-3(b) ( ) for
the ta abe year n whch such transacton occurs) n the same manner as
though (n such transacton) such component corporaton were an acqurng
corporaton n a transacton descrbed n secton 61(a)(1)( ), and as though
t had receved n that transacton the propertes whch t n fact retaned.
(2) Speca rue. For the purpose of appyng secton 3 (f) and (g) (re-
atng to capta changes) n the case of a component corporaton whch con-
tnues n e stence after a Part II transacton descrbed n secton 61 (a) (1) ( ),
the consderaton receved by such component corporaton n such transacton
sha be consdered as havng been hed by t at a such tmes pror to the
transacton as are taken nto account under secton 3 (f) and (g). For
e ampe, n computng the ad|ustment wth respect to nadmssbe assets or,
f appcabe, stock n a member of a controed group, the stock n an acqurng
corporaton receved by the component corporaton n the transacton w, for
the purpose of secton 3 (g), be deemed to have been hed by the component
corporaton on the 1st day of ts frst ta abe year endng after une 30, 19 0, f
the transacton takes pace after the begnnng of such ta abe year.
Par. 2. There s nserted mmedatey after secton 62, the fo-
owng :
Sec. 0. 62 1. Genera Rues tor Determnng: verage ase Perod Net
Income of an cqurng Corporaton. (a) Introductory. (1) In the case of
9 016 2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
10G
an acqurng corporaton, ts average base perod net ncome, for the purpose of
the e cess profts credt based on ncome, computed under the genera average
method (secton 3 (d)), may be determned by computng ts e cess profts net
ncome ether wth or wthout reference to secton 62(b) of Part II, whchever
resuts n the esser e cess profts ta . If computed wthout reference to secton
62(b), the e cess profts net ncome of the acqurng corporaton s computed
wth reference to ts base perod e perence but wthout reference to the base
perod e perence of ts component corporatons. If computed wth reference to
secton 62(b), the e cess profts net ncome of the acqurng corporaton sha
be the e cess profts net ncome or defct n e cess profts net ncome for each
month of the acqurng corporaton s base perod (as defned n secton 3 (b)),
ncreased or decreased, as the case may be, by the addton or reducton resutng
from ncudng the e cess profts net ncome or defct n e cess profts net ncome
for that mouth of a component corporatons n the manner provded n secton
02(b).
(2) In the case of an acqurng corporaton, Its average base perod net ncome,
for the purpose of the e cess profts credt based on ncome, computed under
the aternatve based on growth (secton 3 (e)), may be determned, sub|ect to
the rues provded n secton 02(c), by computng ts e cess profts net ncome
ether wth or wthout reference to secton 02(b) of Part II, whchever resuts
n the esser e cess profts ta . Under secton C2(c), the acqurng corporaton s
egbty to use the growth aternatve may be determned, n certan nstances,
wth reference to ts base perod e per nee and ether wth or wthout reference
to the base perod e perence of ts component corporatons. In other crcum-
stances, t must be determned wth reference to the base perod e perence of
ts component corporatons. See secton 0. 62-2.
(3) In the case of an acqurng corporaton, ts average base perod net ncome,
for the purpose of the e cess profts credt based on ncome, computed under
secton 2 (c) and (d) (abnormates n the base perod), secton 3 (change
n products or servces), secton (ncrease n capacty for producton or opera-
ton), secton (new corporatons), or secton 6 (depressed ndustry sub-
groups), sha be determned under the rues set forth n secton 62 (d), (e),
(f). (g). or (h). See secton 0. 62-3 through 0. 62- .
(b) Method of rccomputaton of e cess profts net ncome of acqurng corpo-
raton wth reference to that of ts component corporatons. (1) In genera.
The foowng steps are requred for the recomputaton of the e cess profts net
ncome of the acqurng corporaton wth reference to the base perod e perence
of ts component corporatons:
() The e cess profts net ncome (or defct n e cess profts net ncome)
for each month n the base perod of the acqurng corporaton, and. for the
purpose of secton 3 (e) (2) ( ) and (G), for each month n the addtona
perod endng une 30, 19 0, must be determned for the acqurng corpo-
ratop and for each component corporaton. cept as provded beow wth
respect to the ta abe year of the component corporaton n whch the Part 11
transacton occurs, the e cess profts net ncome (or defct n e cess profts
net ncome) of any corporaton for any month durng any part of whch that
corporaton was actuay n e stence (or constructvey n e stence by
reason of a prevous Part II transacton) s determned by dvdng the
e cess profts net ncome computed under secton 33(b) (or defct n e cess
profts net ncome computed under secton 33(c)) for the ta abe year of
that corporaton n whch such month fas by the number of fu caendar
months n such ta abe year, and, n the case of a transacton descrbed n
secton 01(a)(1)( ), by takng the porton thereof propery aocabe to
the propertes transferred. In the case of the ta abe year of the component
corporaton n whch the Part II transacton occurs, the e cess profts net
ncome (or defct n e cess profts net ncome) for any month n such ta abe
year sha be determned under the rues provded n secton 0. 61-3(c), and,
n the case of a transacton descrbed n secton 61(a) (1) ( ), by takng the
porton thereof propery aocabe to the propertes transferred. The e cess
profts net ncome of any corporaton for any mouth durng no part of whch
such corporaton was actuay n e stence (or constructvey n e stence
by reason of a prevous Part II transacton) sha be zero, e cept as provded
n () beow. If any corporaton was an acqurng corporaton n a prevous
Tart II transacton, ts e cess profts net ncome for any month pror to such
transacton sha be ts e cess profts net ncome for such month recomputed
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
107
I 0. 61-1.
under secton. 62(b) (but wthout regard to the ast sentence of secton 62
(b) (3)) by reference to such prevous Part II transacton. For the purpose
of secton 3 (e)(2) ( ) and (G), the e cess profte net ncome or d t
n e cess profts net ncome s sub|ect to the percentages specfed n secton
3 (e)(2)( ).
() If the acqurng corporaton was n e stence (ether actuay n e st-
ence or, under secton 61(d), constructvey n e stence through a compo-
nent corporaton) at the begnnng of ts base perod, the e cess profts not n-
come for each month pror to the Part II transacton, durng a of whch
ether the acqurng corporaton or any component corporaton was not n
e stence (ether actuay or constructvey by reference to a prevous Part
II transacton), s computed for such acqurng or component corporaton
under ths subparagraph. The e cess profts net ncome for any such month
sha be 1 percent of such corporaton s equty capta (as defned n sec-
ton 37(c) and secton 0. 37- ), reduced by an amount determned under
the nadmssbe asset rato (computed under secton 0(b) and secton
0. - 0-1). both determned as of the cose of the day before the Part II trans-
acton occurred, or at the cose of the base perod of such corporaton, whch-
ever date Is earer. See e ampe, secton 0. 62-1 (c). There s no such
determnaton for any month after the Part II transacton. For ad|ust-
ments to equty capta , see secton 0. 62-(b) (3).
() For each month of the acqurng corporaton s base perod, and. for
the purpose of secton 3 (e) (2) ( ) and (G), for each month thereafter
for the perod endng une 30, 1 t 0, the e cess profts net ncome or defct
n e cess profts net ncome of the acqurng corporaton for that month,
as determned under (1) and (), above, sha be ncreased or decreased,
as the case may be, by the e cess profts net ncome or defct n e cess profts
net ncome of each component corporaton for that month so determned;
e cept that, f the acqurng corporaton acqures ony a part of the com-
ponent corporaton s propertes n a transacton descrbed n secton
61(a)(1)( ), then the ncrease or decrease sha be made for ony that
porton of such component corporaton s e cess profte net ncome or defct
n e cess profts net ncome as s aocabe under secton 62() and secton
0. 62-9 to the propertes of the component corporaton transferred to the
acqurng corporaton. The e cess profts net ncome of the acqurng cor-
poraton for any month, recomputed as provded n the prevous sentence,
sha n no event be ess than zero. component corporatons must be
taken nto consderaton n makng the recomputaton of the e cess profts
net ncome of the acqurng corporaton. In the case of a component cor-
poraton whch does not termnate ts e stence n connecton wth the Part II
transacton ts e cess profts net ncome or defct n e cess profts net ncome
for any month or part thereof after such transacton sha not be taken
nto account by the acqurng corporaton n recomputng ts e cess profts
Det ncome for such month. See secton 61(c) and secton 0. 61-3(b) ( ).
(2) Speca rues for partnershps and soe propretorshps. In the case of a
component corporaton whch s a partnershp or a busness owned by a soe
propretorshp (see secton 0. 61- ), ts e cess profts net ncome or defct n
e cess profts net ncome for each month fang wthn the acqurng corpora-
ton s base perod, and, for the purpose of secton 3 (e) (2) ( ) and (G), for
each month thereafter for the perod endng une 30, 19. 0, sha be determned
as though such partnershp or such busness owned by a soe propretorshp
had been a corporaton. See secton 62(k). mong the ad|ustments whch
are necessary n such a case are the foowng:
() reasonabe deducton for saary or compensaton to each partner
or to the soe propretor for persona servces actuay rendered-sha be
aowed;
() The credt for dvdends receved sha be that appcabe to cor-
poratons ;
() The treatment of capta gans and osses and of ta es (whether
State, oca, or other) sha be that appcabe to corporatons;
(v) The deducton for chartabe contrbutons sha be that aowed by
secton 23 (q).
(3) Lmtatons. The determnaton under ()(), above, of e cess profts
net ncome computed at 1 percent of equty capta (herenafter referred to as
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
10
constructve ncome ) for any month durng no port of whch the corporaton
was n e stence (herenafter referred to as a vacant month ) s sub|ect to each
of the foowng mtatons:
() Secton 02(b) (2) provdes for an ad|ustment to prevent dupcaton
n determnng the equty capta factor, 1 percent of whch s aowed as
the e cess profts net ncome. The cases generay covered by ths mtaton
are those n whch there was cross-ownershp of stock between corporatons
pror to the Part II transacton, but t aso covers cases where property
or stock of one corporaton has been transferred to another corporaton as
pad-n surpus or as a contrbuton to capta. s such, the prmary purpose
of ths mtaton s to prevent doubng up on the factor of equty capta upon
whch the constructve ncome nowed under secton 02(b) (2) s com-
puted. refy stated, the mtaton under secton 02(b) (2) provdes that
n ease ether the acqurng corporaton or any component corporaton
owned stock n any other such corporaton on the day for whch the equty
capta factor s determned, then such equty capta factor, upon whch
the constructve ncome aowed under secton 62(b) (2) wth respect
to vacant months of such corporatons s computed, sha b ad|usted to such
e tent as may be necessary to prevent such constructve ncome from
refectng money or property pad n by ether of such corporatons to
the other for stock or as pad-n surpus or as a contrbuton to capta,
or from refectng stock of ether pad n for stock of the other or as pad-n
surpus or as a contrbuton to capta. For ths purpose, stock n ether
such corporaton whch has n the hands of the other corporaton a bass
determned wth reference to the bass of stock prevousy acqured by the
ssuance of such other corporaton s own stock sha be deemed to have been
pad n for the stock of such other corporaton. The foowng e ampe
ustrates the nature of the ad|ustment to be made n cases to whch ths
mtaton under secton 62(b) (2) appes:
ampe. The Corporaton, the Corporaton, and the C Corporaton
make ther ncome ta returns on the caendar year bass. The Corpora-
ton was n e stence and commenced busness pror to anuary 1,19 0. The
Corporaton came nto e stence on anuary 1, 19 S. The C Corporaton
came nto e stence on December 31, 19 , and on that day t ssued a
of ts capta stock to the Corporaton for cash of the atter. The
Corporaton hed ths stock contnuousy unt anuary 13, 19 0, at whch
tme t acqured a of the propertes of the Corporaton and the C
Corporaton n a transacton descrbed n secton 01(a). oth the Cor-
poraton and the C Corporaton are entted under secton 02(b) (2) to a
constructve ncome for each of the months n the caendar years 19 0 and
19 7. The C Corporaton s not entted to a constructve ncome for the
frst 11 months n the year 19 . See (b) (1) () of ths secton. The con-
structve ncome for each such corporaton s for each vacant month an
amount equa to 1 percent of the equty capta of such corporaton deter-
mned as of the cose of December 31,19 9, such equty capta beng reduced
by an amount whch s the same percentage of such equty capta as the
percentage whch the tota of the ad|usted bases of the nadmssbe assets
hed by such corporaton at the cose of such day s of the tota of the ad-
|usted bases of the admssbe nnd nadmssbe assets hed at the cose of
such day. In the case of the reducton for the Corporaton wth respect to
nadmssbe assets, f the amount of such reducton attrbutabe to the stock
n the C Corporaton s an amount whch s ess than the ad|usted bass of
such stock n the hands of the Corporaton at the cose of December 31,
19 9, a further ad|ustment must be made to the Corporaton s equty
capta n order to emnate dupcaton of the same equty capta. ssum-
ng that the ad|usted bass of the C Corporaton s stock n the hands of the
Corporaton s 0,000; that on December 31, 19 9, the Corporaton
owned shares n other domestc corporatons havng an ad|usted bass of
10,000; that the Corporaton s equty capta at the cose of December 31,
19 9, s 0,000; and that the tota of the ad|usted bases of the admssbe
and nadmssbe assets of the Corporaton at the cose of December 31,
19 9, s 000,000, the computaton of the ad|ustment requred under secton
02(b) (2) because of the ownershp by the Corporaton of stock n the C
Corporaton may be Iustrated as foows:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
109 0. 61-1.
( ) Tota Inadmssbe assets 00,000
( ) Tota admssbe and nadmssbe assets 000,000
(C) Percentage whch the tota nadmssbe assets s of tota admssbe
and nadmssbe assets (percent) 10
(D) quty capta 0,000
( ) mount of reducton n equty capta for nadmssbe assets
10 percent of tem (D) , 000
(F) Reducton n equty capta attrbutabe to the stock n the C Cor-
poraton
(S 37, 0
(G) ass of the C Corporaton s stock 0,000
( ) ddtona ad|ustment to be made n equty capta n order to
arrve at the equty capta under secton 62(b) (2) upon whch
constructve ncome s computed 12, 00
(I) quty capta 0,000
d|ustment for nadmssbe assets (tem ( ) above) ,000
d|ustment under secton 162(b) (2) (tem ( ) above)_ 12, 00
7, 00
( ) quty capta as ad|usted under secton 02(b (2) upon whch
constructve ncome s computed 392, 00
() Secton C2(|) (1) may requre the e cuson of a or a part of the
constructve ncome of a component corporaton whch s determned under
secton 62(b)(2) for vacant months, f the acqurng corporaton (or
any corporaton whch ater became a component corporaton of the acqurng
corporaton) acqured for assets (other than ts own stock) the stock of such
component corporaton. See secton 0. 62-10. The ad|ustment necessary
under secton 62( ) (1) where constructve ncome for vacant months woud
otherwse be determned under secton 62(b) (2) s ustrated by the foow-
ng e ampe:
ampe. The Corporaton was n e stence and commenced busness
pror to anuary 1, 19 6. The Corporaton came nto e stence on an-
uary 1, 19 7. eth corporatons make ther Income ta returns on the
caendar year bass. The Corporaton sod certan assets for cash, and
on anuary 1, 19 . t used such cash to purchase a of the. stock of the
Corporaton from the atter s stockhoders. On December 31, 19 0, the
Corporaton acqured a of the propertes of the Corporaton n a Part
II transacton. y reason of secton 62(|) (1), the base perod e perence of
the Corporaton pror to anuary 1. 19 . s to be e cuded and, there-
fore, no constructve Income need be determned for the Corporaton for
the year 19 6.
(c) Oenera average method. The computaton of the average base perod
net ncome of an acqurng corporaton, determned under the genera average
method of secton 3 (d) by computng the e cess profts net ncome wth ref-
erence to secton 62(b), may be ustrated by the foowng e ampe:
ampe. The Corporaton came nto e stence and commenced busness
pror to anuary 1, 19 6. The Corporaton and the C Corporaton each came
nto e stence on anuary 1, 19 7. The Corporaton, the Corporaton, and
the C Corporaton each makes ts ncome ta returns on the caendar year
bass. The Corporaton acqured a of the propertes of the Corporaton
amd of the C Corporaton n a Part II transacton on anuary 1, 19 9. The
Corporaton and the C Corporaton each had equty capta of 100,000 at the
cose of December 31.19 (the day before the Part II transacton). The e cess
profts net ncome for each of the corporatons for the base perod ta abe years
s as foows:
cess profts net Income for ta abe year
Year
19 6
19 7
19
19 9
- 36,000
0
0
1 .000
-2 .000
12,000
f0,000
2 .000
2 ,000
10 ,000
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
110
Ths e cess profts net ncome for each month n such ta abe years s as foows:
cess profts net ncome for each month
For each month n caendar year
19
10 7
19
19 9
-S3.000
1,000
1.000
,000
-2,000
1.00U
,000
2.000
2.000
9,000
1,000
3,000
,000
9. 000
Corporaton
Corporaton
C Corporaton.
Tota...
1 Constructve Income computed under secton 01(b)(2). Sec (b)()() of ths secton.
The e cess profts net ncome of the Corporaton for each month as recom-
puted under secton 62(b) s the tota e cess profts net ncome for that month,
as shown n th above tr.be, e cept that, for each month n 19 6, the recomputed
e cess profts net ncome s ncreased to zero. Snce the 36 consecutve months
n the years 19 7, 19 , and 19 9 have the hghest aggregate e cess profts net
ncome, the average base perod net ncome s such aggregate e cess profts net
ncome dvded by 3. The average base perod not ncome of the Corporaton,
recomputed under secton 62(b), s ,000, determned as foows:
ggregate for months n 19 7 (12 3,000) 36,000
ggregate for months n 10 (12 SP.000) 10 ,000
ggregate for months n 19 9 (12 9,000) 10S. 000
ggregate for 36 months 2,000
ggregate dvded by 3 , 000
Ths fgure, sub|ect to the prccentage prescrbed n secton 3 (a), may be used
by the Corporaton n computng ts e cess profts credt based on ncome
for the purpose of determnng ts e ces profts ta fcr 19 0 and future e cess
profts ta ta abe years.
Sec. 0. 62-2. ternatve verage ase Perod Net Income ased on
Growth. (a) In genera. Secton 62(c) deas wth the effect of a Part II
transacton upon the rght of an acqurng corporaton to the use of the growth
aternatve provded n secton 3 (e). See secton 0. 62-1 (a) (2). The rues
for appyng secton 3 (e) n the case of a party to a Part II transacton may
dffer, dependng upon whether egbty under secton 3 (e) (1) ( ) or under
secton 3 (e) (1) ( ) s nvoved, whether the Part II transacton s of a type
descrbed n secton 61(a) (1)( ), whether the acqurng corporaton actuay
or constructvey through a component corporaton commenced busness pror
to the begnnng of ts base perod, whether the acqurng corporaton determnes
ts e cess profts net ncome wth reference to the recomputaton provded n
secton 62(b), and whether the transacton occurs pror to or after certan
dates.
(b) Part II transactons other than a transacton descrbed n secton
61 (a) (2) ( ). (1) . ernafre under secton 3 (c) (1) (. ). () In the case
of a Part II transacton other than a transacton descrbed n secton
61(a)(1)( ), secton 62(c) provdes that an acqurng corporaton sha be
entted to the use of an aternatve average base perod net ncome under
secton 3 (e)(1)( ), reatng to growth, ony
( ) If the Part II transacton occurs after une 30, 19 0, f such acqur-
ng corporaton was entted under secton 3 (e) (1) ( ) to the use of an
aternatve average base perod net ncome based on growth mmedatey
pror to the date of the Part II transacton, and f the acqurng corporaton
determnes ts e cess profts net ncome wthout reference to the recomputa-
ton provded n secton 02(b) ; or
( ) Regardess of the date on whch the Part II transacton occurs, f
the acqurng corporaton (other than a corporaton created ncdent to
such transacton) and a the component corporatons actuay commenced
busness pror to the begnnng of the acqurng corporaton s base perod,
If the acqurng corporaton recomputes ts e cess profts net Income under
secton 62(b), and f the acqurng corporaton quafes tnder the rues
of secton 3 (e)(1)( ) after appyng the rues set forth n (), beow.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
I
0. 61-1.
() For the purpose of (1)( ), above, the acqurng corporaton sha com-
bne ts tota assets on the date specfed n secton 30(e) (1) ( ) (1) wth the
tota assets of each component corporaton on such date (the tota assets of
each such corporaton beng determned under that secton wth the emnaton
of stock of one such corporaton hed by another such corporaton), and t sha
combne wth Its tota payro and ts tota gross recepts for that porton of ts
base perod whch preceded such transacton the tota payro and tota gross
recepts of each such component corporaton for that porton of such perod.
The aocaton of payro and gross recepts of a component corporaton for ts
ta abe year to any such porton of such perod sha be made n accordance wth
the rues provded n secton :3 (e) ( ) and ( ) sub|ect, for the ta abe year
of the transacton, to the prncpes descrbed n secton 0. C-3(c). In com-
bnng gross recepts, pre per ad|ustments shn be made to prevent dupcaton,
ncudng the emnaton of those gross recepts of a component corporaton
or the acqurng corporaton whch are attrbutabe to transactons between
ether such component corporaton and the acqurng corporaton or such com-
ponent corporaton and another component corporaton.
() If the acqurng corporaton does not quafy under () ( ), above, for the
use of an aternatve average base perod net ncome under secton 3 (e) (1) ( )
becanse any corporaton a party to the Part II transacton (other than a cor-
poraton created ncdent to such transacton) had not actuay commenced bus-
ness pror to the begnnng of ts base perod or because the tota of the assets
of the acqurng corporaton determned under (), above, e ceeds 20 mon,
f the Part II transacton occurs after une 30, 19 0, f the acqurng corporaton
determnes ts average base perod net ncome under secton 3 (d) after re-
computng ts e cess profts net ncome under secton 62(b), and f any cor-
poraton a party to the Part II transacton (whether the acqurng corporaton
or a component corporaton) was under secton 3 (e) (1) ( ) entted mmed-
atey pror to the date of the transacton to the use of an aternatve average
base perod net ncome based on growth, then one-twefth of such aternatve
average base perod net ncome of such corporaton sha be treated as ts
monthy e cess profts net ncome for the purpose of determnng such average
base perod net ncome of the acqurng corporaton under secton 3 (d).
(2) ternatve under secton 3 (e) (1) ( ). () In the case of a Part II
transacton other than a transacton descrbed n secton 61(a) (1) ( ), secton
62(c) provdes that an acqurng corporaton sha be entted to the use of an
aternatve average base perod net ncome under secton 3 (e)(1)( ), reat-
ng to growth, ony
( ) If the Part II transacton occurs after December 31, 19 0, f such
acqurng corporaUon was entted under secton 3 (e)(1)( ) to the use
of an aternatve average base perod net ncome based on growth mmed-
atey pror to the date of the Part II transacton, and f the acqurng cor-
poraton determnes ts e cess profts net ncome wthout reference to the
recomputaton provded n secton G2(b) ; or
( ) If mmedatey pror to a Part II transacton occurrng pror to an-
nary 1, 19 1, the acqurng corporaton (other than a corporaton created
ncdent to such transacton) and a component corporatons were furnsh-
ng products or casses of products of the type descrbed n sec-
ton 3 (e) (1) ( ) (), f the acqurng corporaton (other than a corpora-
ton created ncdent to such transacton) and a component corporatons
actuay commenced busness pror to the begnnng of the acqurng cor-
poraton s base perod, f the acqurng corporaton recomputes ts e cess
profts net ncome under secton 02(b), and f the acqurng corporaton
quafes under the rues of secton 3 (e) (1) ( ) after appyng the rues
set forth n () beow; or
(C) If mmedatey pror to a Part II transacton occurrng after Decem-
ber 31, 19 0, the acqurng corporaton (other than a corporaton created
ncdent to such transacton) and a component corporatons were entted
under secton 3 (e) (1) ( ) to the use of an aternatve average base perod
net ncome based on growth, f the acqurng corporaton (other than a
corporaton created ncdent to such transacton) and a component cor-
poratons actuay commenced busness pror to the begnnng of the acqur-
ng corporaton s base perod, f the acqurng corporaton recomputes ts
e cess profts net ncome under secton 62(b), and f the acqurng corpora-
ton quafes under the rues of secton 3 (e)(1)( ) after appyng the
rues set forth n (), beow.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
112
(I) For the purpose of () ( ) and (C), nbove, the acqurng corporaton
sha combne wth ts net saes for that porton of the perod pror to anuary
1,19 1, whch preceded such Part II transacton, the net saes of each such com-
ponent corporaton for such porton of such perod. In combnng net saes,
proper ad|ustment sha be made to prevent dupcaton, ncudng the emna-
ton of those net saes of a component corporaton or the acqurng corporaton
whch are attrbutabe to transactons between ether such component corpora-
ton and the acqurng corporaton or such component corporaton and another
component corporaton.
() If the Part II transacton occurs after December 31,19 0, f the acqurng
corporaton does not quafy under () (C), above, for the use of an aternatve
average base perod net ncome under secton 3 (e)(1)( ), f the acqurng
corporaton determnes ts average base perod net ncome under secton 3 (d)
after recomputng ts e cess profts net ncome under secton 62(b), and f any
corporaton a party to the Part II transacton (whether the acqurng corpora-
ton or a component corporaton) was entted under secton 3 (e) (1) ( ), m-
medatey pror to the date of the transacton, to the use of an aternatve average
base perod net ncome based on growth, then one-twefth of such aternatve
average base perod net ncome of such corporaton sha be treated as ts
monthy e cess profts net ncome for the purpose of determnng such average
base perod net ncome of the acqurng corporaton under secton 3 (d).
(c) Part II transactons descrbed n secton 61(a) (1) ( ). (1) ternatve
under secton 3 (e) (1) ( ). () In the case of a Part II transacton descrbed
n secton 61(a)(1)( ), secton 62 provdes that an acqurng corporaton
sha be entted to the use of an aternatve average base perod net ncome under
secton 3 (e) (1) ( ), reatng to growth, ony f t recomputes ts e cess profts
net ncome under secton 62(b) and
( ) If the transacton occurs after the cose of the base perod of the
component corporaton, and f mmedatey pror to the date of the transac-
ton the component corporaton quafed under secton 3 (e) (1) ( ) for the
use of an aternatve average base perod net ncome under that secton ; or
( ) If the transacton occurred durng the base perod of the acqurng
corporaton, f the component corporaton actuay commenced busness pror
to the begnnng of ts base perod, and f the acqurng corporaton quafes
under the rues of secton 3 (e) (1) ( ) after appyng the rues set forth
n () beow.
() For the purpose of (1)( ), above, the acqurng corporaton sha be
consdered as havng hed the tota assets of the component corporaton as of
the date specfed n secton 3 (e) (1) ( ) () as determned under that secton
for that date, and t sha be treated as havng had, for the perod pror to the
day of the transacton, an aocated share of the payro and of the gross recepts
of the component corporaton. Such payro and gross recepts sha be deter-
mned n accordance wth the rues provded n secton 3 (e) ( ) and ( )
sub|ect, for the ta abe year of the transacton, to the prncpes descrbed n
secton 0. 61-3(c) ; and such aocaton of such payro and gross recepts sha
be n the same rato as that e stng n the aocaton of the e cess profts net
ncome. See secton 62() and secton 0. 62-9.
(2) ternatve under secton 3 (e) (1) ( ). () In the case of a Part II
transacton descrbed n secton 61(a)(1)( ), secton 62(c) provdes that an
acqurng corporaton sha be entted to tbe use of an aternatve, average base
perod net ncome under secton 3 (e)(1)( ), reatng to growth, ony f t
recomputes ts e cess profts net ncome under secton 62(b) and
( ) If the transacton occurs after December 31, 19 0, and f mmedatey
pror to the date of the transacton the component corporaton quafes
under secton 3 (e) (1) ( ) for the use of an aternatve average base
perod net ncome under that secton; or
( ) If the transacton occurred pror to anuary 1,10 1, f the component
corporaton actuay commenced busness pror to the begnnng of ts base
perod, f mmedatey pror to the transacton the component corporaton
was furnshng a product or cass of products of the type descrbed n secton
3 (e)(1)( ), and f the acqurng corporaton quafes under the rues
of secton 3 (e) (1) ( ) after appyng the rues set forth n (), beow.
() For the purpose of () ( ), above, the acqurng corporaton sha be con-
sdered as havng had, for the perod pror to the date of the transacton, an
aocated share of the net saes of the component corporaton, such aocaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
113
0. 61-1.
of net saes beng In the same rato as that e stng n the aocaton of the
e cess profts net ncome. See secton 62() and secton 0. 62-9.
(3) Speca rues. For speca rues wth respect to a Part II transacton
descrbed n secton 61(a) (1) ( ) nvovng a transfer to an acqurng corpora-
ton not created ncdent to the transacton, or nvovng a transfer by more than
one component corporaton to an acqurng corporaton, see secton 0. 01-7(b).
Sec. 0. 62-3. ternatve verage ase Perod Net Income Under Secton
2, 3, , , or 6. (a) In genera Secton 62 (d), (e), (f), (k), and
(h) provdes speca rues appcabe n determnng the average base perod net
Income of an acqurng corporaton under sectons 2 to 6, ncusve. Certan
rues generay appcabe under those subsectons of secton 62 are set forth
n ths secton. ddtona speca rues provded n such subsectons of secton
62 are set forth n the sectons mmedatey foowng ths secton. The rues
for appyng sectons 2 to 6, ncusve, and secton 02 (d) to (h), ncusve,
may dffer dependng upon whether the Part II transacton s of a type descrbed
n secton 61(a) (1) ( ) (reatng to a transfer by a component corporaton of
a part, as dstngushed from a or substantay a, of ts propertes), whether
the transacton occurs before or after certan dates, and whether the acqurng
corporaton has actuay or constructvey through a component corporaton (see
secton 61(d)) commenced busness on or before the 1st day of the base perod.
(b) Commencement of bus ess. If nether the acqurng corporaton nor any
component corporaton was n e stence and commenced busness on or before
the frst day of the base perod of the acqurng corporaton, the acqurng cor-
poraton s not entted to determne ts average base perod net Income under
secton 2, 3, , or 3, or under secton 62 (d), (e), (f), or (h). If ether
the acqurng corporaton or any component corporaton commenced busness on
or before the frst day of the base perod of the acqurng corporaton, the acqur-
ng corporaton s not entted to compute ts averatre base perod net ncome under
secton or secton 62(g . e cept to the evtent that such sectons are nvoved
under (c) of ths secton. S e secton 61(d) as to constructve e stence and
constructve commencement of busness.
(c) Rue appcabe f a partes cere prevousy entted to an aternatve
average base perod net ncome. If mmedatey pror to the transacton each of
the corporatons, partes to the Part II transacton, other than a corporaton
created ncdent to the Part II transacton, was entted to compute ts average
base perod net ncome under secton 2(d) (reatng to abnormates n base
perod), secton 3 (reatng to change n products or .servces), secton (re-
atng to ncrease n capacty for rroducton or operaton), secton (reatng
to new corporatons), or secton 6 (reatng to depressed ndustry subgroups),
then the acqurng corporaton (whether or not created ncdent to the. Part II
transacton) may determne ts average base perod net ncome after the trans-
acton by computng ts own average base perod net Income under whchever of
such sectons s appcabe to t mmedatey pror to the transacton, and by
addng thereto the average base perod net ncome of each component corpora-
ton separatey computed under whchever of such sectons s appcabe to such
component corporaton mmedatey pror to the transacton. owever, n the
case of a transfer by a corporaton of a part, as dstngushed from a or sub-
stantay a, of ts propertes to a corporaton created ncdent to such transfer
n a transacton to whch secton 61(a) (1) ( ) s appcabe, ony so much of
the average base perod net ncome of such component corporaton, so computed,
as s aocabe under the rues of secton 62(1) and secton 0. 62-9 to the prop-
ertes of such component corporaton transferred to the acqurng corporaton s
avaabe to such acqurng corporaton under the rue set forth n the precedng
sentence. The rues provded n ths paragraph are not appcabe n any case
n whch a of the corporatons (other than a corporaton created ncdent to
the Part II transacton), partes to the Part II transacton, were entted mme-
datey pror to the transacton to the benefts of secton . See secton 0. 62-7
for rues appcabe n such case. See secton 70 for rues appcabe, n cer-
tan cases nvovng ntercorporate stockhodngs, n determnng the tota assets
of a component corporaton for the purpose of the separate computaton under
ths paragraph of ts average base perod net ncome mmedatey pror to the
transacton.
(d) Method of determnaton. n acqurng corporaton not entted to com-
pute ts average base perod net ncome under (c) of ths secton may neverthe-
ess be entted, under the crcumstances set forth In sectons 0. 62- to 0. 62- ,.
ncusve, to appy sectons 2 to 6, ncusve, f t meets the requreu ncs of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S 0. 61-1.
11
those sectons and of secton 02 (d) through (h). The foowng rues are app-
cabe for the purpose of determnng whether, after the transacton, an acqur-
ng corporaton meets the requrements of secton 2, 3, , , or 6 and
secton 0. 62- , 0. 62- , 0. 62-0, 0. 62-7, or 0. 62- :
(1) t ssets. For ths purpose, the tota assets of each component corpo-
raton hed by t on a day for whch the computaton of tota assets of the
acqurng corporaton s requred by the appcabe secton, whch day pre-
ceded the day on whch the transacton occurred, sha be treated as havng
been hed by the acqurng corporaton on such day.
(2) Interest. For ths purpose, the nterest pad or ncurred by each
component corporaton durng the perod pror to the date of the transacton,
taken nto account n computng the nterest ad|ustment appcabe n deter-
mnng average base perod net ncome, sha be consdered as havng been
pad or ncurred by the acqurng corporaton at the tme t was pad or
ncurred by such component corporaton.
(3) Gross recepts. For ths purpose, the gross recepts of each compo-
nent corporaton for the perod pror to the date of the transacton, taken
nto account under such secton n determnng the ndustry cassfcaton
of the acqurng corporaton, sha be treated as the gross recepts of the
acqurng corporaton. Such gross recepts for any porton of a ta abe year
of the component corporaton s determned n accordance wth the rues
provded n secton 3 (e) ( ) sub|ect, for the ta abe year of the transac-
ton, to the prncpes descrbed n secton 0. 0-3(c).
In appyng the foregong rues, proper ad|ustment as to each tem sha be made
to prevent dupcaton, ncudng the emnaton of such porton of any tem wth
respect to the component corporaton or the acqurng corporaton as s attrbu-
tabe to transactons between ether such component corporaton and the acqur-
ng corporaton or such component corporaton and another component corpo-
raton.
(e) Sethod of determnaton n case of transactons descrbed n secton
61(a) (1) ( ). In the case of a transfer by a corporaton of a part, as dstn-
gushed from a or substantay a, of ts propertes to a corporaton created
ncdent to such transfer n a transacton to whch secton 61(a)(1)( ) a
appcabe, there sha be avaabe to such acqurng corporaton n determnng
ts average base perod net ncome under secton 2, 3, , , or 6, ony
such porton of each tem referred to n (d), above, as s aocabe to the prop-
ertes of such component corporaton transferred to the acqurng corporaton.
Such porton sha be determned n a manner consstent wth that used n th
aocaton to the acqurng corporaton under secton 02() and secton 0. 62-9
of the e cess profts net ncome of the component corporaton.
(f) ppcaton for benefts of sectons to . - ( . n acqurng corporaton
whch computes ts average base perod net ncome under secton 2, 3, ,
, or 6, and under secton 62 (d), (e), (f), (g), or (h), must compy wth
the provsons of secton 7(e) wth respect to the fng of an appcaton for
the benefts of such sectons.
Sec 0. 62- . ppcaton of Secton 2. (a) Part II transactons other
than a transacton descrbed n secton 61(a) (1) ( ). (1) In the case of a
art II transacton other than a transacton descrbed n secton 61(a) (1) ( ),
whch occurred durng the base perod of an acqurng corporaton, the acqurng
corporaton sha be entted to determne ts average base perod net ncome
under secton 2 (c) or (d) f and to the e tent that t satsfes the requrements
of ether such subsecton and satsfes the other requrements of secton 2
after the appcaton of the rues provded n secton 0. 62-3 (b) and (d) and
of the foowng rues:
() For ths purpose, the e cess profts net ncome (or defct theren)
of the component corporaton for any part of the base perod of the acqurng
corporaton pror to the transacton s attrbuted to the acqurng corporaton
n determnng the e cess profts net ncome (or defct theren) of the acqur-
ng corporaton for any month of ts base perod for the purpose of secton
2 (c) or (d), and the acqurng corporaton sha recompute ts monthy
e cess profts net ncome as provded n secton 62(b) ; however, the e cess
profts net ncome of the acqurng corporaton for any month so recomputed
may h - ess than zero, and n such case, such defct s taken nto account to
the e tent provded n secton 2;
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
11
0. 61-1.
() For ths purpose, the busness e perence of the component corpora-
ton pror to the date of the transacton s attrbuted to the acqurng cor-
poraton for the purpose of determnng the e stence of an abnormaty
under secton 2(a).
(2) If any corporaton, a party to a Pnrt II transacton other than a trans-
acton descrbed n secton 61(a)(1)( ), whch transacton occurs after the
cose of the base perod of the acqurng corporaton, was entted mmedatey
pror to the transacton to compute ts average base perod net ncome under
secton 2(c) or under secton 2(d), then n recomputng the acqurng cor-
poraton s e cess profts net ncome under secton 62(b) for the purpose of the
genera average method of determnng ts average base perod net ncome under
secton 3 (d)
() The substtute e cess profts net ncome for any month dentfed under
secton 2(c) (1) and (3) of any corporaton entted to the benefts of
secton 2(c) mmedatey pror to the transacton sha be consdered the
e cess profts net ncome of that corporaton for such month ;
() In the case of any corporaton entted to the benefts of secton
2(d) mmedatey pror to the transacton, one-twefth of the average
base perod net ncome, separatey computed, to whch such corporaton was
entted under secton 2(d) sha be consdered the e cess profts net
Income of that corporaton for each month of ts base perod.
(3) n acqurng corporaton sha aso be entted to appy secton 2
to the e tent provded n secton 0. 62-3(c), reatng to a Part II trans-
acton nvovng corporatons each of whch was prevousy entted to the
benefts of secton 2(d), 3, , , or 6.
(b) Part II transactons descrbed n secton 6t (a) (t)( ). (1) In the case
of a Pnrt II transacton descrbed n secton 61(a)(1)( ), whch occurred
durng the base perod of an acqurng corporaton, the acqurng corpora-
ton sha be entted to determne ts average base perod net ncome under
secton 2 (c) or (d) If and to the e tent that t satsfes the requrements
of ether such subsecton and satsfes the other requrements of secton 2
after the appcaton of the rues prescrbed n (a)(1), above, and n secton
0. 62-3 (b) and (e). In appyng the rues of (a)(1), above, there sha be
avaabe to the acqurng corporaton n determnng ts average base perod
net ncome under secton 2 ony such porton of each tem of the com-
ponent corporaton s e perence pror to the transacton as s aocabe to
the propertes of such component corporaton transferred to the acqurng
corporaton. Such porton sha be determned n a manner consstent wth
that used n the aocaton to the acqurng corporaton under secton 62() and
secton 0. 62-9 of the e cess profts net ncome of the component corporaton.
(2) In the case of a Part II transacton descrbed n secton 61(a)(1)( ),
where the transacton occurs after the cose of the base perod of the acqurng
corporaton, and where the component corporaton was entted mmedatey
pror to the transacton to compute ts average base perod net ncome under
secton 2(c) or under secton 2(d), then n recomputng the acqurng cor-
poraton s e cess profts net ncome under secton 62(b) for any month for the
purpose of the genera average method of determnng ts average base perod
net ncome under secton 3 (d), the rues prescrbed n (a) (2), above, sha be
appcabe, e cept that there sha be avaabe to the acqurng corporaton ony
such porton of the e cess profts net Income of the component corporaton com-
puted under (a)(2), above, as s aocabe to the acqurng corporaton under
the rues of secton 62() and secton 0. 62-9.
(3) For speca rues wth respect to a Part II transacton descrbed n secton
61(a)(1) ( ) nvovng a transfer to an acqurng corporaton not created nc-
dent to the transacton, or nvovng a transfer by more than one component
corporaton to an acqurng corporaton, see secton 0. 61-7 (b).
Sec. 0. 62- . ppcaton of Secton 3. (a) Part II transactons other
than a transacton descrbed n secton 61 (a) ( ) ( ). (1) In the case of a
Part II transacton, other than a transacton descrbed n secton 61(a) (1) ( ),
where any corporaton a party to the transacton (other than an acqurng cor-
poraton created ncdent to such transacton) had not actuay commenced
busness on or before the 1st day of the acqurng corporaton s base perod, the
acqurng corporaton sha not be entted to compute ts average base perod net
ncome under secton 3 e cept to the e tent provded n secton 0. 62-3(c), or
to the e tent provded n (3) beow.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
116
(2) In the case of a Part II transacton other than a transacton descrbed
n secton 61(a) (1) ( ), where, at the tme of the transacton, one or more of
the corporatons, partes to the transacton, had made a substanta change,
wthn the meanng of secton 3(a)(1) and secton 0. 3-1 (a) (1), n the
products or servces whch t furnshed, but where such corporatons at the tme
of the transacton were not yet quafed to compute ther average base perod
net ncome under secton 3, the acqurng corporaton sha be entted to com-
pute ts average base perod net ncome under secton 3 wth respect to such
change f the requrements of such secton are satsfed after the appcaton of
the rues provded n secton 0. 62-3 (b) and (d) and of the foowng rues:
() For ths purpose, the acqurng corporaton sha recompute ts e cess
profts net ncome n the manner provded n secton 62(b), e cept that the
e cess profts net ncome so recomputed may be ess than zero;
() For ths purpose, the gross ncome and the net ncome of a com-
ponent corporatons for the ta abe years begnnng wth, wthn, and subse-
quent to the ta abe year n whch the frst change n products or servces
was made, such ta abe year beng determned by reference to the corpora-
ton whch made such change, sha he treated as the gross ncome and net
ncome, respectvey, of the acqurng corporaton;
() For ths purpose, each change n products or servces made by a
component corporaton sha be treated as havng been made by the acqurng
corporaton at the tme t was made by the component corporaton.
(3) Where a corporaton a party to the Part II transacton commenced bus-
ness durng the 36-month perod endng on the ast day of the base perod of the
acqurng corporaton and the transacton occurred pror to December 1, 19o0. the
actvtes of that corporaton sha be treated, for the purpose of secton 3, as
though they consttuted a substanta change n products or servces wthn the
meanng of secton 3(a) (1) and secton 0. 3-(a) (1). In such a case, the
rues prescrbed n (2) above, and n secton 0. 62-3 (b) and (d) sha be
appcabe for the purpose of determnng whether or not the acqurng corpora-
ton meets the requrements of secton 3.
( ) In the case of a Part II transacton other than one descrbed n secton
61(a) (1) ( ), where subsequent to the date of the transacton there s a sub-
stanta change n the products or servces furnshed by the acqurng corpora-
ton wthn the meanng of secton 3(a) (1) and secton 0. 3-1 (a) (1), the
acqurng corporaton sha be entted to determne ts average base perod net
ncome under secton 3 wth respect to such change f t quafes under such
secton after the appcaton of the rues prescrbed n (2), above, and n secton
0. 62-3 (b) and (d).
( ) cept to the e tent provded n (3). above, an acqurng corporaton sha
not be deemed, for the purpose of secton 3, to have made a substanta change
n products or servces furnshed by t soey by reason of a change n such prod-
ucts or servces resutng from the e ecuton of a Part II transacton.
(6) n acqurng corporaton sha aso be entted to appy secton 3 to the
e tent provded n secton 0. 02-3(c), reatng to a Part II transacton nvovng
corporatons each of whch was prevousy entted to the beuefts of secton
2(d), 3, , , or 6.
(b) Part II transactons descrbed n secton 61(a) (1) ( ). (1) In the case
of a Part II transacton descrbed n secton 61(a) (1) ( ). the acqurng cor-
poraton sha be entted to compute ts average base perod net ncome under
secton 3 ony
() To the e tent provded n secton 0. 62-3(c); or
() If there was, after the date of the transacton, a substanta change
n the products or servces furnshed by the acqurng corporaton wthn the
meanng of secton 3(a) (1) and secton 0. 3-(a) (1), and f the acqur-
ng corporaton quafes under secton 3 after the appcaton of the rues
prescrbed n (a) (2), above, and n secton 0. 62-3 (b) and (e). In appy-
ng the rues of (a)(2), above, there sha be avaabe to the acqurng
corporaton n determnng ts average base perod net ncome under secton
3 ony such porton of each tem of the component corporaton s e perence
pror to the transacton as s aocabe to the propertes of such component
corporaton transferred to the acqurng corporaton. Such porton sha be
determned n a manner consstent wth that used n the aocaton to the
acqurng corporaton under secton 62() and secton 0. 02-9 of the e cess
profts net ncome of the component corporaton.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
117
0. 61-1.
(2) For speca rues wth respect to a Part II transacton descrbed n secton
61(a) (1) ( ) Invovng a transfer to an acqurng corporaton not created nc-
dent to the transacton, or nvovng a transfer by more than one component
corporaton to an acqurng corporaton, see secton 0. 61-7 (b).
Sec. 0. 62-6. ppcaton of Secton . (a) Part II transactons other
than a transacton descrbed n secton 61 (a) (1) ( ). (1) In the case of a
Tart II transacton other than a transacton descrbed n secton 61(a) (1) ( ),
where at the tme of the transacton one or more of the corporatons, partes to
the transacton, had made an addton or addtons to ts factes or had repaced
a or a part of ts e stng factes, wthn the meanng of secton (b) and
se-ton 0. -2, and where the transacton occurred pror to the cose of the
base perod of the ccrporatcn makng such addton or repacement, the acqur-
ng corporaton sha be entted to compute Its average base perod net ncome
under secton , f the requrements of such secton are satsfed after the
appcaton of the rues provded n secton 0. 62-3 (b) and (d) and of the
foowng rues:
() For ths purpose, the capacty for producton or operaton, the ad|usted
bass of the tota factes, and the bass (unad|usted) of the tota factes,
determned n accordance wth the.rues appcabe under secton (b)
and secton 0. -2, of a component corpcratons as they e sted on the
day pror to the begnnng of the 36-month perod endng wth the ast day
of the base perod of the acqurng corporaton, sha be treated as havng
been hed by the acqurng corporaton on such day for the purpose of deter-
mnng whether an ncrease n capacty for producton or operaton sha
be deemed to have occurred wthn the meanng of secton (b) and secton
0. -2;
() For ths purpose, each addton or addtons to ts factes or re-
pacement of a or part of ts e stng factes by a component corporaton
sha be treated as havng been made by the acqurng corporaton at the
tme t was made by such component corporaton;
() For ths purpose, f the Part II transacton occurred before the cose
of the base perod of the acqurng corporaton and after the ast day of
the ta abe year of the acqurng corporaton mmedatey precedng ts
frst ta abe year endng after une 30, 19 0, then the computaton under
sect on (e) (1) (reatng to the determnaton of tota assets) sha be
made by reference to the ast day of such base perod, and the 12-month
perod referred to n secton (c) (2) (reatng to the nterest ad|ustment)
sha be the 12-month perod endng wth the ast day of such base perod.
See secton 61(d).
(2) Where a corporaton a party to the Part II transacton commenced bus-
ness durng the 36-month perod endng on the ast day of the base perod of the
acqurng corporaton and the Part II transacton occurred durng the base
perod of the acqurng corporaton, the acquston of factes by that corpora-
ton sha be treated, for the purpose of secton , as though they consttuted
an addton or addtons to factes wthn the meanng of secton (b) and
secton 0. -2. In such a case, the rues prescrbed n (1), above, and n sec-
ton 0. 62-3 (b) and (d) sha be appcabe for the purpose of determnng
whether or not the acqurng corporaton meets the requrements of secton .
(3) In the case of a Part II transacton other than one descrbed n secton
61(a)(1)( ), where subsequent to the date of the transacton there s an
addton or addtons to ts factes or a repacement of a or part of ts e stng
factes wthn the meanng of secton (.b) and secton 0. -2, the acqur-
ng corporaton sha be entted to determne ts average base perod net ncome
under secton f t quafes under such secton after the appcaton of the
rues prescrbed n (1), above, and n secton 0. 62-3 (b) and (d).
( ) cept to the e tent provded n (2), above, an acqurng corporaton
sha not be deemed, for the purpose of secton , to have made an addton or
addtons to ts factes or to have repaced a or part of ts factes soey
by reason of the addtons or repacements to Its factes resutng from the
e ecuton of a Part II transacton.
( ) n acqurng corporaton sha aso be entted to appy secton to the
e tent provded n secton 0. 62-3 (c), reatng to a Part II transacton nvovng
corporatons each of whch was prevousy entted to the benefts of secton
2(d), 3, , , or 6.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.)
11
(b) Part II transactons descrbed n secton 61 (a) (1) ( ). (1) In the
case of a Part II transacton descrbed n secton 61(a) (1) ( ), the acqurng
corporaton sha be entted to compute ts average base perod net ncome under
secton ony
() To the e tent provded n secton 0. 62-3(c) ; or
() If there was, after the date of the transacton, an addton or add-
tons to ts factes or a repacement of a or part of ts e stng factes
by the acqurng corporaton wthn the meanng of secton (b) and
secton 0. -2, and f the acqurng corporaton quafes under secton
after the appcaton of the rues prescrbed n (a)(1), above, and n
secton 0. 62-3 (b) and (e). In appyng the rues of (a) (1), above, there
sha be avaabe to the acqurng corporaton n determnng ts average
base perod net ncome under secton ony such porton of each tem
of the component corporaton s e perence pror to the transacton as s
aocabe to the propertes of such component corporaton transferred to the
acqurng corporaton. Such porton sha be determned n a manner con-
sstent wth that used n the aocaton to the acqurng corporaton under
secton 62() and secton 0. 62-0 of the e cess profts net ncome of the
component corporaton.
(2) For speca rues wth respect to a Part II transacton descrbed In secton
61(a)(1)( ) nvovng a transfer to an acqurng corporaton not created
ncdent to the transacton, or nvovng a transfer by more than one component
corporaton to an acqurng corporaton, see secton 0. 01-7(b).
Sec. 0. 62-7. ppcaton op Secton . (a) Part II transactons other
than a transacton descrbed n secton 61(a)(1)( ). ()In the case of a
Part II transacton other than a transacton descrbed n secton 61(a) (1) ( ),
whch occurred durng the base perod of the acqurng corporaton, such ac-
qurng corporaton sha be entted to compute ts average base perod net
ncome under secton , n the manner provded theren, f the requrements
of such secton are satsfed after the appcaton of the rues provded n secton
0. 62-3 (b) and (d). In such a case, for the purpose of the computatons
under secton (see secton 0. -2), the ta abe year of the acqurng cor-
poraton n whch t s deemed to have commenced busness under secton 61(d)
(see secton 0. 61- ) and ts two mmedatey succeedng ta abe years sha
be consdered to be ts frst three ta abe years.
(2) In the case of a Part II transacton other than a transacton descrbed n
secton 61(a) (1) ( ), whch occurred after the cose of the base perod of the
acqurng corporaton, f the requrements of secton are satsfed after the
appcaton of the rues provded n secton 0. 62-3 (b) and (d), the average
base perod net ncome of the acqurng corporaton after the transacton sha
be determned, for the purpose of secton 0, by whchever of the foowng
three methods s appcabe:
() Where the transacton occurs after the cose of the thrd ta abe year
endng after the actua commencement of busness of both the component
corporaton and the acqurng corwraton (other than an acqurng corpora-
ton created ncdent to the transacton), the average base perod net ncome
of the acqurng corporaton after the transacton sha be determned, n
eu of the manner provded by secton , by addng together the average
base perod net ncome of the acqurng corporaton and of the component
corporaton as separatey determned under secton n each nstance as
of the 1st day of the fourth ta abe year of the corporaton ; or
(I) Where the transacton occurs pror to the cose of the thrd ta abe
year endng after the actua commencement of busness of ether the acqur-
ng corporaton or the component corporaton, but after the cose of the
thrd such ta abe year of one such corporaton, the average base perod
net ncome of the acqurng corporaton after the transacton sha be deter-
mned, n eu of the manner provded by secton , by addng together
( ) the average base perod net ncome determned under secton as of
the 1st day of the fourth such ta abe year of the corporaton n busness
for more than three ta abe years at the tme of the transacton, and ( )
an average base perod net ncome for the corporaton not n busness for
three ta abe years at the tme of the transacton, computed under secton -1
as though the day mmedatey pror to the transacton were the frst day of
such corporaton s fourth ta abe year; or
() Where the transacton occurs pror to the cose of the thrd ta abe
year after the actua commencement of busness of both the acqurng corpo-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
119
0. 61-1.
raton and the component corporaton, the average base perod net Income
of the acqurng corporaton after the transacton sha be determned by
the method specfed n secton . In such a case, for the purpose of the
computatons under secton (see secton 0. -2), the ta abe year
of the acqurng corporaton n whch t s deemed to have commenced
busness under secton 61(d) (see secton 0. 61- ) and ts two mmed-
atey succeedng ta abe years sha be consdered to be ts frst three ta abe
years. In makng such computaton under secton , the net capta add-
ton or reducton specfed n secton (c) sha be the net capta addton
or reducton of the acqurng corporaton determned under the prncpes
of secton 03 and secton 0. 63-1.
(3) n acqurng corporaton sha aso be entted to appy secton to
the e tent provded n secton 0. 62-. (c). reatng to a Part II transacton
nvovng corporatons each of whch was prevousy entted to the benefts of
secton 2(d), 3, , , or 6.
(b) Part II transactons descrbed n secton 61(a) (1) ( ). (1) In the case
of a Part II transacton descrbed n secton 61(a)(1)( ), whch occurred
durng the base perod of the acqurng corporaton, such acqurng corporaton
sha be entted to compute ts average base perod net Income under secton ,
n the manner provded theren, f the requrements of such secton are satsfed
after the appcaton of the rues provded n secton 0. 62-3 (b) and (e). In
such a case, for the purpose of the computatons under secton (see secton
0. -2), the ta abe year of the acqurng corporaton n whch t s deemed
to have commenced busness under secton 61(d) (see secton 0. 61- ) and
ts two mmedatey succeedng ta abe years sha be consdered to be ts frst
three ta abe years.
(2) In the case of a Part II transacton descrbed In secton 61(a)(1)( ),
whch occurred after the cose of the base perod of the acqurng corporaton,
f the requrements of secton are satsfed after the appcaton of the rues
provded n secton 0. 62-3 (b) and (e), the average base perod net ncome
of the acqurng corporaton after the transacton sha be determned, for the
purpose of secton , by whchever of the foowng methods s appcabe:
(1) Where the transacton occurred after the cose of the thrd ta abe
year endng after the actua commencement of busness of the component
corporaton, the average base perod net Income of the acqurng corporaton
after the transacton 6ha be that porton of the average base perod net
ncome of the component corporaton, determned under secton . whch
s aocabe to the acqurng corporaton under the rues of secton 62()
and secton 0. 62-9; or
() Where the transacton occurs pror to the cose of the thrd ta abe
year endng after the actua commencement of busness of the component
corporaton, the average base perod net ncome of the acqurng corporaton
after the transacton sha be determned by the methods specfed n secton
after the appcaton of the rues prescrbed n (a) (2) (). above. In
appyng the rues of (a) (2) (), above, there sha be avaabe to the
acqurng corporaton n determnng ts average base perod net ncome
under secton ony such porton of each tem of the component corpora-
ton s e perence pror to the transacton as s aocabe to the propertes
of such component corporaton transferred to the acqurng corporaton.
Such porton sha be determned n a mnnner consstent wth that used n
the aocaton to the acqurng corporaton under secton 62() and secton
0. 62-9 of the e cess profts net ncome of the component corporaton. For
the purpose of the computatons under secton (see secton 0. -2).
the ta abe year of the acqurng corporaton n whch t s deemed to have
commenced busness under secton 61(d) (see secton 0. 61- ) and ts two
mmedatey succeedng ta abe years sha be consdered to be ts frst three
ta abe years.
(3) For speca rues wth respect to a Part II transacton descrbed n secton
61 (a)(1) ( ) nvovng a transfer to an acqurng corporaton not created nc-
dent to the transacton, or nvovng a transfer by more than one component
corporaton to an acqurng corporaton, see secton 0. 61-7(b).
Sec. 0. 02- . ppcaton of Secton 6. (a) Part II transactons other
than a transacton descrbed n secton 61(a)(1)( ). (1) In the case of a
Part II transacton other than a transacton descrbed n secton 61(a) (1) ( ),
whch occurred pror to the cose of the base psrod of the acqurng corporaton,
the acqurng corporaton sha be entted to compute ts average base perod net
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-.
120
Income under secton G f the requrements of such secton are satsfed after
the appcaton of the rues provded n secton 0. 62-3 (b) and (d).
(2) n acqurng corporaton sha aso be entted to appy secton 6 to the
e tent provded n secton 0. 62-3(e), reatng to a Part II transacton nvovng
corporatons each of whch was prevousy entted to the benefts of secton
2(d), 3, , , or 6.
(b) Part 11 transactons descrbed n secton G (a) (1) ( ). (1) In the
case of a Part II transacton descrbed n secton 61(a)(1)( ), the acqurng
corporaton sha be entted to compute ts average base perod net ncome under
secton 6 ony
. () To the e tent provded n secton 0. 62-3(c) ; or
() If the transacton occurred durng the base perod of the acqurng
corporaton, and f the acqurng corporaton quafes under secton (1
after the appcaton cf the rues prescrbed n secton 0. 62-3 (b) and (e).
(2) For speca rues wth respect to a Part II transacton descrbed n secton
61(a)(1)( ) nvovng a transfer to an acqurng corporaton not created
Incdent to the transacton, or nvovng a transfer by more than oue component
corporaton to an acqurng corporaton, see secton 0. 61-7(b).
Sec. 0. 62-9. ocaton Rues n toe Case of Part II Transactons De-
scrbed n Secton 61(a) (1) ( ). (a) Genera rue. (1) In the case of a Part
II transacton descrbed n secton 61(a)(1)( ) (that s, a transacton n
whch a part, as dstngushed from a or substantay a, of the propertes of a
component corporaton s transferred to an acqurng corporaton, or n whch
a or substantay a of the propertes of a component corporaton are trans-
ferred to two or more acqurng corporatons), the base perod e perence of
the component corporaton mmedatey pror to the transacton s aocated
among the corporatons n busness after the transacton n proporton to the
rato that the far market vaue of the assets (ncudng both tangbe and n-
tangbe assets) of the component corporaton whch are hed mmedatey after
the transacton by each of the corporatons whch were partes to the transacton,
bears to the far market vaue of the tota assets (ncudng both tangbe and
ntangbe assets) of the component corporaton as tbey e sted mmedatey
pror to the transacton. Ths genera rue of aocaton s used n determnng
that part of the e cess profts net ncome, or substtute e cess profts net ncome
f computed under secton 2(c), of the component corporaton for any month
pror to the transacton whch may be used after the transacton by a survvng
component corporaton or, n recomputng ts e cess profts net ncome under
secton 62(b), by the acqurng corporaton sub|ect, for the ta abe year of the
transacton, to the prncpes descrbed n secton 0. 61-3(c). Ths rue of
aocaton s aso used n determnng that porton of an aternatve average
base perod net ncome determned under secton 2(d), 3, , , or C. to
whch the component corporaton was entted mmedatey pror to the trans-
acton whch may be avaed of by the acqurng corporaton under the rues set
forth n sectons 0. 62-3 to 0. 62-S, ncusve. Ths rue s aso apped
wherever t s approprate under such sectons to aocate some partcuar tem
of the component corporaton s base perod e perence pror to the Part II trans-
acton, for e ampe, ts tota assets, gross recepts, gross ncome, payro, or
net ncome. For rues of aocaton as to net capta addtons or reductons, see
secton 63 and secton 0. 63-1, and as to base perod capta addtons, see
secton 6 and secton 0. 6 -1.
(2) For the purpose of (1), above, a determnaton of the far market vaue
of the propertes of the component corporaton mmedatey pror to the trans-
acton descrbed n secton 61(a) (1) ( ) and the far market vaue of the prop-
ertes of the component corporaton hed after the transacton by each of the cor-
poratons whch nre partes to the transacton, may be made by agreement
between a persons (corporate or otherwse) whch are partes to the trans-
acton, where the Commssoner agrees thereto. The foowng rues are appca-
be to any such agreement:
() The agreement sha be n wrtng, sha fuy descrbe the transacton
nvoved, sha set forth In deta the facts upon whch the partes rey u the
determnaton of the far market vaue of the propertes, and sha be sgned
by each party to the Part II transacton.
() Sub|ect to subsequent approva by the Commssoner, a ta payer whch
has made such an agreement may compute ts ta on ts return pursuant to
such agreement, provdng that the orgna agreement (or a dupcate org-
na) s attached to the return. If the return s fed pror to the agreement,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
121
0. 61-1.
the orgna agreement (or a dupcate orgna) sha be attached to a cam
for refund f the appcaton of the agreement resuts n an overpayment,
or to an amended return f the appcaton of the agreement does not resut
n an overpayment.
() In any case n whch such an agreement s approved by the Comms-
soner, the far market vaue of the propertes and the aocaton of the e cess
profts net ncome or average base perod net ncome determned n such
agreement sha be bndng upon a partes to such agreement for the ta abe
year for whch the determnaton s made and for a subsequent ta abe
years.
(3) In no case sha the aggregate of the aocated portons of the e cess profts
net ncome be n e cess of 100 percent of the e cess profts net ncome of the
component corporaton mmedatey pror to the transacton. Smary, the
aggregate of the aocated portons of the average base perod net ncome sha
not e ceed 100 percent of the average base perod net ncome of the component
corporaton mmedatey pror to the transacton. Ths mtaton sha appy n
the case of any other tem whch s aocated among the partes.
(b) ternatve rue. (1) In eu of the aocaton provded n (a), above,
based on the far market vaue of the propertes, an aocaton of base perod
e perence may be made on the bass of the actua base perod e perence of the
propertes transferred to the acqurng corporaton and of the propertes re-
taned by the component corporaton, f a the partes to the transacton
agree thereto and f t s estabshed to the satsfacton of the Commssoner
that such an aocaton fary represents an dentfabe base perod e perence
of each such group of assets transferred or retaned. The foowng rues are
appcabe to any such agreement:
() The agreement sha be In wrtng, sha fuy descrbe the transac-
ton nvoved, sha set forth n deta the facts upen whch the ta payers
rey n the determnaton of the base perod e perence of the propertes
transferred or retaned and n the determnaton of the aocatons based
thereon, and sha be sgned by ea;h party to the Part II transacton.
() The aternatve rue of aocaton sha eny be avaabe where the
transferred assets and the retaned assets each consttuted, at a tmes
nvoved n such aocatons, a gong busness unt for whch adequate and
separate records were mantaned.
() Sub|ect to subsequent approva by the Commssoner, a ta payer
whch has made such an agreement may compute ts ta on ts return pur-
suant to such agreement, provdng that the orgna agreement (or a du-
pcate orgna) s attached to the return. If the return s fed pror to
the agreement, the orgna agreement (or a dupcate orgna) sha be
attached to a cam for refund f the appcaton of the agreement resuts
n an overpayment, or to an amended return f the appcaton of the agree-
ment does not resut n an overpayment.
(v) In any ease n whch such an agreement s approved by the Com-
mssoner, the aocatons of base perod e perence determned n such
agreement sha be bndng upon a partes to such agreement for the ta abe
year for whch the determnaton s made and for a subsequent ta abe
years.
(2) In no case sha the aggregate of the aocated portons of the e cess profts
net ncome or average base perod net ncome e ceed 100 percent of the e cess
profts net ncome or average base perod net ncome, as the case may be, of the
component corporaton mmedatey pror to the transacton, uness the com-
ponent corporaton s a partnershp and the transacton occurred before De-
cember 1, 1000. Thus, ony n the case of a partnershp In such a transacton
may more than 100 percent of the e cess prots net ncome of the component
corporaton be aocated to one party to the transacton by reason of a defct
n e cess profts net ncome aocabe to another party to the transacton.
Sec. 0. 02-10. Lmtatons Under Secton G2(|) (1) n Case of Certan
Stock cqustons. (a) In genera. (1) Secton 02(|)() s desgned to
prevent certan dupcatons n base perod nccme and transferred capta
addtons and reductons n certan cases where after December 31, 191 , assets
of the ta payer (or of a corporaton whch ater becomes ts component) are
transferred for stock n another corporaton whch ater becomes a component
of the ta payer (or where assets of the component corporaton are transferred
for stock n the ta payer). Secton 02(|) (1) contempates that, after the
0S oc y
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
122
Part II transacton, the e cess profts net Income of the corporaton whose
stock was acqured (ncudng ts e cess profts net ncome determned under
secton 62 (c)(1)( ) or (d)(2)( )), attrbutabe to the acqured stock, for
any month or part thereof before the acquston of ts stock sha be e cuded
n determnng the ta payer s average base perod net ncome wth reference
to the recomputntons provded under Part II. Smar e cusons are set forth
n (d), beow, wth respect to other tems nvoved n such recomputatons of the
base perod e perence of the component corporaton. The ad|ustment under
secton 62(|) (1) sha be made n the cases descrbed n ths secton, and n
a other cases to whch secton 62(|)() may be appcabe (ncudng cases
where assets of the component corporaton are transferred for stock n the ta -
payer), n the manner consstent wth the prncpes underyng such descrbed
cases.
(2) cept to the e tent that dupcaton of e perence occurs, no ad|ustment
Is necessary under secton 62(|) (1)
(I) where stock of the component corporaton Is acqured drecty from
the component corporaton; or
() where stock of the component corporaton Is acqured through a bona
fde ong-term ncrease n the capta structure of the acqurng corporaton
made n con|uncton wth and for the purpose of such acquston, and where
t s estabshed to the satsfacton of the Commssoner that the transacton
s not n pursuance of a pan havng as one of ts prncpa purposes the
avodance of Federa Income or e cess profts ta . bona fde ong-term
ncrease n the capta structure wthn the meanng of ths subparagraph
(whether an ncrease n equty capta or n borrowed capta as defned n
secton 39(b)) sha be deemed to have occurred ony to the e tent that
such ncrease s refected n the capta structure throughout the perod be-
gnnng wth the tme such Increase s orgnay made and endng wth the
cose of the ta abe year for whch the ta s computed. For the purpose of
determnng whether such Increase s refected n the capta structure, proper
ad|ustment sha be made to emnate the effect of any oss occurrng after
the orgna ncrease s made, and, n the case of such determnaton as of
any tme durng a ta abe year, the determnaton sha be made wthout
regard to the earnngs and profts of such ta abe year. If the ncrease n
capta structure s the resut of a Part II transacton, ths subparagraph and
secton 0. 62-9(b) (1) () sha be apped n the ght of the facts app-
cabe both to the ta payer and to the component corporaton n such trans-
acton. For the purpose of ths subparagraph, an Increase n the capta
structure does not resut from the converson of nadmssbe assets nto ad-
mssbe assets or from the accumuaton of earnngs and profts pror to the
begnnng of the frst ta abe year whch begns after the date of the
acquston.
If the stock of the component corporaton s acqured party In the manner de-
scrbed n ths paragraph and party n another manner, the ad|ustment under
secton C2(|) (1) sha be mnde to the e tent the acquston s made n such other
manner. See (c) ( ) of ths secton.
(3) The rues for the appcaton of secton 62(|) (1) for the purpose of com-
putng under Part II any average base perod net ncome under the genera aver-
age method (see secton 3 (d) and secton 62(a)), under the aternatve based
on growth (see secton 3 (e) and secton 62(c)), and under sectons 2 throuch
6 and 62 (d) through (h) (see secton 0. 62-3 through 0. 62- ) are set forth
n ths secton. s to determnaton of e cess profts net ncome for the purpose of
secton 62(b)(2) (for any vacant month) under the mtatons of secton
62(|)(), see secton 0. 62-1 (b) (3) (). s to ad|ustment under secton
62(|) (1) of the net capta addton or reducton, see secton 0. 63-(e , and
as to ad|ustment under secton 62(|) (1) of the base perod capta addton, see
secton 0. 6 -(e). For treatment of cases nvovng sectons 2 through 6
and secton 62 (d) through (h), see (d) of ths secton.
(b) ampes. The genera appcaton of secton 62( ) (1) for the purpose
of secton 3 (d) or (e) may be ustrated by the foowng e ampes:
ampe (1). The Corporaton and the Corporaton commenced busness
before anuary 1, 19 6, and make ther ncome ta returns on the caendar year
bass. The Corporaton sod certan assets for cash, and on anuary 1, 19 7, t
used such cash to purchase a of the stock of the Corporaton from the stock-
hoders of the Corporaton. On December 31,19 9, the Corporaton acqured
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
123
0. 61-1.
a of the assets of the Corporaton n a Part II transacton. In determnng
the Corporaton s average base perod net ncome under secton 3 (d) or (e),
the e cess proft net ncome (or defct) of the Corporaton w be determned
under secton 62(b) wthout regard to the e cess profts net ncome (or defct)
of the Corporaton for 19 6.
ampe (2). The C Corporaton and the D Corporaton commenced busness
before anuary 1, 19 6, and make ther ncome ta returns on the caendar year
bass. The C Corporaton sod certan assets for cash, and on anuary 1, 19 1, t
used such cash to purchase a of the stock of the D Corporaton from the stock-
hoders of the D Corporaton. On December 31,19 1, the C Corporaton acqured
a of the assets of the D Corporaton n a Part II transacton. In appyng
secton C2 (b) or (c) n determnng the average base perod net ncome of the
C Corporaton, secton 62(|)() requres the e cuson of the D Corporaton s
entre e perence for the base perod, and nso for the addtona perod up to
une 30, 19 0, for certan cases under secton 3 (e). The D Corporaton s base
perod capta addton and ts net capta addton or reducton for 19 0 are aso
requred to be e cuded. See secton 0. 03-1 and secton 0. 6 -1.
ampe (3). The Corporaton commenced busness before anuary 1,
19 6, and makes ts ncome ta returns on the caendar year bass. The F Corpo-
raton was organzed on anuary 10, 19 . On anuary 1 , 19 S, tho F Corpora-
ton ssued ts stock and ong-term bonds for cash, and on the same day, t used
such cash to acqure a of the stock of the Corporaton from the stockhoders
of the Corporaton. On anuary 1, 19 1, the F Corporaton acqured a of the
assets of the Corporaton n a Part II transacton. In determnng the F Corpo-
raton s average base perod net ncome under secton 3 (d) or (e), based on a
recomputaton of ts e cess profts net ncome under secton 62(b), secton 62(|)
(1) does not requre the emnaton of any part of the e cess profts net ncome
(or defct) of the Corporaton for any part of ts base perod. See (a) (2),
above. Under secton 6 , however, the F Corporaton w not be aowed any
base perod capta addton for the cash pad n for ts stock and bonds whch was
used n acqurng the stock of the Corporaton. See secton 0. 6 -1.
ampe ( ). The G Corporaton commenced busness before anuary 1,
19 6. The Corporaton was organzed on anuary 1 , 19 , and on the same
day t ssued ts capta stock to the G Corporaton n return for cash whch
was not obtaned by the G Corporaton n a transacton descrbed n (a) (2) (),
above. Shorty thereafter the Corporaton acqured the stock of the I Cor-
poraton from the stockhoders of the I Corporaton n return for the cash
receved from the G Corporaton. The I Corporaton had commenced busness
before anuary 1, 19 6. ach corporaton makes ts ncome ta returns on the
caendar year bass. On anuary 1, 19 0, the G Corporaton acqured a of
the assets of the Corporaton and of the I Corporaton n a Part II transac-
ton. In determnng the G Corporaton s average base perod net ncome under
secton 3 (d) or 3 (e), based On a recomputaton of ts e cess profts net
ncome under secton 62(b), secton 62(|)() requres the e cuson of the
e cess profts net ncome (or defct) of the I Corporaton for 19 6 and 19 7.
smar e cuson appes wth respect to the Corporaton. See secton
0. 62-(b) (3) (). Under secton 6 , the II Corporaton w not be aowed
any base perod capta addton for the money pad n by the G Corporaton
n return for the stock of the Corporaton. See secton 0. 6 -1.
(c) Speca rues. (1) Parta acqustons of stock. In cases n whch the
ta payer does not at one tme or at any tme pror to the Part II transacton
acqure a of the other corporaton s stock, ony that part of the component
corporaton s base perod e perence before the acquston whch s attrbutabe
to the stock so acqured s to be e cuded n computng the ta payer s nverage
base perod net ncome under secton 3 (d) or (e), based on a recomputaton
of ts e cess profts net ncome under secton 62(b). In cases n whch the
component corporaton had a f ed number of shares of ony one cass of stock
outstandng at a tmes pror to the Part II transacton, the porton of the
component corporaton s e perence to be e cuded under secton 62(|) (1) wth
respect to any part of the base perod (and of the addtona perod through
une 30, 19 0, n certan cases under secton 3 (e)), pror to the day of any
such acquston s an amount whch bears the same rato to the whoe of the
component corporaton s e perence for such part of such perod as the number
of shares of such stock acqured by the ta payer after such part, and not ds-
posed of pror to the Part II transacton, bears to the aggregate number of such
shares outstandng at the tme of the acquston of such stock. If any of such
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.)
12
shares of stock, whether acqured before or after the begnnng of the base
perod, were dsposed of pror to the Part II transacton, the shares dsposed
of sha, for the purpose of ths computaton, be deemed to be those most
recenty acqured. The ad|ustment under secton 62(|) (1) n cases descrbed
In ths paragraph may be ustrated by the foowng e ampes:
ampe (/). The Corporaton and the Corporaton commenced bus-
ness before anuary 1, 19 6, and make ther ncome ta returns on the caendar
year bass. The outstandng capta stock of the Corporaton conssts of
1.000 shares, a of one cass. On anuary 1, 19 7. the Corporaton purchased
for cash 10 shares of such stock from the stockhoders of the Corporaton.
The purchase was not of a type descrbed n (a) (2), above. On December 31.
19 1, the Corporaton ssued stock n e change for the baance of the stock
of the Corporaton and acqured a of the assets of the Corporaton In a
Part II transacton. For the purpose of computng the Corporaton s average
base perod net ncome under secton 3 (d) or (e), based on a recomputaton
of ts e cess profts net Income under secton 62(b), 1 percent of the Cor-
poraton s e cess profts net ncome (or defct) for 19 0 s to be e cuded under
secton 02( ) (1).
ampe (2). ssume the same facts as In e ampe (1), above, and the
addtona fact that on anuary 1, 19 , the Corporaton purchased for cas
(whch purchase was not of the type descrbed n (a)(2), above) 3 0 add-
tona shares of the Corporaton from the stockhoders of the atter, makng
ts tota stock hodng n the Corporaton 0 shares pror to the ssuance of
the Corporaton s own stock for the baance of the stock of the Corporaton
and pror to the Part II transacton. There sha be e cuded under secton
02(|) (1) an amount equa to percent ( 1 percent pus 3 percent) of the
Corporaton s e cess profts net ncome (or defct) for 19 6 and 3 percent of
Its e cess profts net ncome (or defct) for 19 7.
ampe (S). ssume the same facts as n e ampe (2), above, and the ad-
dtona fact that on anuary 1, 19 9, the Corporaton sod 3 0 shares of the
Corporaton s stock to varous ndvduas. ccordngy, mmedatey pror
to the ssuance of the Corporaton s own stock for the baance of the stock of
the Corporaton and pror to the Part II transacton, the Corporaton w own
00 shares of the stock of the Corporaton acqured for assets snce Decem-
ber 31, 19 . Therefore, 0 percent of the Corporaton s e cess profts net
ncome (or defct) for 19 6 w be e cuded under secton 62(|) (1). No por-
ton of such e perence for 19 7, 19 , or 19 9 w be e cuded snce the 3 0
smres sod are presumed to ncude a of the 3 0 shares acqured on anuary
1. 19 (as n e ampe (2)), and ony 10 shares of the 10 shares acqured on
anuary 1, 19 7.
ampe ssume the same facts as In e ampes (1), (2), and (3),
e ppt that the orgna acquston of 10 shares of the Corporaton s sto -k
occurred pror to anuary 1, 19 6. No ad|ustment w be necessary under
secton 62(|) (1) because the 3 0 shares dsposed of on anuary 1, 19 9, are
deemed to be out of the most recenty acqured shares, ncudng n ths case
a of the shares acqured snce December 31, 19 , that s, the 3 0 shares
acqured on anuary 1, 19 .
(2) More than one cass of sock. Where the corporaton whose stock s
acqured as at the tme of such acquston more than one cass of stock out-
standng and the ta payer does not, pror to the Part II transacton, acqure
a of the stock of a casses for assets (other than ts own stock), the e per-
ence for the base perod (and for the addtona perod through une 30. 10 0,
n certan cases under secton 3 (e)) of the component corporaton whch s
to be e cuded under secton 62(|)() must be determned upon the bass of
the earnngs whch may be attrbuted to each cass of stock. Where preferred
stock Is nonvotng and s aso mted and preferred as to dvdends, the base
perod e cess pn fts net ncome may be aocated frst to the preferred stock
on the bass of the prescrbed dvdend rate per share. If the ony other cass
Is common stock, the baance of such e cess profts net ncome may be aocated
to the common stock. The porton of such base perod e cess profts net Income
whch Is attrbutabe to the stock owned by the acqurng corporaton s that
porton of such base perod e cess profts net Income aocated to the cass to
whch such stock beongs proportonate to the number of shares of such cass
acqured by the acqurng corporaton after December 31, 19 . Ths rue may-
be ustrated by the foowng e ampe:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
12
0. 61-1.
ampe. The L Corporaton commenced busness before anuary 1, 19 6,
and makes ts Income ta returns on the caendar year bass. It as had out-
standng at a tmes the foowng shares:
,000 shares of nonvotng preferred stock of a par vaue of 100 per share,
mted and preferred as to dvdends to the e tent of 6 per share annuay;
and
10,000 shares of no-par vaue common stock possessng soe votng power.
On anuary 1, 19 , the M Corporaton purchased for cash (whch purchase
was not of a type descrbed n (a) (2), above) 6,000 shares of the L Corpora-
ton s common stock from the stockhoders of the L Corporaton. The e cess
profts net ncome of the L Corporaton for 19 0 and 10 7 was 100,000 each year.
Of ths amount, 30,000, representng the prescrbed dvdend rate of 0 a share
on ,000 shares, s aocabe to the preferred stock. Of the baance of 70,000
whch s aocabe to the common stock, 60 percent (the rato of the 0,000 shares
of common stock acqured by the I Corporaton snce December 31, 19 , to
the tota of 10,000 shares of such stock outstandng), or 2,000, w be con-
sdered attrbutabe to the stock so acqured by the M Corporaton. Therefore,
f the M Corporaton subsequenty acqured a of the assets of the L Corpora-
ton n a Tart II transacton (no stock of the L Corporaton hnvng been pur-
chased or dsposed of n the nterva), 2,000 of the L Corporaton s e cess
profts net ncome for 19 6 and 19 7 s to be e cuded under secton 62 (|) (1)
n computng the average base perod net ncome of the M Corporaton under
secton 3 (d) or (e), based on a recomputnton of Its e cess profts net
ncome under secton 62(b). If the L Corporaton had a defct n e cess profts
net ncome for ether 19 6 or 19 7, or for both, such defct woud be consdered
attrbutabe soey to the common stock for purposes of determnng the porton
to be e cuded under secton 62(|) (1).
(3) Stock acquston durng year. If the acquston of stock by the acqur-
ng corporaton occurs durng a ta abe year of the component corporaton,
whch ta abe year s a factor n determnng the base perod e perence of the
component corporaton, the e cuson requred by secton 62(|)() w appy,
after the determnaton of the amount of the component corporaton s e cess
profts net ncome (or defct) for each month of such ta abe year, to the
amount so determned for each month pror to the acquston, and, In the case
of the month n whch the acquston was made, w appy to the part of the
amount for such month proportonate to the number of days of such month
pror to the date of the acquston. In the case of an acquston.of stock n the
same ta abe year n whch the Part II transacton cccurred, see secton
0. 61-3(c) for the prncpes appcabe to the determnaton of the e cess
profts net ncome (or defct) for the ta abe year and for each month thereof.
ampe. Corporaton N and Corporaton O commenced busness before anu-
ary 1, 19 6, and make ther ncome ta returns on the caendar year bass.
Corporaton N purchased a of the stock of Corporaton O from the atter s
stockhoders on uy 12, 19 , n a transacton to whch secton 62(|)() s
appcabe, and on December 31, 19 2, t acqured a of the assets of Corpora-
ton O n a Part II transacton. The e cess profts net ncome (or defct) of
Corporaton O for each month n 19 s frst determned wthout regard to the
e cuson requred by secton 62(|)(). Under secton 62(|)(), the e cess
profts net ncome (or defct) of Corporaton O for 19 6, for 19 7, and for each
month n 19 pror to uy s not avaabe to Corporaton N. Smary, there
s not avaabe to Corporaton N so much of the e cess profts net ncome (or
defct) of Corporaton O for uy 19 ns the number of days pror to the
date of the acquston s of the tota number of days n such month (11/31 of
the e cess profts net ncome (or defct) for uy).
( ) Stock acqured for stock. Secton 62(|) (1) does not appy where stock
of one corporaton s acqured by another corporaton soey n e change for
the atter s stock. In case stock s acqured n e change party for the acqurng
corporaton s own stock and party for other property, secton 62(|) (1) s ap-
pcabe ony to the e tent that the acquston s attrbutabe to such other prop-
erty. Stock whch has, n the hands of the ta payer, a bass determned wth
reference to the bass of stock prevousy acqured by the ssuance of the ta -
payer s own stock sha be consdered as havng been acqured n consderaton
of the ssuance of the ta payer s own stock. These rues may be ustrated by
the foowng e ampes:
ampe (1). Corporaton P acqures, after December 31, 19 , stock In
Corporaton n e change soey for the stock of Corporaton P. In a subse-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
126
quent nonta abe reorganzaton, Corporaton P receves new shares of Corpora-
ton In e change for the orgna snares. If the new shares take the bass of
the orgna shares, the new shares are consdered, for the purpose of secton
62(|) (1), to have been acqured for the stock of Corporaton P, and such secton
s nappcabe.
ampe (2). Corporatons R and S commenced busness before anuary
1, 10 6. On anuary 1, 19 7, Corporaton R acqured a of the stock of Corpora-
ton S from the atter s stockhoders In e change for stock of Corporaton R.
On anuary 1,10 , n a nonta abe reorganzaton, Corporaton T was organzed
and acqured u the assets of Corporaton S n e change for Corporaton T s
stock. In connecton wth ths reorganzaton, Corporaton R e changed ts
stock n Corporaton S for a of the stock n Corporaton T, and Corporaton S
was dssoved. On December 31, 10 0, Corporaton R acqured a of the assets
of Corporaton T n a Part II transacton. For the purpose cf secton 2( ) (1),
the stock n Corporaton T acqured by Corporaton R s regarded as havng been
acqured for Its own stock and, therefore, no ad|ustment s requred under sec-
ton 62(|) (1).
( ) Mutpe components. Secton C2(|) (1) aso appes In cases n whch
a component corporaton (referred to as the frst corporaton ) of the ta payer
transfers assets for the stock n a corporaton (referred to as the second cor-
poraton ) and both corporatons become component corporatons of the ta -
payer (the second corporaton becomng a component corporaton ether drecty
or as a component corporaton of the frst corporaton). The statute aso appes
to any other corporaton whch becomes a component corporaton of the ta -
payer and whch at the tme of a stock acquston by the ta payer or frst cor-
poraton (under the crcumstances descrbed In secton 62( ) (1) ( ) or ( ))
was connected, drecty or ndrecty, through stock ownershp wth the corpora-
ton the stock of whch was acqured. In the case of such a corporaton con-
nected through stock ownershp, the statute appes regardess of the manner of
acquston of the stock of such connected corporaton hed at such tme (for
e ampe, whether or not acqured for a consderaton other than the ssuance
of stock). The statute aso appes regardess of the date before such tme that
the corporaton hodng such stock, drecty or ndrecty, acqured such stock
of such connected corporaton. That s, t s mmatera whether the stock of
such connected corporaton hed at such tme was acqured before, on, or after
December 31, 10 , as ong as such stock was acqured before the tme the ac-
quston of stock of the corporaton to whch t was so connected occurred n a
transacton descrbed n secton 62( ) (1) ( ) or ( ). In the case of any such
corporaton connected through stock ownershp at such tme, the amount of ts
e cess profts net ncome (or defct) whch s to be emnated under secton
62( ) (1) s to be determned by reference to that part of such amount whch
Is attrbutabe to the perod pror to such tme and whch s attrbutabe to the
stock hed, drecty or ndrecty, at such tme, and not dsposed of thereafter,
by the corporaton the stock of whch was acqured at such tme by the ta -
payer or frst corporaton. Such e perence to be emnated s to be attrbuted
to the perod pror to such tme and to such stock so hed upon the bass of the
prncpes prevousy stated n ths secton. To the e tent that the stock of a
corporaton (ater to become a component corporaton) was not so hed at such
tme but was subsequenty acqured, after December 31, 10 , by the ta payer or
another corporaton (a frst or second corporaton), for assets of the atter, the
base perod e perence of such corporaton s to be e cuded n accordance wth
the rues prevousy set forth n ts secton for e cudng the e perence of
a component corporaton when the atter s stock s acqured after December 31,
10 , for such assets by the ta payer. The appcaton of these rues n such
cases s ustrated by the foowng e ampes:
ampe (1). The U, , W, and Corporatons commenced busness before
anuary 1, 19 6, and make ther ncome ta returns on the caendar year bass.
The Corporaton commenced busness on anuary 1, 19 , and ssued a of
Its stock to the stockhoders of the W Corporaton for the stock of the atter.
On anuary 1, 19 7, the Corporaton purchased for cash (whch purchase was
not of a type descrbed n (a) (2), above) a of the stock of the Corporaton
from stockhoders of the Corporaton. On anuary 1, 19 , the T Corporaton
purchased for cash (whch purchase was not of a type descrbed n (a)(2),
above) a of the stock of the Corporaton from the atter s stockhoders. On
December 31, 19 0, the U Corporaton acqured a of the assets of the , W, and
Corporatons n a Part II transacton. In computng the average base perod
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
127
0. C1-I.
net ncome of the U Corporaton under secton 3 (d) or (e), based on a re-
computaton of ts e cess profts net ncome under secton 02(b), there s to be
e cuded under secton 62(|) (1) the e perence of the , W, and Corpora-
tons for 19 6 and 19 7.
ampe (2). ssume the same facts as n e ampe (1), above, e cept that the
Corporaton made the acquston of the Corporaton s stock on anuary 1,
10 9 (after the acquston by the U Corporaton of the stock of the Corpora-
ton). There s to be e cuded under secton C2(|) (1) the e perence of both
the and W Corporatons for 19 0 and 19 7 and the e perence of the Cor-
poraton for 19 0, 19 7, and 19 .
ampe (3). The W, , Y, and Z Corporatons commenced busness n 19
and make ther ncome ta returns on the caendar year bass. In uy, 19 , the
Corporaton acqured 0 percent of the stock of the Y Corporaton from the
stockhoders of the atter. On anuary 1, 19 7, the W Corporaton purchased
for cash (whch purchase was not of a type descrbed n (a) (2), above) a of
the stock of the Corporaton from the atter s stockhoders. On anuary 1,
19 , the Corporaton smary purchased for cash the remanng 0 percent
of the stock of the Y Corporaton from other stockhoders of the atter. On an-
uary 1, 19 9, the Y Corporaton smary purchased for cash a of the stock of
the Z Corporaton from the atter s stockhoders. On December 31, 19 9, the W
Corporaton acqured a of the assets of the , Y, and Z Corporatons n a Part II
transacton. In computng the average base perod net ncome of the W Corpo-
raton under secton 3 (d) or (e), based on a recomputaton of ts e cess
profts net ncome under secton 02(b), there s to be e cuded a of the e -
wrence of the Corporaton for 19 G. There s aso to be e cuded a of the
e perence of the Y Corporaton for 19 0, one-haf of such e perence beng e -
euded because of the 0 percent ownershp of ts stock by the Corporaton at
the tme the stock of the Corporaton was acqured by the W Corporaton and
the other haf beng e cuded because of the subsequent acquston of the other
0 percent of the stock of the Y Corporaton by the Corporaton. One-haf of
the e perence of the Y Corporaton for 19 7 s aso to be e cuded because of the
acquston of one-haf of ts stock on anuary 1, 19 , by the Corporaton.
The entre e perence of the Z Corporaton for 19 0, 19 7, and 19 s to be e -
cuded because of the acquston from the stockhoders of the Z Corporaton on
anuary 1,19 9, of the stock of the Z Corporaton by the Y Corporaton.
(d) ppcaton of secton 62(|)() for the purpose of secton G2 (d)
through (ft). (1) Genera rue. The rues of (a), (b), and (c), above, sha
be apped e cept to the e tent modfed by (2), beow, where after a Part II
transacton foowng a stock acquston covered by secton 02(|)() the ac-
qurng corporaton determnes ts average base perod net ncome through the
appcaton of the provsons of secton 02 (d) through (h). See secton 0. 02-3
through secton 0. 02- .
(2) Speca rues. () In appyng secton 0. 02-3(c), reatng to a Part II
transacton nvovng corporatons each of whch was prevousy entted to the
benefts of secton 2(d), 3, , , or 0, no ad|ustment of the average base
perod net ncome separatey computed for each such corporaton mmedatey
pror to the transacton s necessary under secton 02(|) (1) f the stock of the
component corporaton was acqured by the acqurng corporaton before, and
was hed by t on, the day (or each day n the case of secton 2(d) or 0) for
whch tota assets are determned for the purpose of determnng the average
base perod net ncome of the acqurng corporaton separatey computed m-
medatey pror to the transacton. If the stock s acqured by the acqurng
corporaton after such day (or after the ast of such days n the case of secton
2(d) or 6), the average base perod net ncome separatey computed for the
component corporaton sha not be avaabe to the acqurng corporaton for the
purpose of secton 0. 62-3(c). If the acqurng corporaton separatey computes
under secton 2(d) or 6 ts average base perod net ncome mmedatey pror
to the transacton, and If the stock s acqured after the frst and pror to the ast
day for whch tota assets are determned for the purpose of such computaton
under secton 2(d) or 6, then secton 62(|) (1) requres the emnaton of
so much of the average base perod net ncome of the component corporaton as
the number of such days, for each of whch tota assets are determned, before
the acquston of the stock s to the tota number of such days for each of whch
tota assets are determned. See (c) (1), above, for prncpes appcabe under
ths paragraph n the case of parta acqustons of stock, and see (c) ( ), above,
for .prncpes appcabe under ths paragraph n the case of mutpe components.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
12
() In appyng secton 62(d) (2) ( ) In the case of an acqurng corporaton
entted, mmedatey pror to the Part II transacton, to compute ts average base
perod net Income nnder secton 2(d), the e cuson requred by secton
62(|) (1) sha appy to the e cess profts net ncome of the component corpora-
ton for the perod endng on the ast day. pror to the acquston of the stock of
the component corporaton, for whch tota assets are determned for the purposes
of secton 2(d).
() In appyng secton 0. 62- n the case of an acqurng corporaton (n a
Part II transacton occurrng durng the base perod of the acqurng corporaton,
secton 62(|) (1) requres that the tota assets computed under secton 2(d)
for any day pror to the acquston of the component corporaton s stock sha be
determned after e cudng the assets of the component corporaton attrbutabe
to such stock. correspondng e cuson sha be made n appyng secton
2(d) wth respect to nterest pad or ncurred by the component corporaton
pror to the ast such cay. Whether an abnormaty occurrng pror to the stock
acquston s sgnfcant and not trva sha be determned after nppyng secton
G2(|)() to the e cess profts net ncome and the assets of the component
corporaton.
(v) Secton 0. 62- (a) (2) and (3), reatng to the case of an acqurng
corporaton n a Part II transacton occurrng pror to the tme the partes to
such transacton were quafed to compute average base perod net Income under
secton 3, appes ony where the acquston of the component corporaton s
stock occurred on or pror to the date for whch tota assets are determned for
the purpose of secton 3 and secton 0. 62- . ccordngy, n any case under
secton 0. 62- (a) (2) and (3) no ad|ustment Is requred under secton
62(|) (1) In appyng secton 3 to the acqurng corporaton.
(v) Secton 0. 62-6(a) (1) and (2), reatng to the case of an acqurng cor-
poraton n a Part II transacton occurrng pror to the tme the partes to such
transacton were quafed to compute average base perod net ncome under sec-
ton , appes ony where the acquston of the component corporaton s stock
occurred on or pror to the date for whch tota assets are determned for the
purpose of secton and secton 0. 62-6. ccordngy, n any case under sec-
ton 0. 62-6(a) (1) and (2), no ad|ustment s requred under secton 62( ) (1)
n appyng secton to the acqurng corporaton.
(v) In appyng secton 0. 62-7 n the case of an acqurng corporaton n a
Part II transacton, If the amount of the tota assets for the purpose of secton
s determned under secton (b) (2) ( ) or (c) (1) for a day pror to the
acquston of the component corporaton s stock, secton 62( ) (1) requres the
e cuson of so much of the tota assets of the component corporaton for such
day as Is attrbutabe to the stock acqured. In computng the Interest ad|ust-
ment under secton (b), a correspondng e cuson sha be made wth respect
to the nterest pad or ncurred by the component corporaton pror to the date
of the acquston of such stock. The net capta addton or reducton of the
acqurng corporaton determned for the purpose of secton (c) sha be
ad|usted so as to remove any addton or reducton of the component corporaton,
attrbutabe to the stock acqured, whch occurred pror to the acquston of such
Stock.
(v) In appyng secton 0. 62- n the case of an acqurng corporaton In a
Part II transacton occurrng durng (he base perod of the acqurng corporaton,
secton 62(|) (1) requres that the totn assets computed under secton 6(b)
for any day pror to the acquston of the component corporaton s stock sha be
determned after e cudng the assets of the component corporaton attrbutabe
to such stock. correspondng e cuson sha be made n appyng secton
6(b) wth respect to nterest pad or ncurred by the component corporaton
pror to the ast such day.
Sec. 0. 62-11. Lmtaton Under Secton 62(|) (2). (a) Tn the case of
a Part II transacton occurrng n a ta abe year of the acqurng corporaton
endng after une 30, 19 0, secton C2(|) (2) mposes a mtaton for such ta -
abe year n computng the acqurng corporaton s e cess profts credt based
on ncome. In computng the acqurng corporaton s average base perod net n-
come under secton 3 (d) or (e) for such ta abe year, there s avaabe to
the acqurng corporaton ony a proportonate part of the amount of the monthy
e cess profts net ncome (or defct) of the component corporaton whch s
otherwse avaabe to the acqurng corporaton under secton 62 (b), (c), or
.(d). In computng the average base perod net ncome of the acqurng cor-
poraton under secton 0. G2-3(c) or under secton 0. 02-7 (a) (2) (1) or ()
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
129
0. C1-1.
or (b) (2) () (whch sectons reate to certan cases n whch the average base
perod net ncome of the component corporaton, separatey computed, s added
to that of the acqurng corporaton) there s avaabe to the acqurng corpora-
ton ony a proportonate part of the amount of the average base perod net n-
come of the component corporaton whch s otherwse avaabe to the acqurng
corporaton under such sectons. Such proportonate part sha he determned
n each case by the rato whch the number of days n the ta abe year of the
acqurng corporaton after the day of the transacton bears to the tota number
of days n such ta abe year. In the computaton of the e cess profts credt
based on ncome for subsequent ta abe years, the mtatons of secton 62(|)
(2) are not appcabe. Secton 02(|)(2) may be ustrated by the foowng
e ampe:
ampe. On October 19, 19 1, the Corporaton acqured a of the assets
of the Y Corporaton n a transacton descrbed n secton 01(a). oth the
Corporaton and the Y Corporaton commenced busness before anuary 1, .9 6,
and both corporatons make ther ncome ta returns on the caendar year
I ass. The Y Corporaton had an e cess profts net ncome of 10,000 for each
month n the caendar year 19 G, a defct n e cess profts net ncome of 00 for
each month n the caendar year 19 7, an e cess profts net ncome of 3,000 for
each month n the caendar year 39 , and an e cess profts net ncome of 7, 00
for each month n the caendar year 19 9. In computng ts average base perod
net ncome for 19 1 under secton 3 (d), based on n recomputaton of ts e -
cess profts net ncome under secton 02(b), the Corporaton sha ncude
ony one-f th (73/30 ) of the above amounts, .e., 2,000 for each mouth n 19 6,
a defct of 100 for each month n 19 7, 000 for each month n 19 , and 1, 00
for each month n 19 9. In computng the e cess profts credt for 19 2, and
subsequent years, however, the Corporaton may ncude the entre amount
of the e cess profts net ncome and defct n e cess profts net ncome of the
Y Corporaton.
(b) If a corporaton becomes an acqurng corporaton n a ta abe year end-
ng after une 30, 19 0, and f the ta payer s average base perod net ncome for
the purpose of the e cess profts credt for such ta abe year s determned
under secton 0. 02- through secton 0. 02- , other than n a case to whch (a)
of ths secton s appcabe, the average base perod not ncome of the ta payer
sha be computed by takng nto account ony a proportonate part of the amount
of the tota assets of the component corporaton otherwse avaabe to the ac-
qurng corporaton n such computaton. If the tota assets are determnrd for
a day pror to the day of the Part II transacton, such proportonate part sha
bear the same rato to the tota assets of the component corporaton otherwse
avaabe to the acqurng corporaton as the number of days n the ta abe year
of the acqurng corporaton after the day of the Part II transacton bears to the
tota number of days n such ta abe year. If the tota assets are determned
for the day of, or for a day subsequent to, tha Part II transacton, there sha
be e cuded from such tota assets an amount whch s the same porton of the
tota assets of the component corporaton acqured by the acqurng corporaton
n the Part II transacton as the number of days n the ta abe year of the ac-
qurng corporaton pror to the day of the Part II transacton s of the tota
number of days n such ta abe year. pproprate ad|ustment sha be made n
any case sub|ect to the rues of ths paragraph n whch nterest pad or ncurred
by the component corporaton s taken nto account n computng the average
base perod net ncome of the acqurng corporaton. In appyng secton 0. 02-7
(a)(2)() or (b)(2)( ), approprate ad|ustment sha be made n any case
n whch the net capta addton or reducton of the acqurng corporaton Is
determned for the purpose of secton (c) by reference to addtons or re-
ductons of the component corporaton. In the computaton of the e cess profts
credt based on ncome for subsequent ta abe years, the mtatons of secton
02f|) (2) are not appcabe.
(c) smar mtaton appes n the case of a component corporaton for
the purpose of computng ts e cess profts credt for a ta abe year of such
component corporaton endng after une 30, 19 0, n whch the Part II trans-
acton occurs. See secton 01(c) (2) and ( ) and secton 0. 01-3(b) (2)
and ( ).
Sec. 0. 02-12. Partnershps and Soe Propretorshps. In the case of a
component corporaton whch s a partnershp or a busness owned by a soe
propretorshp (see secton 0. 61- ), the computatons requred under Part II
and under these reguatons sha be made as though such partnershp or such
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
130
busness owned by a soe propretorshp bad been a corporaton. See secton
0. 62-1 (b) (2) for e ampes of the ad|ustments requred.
Sec. 0. 62-13. Mnmum verage ase Perod Net Income or c trRNa
Corporaton Under Part II. Secton 62(1) provdes for a mnmum average
base perod net ncome n certan cases. In cases to whch secton 62(1)
s appcabe, the average base perod net Income of the acqurng corporaton
shn not be ess than ether ts average base perod net ncome computed wth-
out regard, under Part II, to any of the quafed component corporatons, or
the average base perod net ncome separatey computed for any quafed com-
ponent corporaton. Secton 62(1) s appcabe ony n the ease of a Part II
transacton occurrng n a ta abe year of the acqurng corporaton endng after
une 30, 19 0, and s appcabe ony If, at the begnnng of the frst ta abe
year of the acqurng corporaton endng after une 30, 19 0, and at a tmes
thereafter unt such transacton, ether the acqurng corporaton owned at
east 7 percent of each cass of stock of each of the quafed component
corporatons nvoved n the transacton, or one of such quafed component
corporatons owned at east 7 percent of each cass o stock of the acqurng
corporaton and of each of the other quafed component corporatons. The term
quafed component corporaton, as used n ths secton, means a component
corporaton whch was actuay n e stence and had actuay commenced bus-
ness at the begnnng of the base perod of the acqurng corporaton. For the
purpose of determnng whether a corporaton s a quafed component corpora-
ton, secton 61(d) does not appy. Secton 02( )(1) does not requre a re-
ducton, by reason of the Part II transacton, of the mnmum average base
perod net ncome to whch the acqurng corporaton Is entted under secton
62(1) and ths secton, but secton 62( )(2) requres, for the ta abe year
n whch the transacton takes pace, a proraton of the average base perod net
ncome of the quafed component corporaton. In case the Part II transacton
s a transacton descrbed n secton 61(a)(1)( ), see secton 0. 61-7(b).
Sec. 0. 62-1 . Treatment or bnormates n Income n Ta abe Year.
In the case of a Part II transacton occurrng on or before December 31, 19 0,
the actvtes of the component corporaton sha be treated as actvtes of
the acqurng corporaton for the purpose of appyng secton 6 to Income,
receved or accrued by the acqurng corporaton after the transacton, whch
s attrbutabe to such actvtes for a ta abe year of the component corpora-
ton whch cosed pror to or wth the cose of the base perod of the acqurng
corporaton. In any such case, a ncome of the component corporaton of the
same cass as the abnorma ncome receved or accrued by the acqurng corpora-
ton, whch Income s ncome for a ta abe year of the component corporaton
pror to the Part II transacton, sha be treated under secton 6 as ncome
of the acqurng corporaton.
Par. 3. There s nserted mmedatey after secton G3, the fo-
owng :
Sec. 0. 63-1. Net Capta ddton or Reducton Under Part II. (a) In
genera. (1) ppcabty of secton. It a ta payer acqures propertes of a
component corporaton n a Part II transacton occurrng n a ta abe year of
the ta payer endng after une 30, 19 0, and f the ta payer s average base
perod net ncome for the purpose of ts e cess profts credt for any ta abe
year endng after the transacton s computed by appcaton of Part II, then
the net capta addton or net capta reducton of the acqurng corporaton
after the Part II transacton sha be computed for such ta abe year under
secton 3 (g) wth the appcaton of ths secton. Ths secton does not appy
n the case of any Part II transacton occurrng pror to the begnnng of the
ncqurng corporaton s frst ta abe year endng after une 30, 19 0. In such
a case, see secton 0. 0 -1, reatng to the acqurng corporaton s base perod
capta addton. The rues provded n ths secton for determnng the net
capta addton and net capta reducton of the acqurng corporaton after
the Part II transacton dffer, dependng upon whether the Part II transac-
ton s of a type descrbed n secton 61(a)(1)( ). In the case of a com-
ponent corporaton whch s a partnershp or a busness owned by a soe pro-
pretorshp, see secton 0. 62-12.
(2) Constructve ta abe years of component corporaton. If the Part II
transacton occurred pror to uy 1, 19 0, the component corporaton shn be
deemed to have as many ta abe years endng after the transacton as are neces-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
131
0. 61-1.
sary for t to have a frst ta abe year endng after une 30,19 0, and the ta abe
years of the component corporaton endng after the date of the transacton
sha, for the purpose of ths secton, be determned on the bass of the annua
accountng perod appcabe to the component corporaton mmedatey pror
to the transacton.
ampe. The Corporaton, whch makes Its ncome ta returns on the
caendar year bass, acqures the propertes of the C Corporaton on pr 1,
19 0, In a Part II transacton. The C Corporaton, pror to the transacton,
made ts ncome ta returns on the bass of a fsca year endng uy 31. The
C Corporaton (whether or not t remans n e stence after the transacton
and whether or not t mantans the same annua accountng perod) s deemed
to have a ta abe year begnnng ugust 1, 19 9, and endng uy 1, 19 0, and
the transacton s treated as havng occurred n the frst ta abe year of the
component corporaton endng after une 30, 19 0.
(b) Part II transactons other than a transacton descrbed n secton
G(a) (1) ( ). If the e cess profts credt of an acqurng corporaton, other
than an acqurng corporaton n a Part II transacton descrbed n secton
61(a) (1) ( ), s computed by appcaton of Part II, the foowng rues sha
appy n computng the net capta addton and net capta reducton of the
acqurng corporaton:
(1) For the purpose of secton 3 (g) (3) ( ), n the case of the ta abe year
of the acqurng corporaton n whch the transacton occurs, f the transacton
occurs n a ta abe year of the component corporaton endng after une 30, 19 0,
n determnng the amount of money and property pad n for stock or as pad-n
surpus or as a contrbuton to capta after the begnnng of the ta abe year
of the acqurng corporaton, there sha be ncuded, begnnng wth the day after
the transacton, the amounts of money and property pad n for the same pur-
poses to the component corporaton pror to the transacton and after the begnnng
of the ta abe year of the component corporaton n whch such transacton
occurred.
(2) For the purpose of secton 3 (g) ( ) ( ), n the case of the ta abe year
of the acqurng corporaton n whch the transacton occurs, f the transacton
occurs n a ta abe year of the component corporaton endng after une 30, 19 0,
there sha bs ncuded, begnnng wth the day after the transacton, the amount
of the dstrbutons not out of earnngs and profts of the ta abe year, made by
the component corporaton to ts sharehoders pror to the transacton and after
the begnnng of ts ta abe year n whch such transacton occurred.
(3) For the purpose of secton 3 (g) (3) ( ) and ( )( ), n the case of
the ta abe year of the acqurng corporaton n whch the transacton occurs,
f the transacton occurs n a ta abe year of the component corporaton endng
after une 30, 19 0, there sha be added to the acqurng corporaton s day
capta addton begnnng wth the day of the transacton, the amount by whch
the component corporaton s equty capta at the begnnng of ts ta abe year n
whch the transacton occurs e ceeds ts equty capta as of the begnnng
of ts frst ta abe year endng after une 30, 19 0. In case ths comparson
of the component corporaton s equty capta shows n decrease to have taken
pace, the amount of that decrease sha be refected n the computaton of the
day capta reducton of the acqurng corporaton begnnng wth the day of
the transacton.
( ) For the purpose of secton 3 (g) (3) ( ) and ( ) ( ), for ta abe years
of the acqurng corporaton begnnng after the transacton, there sha be added
to the equty capta of the acqurng corporaton at the begnnng of the acqur-
ng corporaton s frst ta abe year endng after une 30, 19 0,
() If the transacton occurs n a ta abe year of the component corpora-
ton endng after une 30, 19 0, the equty capta of the component corpora-
ton as of the begnnng of the component corporaton s frst ta abe year
endng after une 30, 19 0, or
() If the transacton occurred n a ta abe year of the component corpora-
ton endng before uy 1, 19 0, the equty capta of the component corpora-
ton determned as of the tme mmedatey pror to the transacton.
( ) For the purpose of secton 3 (g), n the case of the ta abe year of the
acqurng corporaton n whch the transacton occurs, and n the case of subse-
quent ta abe years, there sha be added to the day borrowed capta of the
acqurng corporaton for the frs day of ts frst ta abe year endng after une
30,10 0, and to ts orgna nadmssbe assets,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
132
() If the transacton occurs n a ta abe year of the component corpora-
ton endng after une 30, 10 0, the day borrowed capta of the component
corporaton for the frst day of ts frst ta abe year endng after une 30,
10 0, and the orgna nadmssbe assets of the component corporaton,
respectvey, or
() If the transacton occurred n a ta abe year of the component corpora-
ton endng before uy 1, 10 0, the day borrowed capta of the component
corporaton determned as of the tme mmedatey pror to the transacton,
and the tota of the nadmssbe assets hed by the component corporaton
mmedatey pror to the transacton, respectvey.
(6) For the purpose of secton 3 (g), n the case of the ta abe year of the
acqurng corporaton n whch the transacton occurs, the day borrowed capta
and the nadmssbe assets of the acqurng corporaton for each day of such
ta abe year precedng the day after the transacton sha be computed by addng
to the day borrowed capta and the nadmssbe assets of the acqurng cor-
poraton the amount of the day borrowed capta and the amount of the nad-
mssbe assets, respectvey, of the component corporaton whch are determned
under ( ) () or (), above, whchever s appcabe.
(7) For the purpose of determnng the amount referred to n secton 3
(g) ( ) (D) and (e) (6), for any day after the day of the transacton, the nad-
mssbe assets of the acqurng corporaton for the 1st day of ts frst ta abe
year endng after une 30,10 0. sha (for the purpose of secton 3 (g) (6) ( ) )
be determned under ( ), above, and there sha be added (for the purpose of
secton 3 (g) (6) ( )) to the aggregate of the ad|usted bass (for determnng
gan upon sae or e change) ot stock n members of a. controed group of whch
the acqurng cor oraton s a member, hed by the acqurng corporaton on the
frst day of ts frst ta abe year endng after une 30,10 0,
() If the transacton occurs In-a ta abe year of the component corpora-
ton endng after une 30, 10 0, the aggregate of the ad|usted bass (for
determnng gan upon sae or e change) of stock n members of a controed
group, of whch the component corporaton s a member, hed by the com-
ponent corporaton on the frst day of ts frst ta abe year endng after une
30, 10 0, cr
() If the transacton occurred n a ta abe year of the component cor-
poraton endng before uy 1,10 0, the aggregate of the ad|usted bass (for
determnng gan upon sae or e change) of stock n members of a controed
group, of whch the component corporaton s a member, hed by the com-
ponent corporaton mmedatey pror to the transacton.
( ) For the purpose of determnng the amount referred to n secton
3 (g)(7) for any day after the day of the transacton (7 percent of whch
amount s taken nto account under secton 3 (g) ( ) ( )), there sha be added
to the amount of the Indebtedness descrbed n secton 3 (g)(7) owed to the
acqurng corporaton for the frst day of ts frst ta abe year endng after
une 30, 10 0,
(1) If the transacton occurs n n ta abe year of the component corpora-
ton endng after une 30, 10 0, the amount of the ndebtedness descrbed
In secton 3 (g) (7) whch was owed to the component corporaton for the
frst day of ts frst ta abe year endng after une 30, 10 0, or
() If the transacton occurred n a ta abe year of the component cor-
poraton endng before uy 1. 10 0, the amount of the ndebtedness descrbed
n secton 3 (g) (7) whch was owed to the component corporaton mme-
datey pror to the transacton,
(c) Intercompany stockhodngs, etc. The computaton of the net capta
addton or reducton under secton 3 (g) Is sub|ect to the foowng addtona
rues reatng to cases Invovng Intercorporate stock ownershp, and contrbu-
tons, dstrbutons, stock purchases, and oans between partes to a Part II
transacton or ther sharehoders:
(1) In computng the day capta addton of the acqurng corporaton under
secton 3 (g) (3) ( ) for any day after the day of the Part II transacton, there
sha be dsregarded any amount pad n to one corporaton, a party to the Part II
transacton, whch conssted of stock In another corporaton a party to the Part II
transacton, and there sha be dsregarded any amount pad In by one such
corporaton to another such corporaton.
(2) In computng the day capta reducton of the acqurng corporaton under
secton 3 (g)( )( ) for any day after the day of the Part II transacton,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
133
0. 61-1.
there sha be dsregarded any dstrbuton made by one corporaton, a party to
the Part II transacton, whch conssted of stock n another corporaton a party
to the Part II transacton, and there sha be dsregarded any dstrbuton made
by one such corporaton to another such corporaton.
(3) In computng the day capta addton of the acqurng corporaton under
secton 3 (g) (3) ( ), or the day capta reducton of the acqurng corporaton
under secton 3 (g)( )( ), for any day after the day of the transacton, the
equty capta of the acqurng corporaton at the begnnng of the ta abe year
and ts equty capta at the begnnng of ts frst ta abe year endng after
une 30, 19 0, sha each be determned after e cudng a stock of the com-
ponent corporaton hed by the acqurng corporaton at the begnnng of each
f.uch year. In determnng the amount wth respect to the component corporaton
to be added under (b) (3) and ( ), above, for the purpose of computng the
acqurng corporaton s day capta addton or reducton, the equty capta
of the component corporaton as of any tme for whch equty capta s computed
under (b) (3) or ( ), above, sha be determned after e cudng a stock of
the acqurng corporaton, or of any other corporaton a party to the Part II
transacton, hed by the component corporaton as of such tme.
( ) For the purpose of the computatons under secton 3 (g) (3) (C) and
(g)( )(C)
() In determnng the amount wth respect to the component corporaton
to be added to the day borrowed capta of the acqurng corporaton under
(b) ( ) or (0), above, the day borrowed capta of the component cor-
poraton, computed as of any tme for whch such day borrowed capta s
computed under (b) ( ) or (0), sha be determned as f any ndebtedness
owed at such tme by the component corporaton to the acqurng corporaton
or to any other corporaton whch s a party to the Part II transacton were
not borrowed capta wthn the meanng of secton 30.
() In the case of the ta abe year n whch the Part II transacton occurs,
If the day borrowed capta of the acqurng corporaton for the 1st day
of ts frst ta abe year endng after une 30, 10 0, ncudes an ndebtedness
for such day of the acqurng corporaton to any corporaton whch s a
party to the Part II transacton, then the computatons under secton 3
(g) (3) (C) and (g) ( ) (C) sha be made, sub|ect to the rues provded In
(b) of ths secton and n (), above, n the foowng manner:
( ) The day capta addton of the acqurng corporaton under
secton 3 (g)(3)(C) for any day n such ta abe year sha be 7
percent of the amount, f any, by whch the day borrowed capta of
the acqurng corporaton for such day (n eu of ts average borrowed
capta for such ta abe year) e ceeds ts day borrowed capta for
the frst day of ts frst ta abe year endng after une 30, 19 0, and
( ) The day capta reducton of the acqurng corporaton under
secton 3 (g) ( ) (C) for any day n such ta abe year sha be 7 percent
of the amount, f any, by whch the day borrowed capta for the frst
day of the acqurng corporaton s frst ta abe year endng after une
30, 10 0, e ceeds ts day borrowed capta for such day (n eu of ts
average borrowed capta for such ta abe year).
For the purpose of such computaton n the case of any day after the day
of the Part II transacton, the day borrowed capta of the acqurng cor-
poraton for the frst day of ts frst ta abe year endng after une 30, 19 0,
sha be determned as f any ndebtedness for such day of the acqurng
corporaton to any corporaton whch s a party to the Part II transacton
were not borrowed capta wthn the meanng of secton 39.
() In the case of any ta abe year subsequent to the ta abe year In
whch the Part II transacton occurs, n computng the day capta addton
of the acqurng corporaton under secton 3 (g) (3) (C) or the day capta
reducton of the acqurng corporaton under secton 3 (g)( )(C), the
day borrowed capta of the acqurng corporaton for the frst day of ts
frst ta abe year endng after une 30, 19 0, sha be determned as f any
ndebtedness for such day of the acqurng corporaton to any corporaton
whch s a party to the Part II transacton were not borrowed capta wthn
the meanng of secton 39.
- ( ) In computng the day capta reducton of the acqurng corporaton under
secton 3 (g) ( ) (D) for any day after the day of the Part II transacton, the
stock of any corporaton whch s a party to the Part II transacton, hed by the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S 0. 61-1.
13
acqurng corporaton on the frst day of ts frst ta abe year endng after une
30, 19 0, sha not be consdered stock referred to n secton 3 (g) (6) ( ), and
sha not be consdered an nadmssbe asset for the purpose of the computaton
under secton 3 (g)(6)( ). In determnng the amount wth respect to the
component corporaton to be added under (b) (7), above, for the purpose of com-
putng the acqurng corporaton s day capta addton or reducton, the stock
hed by the component corporaton n the acqurng corporaton or In any other
corporaton whch s a party to the Part II transacton sha be dsregarded In
makng the computatons under (b) (7).
(6) In computng the day capta reducton of the acqurng corporaton under
secton 3 (g) ( ) ( ) for any day after the day of the transacton, oans by the
acqurng corporaton to another corporaton, a party to the Part II transacton,
sha not be consdered ndebtedness descrbed n secton 3 (g) (7) for the frst
day of the frst ta abe year endng after une 30, 19 0. In determnng the
amount wth respect to the component corporaton to be added under (b) ( ),
above, for the purpose of computng the acqurng corporaton s day capta
reducton, oans by the component corporaton to the acqurng corporaton or to
any other corporaton whch s a party to the Part II transacton sha not be
consdered ndebtedness descrbed n secton 3 (g) (7).
(7) In computng the ncrease or decrease n nadmssbe assets for the pur-
pose of secton 3 (g) (1) and (2)
() In the case of any ta abe year of the acqurng corporaton subsequent
to the ta abe year n whch the transacton occurs, the orgna nadmssbe
assets of the acqurng corporaton and the amount added thereto under
(b) ( ), above, sha each be computed wthout regard to any stock hed by
the acqurng corporaton n the component corporaton or n any other
corporaton a party to the Part II transacton, and wthout regard to any
stock hed by the component corporaton n the acqurng corporaton or n
any other corporaton a party to the Part II transacton;
(11) In the case of the ta abe year of the acqurng corporaton n whch
the transacton occurs, f the orgna Inadmssbe assets of the acqurng
corporaton ncude an amount wth respect to stock hed by the acqurng
corporaton n the component corporaton or n any other corporaton a party
to the Part II transacton, then the computaton of the ncrease or decrease
n nadmssbe assets for the purpose of secton 3 (g) (1) and (2) sha
be made n the foowng manner:
( ) The ncrease n nadmssbe assets for such ta abe year sha
be the e cess, dvded by the number of days n the ta abe year, of the
aggregate of the day ncreases n nadmssbe assets over the aggre-
gate of the day decreases n nadmssbe assets, and
( ) The decrease n nadmssbe assets for such ta abe year sha
be the e cess, dvded by the number of days n the ta abe year, of the
aggregate of the day decreases n nadmssbe assets over the aggre-
gate of the day ncreases n nadmssbe assets.
The day ncrease n nadmssbe assets sha be computed fur each day of
the ta abe year, and sha be the e cess of the day amount attrbutabe
to the nadmssbe assets for such day over the amount of the orgna nad-
mssbe assets. The day decrease n nadmssbe assets sha be computed
for each day of the ta abe year, and sha be the e cess of the orgna
nadmssbe assets over the day amount attrbutabe to the nadmssbe
assets for such day. For the purpose of the computaton of the day In-
crease or day decrease n nadmssbe assets for any day of the ta abe
year, the day amount attrbutabe to nadmssbe assets for any day pror
to the day after the transacton sha be computed wth the appcaton of
(b) (6), above, and the orgna nadmssbe assets sha be computed wth
the appcaton of (b)( ), above. For the purpose of the computaton of
the day ncrease or day decrease In Inadmssbe assets for any day after
the day of the transacton, the orgna Inadmssbe assets sha be com-
puted under the rue provded n (), above (reatng to ta abe years subse-
quent to the ta abe year of the transacton).
( ) If the acqurng corporaton acqured stock In the component corporaton
In a transacton descrbed n secton 0. 62-10(a) (2), that s, In a transacton
not covered by secton 620) (1), proper ad|ustment sha be made by decreasng
the day capta addton or Increasng the day capta reducton, as the case
may be. for each day after the day of the Part II transacton, to the e tent
necessary so that such amounts sha not refect the transacton descrbed n
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
13
0. 61-1
secton 0. 62-10(a) (2). For e ampe, assume that the Corporaton (the
acqurng corporaton) and the C Corporaton (the component corporaton) each
makes ts ncome ta returns on the caendar year bass, that (n a transacton
descrbed n secton 0. 62-10(a) (2)) the Corporaton ssued ts stock on
une 1,19 0, for 1,000,000 n cash and on the same day used such cash to acqure
a the stock of the C Corporaton, and that the Corporaton acqured a the
propertes of the C Corporaton on December 1, 1930, n a Part II transacton.
In computng the day capta addton of the Corporaton for each day of
19 0 after December 1, 19 0, the 1,000,000 pad n for stock on une 1, 19 0,
sha be dsregarded. In computng the equty capta of the Corporaton on
anuary 1,19 1, for the purpose of comparng such amount wth ts equty capta
on anuary 1, 19 0, such equty capta on anuary 1, 19 1, sha be reduced by
1,000,000 (the amount pad n for stock n the transacton descrbed n secton
0. 02-10(a) (2)). The same ad|ustment (a decrease of 1,000,000) sha be
made for such purpose n computng equty capta for the frst day of each
subsequent ta abe year.
(9) To the e tent that stock of a component corporaton was acqured n an
e change for other than stock of the acqurng corporaton, wthn the meanng
of secton 62(|) (1) (see secton 0. 02-10(c) ( ) for rues appcabe n deter-
mnng when stock s consdered acqured for stock), the bass of the assets of
the component corporaton sha be redetermned as provded n secton 70,
whether or not more than SO percent of the ntock of the component corporaton
s acqured, and such redetermned bass sha be used where approprate for a
computatons under secton 3 (g), secton 63, and ths secton. See the e ampe
n (e) beow.
(d) Speca rues under sectons 3 and US. (1) Rues under secton 3-
If the average base perod net ncome s determned under secton 3, secton
3(d) provdes that no net capta addton or reducton sha be aowed n
computng the e cess profts credt for the quafyng ta abe year. If the quafy-
ng ta abe year ends after une 30, 19 0, secton 3(d) provdes that the net
capta addton or reducton for subsequent ta abe years sha be determned by
reference to the frst day of the frst ta abe year foowng the quafyng ta abe
year rather than by reference to the frst day of the frst ta abe year endng
after une 30, 19 0. These rues of secton 3(d) appy n computng the net
capta addton or reducton of the acqurng corporaton f ts average base
perod net ncome s computed under secton 3. If such average base perod
net ncome s computed under secton 0. 62-3 (c) (reatng to cases n whch the
Part II transacton occurs after a partes to the transacton are entted to an
aternatve average base perod net ncome), the speca rues of secton 3d)
sha be appcabe ony wth respect to the tems of capta addton and reduc-
ton of each corporaton entted to appy secton 3.
(2) Rues under secton . If the average base perod net ncome s deter-
mned under secton , then secton (e) provdes that no net capta addton
or reducton sha be aowed n computng the e cess profts credt for the frst
three ta abe years of the ta payer. Such net capta addton or reducton s,
however, taken nto account n computng tota assets for the purpose of secton
(c). If the thrd ta abe year ends after une 30, 19 0, secton (e) pro-
vdes that the net capta addton or reducton for subsequent ta abe years sha
be determned by reference to the frst day of the fourth ta abe year of the ta -
payer nstead of by reference to the frst day of ts frst ta abe year endng after
une 30, 19 0. These rues of secton (e) appy n computng the net capta
addton or reducton of the acqurng corporaton f ts average base perod net
ncome s computed under secton . See secton 0. 62-7(a) (2) () for certan
cases n whch the day before the Part II transacton s treated as though t were
the frst day of the fourth ta abe year. If such average base perod net ncome
s computed under secton 0. 62-3(c) (reatng to cases n whch the Part II
transacton occurs after a partes thereto are entted to an aternatve average
base perod net ncome), the speca rues of secton (e) sha be appcabe
ony wth respect to the tems of capta addton and reducton of each corpora-
ton entted to appy secton .
(e) Lmtatons under secton G2(|)(). In order to prevent dupcaton
under secton 63 n computng the net capta addton or reducton of the acqur-
ng corporaton n the case of a Part II transacton foowng a stock acquston
covered by secton 62(|) (1), whch stock acquston occurred after the begn-
nng of the frst ta abe year of the component corporaton endng after une 30,
19 0, secton 02(|) (1) requres that each tem wth respect to the component
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
I 0. 61-1.
136
corporaton determned under (b) and (e), above, sha be propery ad|usted to
emnate the porton of the transferred tems of capta addton and reducton
of the component corporaton attrbutabe to the stock acqured.
ampe (1). If the Corporaton (the acqurng corporaton) and the C
Corporaton (the component corporaton) each makes Its ncome ta returns on
the caendar year bass, f the Corporaton purchases 30 percent of the stock
of the C Corporaton on pr 1, 19 1, and f the Part II transacton takes pace
on September 1, 19 1, then any tems arsng before pr 1, 19 1, descrbed n
(b) (1), above (that s, money or property pad n for stock, etc., to the C Corpo-
raton durng the ta abe year and before pr 1,19 1), or (b) (2), above (that
s, dstrbutons not out of earnngs and profts of the ta abe year, made by the
C Corporaton durng the ta abe year and before pr 1, 19 1). sha be ava-
abe to the Corporaton under (b) (1) and (2) ony to the e tent of 70 percent
thereof, that s, the 30 percent of each such tem attrbutabe to the stock pur-
chased after such tems arose sha be emnated. Smary, 30 percent of the
amount determned under (b)(3), above (the e cess of equty capta of the
C Corporaton on anuary 1, 19 1, over ts equty capta on anuary 1, 19 0),
sha not be avaabe to the Corporaton. ach of the tems under (b) ( ),
( ,, (6), (7), and ( ) (reatng to equty capta, day borrowed capta, nadms-
sbe assets, controed group stock, and controed group Indebtedness, as of
anuary 1, 19 0) sha be avaabe to the acqurng corporaton In an amount
equa to 70 percent of such Item, that s, 30 percent of each such Item sha be
emnated.
ampe (2). The facts n ths e ampe are the same as n e ampe (1),
e cept that the stock acquston occurred on pr 1, 19 0, nstead of on pr
1, 19 1. In ths case, no ad|ustment s requred wth respect to the tems under
(b) (1) and (2), above, snce such tems arose n a ta abe year subsequent
to the ta abe year of the acquston. ach of the tems under (b) ( ), ( ),
(6), (7), and ( ) (reatng to equty capta , day borrowed capta, nadms-
sbe assets, controed group stock, and controed group Indebtedness, as of
anuary 1, 19 0) are ad|usted n the same manner as n e ampe (1), that s, 30
percent of each such tem s emnated. owever, n ths case, the amount
avaabe to the Corporaton for ts ta abe year 19 1 under (b)(3) (that
s, the capta addton or reducton based on the dfference between the equty
capta of the C Corporaton on anuary 1.19 1, and ts equty capta on anuary
1. 19 0) s determned by usng, n eu of the equty capta of the C Corporaton
on anuary 1, 19 0, an amount equa to the sum of 70 percent of ts equty capta
on anuary 1, 19 0. pus so much of ts equty capta on pr 1,19 0, computed
for ths purpose after the redetermnaton of the bass of the assets of the C
Corporaton under the prncpes of secton 70, as Is attrbutabe to the stock ac-
qured on pr 1, 19 0, by the Corporaton. Smary, for ths purpose, the
equty capta of the C Corporaton on anuary 1, 19 1, woud be determned
under the prncpes of secton 70 whch determnaton w refect the cost bass
of the stock. See (c) (9), above, and secton 63(a) (12).
(f) Part II transactons descrbed n secton 61 (a) (/) ( ). (1) In genera.
In the case of a Tart II transacton descrbed n secton 61(a) (1) ( ), the net
capta addton or reducton of the acqurng corporaton Is computed n the
same manner as n the case of other Part II transactons, e cept that there
sha be taken nto account by the acqurng corporaton ony such porton of
the transferred tems of capta addtons and reductons of the component
corporaton as s aocabe to the propertes transferred. The foowng rues
are appcabe n the case of a Part II transacton descrbed n secton
61(a)(1)( ) :
() The tems descrbed n (b) (1), (2), and (3), above, reatng to
money and property pad n for stock, etc., dstrbutons not out of earnngs
and profts of the ta abe year, and ncrease or decrease n equty capta,
sha not be taken nto account by the acqurng corporaton. The capta
changes refected In such tems are, nstead, refected under the rues set
forth n () and (v) beow.
() There sha be taken nto account by the acqurng corporaton, n
eu of the amount determned under (b) ( ), above (reatng to the equty
capta of the component corporaton for the frst day of ts frst ta abe year
endng after une 30, 19 0), an amount whch s such porton of the amount
determned under (b) ( ) as the equty capta transferred to the acqurng
corporaton n the Part II transacton s of the equty capta of the com-
ponent corporaton mmedatey pror to the transacton. For the purpose
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
137
0. 61-1.
of secton 3 (g) (3) ( ) and (g) ( ) ( ), the equty capta of the acqur-
ng corporaton for the frst day of the ta abe year n whch the transac-
ton occurs (whch equty capta Is compared wth the equty capta of the
acqurng corporaton, determned wth the appcaton of the precedng
sentence, for the frst day of ts frst ta abe year endng after une 30,
19 0) sha be determned as of the day foowng the transacton n eu
of the frst day of such ta abe year.
() There sha be taken nto account by the acqurng corporaton, n
eu of each of the tems determned under (b) ( ), (6), (7), and ( ),
above, an amount wth respect to each such tem whch s such porton of
that tem as the amount of such tem transferred to the acqurng cor-
poraton n the transacton bears to the amount of such tem determned
mmedatey pror to the transacton.
(v) In the case of the ta abe year of the acqurng corporaton n whch
the transacton occurs, for the purpose of any compurson requred under
secton 3 (g) between amounts for such ta abe year and amounts deter-
mned as of the frst day of the ta payer s frst ta abe year endng after
une 30, 19 0, the amounts for such frst day sha be the amounts requred
to be taken nto account for such frst day by the acqurng corporaton
under () and ( ), above.
(2) Speca rues. See secton 0. 61-7(b) for speca rues appcabe n the
case of a Part II transacton descrbed n secton 61(a) (1) ( ) whch nvoves
a transfer to an acqurng corporaton by two or more component corporatons,
or whch nvoves a transfer to an acqurng corporaton not created ncdent to
the transacton.
Sec. 0. 63-2. Capta Changes n Case of Successve Pabt II Transac-
tons. If one corporaton becomes a component of a second corporaton n a ta -
abe year endng after une 30, 19 0, and f the second corporaton thereafter
becomes a component of a thrd corporaton, the net capta addton or reducton
of the thrd corporaton sha be determned under secton 0. 63-1 by computng
the tems of transferred capta addton and reducton of the second corporaton
after such tems have been ad|usted under the provsons of secton 0. 63-1 by
reference to the frst corporaton. Such ad|ustment sha be made whether or
not the second corporaton computed ts average base perod net ncome by
appcaton of Part I The frst corporaton sha be treated as a party to the
ater Part II transacton for the purpose of the appcaton under ths secton of
secton 0. 63-(c), above, reatng to ntercompany stockhodngs, etc.
Par. . There s nserted mmedatey after secton 6 , the foow-
ng:
Sec. 0. 6 -1. ase Perod Capta ddtons Under Part IT. (a) In gen-
era. (1) ppcabty of secton. If a ta payer acqures propertes of a com-
ponent corporaton n a Part II transacton occurrng after the begnnng of the
second ta abe year of the ta payer precedng ts frst ta abe year endng after
une 30, 19 0, and f the ta payer s average base perod net ncome for the
purpose of ts e cess profts credt for any ta abe year endng nfter the transac-
ton s computed by appcaton of Part II, then the base perod capta addton
of the acqurng corporaton sha be computed for such ta abe year under sec-
ton 3 (f) wth the appcaton of ths secton. The base perod capta addton
sha be aowed to an acqurng corporaton computng ts average base perod
net ncome wth respect to Part II ony f such acqurng corporaton computes
ts average base perod net Income under the genera average method provded
In secton 3 (d) wth reference to secton 62(b) or, n certan nstances,
under secton 2(c) wth reference to secton 62(d). See secton 3 (f)(3).
If the Part II transacton occurs pror to the begnnng of the second ta abe
year precedng the frst ta abe yenr of the acqurng corporaton endng after
une 30, 19 0, no base perod capta addton of the component corporaton s
avaabe to the acqurng corporaton. See e ampes In secton 0. 61-3 (d)
and (e). The rues for determnng the base perod capta addton of the
acqurng corporaton after the Part II transacton dffer, dependng upon
whether the Part II transacton s of a type descrbed n secton 61(a) (1) ( ),
and dependng upon the ta abe year n whch the transacton occurs. In the
case of a component corporaton whch Is a partnershp or a busness owned by
a soe propretorshp, see secton 0. 02-12.
S 016 02 10
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
I 0. 61-1.
13
(2) Constructve ta abe years of component corporaton. If the Part II
transacton occurred pror to uy 1, 19 0, the component corporaton sha be
deemed to have as many ta abe years endng after the transacton as are neces-
sary for t to have a frst ta abe year endng after une 30, 19 0, and the ta -
abe years of the component corporaton endng after the date of the transacton
sha for the purpose of ths secton be determned on the bass of the annua
accountng perod appcabe to the component corporaton mmedatey pror to
the transacton. Wherever t s necessary under secton 6 to determne a yeary
base perod capta for any such constructve ta abe year begnnng after the
Part II transacton, such yeary base perod capta sha be deemed to be an
amount equa to the yeary base perod capta of the component corporaton
determned as of the day of the transacton n the same manner as f such day
were the frst day of a ta abe year.
ampe. The Corporaton, whch makes ts ncome ta returns on the
caendar year bass, acqures the propertes of the C Corporaton on pr 1,19 0.
n a Part II transacton. The C Corporaton, pror to such transacton, made ts
ncome ta returns on the bass of a fsca year endng une 30. For the purpose
of determnng the base perod capta addton of the C Corporaton, a or part
of whch w be added under (b) (1) of ths secton to the base perod capta
addton of the Corporaton, the ta abe year of the C Corporaton begnnng
uy 1, 10 9, n whch year the Part II transacton takes pace, w be deemed
to end une 30, 19 0, and the C Corporaton w be deemed to have another
ta abe year begnnng uy 1. 19 0, and endng une 30. 19 1. whch ta abe year
w be deemed to be ts frst ta abe year endng after une 30,19 0. The yearv
base perod capta for the constructve ta abe year begnnng uy 1, 19 0, and
endng une 30, 10 1, w be deemed to be an amount equa to the yeary ba e
perod capta of the C Corporaton determned as of pr 1, 19 0, the day of
the transacton. Ths yeary base perod capta w be compared under secton
3 (f) (2) wth the yeary base perod capta of the C Corporaton for the fsca
year begnnng uy 1, 19 9 (whch year s deemed to end une 30, 19 0), that s.
wth the amount determned as of uy 1, 19 9. and wth the yeary base perod
capta for the fsca year begnnng uy 1, 19 S, and endng une 30, 19 9, that
s, wth the amount determned as of uy 1,19 .
(b) Part II transactons other than a transacton descrbed n secton
(S a) (1) ( ). (1) In the case of a Part II transacton other than a transac-
ton descrbed n secton 01(a) (1) ( ), whch occurs durng or after the frst
ta abe year of the acqurng corporaton endng after une 30, 19 0, for the
purpose of secton 3 (f) and secton 0. 3 -6, the base perod capta addton
of the acqurng corporaton for the ta abe year n whch the transacton occurs
sha be the sum of (1) the base perod capta addton of the acqurng corpora-
ton, and () an amount whch bears the same rato to the base perod capta
addton of the component corporaton as the number of days n the ta abe year
cf the acqurng corporaton after the transacton bears to the tota number of
days n such ta abe year n whch the transacton occurs. The base perod
capta addton of the acqurng corporaton for any ta abe year thereafter
sha be the aggregate of the base perod capta addton of the acqurng corpo-
raton and the base perod capta addton of the component corporaton.
(2) In the case of a Part II transacton other than a transacton descrbed n
secton 01(a) (1) ( ), whch occurred durng the frst ta abe year of the acqur-
ng corporaton mmedatey precedng ts frst ta abe year endng after une 30,
19 0. the base perod capta addton of the acqurng corporaton sha be com-
puted after ().addng to the yeary base perod capta of the acqurng corpo-
raton for ts ta abe year mmedatey precedng ts frst ta abe year endng
after une 30. 19 0, the yeary base perod capta of the component corporaton
for ts ta abe year mmedatey precedng ts frst ta abe year endng after
une 30, 19 0, and () addng to the yeary base perod capta of the acqurng
corporaton for ts second ta abe year precedng ts frst ta abe year endng
after une 30, 19 0, the yeary base perod capta of the component corporaton
for ts second ta abe year precedng ts frst ta abe year endng after une 30,
19 0.
(3) In the case of a Part II transacton other than a transacton descrbed n
secton 01(a)(1)( ), whch occurred durng the second ta abe year of the
acqurng corporaton precedng ts frst ta abe year endng after une 30, 19 0,
ts base perod capta addton sha be computed after addng to ts yeary base
perod capta for such second precedng ta abe year, the yeary base perod
capta of the component corporaton for the second ta abe year precedng the
component corporaton s frst ta abe year endng after une 30, 19 0.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
139
0. 61-1.
(c) Intercompany stockhodngs, etc. (1) In computng under secton 6
the yeary base perod capta of ether the acqurng corporaton or the com-
ponent corporaton for any ta abe year, the equty capta and nadmssbe
assets of such corporaton sha be determned after e cudng a of the stock
of the other such corporaton, and of any other corporaton a party to the Part
II transacton, hed by such corporaton on the day for whch equty capta
and nadmssbe assets are determned. In determnng day borrowed capta,
and the Interest ad|ustment under secton 33(f)( ), for the purpose of com-
putng yeary base perod capta n the case of ether the acqurng or the com-
ponent corporaton, any ndebtedness of one such corporaton to the other such
corporaton, or to any other corporaton a party to the Part II transacton, sha
not be consdered borrowed capta. Smary, n computng the amount of
oans to members of a controed group for the purpose of determnng the yeary
base perod capta, any ndebtedness to one such corporaton owed by the other
corporaton, or by any other corporaton a party to the Part II transacton, sha
be e cuded.
(2) There sha be e cuded from the base perod capta addton of the
acqurng corporaton for any ta abe year endng after the day of the Part II
transacton so much of the base perod capta addton for such ta abe year
as s attrbutabe to assets obtaned for the purpose of acqurng stock n the
component corporaton n a transacton descrbed n secton 0. 62-10(a) (2),
that s. n a transacton not covered by secton 62 ( ) (1).
(3) There sha be e cuded from the base perod capta addton of the
acqurng corporaton for any ta abe year endng after the Part II transacton
so much of the base perod capta addton for such ta abe year as s attrbut-
abe to assets obtaned by the component corporaton (whether as equty or
borrowed capta) from the acqurng corporaton, or from any other corporaton
a party to the Part II transacton, after the begnnng of the second ta abe year
of the component corporaton precedng Its frst ta abe year endng after une
30, 19 0.
( ) To the e tent that stock of a component corporaton was acqured n an
e change for other than stock of the acqurng corporaton wthn the meanng
of secton 62(|) (1) (see secton 0. 62-10(c) ( ) for rues appcabe n deter-
mnng when stock s consdered acqured for stock), the bass of the assets
of the component corporaton sha be redetermned as provded n secton 70,
whether or not more than 0 percent of the stock of the component corporaton s
acqured, and such redetermned bass sha be used where approprate for a
computatons under secton 3 (f). secton 6 , and ths secton.
(d) Lmtatons under secton 6 (; )(/). In order to prevent dupcaton
under secton 6 n computng the base perod capta addton In the case of
a Part II transacton foowng a stock acquston covered by secton 62(|) (1),
whch stock acquston occurred after the begnnng of the second ta abe year
of the acqurng corporaton precedng ts frst ta abe year endng after une
30, 19 0, secton 62( )(1) requres that n any case under (b) (2) or (3) of
ths secton n whch the yeary base perod capta of the component corporaton
s determned as of the day of such stock acquston or a precedng day, such
yeary base perod capta sha be reduced by an amount whch s such porton
thereof as the stock acqured by the acqurng corporaton on or after such
day s of the tota stock of the component corporaton at the tme of such acqus-
ton. The same reducton sha be made n the foowng cases n whch the
yeary base perod capta of the component corporaton s determned as of a day
subsequent to the day of such stock acquston:
(1) In any case n whch such yeary base perod capta s to be added
under the provsons of (b) (2) or (3) of ths secton to the yeary base
perod capta of the acqurng corporaton determned as of a day pre-
cedng the day of such stock acquston; and
(2) In any case under (b) (1) of ths secton n whch such stock acqus-
ton occurs after the frst day of the acqurng corporaton s frst ta abe
year endng after une 30, 19 0.
Further ad|ustment sha be made to the e tent proper In any case under (b) (1)
of ths secton n whch there woud be no base perod capta addton of the
acqurng corporaton f computed wthout regard to the base perod capta
addton of the component corporaton.
ampe (1). The Corporaton (the acqurng corporaton) and the C Cor-
poraton (the component corporaton) each makes ts ncome ta returns on the
caendar year bass. The Corporaton purchases 30 percent of the stock of the
0 Corporaton on pr 1, 1901, and acqures a of the propertes of the C Cor-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0. 61-1.
1 0
poraton n a Part II transacton on September 1, 19 1. In computng the base
perod capta addton of the C Corporaton, whch s added to the base perod
capta addton of the Corporaton under the rues of (h) (1), above, ony 70
percent of the yeary base perod capta of the C Corporaton for 19 , for 19 9,
and for 19 0 sha be taken nto account, that s., there sha be emnated the
30 percent of each such yeary base perod capta attrbutabe to the stock pur-
chased after the day ( anuary 1 of each such year) for whch yeary base perod
capta s determned.
ampe (2). The facts n ths e ampe are the same as n e ampe (1),
e cept that the stock acquston occurred on pr 1, 19 9, nstead of on pr
1, 19 1. In ths case, no ad|ustment s requred wth respect to the yeary base
perod capta for 19 0 snce that amount s determned as of anuary 1, 19 0, a
day subsequent to the day of the stock acquston. The same ad|ustment s re-
qured wth respect to the yeary base perod capta for 10 S and 19 9 as that
requred n e ampe (1), snce both such amounts are determned as of a day
precedng the day of the stock acquston. ssume further that the Corpora-
ton pad 300,000 for the stock, that t woud have no base perod capta addton
If computed wthout regard to the base perod capta addton of the C Corpora-
ton, and that t woud have a . 12 ,000 base perod capta addton (aso com-
puted wthout regard to the base perod capta addton of the C Corporaton)
f t had not acqured the stock. The base perod capta addton of the C Cor-
poraton must be further reduced by 17 ,000, the amount by whch the stock
acquston s no refected n the base perod capta addton of the Corporaton.
ampe (3). The facts n ths case are the same as n e ampe (1), e cept
that the stock acquston occurred on pr 1, 19 9, and the Part II transacton
occurred on September 1, 19 9. In determnng the yeary base perod capta of
the C Corporaton for 19 and 19 9, whch amounts w be added to the yeary
base perod capta of the Corporaton for 19 and 19 9, respectvey, ony
70 percent of each such amount wth respect to the component corporaton sha
be avaabe to the acqurng corporaton, that s, 30 percent of each such amount
sha be emnated.
(e) Part II transactons descrbed n secton ft(a) (1) ( ). (1) In the case
of a transacton descrbed n secton 01(a) (1) ( ) whch occurs durng or after
the frst ta abe year of the component corporaton endng after une 30, 19 0,
for the purpose of secton 3 (f), the base perod capta addton of an acqurng
corporaton sha be an amount whch bears the same rato to the base perod
capta addton of the component corporaton as the far market vaue of the
assets transferred to such acqurng corporaton n the transacton bears to the
far market vaue of the assets of the component corporaton mmedatey pron
to the transacton.
(2) In the case of a transacton descrbed n secton 01(a)(1)( ) whch
occurred durng a ta abe year of the component corporaton whch s a ta abe
year precedng ts frst ta abe year endng after une 30, 19 0, the yeary base
perod capta of the acqurng corporaton for the year n whch the transacton
occurred sha be computed as of the day foowng the transacton.
(3) In case the transacton descrbed n (2), above, occurred n a ta abe
year of an acqurng corporaton whch s ts frst ta abe year endng after
une 30, 19 0, such acqurng corporaton s base perod capta addton sha
be computed as foows:
() The acqurng corporaton s yeary base perod capta for ts frst
ta abe year mmedatey precedng ts frst ta abe year endng after une
30, 19 0, sha consst of a porton of the yenry base perod capta of the
component corporaton for the frst day of the ta abe year of the component
corporaton n whch such transacton occurred, and
() The acqurng corporaton s yenry base perod capta for ts second
ta abe year precedng ts frst ta abe year endng after une 30,19 0, sha
consst of a porton of the yeary base perod capta of the component cor-
poraton for the frst day of ts frst ta abe year mmedatey precedng
ts ta abe year n whch the transacton occurred;
Such porton n each nstance beng determned by the rato whch the far
market vaue of the assets transferred to the acqurng corporaton n the trans-
acton bears to the far market vaue of the assets of the component corporaton
mmedatey pror to the transacton.
( ) In case the transacton descrbed n (2), above, occurred durng the ta -
abe year of an acqurng corporaton mmedatey precedng ts frst ta abe
year endng after une 30, 19 0, then, for the purpose of computng the base
perod capta addton of such acourng corporaton, ts yeary base perod cap-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 1
29. 0-1.
ta for ts second ta abe year precedng ts frst ta abe year endng after une
30, 19o0, sha consst of a porton of the yeary base perod capta of the com-
ponent corporaton for the frst day of the ta abe year of the component corpo-
raton n whch such transacton occurred. Such porton sha be determned
by the rato whch the far market vaue of the assets transferred to the acqur-
ng corporaton n the transacton bears to the far market vaue of the assets
of the component corporaton mmedatey pror to the transacton.
( ) See secton 0. C-7(b) for speca rues appcabe n the case of a Part
II transacton descrbed n secton 01(a)(1)( ) whch nvoves a transfer to
an acqurng corporaton by two or more component corporatons, or whch n-
voves a transfer to an acqurng corporaton not created ncdent to the trans-
acton.
Sec. 0. 6 -2. ase Perod Capta ddton n Case or Successve Part II
Transactons. If one corporaton becomes a component of a second corporaton,
and f the second corporaton thereafter becomes a component of a thrd cor-
poraton, the base perod capta addton of the thrd corporaton sha be de-
termned under secton 0. 0 -1 by computng the second corporaton s yeary
base perod capta and ts base perod capta addton (whchever s avaabe
to the thrd corporaton) after such tems have been ad|usted under the pro-
vsons of secton 0. 0 - by reference to the frst corporaton. Such ad|ustment
sha be made whether or not the second corporaton computed ts average base
perod net ncome by appcaton of Part II. The frst corporaton sha be
treated as a party to the ater Part II transacton for the purpose of the app-
caton under ths secton of secton 0. 0 -1 (c), above, reatng to ntercompany
stockhodngs, etc.
(Ths Treasury Decson s ssued under the authorty contaned n
secton 02 of the Interna Revenue Code ( 3 Stat. 32; 20 U. S. C. 62)
and n sectons 61 through 0 of the Interna Revenue Code (6 Stat.
1191-1210; 26 U. S. C. 61- 6 ).)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved November 13, 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Ped wth the Dvson of the Federa Regster November 13,19 1, 12; p. m.)
SU C PT R . T ON S LF- MPLOYM NT INCOM
S CTION 0. R T OF T
Secton 29. 0-1: Ta on sef-empoyment n- 19 1-20-13671
come. T. D.
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L Y RS GINNING FT R D C M R 31, 10 1
Reguatons 111 amended to conform to secton 20 of the
Soca Securty ct mendments of 19 0 C. . 19 0-2, 217, 239 ,
reatng to ta on sef-empoyment ncome, and to sectons 221 ()
and (|) (1) of the Revenue ct of 19 0.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
On uy 6, 19 1, notce of proposed rue makng regardng the
amendment of Reguatons 111 to conform to secton 20 of the Soca
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 0-1.
1 2
Securty ct mendments of 19 0 (Pubc Law 73 . 1st Cong. C. .
19 0-2, 217, 239 ), approved ugust 2 , 19 0, and to sectons 221 ()
and (|) (1) of the evenue ct of 19 0 (Pubc Law 1 , 1st Cong.),
approved September 23, 19 0, was pubshed n the Federa Regster
(16 F. R. 6 6 ). No ob|ecton to the rues proposed havng been
receved, the amendments set forth beow are hereby adopted.
Paragraph 1. There s nserted mmedatey precedng secton
29.3-1 26 CFR 29.3-1 the foowng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d) (1) Secton 3 of the Interna Revenue Code Is amended by nsert-
ng at the end thereof the foowng:
Subchapter .- Ta on Sef- mpoyment Income (the Sef- m-
poyment Contrbutons ct), dvded nto sectons.

Par. 2. Secton 29.3-1, as amended by Treasury Decson 391
. C. . 19 , 7 , approved uy 1 , 19 26 CFR 29.3-1 , s further
amended by changng the ffth sentence thereof to read as foows:
Subpart D reates to ctory Ta on Indvdua for ta abe years begnnng
pror to anuary 1, 19 , and to Ta on Sef- mpoyment Income for ta abe
years begnnng after December 31,19 0.
Par. 3. There s nserted mmedatey precedng secton 29.12-1
26 CFR 29.12-1 the foowng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d)
(2) Secton 12(g) of the Interna Revenue Code s amended by nsert-
ng at the end thereof the foowng:
(C) Ta on sef-empoyment ncome. For ta on sef-empoy-
ment ncome, see subchapter .

Par. . There s nserted mmedatey after secton 31 of the In-
terna Revenue Code, as set forth precedng secton 29.3 -1, as added
by Treasury Decson 32 C. . 19 , 1 2 , approved anuary ,
19 26 CFR 29.3 -1 , the foowng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d)
(3) Secton 31 of the Interna Revenue Code s amended by Insert-
ng mmedatey after the words the ta the foowng: (other than
the ta mposed by subchapter , reatng to ta on sef-empoyment
ncome) .

Par. . There s nserted mmedatey after secton of the In-
terna Revenue Code, as set forth precedng secton 29. -1, as added
by Treasury Decson 30 C. . 19 3, 260 , approved November 12,
19 3 26 CFR 29. -1 , the foowng:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 3
f 29. 0-1.
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 1930, PPRO D UGUST 2S. 1930 .

(d)
( ) Secton (b)(1) of the Interna Revenue Code Is amended by
Insertng mmedatey after the words wthhed at source the foow-
ng : and wthout regard to the ta mposed by subchapter on sef-
empoyment ncome .

Pak. G. Secton 29. -3(b), as added by Treasury Decson 30
and amended by Treasury Decson 6 7 C. . 19 9-1, 9, 2 ,
approved February 16,19 9 20 CFR 29. -3 , s further amended by
addng at the end thereof the foowng:
The estmated ta need not ncude an amount estmated as the ta on sef-
empoyment ncome mposed by secton 0.
Par. 7. There s nserted mmedatey precedng secton 29.107-1
26 CFR 29.107-1 the foowng:
S C. 20 . P LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d)
( ) Secton 107 of the Interna Revenue Code s amended by nsert-
ng at the end thereof the foowng new subsecton:
(e) Ta on Sef- mpoyment Income. Ths secton sha be ap-
ped wthout regard to, and sha not affect, the ta mposed by sub-
chapter , reatng to ta on sef-empoyment ncome.

Par. . Secton 29.107-1 26 CFR 29.107-1 ; secton 29.107-2, as
amended by Treasury Decson C. . 19 , , approved une
1 , 19 26 CFR 29.107-2 ; and secton 29.107-3, as added by Treas-
ury Decson 3 9 C. . 19 . 196 , approved uy 10, 19 26 CFR
29.107-3 , are amended by addng at the end of each the foowng
new paragraph:
The provsons of secton 107 and of ths secton sha be apped wthout
regard to, and sha not affect, the ta on sef-empoyment ncome mposed
by secton 0.
Par. 9. There s nserted mmedatey precedng secton 29.120-1
26 CFR 29.120-1 the foowng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d)
(6) Secton 120 of the Interna Revenue Code Is amended by nsert-
ng mmedatey after the words amount of ncome the foowng:
(determned wthout regard to subchapter , reatng to ta on sef-
empoyment ncome) .

Par. 10. Secton 29.120-1 26 CFR 29.120-1 s amended by nsert-
ng n the second paragraph, mmedatey after the words pus the
aggregate amount of ncome , the foowng:
(determned wthout regard to the ta on sef-empoyment Income mposed by
secton 0)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 0-1.
1
Par. 11. There s nserted mmedatey precedng secton 29.131-1
26 CFR 29.131-1 the foowng:
S C. 20S. S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d)
(3) secton 131(a) of the Interna Revenue Code s
amended by nsertng mmedatey after the words e cept the ta m-
posed under secton 102 the foowng: and e cept the ta mposed
under subchapter .

Par. 12. Secton 29.131-1 26 CFR 29.131-1 s amended by addng
at the end of the ffth paragraph thereof the foowng:
No credt for ta es sha be aowed aganst the ta on sef-empoyment ncome
mposed by secton S0.
Par. 13. Secton 29.131- . as amended by Treasury Decson 17
C. . 19 6-2, , 21 , approved une 12, 19 6 26 CFR 29.131- , s
further amended by changng the ast sentence of the frst paragraph
to read as foows:
In computng the ta aganst whch the credt s taken there must, for ta abe
years begnnng before anuary 1, 19 3, be e cuded the ta , f any, mposed
by secton 102; for ta abe years begnnng after December 31, 19 2, there must
be e cuded both the ta mposed by secton 102 and the ta mposed by secton
0 (pror to ts repea by secton 6(a) of the Indvdua Income Ta ct of
19 ) ; and, n addton, for ta abe years begnnng after December 31, 19 0,
there must be e cuded the ta mposed by secton 0.
Par. 1 . There s nserted mmedatey precedng secton 29.161-1
26 CFR 29.161-1 the foowng:
S C, 20S. S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(d)
(7) Secton 161(a) of the Interna Revenue Code s amended by n-
sertng mmedatey after the words The ta es mposed by ths chap-
ter the foowng: (other than the ta mposed by subchapter , re-
atng to ta on sef-empoyment ncome) .

Par. 1 . Secton 29.161-1 (a), as amended by Treasury Decson
C. . 19 6-1, 19 , approved December 29, 19 26 CFR
29.161-(a) , s further amended by nsertng n the frst sentence of
the frst paragraph, mmedatey after the words mposed upon n-
dvduas by chapter 1 , the foowng:
(other than the ta on sef-empoyment ncome mposed by secton 0)
Par. 16. There s nserted mmedatey precedng secton 29.29 1,
as added by Treasury Decson 30 and amended by Treasury De-
cson C. . 19 , 2 6 , approved March 2 , 19 26 CFR
29 -1 , the foowng:
S C. 20 . S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2S, 19 0 .

(d)
(S) Secton 29 (d) of the Interna Revenue Code s amended by n-
sertng at the end thereof the foowng new paragraph:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
29. 0-1.
(3) Ta on sef-empoyment ncome. Ths subsecton sha be
apped wthout regard to the ta mposed by subchapter , reatng
to ta on sef-empoyment ncome.
Par. 17. Secton 29.29 -1, as added by Treasury Decson 30 and
amended by Treasury Decson 26 CFR 29.29 -1 , s further
amended by addng at the end thereof the foowng:
(c) Ta on sef-empoyment ncome. The provsons of secton 29 (d) and
of ths secton sha be apped wthout regard to the ta on sef-empoyment
Income mposed by secton 0.
Par. 1 . The tte of Subpart D s changed to read as foows:
Subpart D. ctory Ta on Indvduas and Ta on Sef- m-
poyment Income.
Par. 19. There s nserted mmedatey precedng Subpart , reat-
ng to persona hodng companes, the foowng:
S C. 20 . S LF MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .
(a) Chapter 1 of the Interna Revenue Code s amended by addng at
the end thereof the foowng new subchapter consstng of sectons 0,
1, and 2 :
SU C PT R T ON S LF- MPLOYM NT INCOM
S C. 0. R T OF T .
In addton to other ta es, there sha be eved, coected, and pad
for each ta abe year begnnng after December 31. 19 0, upon the sef-
empoyment Income of every ndvdua, a ta as foows:
(1) In the case of any ta abe year begnnng after December
31, 19 0, and before anuary 1, 19 , the ta sha be equa to 2
per centum of the amount of the sef-empoyment ncome for such
ta abe year.
(2) In the case of any ta abe year begnnng after December 31,
19 3, and before anuary 1, 1960, the ta sha be equa to 3 per
centum of the amount of the sef-empoyment ncome for such
ta abe year.
(3) In the case of any ta abe year begnnng after December
31, 19 9, and before anuary 1, 196 , the ta sha be equa to 3
per centum of the amount of the sef-empoyment ncome for such
ta abe year.
( ) In the case of any ta abe year begnnng after December 31,
196 , and before anuary 1, 1970, the ta sha be equa to per
centum of the amount of the sef-empoyment ncome for such ta -
abe year.
( ) In the case of any ta abe year begnnng after December
31, 1969, the ta sha be equa to per centum of the amount of
the sef-empoyment ncome for such ta abe year.

Sec. 29. 0-1. Ta on Sef- mpoyment Income. For ta abe years begn-
nng after December 31, 19 0, there s Imposed, n addton to other ta es, a ta
upon the sef-empoyment ncome of every ndvdua at the rates prescrbed n
secton 0. Ths ta sha be eved, assessed, and coected as part of the
Income ta mposed by chapter 1 of the Interna Revenue Code and, e cept as
otherwse e pressy provded, w be ncuded wth the ta es mposed by sec-
tons 11 and 12 n computng any d3fcency or overpayment and n computng
the Interest and addtons to any defcency, overpayment, or ta . Snce the
ta on sef-empoyment Income Is part of the ncome ta , t s sub|ect to the
|ursdcton of The Ta Court of the Unted States to the same e tent and n
the same manner as .he other ta es under chapter 1 of the Code. owever, ths
ta s not requred to be taken nto account n computng any estmate of the
ta es requred to be decared under secton .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 0-1.
1 6
In genera, sef-empoyment ncome conssts of the net earnngs derfved by an
ndvdua (other than a nonresdent aen) from a trade or busness carred
on by hm as soe propretor or by a partnershp of whch he s a member, sub-
|ect to certan e cusons, e ceptons, and mtatons.
S C. 1. D FINITIONS DD D Y S CTION 20 (a), SOCI L
S CURITY CT M NDM NTS OF 19 0, PPRO D UGUST
2 , 19 0, ND M ND D Y S CTION 221 (|), R NU CT
OF 19 0, PPRO D S PT M R 23, 19 0 .
For the purposes of ths subchapter
(a) Net arnngs From Sef- mpoyment. The term net earnngs
from sef-empoyment means the gross ncome derved by an ndvdua
from any trade or busness carred on by such ndvdua, ess the de-
ductons aowed by ths chapter whch are attrbutabe to such trade or
busness, pus hs dstrbutve share (whether or not dstrbuted) of
the ordnary net ncome or oss, as computed under secton 1 3, from any
trade or busness carred on by a partnershp of whch he s a member;
e cept that n computng such gross ncome and deductons and such
dstrbutve share of partnershp ordnary net ncome or oss
(1) There sha be e cuded rentas from rea estate (ncudng
persona property eased wth the rea estate) and deductons at-
trbutabe thereto, uness such rentas are receved n the course
of a trade or busness as a rea estate deaer;
(2) There sha be e cuded ncome derved from any trade or
busness n whch, f the trade or busness were carred on e -
cusvey by empoyees, the ma|or porton of the servces woud
consttute agrcutura abor as denned n secton 1 20(h); and
there sha be e cuded a deductons attrbutabe to such ncome;
(3) There sha be e cuded dvdends on any share of stock,
and nterest on any bond, debenture, note, or certfcate, or other
evdence of Indebtedness, ssued w: nterest coupons or n regs-
tered form by any corporaton (ncudng one ssued by a govern-
ment or potca subdvson thereof), uness such dvdends and
nterest (other than nterest descrbed n secton 2 (a)) are re-
ceved In the course of a trade or busness as a deaer n stocks or
securtes;
( ) There sha be e cuded any gan or oss ( ) whch s con-
sdered ns gan or oss from the sae or e change of a capta asset,
( ) from the cuttng or dsposa of tmber f secton 117(3) s
appcabe to such gan or oss, or (C) from the sae, e change,
nvountary converson, or other dsposton of property f such prop-
erty s nether () stock n trade or other property of a knd whch
woud propery be ncudbe n nventory f on hand at the cose of
the ta abe year, nor () property hed prmary for sae to cus-
tomers n the ordnary course of the trade or busness;
( ) The deducton for net operatng osses provded n secton
23(s) sha not be aowed;
(6) ( ) If any of the ncome derved from a trade or busness
(other than a trade or busness carred on by a partnershp) Is
communty ncome under communty property aws appcabe to
such ncome, a of the gross ncome and deductons attrbutabe to
such trade or busness sha be treated as the gross ncome and de-
ductons of the husband uness the wfe e ercses substantay a
of the management and contro of such trade or busness, n whch
case a of such gross ncome and deductons sha be treated as the
gross ncome and deductons of the wfe;
( ) If any porton of a partner s dstrbutve share of the ord-
nary net ncome or oss from a trade or busness carred on by a
partnershp s communty ncome or oss under the communty prop-
erty aws appcabe to such share, a of such dstrbutve share
sha be ncuded n computng the net earnngs from sef-empoy-
ment of such partner, and no part of such share sha be taken nto
account n computng the net earnngs from sef-empoyment of the
spouse of such partner;
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 7
29. 0-1.
(7) ( ) In the ease of any ta abe year begnnng before the
effectve date specfed n secton 3 10, the term possesson of the
Unted States when used In secton 2 1 wth respect to ctzens of
the Unted States sha ncude Puerto Rco;
( ) In the case of any ta abe year begnnng on or after the
effectve date specfed n secton 3 10, a resdent of Puerto Rco sha
compute hs net earnngs from sef-empoyment n the same manner
as a ctzen of the Unted States but wthout regard to the pro-
vsons of secton 116(1).
If the ta abe year of a partner s dfferent from that of the partnershp,
the dstrbutve share whch he s requred to ncude n computng hs
net earnngs from sef-empoyment sha be based upon the ordnary net
ncome or oss of the partnershp for any ta abe year of the partner-
shp (even though begnnng pror to anuary 1, 10 1) endng wthn
or wth hs ta abe year.
(b) Sef- mpoyment Income. The term sef-empoyment ncome
means the net earnngs from sef-empoyment derved by an ndvdua
(other than a nonresdent aen ndvdua) durng any ta abe year
begnnng after December 31, 19 0; e cept that such term sha not
ncude
(1, That part of the net earnngs from sef-empoyment whch
s n e cess of: ( ) 3,600, mnus ( ) the amount of the wages
pad to such ndvdua durng the ta abe year; or
(2) The net earnngs from sef-empoyment, f such net earnngs
for the ta abe year are ess than 00.
For the purposes of cause (1) the term wages ncudes such re-
muneraton pad to an empoyee for servces ncuded under an agree-
ment entered nto pursuant to the provsons of secton 21 of the
Soca Securty ct (reatng to coverage o State empoyees) as woud
be wages under secton 1 26(a) If such servces consttuted empoy-
ment under secton 1 26(b). In the ease of any ta abe year begnnng
pror to the effectve date specfed n secton 3 10, an ndvdua who
s a ctzen of Puerto Rco (but not otherwse a ctzen of the Unted
States) and who s not a resdent of the Unted States or of the rgn
Isands durng such ta abe year sha be consdered, for the purposes
of ths subchapter, as a nonresdent aen ndvdua. n ndvdua
who s not a ctzen of the Unted States but who s a resdent of the
rgn Isands or (after the effectve date specfed n secton 3 10) a
resdent of Puerto Rco sha not, for the purposes of ths subchapter,
be consdered to be a nonresdent aen ndvdua.
(c) Tbaoe oe usness. The term trade or busness , when used
wth reference to sef-empoyment ncome or net earnngs from sef-
empoyment, sha have the same meanng as when used n secton 23,
e cept that such term sha not ncude
(1) The performance of the functons of a pubc offce;
(2) The performance of servce by an ndvdua as an empoyee
(other than servce descrbed n secton 1 26(b) (16) ( ) per-
formed by an ndvdua who has attaned the age of eghteen) ;
(3) The performance of servce by an ndvdua as an empoyee
or empoyee representatve as defned n secton 1 32;
( ) The performance of servce by a duy ordaned, comms-
soned, or censed mnster of a church n the e ercse of hs
mnstry or by a member of a regous order n the e ercse of
dutes requred by such order; or
( ) The performance of servce by an ndvdua In the e ercse
of hs professon as a physcan, awyer, dentst, osteopath, veter-
naran, chropractor, naturopath, optometrst, Chrstan Scence
practtoner, archtect, certfed pubc accountant, accountant
regstered or censed as an accountant under State or muncpa
aw, fu-tme practcng pubc accountant, funera drector, or
professona engneer; or the performance of such servce by a
partnershp.
(d) mpoyee ato Waoes The term empoyee and the term
wages sha have the same meanng as when used n subchapter of
chapter 9.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 0-1.
1
Sec. 29. 1-1. Net arnngs From Sef- mpoyment. (a) Defnton.
Sub|ect to the speca rues dscussed n (c) of ths secton and to the e cusons
dscussed n secton 29. 1-3, the term net earnngs from sef-empoyment
means
(1) the gross ncome derved by an ndvdua from any trade or busness
carred on by such ndvdua, ess the deductons aowed by chapter 1
of the Interna Revenue Code whch are attrbutabe to such trade or bus-
ness, pus
(2) hs dstrbutve share (whether or not dstrbuted) of the ordnary
net ncome (or mnus the ordnary net oss) from any trade or busness,
as computed under secton 1 3, carred on by any partnershp of whch he
s a member.
(b) Incuded n net earnngs. The gross Income and deductons of an n-
dvdua attrbutabe to a trade or busness, for the purpose of ascertanng hs
net earnngs from sef-empoyment, are to be determned by reference to the
provsons of aw and reguatons appcabe wth respect to the ta es mposed
by sectons 11 and 12. Thus, f an ndvdua uses the accrua method of ac-
countug n computng net ncome from a trade or busness for the purpose of
Ihe ta es mposed by sectons 11 and 12, he must use the same method In de-
termnng net earnngs from sef-empoyment. Lkewse, f a ta payer engaged
n a trade or busness of seng property on the nstament pan eects, under
the provsons of secton , tc use the nstament bass n computng ncome
for the purpose of the ta es under sectons 11 and 12, he must use the same
bass n determnng net earnngs from sef-empoyment.
The trade or busness must be carred on by the ndvdua, ether personay
or through agents or empoyees. ccordngy, ncome derved from a trade or
busness carred on by an estate or trust s not ncuded n determnng the net
earnngs from sef-empoyment of the ndvdua benefcares of such estate
or trust.
Where an ndvdua s engaged In more than one trade or busness wthn the
neanng of secton 1(c) and secton 29. 1-3, hs net earnngs from sef-em-
poyment consst of the aggregate of the net ncome and osses (computed
sub|ect to the speca rues provded n ths secton) of a such trades or
busnesses carred on by hm. Thus, a oss sustaned n one trade or busness
carred on by an ndvdua w operate to offset the ncome derved by hm
from another trade or busness.
The not earnngs from sef-empoyment of an ndvdua ncude, n addton
to the earnngs from a trade or busness carred on by hm, hs dstrbutve share
of the ordnary net ncome or ordnary net oss from any trade or busness car-
red on by each partnershp of whch he s a member. n ndvdua s dstrb-
utve share of the ordnary net ncome or ordnary net oss of a partnershp sha
be computed under secton IS. ), sub|ect to the speca rues set forth n secton
1(a) and n ths secton and to the e cusons provded n secton S(c) and
n secton 29. S1-3.
If the ta abe year of a partner dffers from that of the partnershp, the
partner sha ncude, n computng net earnngs from sef-empoyment, hs
dstrbutve share of the ordnary net ncome or ordnary net oss of the partner-
shp for ts ta abe year (even though begnnng pror to anuary 1, 1931) end-
ng wth or wthn the ta abe year of the partner.
For the purpose of determnng net earnngs from sef-empoyment, a partner-
shp s one whch s recognzed as such for ncome ta purposes. For ncome
ta purposes, the term partnershp ncudes not ony a partnershp as known
at common aw, but, aso, a syndcate, group, poo, |ont venture, or other unn-
corporated organzaton whch carres on any trade or busness, fnanca opera-
ton, or venture, whch s not, wthn the meanng of the Interna Revenue Code,
a trust, estate, or a corporaton.
The net earnngs from sef-empoyment of a partner ncude hs dstrbutve
share of the ordnary net ncome or ordnary net oss of the partnershp of
whch e s a member, rrespectve of the nature of hs membershp. Thus, n
determnng hs net earnngs from sef-empoyment, a mted or nactve partner
ncudes hs dstrbutve share of the ordnary net ncome or ordnary net oss
of the partnershp.
(c) cuded from net earnngs. For the purpose of computng net earnngs
from sef-empoyment, the gross Income derved by an ndvdua from a trade
or busness carred on by hm, the aowabe deductons attrbutabe to such
trade or busness, and the ndvdua s dstrbutve share of the ordnary net
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 9
29. 0-1.
ncome or ordnary net oss from any trade or busness carred on by a partner-
shp of whch he s a member sha be computed n accordance wth the foowng
speca rues:
(1) Rentas from rea estate. Rentas from rea estate (ncudng persona
property eased wth the rea estate), and the deductons attrbutabe thereto,
nness such rentas are receved by an ndvdua n the course of a trade or
busness as a rea estate deaer, are e cuded. Whether or not an ndvdua s
engaged n the trade or busness of a rea estate deaer s determned by the
appcaton of the prncpes foowed n respect of the ta es mposed by sectons
11 and 12. In genera, an ndvdua who s engaged n the busness of seng
rea estate to customers wth a vew to the gans and profts that may be derved
from such snes s a rea estate deaer. On the other hand, an ndvdua who
merey hods rea estate for Investment or specuaton and receves rentas
therefrom s not consdered a rea estate deaer. Where a rea estate deaer
hods rea estate for nvestment or specuaton n addton to rea estate hed for
sae to customers n the ordnary course of hs trade or busness as a rea estate
deaer, ony the rentas from the rea estate hed for sae to customers n the
ordnary course of hs trade or busness as a rea estate deaer, and the deduc-
tons attrbutabe thereto, are ncuded n determnng net earnngs from sef-
empoyment ; the rentas from the rea estate hed for nvestment or specuaton,
and the deductons attrbutabe thereto, are e cuded.
Payments for the use or occupancy of entre prvate resdences or vng
quarters n dupe or mutpe-housng unts are generay rentas from rea
estate. cept n the case of rea estate deaers, such payments are e cuded
n determnng net earnngs from sef-empoyment even though such payments
are n part attrbutabe to persona property furnshed under the ease.
Payments for the use or occupancy of rooms or other space where servces
are aso rendered to the occupant, such as for the use or occupancy of rooms
or other quarters n hotes, boardng bouses, or apartment houses furnshng hote
servces, or n tourst camps or tourst homes, or for the use or occupancy of
space n parkng ots, warehouses, or storage garages, do not consttute rentas
from rea estate; consequenty, such payments are ncuded n determnng net
earnngs from sef-empoyment. Generay, servces are consdered rendered
to the occupant If they are prmary for hs convenence and are other than
those usuay or customary rendered n connecton wth the renta of rooms
or other space for occupancy ony. The suppyng of mad servce, for e ampe,
consttutes such servce; whereas, the furnshng of heat and ght, the ceanng
of pubc entrances, e ts, starways and obbes, the coecton of trash, and so
forth, are not consdered as servces rendered to the occupant.
cept n the case of a rea estate deaer, where an ndvdua or a partnershp
s engaged n a trade or busness the ncome of whch s cassfabe n part as
rentas from rea estate, ony that porton of such ncome whch s not cassfabe
as rentas from rea estate, and the e penses attrbutabe to such porton, w
be ncuded n determnng net earnngs from sef-empoyment.
ampe. , an ndvdua, owns a budng contanng four apartments.
Durng the ta abe year, he receves 1, 00 from apartments numbered 1 and 2,
whch are rented wthout servces rendered to the occupants, and 3,600 from
apartments numbered 3 and , whch are rented wth servces rendered to the
occupants. s f ed e penses for the four apartments aggregate 1,200 durng
the ta abe year. In addton, he has 00 of e penses attrbutabe to the servces
rendered to the occupants of apartments 3 and . In determnng bs net earn-
ngs from sef-empoyment, ncudes the 3,000 receved from apartments
3 and , and the e penses of 1,100 attrbutabe thereto. The rentas and
e penses attrbutabe to apartments 1 and 2 are e cuded. Therefore, has
2, 00 of net earnngs from sef-empoyment for the ta abe year.
(2) Income from agrcutura actvty. Income derved from any trade or
busness n whch, f the trade or busness were carred on e cusvey by
empoyees, the ma|or porton of the servces woud consttute agrcutura abor
as defned n secton 1 26(h), and a deductons attrbutabe to such ncome,
are e cuded. In case the servces are n part agrcutura and n part non-
agrcutura, the tme devoted to the performance of each type of servce s the
test to be used to determne whether the ma|or porton of the servces woud
consttute agrcutura abor. If more than hnf of the tme spent n performng
a the servces s spent n performng servces whch woud consttute agr-
cutura abor under secton 1 26(h), a ncome, and the deductons attrbutabe
to the ncome, sha be e cuded. If ony haf, or ess, of the tme spent n per-
formng a the servces Is spent n performng servces whch woud consttute
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 0-1.
1 0
agrcutura abor under secton 1 20(h), a ncome, and the deductons attrb-
utabe to the Income, sha be ncuded. In every case the tme spent n perform-
ng the servces w be computed by addng the tme spent n the trade or bus-
ness durng the ta abe year by every ndvdua (ncudng the ndvdua
carryng on such trade or busness and the members of hs famy) n performng
such servces. The operaton of ths speca rue s not affected by secton
1 26(c), reatng to the ncuded-e cuded rue for determnng empoyment.
Ths rue has no appcaton where the nonagrcutura servces are performed
n connecton wth an enterprse whch consttutes a trade or busness separate
and dstnct from the trade or busness conducted as an agrcutura enterprse.
Thus, the operaton of a roadsde automobe servce staton on farm premses
consttutes a trade or busness separate and dstnct from the agrcutura enter-
prse, and the gross ncome derved from such servce staton, together wth
the deductons attrbutabe thereto, are ncuded n determnng net earnngs
from sef-empoyment.
(3) Dvdends and nterest. dvdends on shares of stock are e cuded
uness they are receved by an ndvdua n the course of hs trade or busness
as a deaer n stocks or securtes.
Interest on any bond, debenture, note, or certfcate, or other evdence of
ndebtedness, ssued wth nterest coupons or n regstered form by any corpo-
raton (ncudng one ssued by a government or potca subdvson thereof),
s e cuded uness such nterest s receved n the course of a trade or busness
ns a dener n stocks or securtes. owever, nterest whch s e empt under
secton 2 (a) from the norma tn mposed by secton 11, that s, nterest on
certan obgatons of the Unted States and ts nstrumentates, s not ncuded
n net earnngs from sef-empoyment even though receved n the course of a
trade or busness as a deaer n stocks or securtes. Ony nterest on bonds,
debentures, notes, or certfcates, or other evdence of ndebtedness, ssued wth
nterest coupons or n regstered form by a corporaton, s e cuded n the case
of aU persons other than deaers n stocks or securtes; other nterest receved
n the course of any trade or busness (such as nterest receved by a pawn-
broker on hs oans or nterest receved by a merchant on hs accounts or notes
recevabe) s not e cuded.
Dvdends and nterest of the character e cudabe under the precedng para-
graphs receved by an ndvdua on stocks or securtes hed for specuaton
or nvestment are e cuded whether or not the ndvdua s a deaer n stocks
or securtes.
deaer n stocks or securtes s a merchant of stocks or securtes wth an
estabshed pace of busness, reguary engaged n the busness of purchasng
stocks or securtes and reseng them to customers; that s, he s one who as
a merchant buys stocks or securtes and ses them to customers wth a vew
to the gans and profts that may be derved therefrom. Persons who buy and
se or hod stocks or securtes for nvestment or specuaton, rrespectve of
whether such buyng or seng consttutes the carryng on of a trade or bus-
ness, are not deaers n stocks or securtes.
( ) Gan or oss from dsposton of property. There s e cuded any gan
or oss: () whch s consdered as gan or oss from the sae or e change of
a capta asset; () from the cuttng or dsposa of tmber, even though hed
prmary for sae to customers, f secton 117(|) s appcabe to such gan or
oss; and () from the sae, e change, nvountary converson, or other ds-
poston of property f such property s nether ( ) stock n trade or other
property of a knd whch woud propery be ncudbe n nventory f on hand
at the cose of the ta abe year, nor ( ) property hed prmary for sae to
customers n the ordnary course of a trade or busness. For the purpose of
the speca rue n (), t s mmatera whether a gan or oss s treated as a
capta gan or oss or as an ordnary gan or oss for purposes other than deter-
mnng net earnngs from sef-empoyment. For nstance, where the character
of a oss s governed by the provsons of secton 117(|), such oss s e cuded
n determnng net earnngs from sef-empoyment even though such oss s
treated under secton 117(|) as an ordnary oss. For the purposes of ths
speca rue, the term nvountary converson means a compusory or nvoun-
tary converson of property nto other property or money as a resut of ts
destructon n whoe or n part, theft or sezure, or an e ercse of the power
of requston or condemnaton or the threat or mmnence thereof; and, the
term other dsposton ncudes the destructon or oss, n whoe or n part,
of property by fre, storm, shpwreck, or other casuaty, or by theft, even though
there s no converson of such property nto other property or money.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 1
29. 0-1.
ampe. Durng the ta abe year 19 1. . who owns a grocery store, reazed
a net proft of 1, 00 from the sae of groceres and a gan of 3 0 from the sae
of a refrgerator case. Durng the same year, he sustaned a oss of 2,000 as a
resut of damage by fre to the store budng. In computng net Income, a of
these tems are taken nto account. In determnng net earnngs from sef-em-
poyment, however, ony the 1, 00 of proft derved from the sae of groceres s
Incuded. The 3 0 gan and the 2,000 oss are e cuded.
( ) Set operatng oss deducton The deducton provded by secton 23(s),
reatng to net operatng osses sustaned n years other than the ta abe year,
s e cuded.
(6) Communty ncome. () In vase of an ndvdua. If any of the ncome
derved by an ndvdua from a trade or busness (other than a trade or busness
carred on by a partnershp) s communty ncome under communty property
aws appcabe to such ncome, a of the gross ncome, and the deductons
attrbutabe to such ncome, sha be treated as the gross ncome and deductons
of the husband uness the wfe e ercses substantay a of the management
and contro of such trade or busness, n whch case a of such gross ncome
and deductons sha be treated as the gross Income and deductons of the wfe.
For the purpose of ths speca rue, the term management and contro means
management and contro n fact, not the management and contro mputed to
the husband under the communty property aws. For e ampe, a wfe who
operates a beauty paror wthout any apprecabe coaboraton on the part of her
husband w be consdered as havng substantay a of the management and
contro of such busness despte the provson of any communty property aw
vestng In the husband the rght of management and contro of communty prop-
erty ; and the ncome and deductons attrbutabe to the operaton of such beauty
paror w be consdered the ncome and deductons of the wfe.
() In case of a partnershp. ven though a porton of a partner s dstrbutve
f-hare of the ordnary net ncome or ordnary net oss from a trade or busness
carred on by a partnershp s communty ncome or oss under the communty
property aws appcabe to suvh share, a of such dstrbutve share sha he
Incuded n computng the net earnngs from sef-empoyment of such partner;
no part of such share sha be taken nto account n computng the net earnngs
from sef-empoyment of the spouse of such partner. In any case In whch both
spouses are members of the same partnershp, the dstrbutve share of the
ordnary net ncome or ordnary net oss of each spouse s ncuded n computng
the net earnngs from sef-empoyment of that spouse.
(7) Puerto Rco. (1) Resdents. In the case of any ta abe year begnnng
on or after anuary 1,19 1, a resdent of Puerto Rco, whether or not a bona fde
resdent thereof durng the entre ta abe year, and whether or not an aen, a
ctzen of the Unted States, or a ctzen of Puerto Rco, sha compute hs net
earnngs from sef-empoyment n the same manner as woud a ctzen of
the Unted States resdng n the Unted States. For the purpose of the ta
on sef-empoyment ncome, the gross ncome of such a resdent of Puerto Rco
aso Incudes ncome from Puerto Rcan sources. Thus, under ths speca rue,
ncome from Puerto Rcan sources w be ncuded n determnng net earnngs
from sef-empoyment of a resdent of Puerto Rco engaged n the actve conduct
of a trade or busness n Puerto Rco despte the fact that, under secton 116(1),
such ncome may not be taken nto account for the purpose of the ta es under
sectons 11 and 12.
() Nonresdents. ctzen of Puerto Rco who s aso a ctzen of the Unted
States and who s not a resdent of Puerto Reo w compute hs net earnngs from
sef-empoyment n the same manner and sub|ect to the same provsons of aw
and reguatons as other ctzens of the Unted States.
Sec. 29. S1-2. Sef- mpoyment Income. (a) In genera. cept for the
e cusons n (b) and (c) and the e cepton n (d) of ths secton, and term sef-
empoyment Income means the net earnngs from sef-empoyment derved by
an ndvdua durng any ta abe year begnnng after December 31, 19 0.
(b) Ma mum sef-empoyment ncome. The ma mum sef-empoyment n-
come of an ndvdua for any ta abe year (whether a perod of 12 months or
ess) s 3,600. If an ndvdua s pad wages as defned n secton 1 26(a),
the ma mum s the e cess of 3,600 over the amount of such wages. For e -
ampe, f durng the ta abe year no such wages are pad and the ndvdua has
,000 of net earnngs from sef-empoyment, he has 3,600 of sef-empoyment
ncome for such ta abe year. If, n addton to havng ,000 of net earnngs
from sef-empoyment, such ndvdua s pad 1,000 of such wages, he has ony
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 0-1.
1 2
2,600 of sef-empoyment Income for the ta abe year. For the purpose of ths
mtaton, the term wages ncudes remuneraton pad to an empoyee for
servces covered by an agreement entered Into pursuant to secton 21 of the
Soca Securty ct, whch secton provdes for e tenson of the Federa od-age
and survvors nsurance system to State and oca government empoyees under
vountary agreements between the States and the Federa Securty dmnstrator.
(c) Mnmum net earnngs from se-empoyment. Sef-empoyment ncome
does not ncude the net earnngs from sef-empoyment of an ndvdua when
the amount of such earnngs for the ta abe year s ess than 00. Thus, an
ndvdua havng ony 300 of net earnngs from sef-empoyment for the ta -
abe year woud .ot have any sef-empoyment ncome. owever, an ndvdua
havng net earnngs from sef-empoyment of 00 or more for the ta abe year
may have ess than 00 of sef-empoyment ncome. Ths woud occur n a
case n whch the amount of the ndvdua s net earnngs from sef-empoyment
s 00 or more for a ta abe year and the ndvdua aso receves more than
3,200 but ess than 3,G00 of wages durng that ta abe year. For e ampe,
f an ndvdua has net earnng from sef-empoyment of 1,000 for a ta abe
year and aso receves wages of 3, 00 durng that ta abe year, hs sef-empoy-
ment ncome for that ta abe year s 200.
(d) Nonresdent aens. nonresdent aen ndvdua never has sef-
empoyment Income. For the purpose of the ta on sef-empoyment ncome, an
ndvdua who s not a ctzen of the Unted States but who s a resdent of the
rgn Isands or of Puerto Rco s not consdered- to be a nonresdent aen
ndvdua. Whe a nonresdent aen ndvdua who derves hs ncome from a
trade or busness carred on wthn the Unted States, Puerto Rco, or the rgn
Isands (whether by agents or empoyees, or by a partnershp of whch he s a
member) may be sub|ect to the appcabe ncome ta provsons on such ncome,
such nonresdent aen ndvdua w not be sub|ect to the ta on sef-empoy-
ment ncome, snce any net earnngs whch he may have from sef-empoyment
do not consttute sef-empoyment ncome.
Sec. 29. 1-3. Tbade ob usness. (a) In genera. It s necessary for an
Indvdua to carry on r. trade or busness, ether as an ndvdua or as a member
of a partnershp, n order for hm to have net earnngs from sef-empoyment.
cept for the e cusons dscussed n (b), (c), (d), (e),and (f) of ths secton,
the term trade or busness , for the purpose of the ta on sef-empoyment
ncome, sha have the same meanng as when used n secton 23. n ndvdua
engaged n one of the e cuded actvtes specfed n ths secton may aso be
engaged n carryng on a none cuded trade or busness. Whether or not he s
aso engaged n an ncuded trade or busness w be dependent upon a of the
facts and crcumstances n the partcuar case.
(b) Pubc offce. The performance of the functons of a pubc offce does
not consttute a trade or busness. The term pubc offce ncudes any eectve
or appontve offce of the Unted States or any possesson thereof, or of a State
or ts pot a subdvson, or of a whoy owned nstrumentaty of any one
or more of the foregong. For e ampe, the Presdent, the ce Presdent, a
governor, a mayor, the Secretary of State, a Member of Congress, a State repre-
sentatve, a county commssoner, a |udge, a county or cty attorney, a marsha,
a sherff, a regster of deeds, or a notary pubc performs the functons of a pubc
offce.
(c) mpoyees. The performance of servce by an ndvdua as an empoyee,
as defned n the Federa Insurance Contrbutons ct, wth one e cepton,
does not consttute a trade or busness. The e cepton s as foows: Servce
performed by an ndvdua, who has attaned the age of 1 , n, and at the
tme of, the sae of newspapers or magaznes to utmate consumers, under an
arrangement under whch the newspapers or magaznes are to be sod by hm
at a f ed prce, hs compensaton beng based on the retenton of the e cess of
such prce over the amount at whch the newspapers or magaznes are charged
to hm, whether or not he s guaranteed a mnmum amount of compensaton
for such servce, or s entted to be credted wth the unsod newspapers or
magaznes turned back, does consttute a trade or busness. s to when an
ndvdua s an empoyee see the appcabe reguatons under the Federa
Insurance Contrbutons ct.
(d) Indvduas under Raroad Retrement System. The performance of
servce by an ndvdua as an empoyee or empoyee representatve as defned
n secton 1 32, that s, an ndvdua covered under the raroad retrement
system, does not consttute a trade or busness. s to when an ndvdua s
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 3
29. 0-1.
an empoyee or empoyee representatve under secton 1 32, see the appcabe
reguatons under the Raroad Retrement Ta ct.
(e) Mnsters or members of regous orders. The performance of servce
by a duy ordaned, commssoned, or censed mnster of a church n the e er-
cse of hs mnstry or by a member of a regous order n the e ercse of
dutes requred by such order does not consttute a trade or busness. The
dutes of mnsters ncude the mnstraton of sacerdota functons and the
conduct of regous worshp, and the contro, conduct, and mantenance of
regous organzatons (ncudng the regous boards, socetes, and other
ntegra agences of such organzatons), under the authorty of a regous
bedy consttutng a church or church denomnaton.
(f) Members of certan professons. The performance of servce by an
ndvdua n the e ercse of hs professon as a physcan, awyer, dentst,
osteopath, veternaran, chropractor, naturopath, optometrst, Chrstan
Scence practtoner, archtect, certfed pubc accountant, accountant regstered
or censed as an accountant under State or muncpa aw, fu-tme practcng
pubc accountant, funera drector, or professona engneer does not consttute
a trade or busness. Ths e cuson appes ony f the ndvdua meets the
ega requrements, f any, for practcng hs professon n the pace where he
performs the servce. Thus, an accountant who s nether certfed, regstered,
nor censed but who s pubcy engaged n the practce of accountancy on a
fu-tme bass n a |ursdcton whch requres that an ndvdua engaged
n such practce be certfed, regstered, or censed s not wthn the e cuson.
These desgnatons are to be gven ther commony accepted meanng. Thus,
the term physcan means an ndvdua who s egay quafed to practce
medcne: the term awyer means an ndvdua who s egay quafed to
practce aw; and the term professona engneer means an engneer egay
quafed to practce before the pubc n a consutng capacty.
In the case of a partnershp engaged n the practce of any of the desgnated
professons, the partnershp sha not be consdered as carryng on a trade or
busness for the purpose of the ta on sef-empoyment ncome, and none of
the dstrbutve shares of the ordnary net ncome or the ordnary net oss
of such partnershp sha be ncuded n computng net earnngs from sef-
cnpoynent of any member of the partnershp. On the other hand, where a
partnershp s engaged n a trade or busness not wthn any of the desgnated
professons, each partner must ncude hs dstrbutve share of the ordnary
net ncome or the ordnary net oss of such partnershp n computng hs net
earnngs from sef-empoyment, rrespectve of whether such partner s aso
engaged n the practce of one or more of such professons and contrbutes hs
professona servces to the partnershp.
Sec. 29. 1- . mpoyee and Wages. For the purpose of the ta on sef-
otupoyment ncome, the term empoyee and the term wages sha have
the same meanng as when used n the Federa Insurance Contrbutons ct.
For an e panaton of these terms, see the appcabe reguatons under that ct.
S C. 2. MISC LL N OUS PRO ISIONS S DD D Y S C-
TION 20S(n), SOCI L S CURITY CT M NDM NTS OF 19 0,
PPRO D UGUST 2 , 19 0 .
(a) Returns. very ndvdua (other than a nonresdent aen
Indvdua) havng net earnngs from sef-empoyment of 00 or more
for the tn abe year sha make a return contanng such nformaton
for the purpose of carryng out the provsons of ths subchapter as the
Commssoner, wth the approva of the Secretary, may by reguatons
prescrbe. Such return sha be consdered a return requred under
secton 1(a). In the case of a husband and wfe fng a .1ont return
under secton 1(b), the ta mposed by ths subchapter sha not be
computed on the aggregate ncome but sha be the sum of the ta es
computed under ths subchapter on the separate sef-empoyment ncome
of each spouse.
(b) Tte op Subchapter. Ths subchapter may be cted as the Sef-
mpoyment Contrbutons ct .
(c) ffectve Date n Case of Puerto Rco. For effectve date In
case of Puerto Rco, see secton 3 10.
(d) Coecton of Ta es n rgn Isands and Puerto Rco. For
provsons reatng to coecton of ta es n rgn Isands and Puerto
Rco, see secton 3 11.
9 010 2 11
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29. 0-1.
1
Sec. 29. 2-1. Returns. (a) In genera. For each ta abe year begnnng
after December 31, 19 0, every ndvdua, other than a nonresdent aen, havng
net earnngs from sef-empoyment of 00 or more for the ta abe year sha
make a return on Form 10 0 n accordance wth the nstructons thereon, or
ssued therewth, and the provsons of the reguatons appcabe thereto. Such
return sha be consdered a return requred under secton 1(a), and the
provsons appcabe to returns under secton 1(a) sha be appcabe to ths
return. Ths return w be requred f there s sef-empoyment ncome even
though the ndvdua may not be requred to make a return for the purpose of
the ta es mposed by sectons 11 and 12.
(b) ont returns. In the case of a husband and wfe fng a |ont return
nnder secton 1(b), the ta on sef-empoyment ncome s computed on the
separate sef-empoyment ncome of each spouse, and not on the aegregate of
the two amounts. The requrement of secton 1(b) that n the case of a ont
return the ta s computed on the aggregate ncome of the spouses s not app-
cabe wth respect to the ta on sef-empoyment ncome. Where the husband
and wfe each has net earnngs from sef-empoyment of 00 or more, t w
be necessary for each to compete a separate schedue of Form 10 0 wth respect
to such net earnngs, despte the fact that a |ont return s fed. If the net
earnngs from sef-empoyment of ether the husband or the wfe are ess than
00, such net earnngs are not sub|ect to the ta on sef-empoyment ncome,
even though they must be shown on the ont return for the purpose of the ta es
mposed by sectons 11 and 12.
cept as otherwse e pressy provded, secton 1(b) s appcabe to the
return of the ta on sef-empoyment ncome; therefore, the abty wth respect
to such ta n the case of a ont return s |ont and severa.
(c) Soca securty account numbers. very ndvdua makng a return of
net earnngs from sef-empoyment s requred to show thereon hs soca securty
account number, or, f he has no such account number, to make appcaton
therefor on Form SS- pror to the fng of such return. owever, the faure
to appy for a soca securty account number w not e cuse the ndvdua
from the requrement that he fe such return on or before the due date thereof.
Form SS- may be obtaned from any fed offce of the Soca Securty dmns-
traton or from any coector. The appcaton on Form SS- sha be fed wth
the fed offce of the Soca Securty dmnstraton nearest the ega resdence
or prncpa pace of busness of such ndvdua, or f he has no ega resdence
or prncpa pace of busness wthn the Unted States. Puerto Rco, or the
rgn Isands, wth the offce of the Soca Securty dmnstraton at at-
more, Maryand. n ndvdua who has prevousy secured a soca securty
account number as an empoyee sha use that account number on bs return
of net earnngs from sef-empoyment.
Par. 20. There s nserted mmedatey precedng secton
29.3 01(a) (1)-1 26 CFR 29.3 01(a) (1)-1 the foowng:
S C. 20S. S LF- MPLOYM NT INCOM SOCI L S CURITY CT
M NDM NTS OF 19 0, PPRO D UGUST 2 , 19 0 .

(c) Secton 3S01 of the Interna Revenue Code s amended by addng
at the end thereof the foowng new subsecton :
(g) Ta es Imposeo by Chapter 9. The provsons of ths secton
sha not be construed to appy to any ta mposed by chapter 9.

Par. 21. Secton 29.3 01(a) (1)-1 r26 CFR 29.3 01(a) (1)-1 s
amended by addng at the end thereof the foowng new sentence:
The provsons of secton 3 01 and of the reguatons promugated under such
secton sha not appy to any ta mposed by chapter 9, reatng to empoyment
ta es.
Par. 22. There s nserted mmedatey after secton 29.3 0 - . as
added by Treasury Decson 0 , approved pr 1 , 19 6 26 CFR
29.3S0 - , the foowng:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
29. 0-1.
S C. 3 10. FF CTI D T IN C S OF PU RTO ICO S
DD D Y S CTION 20 (b), SOCI L S CURITY CT M ND-
M NTS OF 19 0, PPRO D UGUST 2 , 19 0 .
If the Governor of Puerto Rco certfes to the Presdent of the Unted
States that the egsature of Puerto Rco has, by concurrent resouton,
resoved that t desres the e tenson to Puerto Rco of the provsons
of tte II of the Soca Securty ct, the effectve date referred to n
sectons 1 26(e), 1(a) (7), and 1(b) sha be anuary 1 of the frst
caendar year whch begns more than nnety days after the date on
whch the Presdent receves such certfcaton.
Sec. 29.3 10-1. ffectve Date of Sef- mpoyment Ta n Puerto Rco.
Snce the Governor of Puerto Rco has certfed to the Presdent of the Unted
States that the Legsature of Puerto Rco has, by concurrent resouton, re-
soved that t desres the e tenson to Puerto Rco of the provsons of tte II
of the Soca Securty ct, the certfcate havng been receved by the Presdent
on September 2 , 19 0, the effectve date specfed n secton 3 10 s anuary 1,
19 1. (See secton 29. 1-1 (e) (7).)
S C. 3 11. COLL CTION OF T S IN PU RTO RICO ND IR-
GIN ISL NDS S DD D Y S CTION 20 (b), SOCI L S -
CURITY CT M NDM NTS OF 1930, PPRO D UGUST 2 ,
19 0, ND M ND D Y S CTION 221 (), R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .
(a) Puerto Rco. Notwthstandng any other provson of aw re-
spectng ta aton n Puerto Rco, a ta es mposed by chapter 1, and
by subchapters and D of chapter 9, sha be coected under the d-
recton of the Secretary and sha be pad nto the Treasury of the
Unted States as nterna revenue coectons. provsons of the
aws of the Unted States appcabe to the admnstraton, coecton,
and enforcement of any ta mposed upon the ncomes of ndvduas,
estates, and trusts by chapter 1 (ncudng the provsons reatng to
The Ta Court of the Unted States), and of any ta mposed by sub-
chapter or by subchapter D of chapter 9, sha, n respect to such
ta , e tend to and be appcabe n Puerto Rco n the same manner and
to the same e tent as f Puerto Rco were a State, and as f the term
Unted States when used n a geographca sense ncuded Puerto
Rco.
(b) rgn Isands. Notwthstandng any other provson of aw
respectng ta aton n the rgn Isands, a ta es mposed by sub-
chapter of chapter 1, and by subchapter of chapter 9, sha be co-
ected under the drecton of the Secretary and sha be pad nto the
Treasury of the Unted States as nterna revenue coectons. pro-
vsons of the aws of the Unted States appcabe to the admnstraton,
coecton, and enforcement of the ta mposed by subchapter of
chapter 1 (ncudng the provsons reatng to The Ta Court of the
Unted States), and of any ta mposed by subchapter of chapter 9,
sha, n respect to such ta , e tend to and be appcabe n the rgn
Isands n the same manner and to the same e tent as f the rgn
Isands were a State, and as f the term Unted States when used n
a geographca sense ncuded the rgn Isands.
(c) Defnton s used n ths secton, the term ta Incudes
any penaty wth respect to the ta , any addton to the ta , and any
addtona amount wth respect to the ta , provded for by any aw of
the Unted States.
S C. 3 12. MITIG TION OF FF CT OF ST TUT OF LIMIT -
TIONS ND OT R PRO ISIONS IN C S OF R L T D
T S UND R DIFF R NT C PT RS S DD D Y S C-
TION 20 (b), SOCI L S CURITY CT M NDM NTS OF 19 0,
PPRO D UGUST 2 , 19 0 .
(a) Sef- mpoyment Ta and Ta on Wages. In the case of the
ta mposed by subchapter of chapter 1 (reatng to ta on sef-em-
poyment ncome) and the ta mposed by secton 1 00 of subchapter
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29.-1 0-1.
1 6
of chapter 9 (reatng to ta on empoyees under the Federa In-
surance Contrbutons ct)
(1) (1) f au amount s erroneousy treated as sef-empoyment
Income, or
() f an amount s erroneousy treated as wages, and
(2) f the correcton of the error woud requre an assessment
of one such ta and the refund or credt of the other ta , and
(3) f at any tme the correcton of the error Is authorzed as
to one such ta but s prevented as to the other ta by any aw
or rue of aw (other than secton 3701, reatng to compromses),
then, f the correcton authorzed s made, the amount of the assessment,
or the amount of the credt or refund, as the case may be, authorzed
ns to the one ta sha be reduced by the amount of the credt or refund,
or the amount of the assessment, as the case may be, whch woud be
requred wth respect to such other ta for the correcton of the error
f such credt or refund, or such assessment, of such other ta were not
prevented by any aw or rue of aw (other than secton 3701, reatng
to compromses) :
(b) Defntons. For the purposes.of subsecton (a) of ths secton,
the terms sef-empoyment ncome- and wages sha have the sam
meanng as when used n secton S1 (b).
Skc 29.3 12-1. ppcaton of Secton. Secton 3 12 may b apped n the
correcton of a certan type of error nvovng both the ta on sef-empoyment
ncome and the empoyee ta under secton 1 00 f the correcton of the error
as to one ta s, on the date the correcton s authorzed, prevented n whoe or
n part y the operaton of any aw or rue of aw other than secton 3701, reatng
to compromses. ampes of such aw are sectons 27 , 311 (b) and (c),322 (b)
and (d), 1117(e), 103 , 1030, 3710, and 3772; sectons 272(f) and 322(c);
secton 3700; and sectons 3770(a) (2), 377 , and 377 .
If the abty for ether ta wth respect to whch the error was made has
bren compromsed under secton 3761, the provsons of secton 3S12 mtng the
correcton wth respect to the other ta do not appy.
Sectrn 3 12 s not appcabe f, on t date of the authorzaton, correcton
of the effect of the error s permssbe as to both ta es wthout recourse to such
secton.
If. because an amount of wages (as defned n secton 1 20(a)) s erroneousy
treated as sef-empoyment ncome (as defned n secton S(b) ), or an amount
o sef-empoyment ncome s erroneousy treated as wages, t s necessary n
correctng the error to assess the correct ta and gve a credt or refund for
the amount of the ta erroneousy pad, and ether, but not both, of such ad-
|ustments s prevented by any aw or rue of aw (other than secton 3701),
the amount of the assessment or of the credt or refund authorzed sha refect
the ad|ustment whch woud be made n res ect of the other ta (ether the ta
on sef-empoyment ncome under secton 0 or the empoyee tn under secton
1-100) but for the operaton of such aw or rue of aw. For e ampe, assume
that durng 10 1 pad 10 as ta on an amount erroneousy treated as wages,
when such amount was actuay sef-empoyment ncome, and that credt or
refund of the 10 s not barred. shoud have pad a sef-empoyment ta of
1 on the amount. If the assessment of the correct ta , that s. 1 . s barred
by the statute of mtatons, no credt or refund of the 10 sha bo made wthout
offsettng aganst such 10 the 1 . assessment of whc s barred. Thus, no
cret or refund n respect of the 10 can be made.
s another e ampe, assume that durng 19 1 a ta payer reports wages of
3,000 and net earnngs from sef-empoyment of )00. y reason of the m-
tatons of secton 1(b) he shows no sef-empoyment ncome. ssume further
that by reason of a fna decson by The Ta Court of the Unted States, further
ad|ustments to hs ncome tn abty are barred. The queston of the amount
of hs wages, as defned n secton 1 20. was not n ssue n the Ta Court t-
gaton, but t s subsequenty determned (wthn the perod of mtatons
appcabe under the Federa Insurance Contrbutons ct) that 700 of the
3,000 reported as wages were not for empoyment as defned n secton 1 26(b),
and he s entted to the aowance of a refund of the 10. 0 ta pad on such
remuneraton under secton 1 00. The reducton of hs wages from 3,600 to
2,000 woud resut n the determnaton of 700 sef-empoyment ncome, the
ta on whch Is 1 .7 for the year. The overpayment of 10. 0 woud be offset
under secton 3S12 by the barred defcency of 1 .7 , thus emnatng the refund
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 7
29. 0-1.
otherwse aowabe. If the facts were changed so that the ta payer erroneousy
pad ta on sef-empofment ncome of 700, havng been ta ed on ony 2,900
as wages, and wthn the perod of mtatons appcabe under the Federa
Insurance Contrbutons ct, t s determned that hs wages were 3,600, the
ta of 10. 0 under secton 1 00, otherwse coectbe, woud be emnated by
offsettng under secton 3 12 the barred overpayment of 1 .7 . The baance of
the barred overpayment. .2 , cannot be credted or refunded.
nother ustraton of the operaton of ths secton s the case of a ta payer
who s erroneousy ta ed on 2, 00 as wages, the ta on whch s 37. 0, and
who reports no sef-empoyment ncome. fter the statute of mtatons has
run on the refund of the ta under the Federa Insurance Contrbutons ct,
t s determned that the amount treated as wages shoud have been reported
as net earnngs from sef-empoyment. The ta payer s sef-empoyment ncome
woud then be 2, 00 and the ta thereon woud be 0.2 . ssume that the
perod of mtatons under chapter 1 has not e pred, and that a notce of def-
cency may propery be ssued. Under secton 3S12, the amount of the defcency
of . 6.2 must be reduced by the barred overpayment of 37. 0.
Sec. 29.3S12-2. Law ppcabe n Determnaton of rror. The queston
of whether there was an erroneous treatment of sef-empoyment ncome or of
wages Is determned under the provsons of aw and reguatons appcabe
wth respect to the year or other ta abe perod as to whch the error was made.
The fact that the error was n pursuance of an nterpretaton, ether |udca
or admnstratve, accorded such provsons of aw and reguatons at the tme
of such acton s not necessary determnatve of ths queston. For e ampe,
f a ater |udca decson authortatvey aters such nterpretaton so that
such acton was contrary to such provsons of the aw and reguatons as ater
nterpreted, the error s wthn the meanng of secton 3 12.
(Ths Treasury Decson s ssued under the authorty contaned n
sectons 62. 3791 ( 3 Stat. 32, 67; 2G U. S. C. 62. 3791).)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved September 13, 19 1.
Thomas . Ly ch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September 17, 19 1, : 0 a. m.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
ST T ND GIFT T S
ST T T
S CTION 12(e). N T ST T : U STS, TC.,
TO SUR I ING SPOUS
Secton 1. 7a. Reguatons 10 : equests, 19 1-21-136 0
etc., to survvng spouse. T. D. 7
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 1.
R GUL TIONS R L TING TO ST T T
Secton 1. 7a(c) and 1. 7a (d) of Reguatons 10 amended
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 10 26 CFR. part 1 are amended as foows:
Paragraph 1. There s nserted mmedatey precedng the ast sub-
paragraph of secton 1. 7a(c), as added by Treasury Decson 699
C. . 19 9-1,1 1, 197 , approved May 13, 19 9 26 CFR 1. 7a (c) ,
the foowng:
The provsons of secton 12(e)(1)(D) (reatng to termnaton or faure
of an nterest n the event of the death of the survvng spouse wthn 6 months
after the decedent s death or as a resut of a common dsaster whch aso causes
the decedent s death) are operatve n the case of a transfer descrbed n secton
12(e)(1)(F) so that the trust w not be dsquafed by reason of the fact
that the e ercse of the power s sub|ect to a condton of survvorshp descrbed
n secton 12(e) (1) (D) f the terms of the condton, that s, the survvorshp
of the survvng spouse, are fufed. See paragraph (d) of secton 1. 7b.
Par. 2. Secton 1. 7a (d). as added by Treasury Decson 699
26 CFR 1. 7a(d) , s amended by nsertng mmedatev precedng
the perod at the end of the second sentence of the s th subparagraph
thereof the foowng: sub|ect, however, to the operaton of secton
612(e) (1) (D). See the second ast subparagraph of such paragraph
ecause the purpose of ths Treasury Decson s merey to carfy
certan provsons n e stng reguatons, and s not restrctve n ts
effect, t s found that t s unnecessary to ssue ths Treasury Decson
wth notce and pubc procedure thereon under secton (a) of the
dmnstratve Procedure ct, approved une 11, 19 6, or sub|ect
to the effectve date mtaton of secton (c) of sad ct
(Ths Treasury Decson s ssued under authorty contaned n sec-
ton 3791 of the Interna Revenue Code ( 3 Stat. 67; 26 U. S. C.
3791).)
ohn . Dunap,
Commssoner of Interna Revenue.
pproved September 1 , 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September 19,10 1, : 3 a. m.).
(1 9)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1.2, Regs. 10 .
160
S CTION 939. C RT IN M M RS OF RM D FORC S
Secton 1.2, Reguatons 10 : Descrpton 19 1-21-136 1
of ta . T. D.
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 1.
ST T T UND R C PT R 3 OF T INT RN L R NU COD . S
M ND D
Reguatons 10 amended to conform to Pubc Law 3 ( 2d Cong.)
C. . 19 1-1, 1 3 , reatng to e tenson of tme for fng cams
for refund by estates of certan deceased servcemen.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 10 26 CFR. part 1 to Pubc
Law 3 ( 2d Cong., 1st sess.) C. . 19 1-1, 1 3 , approved May 17,
19 1, reatng to e tenson of tme for fng cams for refund of add-
tona estate ta by estates of certan deceased servcemen, such regu-
atons are amended as foows:
Paragraph 1. There s nserted mmedatey precedng secton 1.2.
as amended by Treasury Decson 3 C. . 19 1-1, 72 , approved
March ,19 1 26 CFR 1.2 , the foowng:
PU LIC L W 3 ( 2d CONG., 1st S SS.), PPRO D M Y 17, 19 1
e t enacted by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed. That subsecton (b) of secton
10 of the ct entted n ct to amend certan provsons of the Interna
Revenue Code , approved October 2 , 19 9 (Pubc Law 37 ), s hereby
amended (1) by strkng out wthn one year from such date and
nsertng n eu thereof at any tme pror to anuary 1, 19 2 , and
(2) by strkng out wthn one year from the date of the enactment of
ths ct and nsertng n eu thereof pror to anuary 1, 19 2 .
Par. 2. Secton 1.2, as amended by Treasury Decson 3 26
CFR 1.2 , s amended by strkng therefrom the ffth subparagraph
of paragraph (b) and nsertng n eu thereof the foowng:
If refund of the addtona estate ta pad by an estate entted to the e emp-
ton provded by secton 939 s prevented at any tme pror to anuary 1, 19 2, by
the operaton of any aw or rue of aw (ncudng a pror udca determnaton)
other than secton 3761 of the Interna Revenue Code, reatng to compromses,
refund of such ta may, nevertheess, be made f cam therefor s fed pror
to anuary 1, 19 2.
ecause of the technca nature of the amendments made heren, t s
found that t s unnecessary to ssue ths Treasury Decson wth notce
and pubc procedure thereon under secton (a) of the dmnstratve
Procedure ct, approved une 11.19 6, or sub|ect to the effectve date
mtaton of secton (c) of sad ct,
(Ths Treasury Decson s ssued under authorty contaned n sec-
ton 3791 of the Interna Revenue Code ( 3 Stat. 67; 26 U. S. C. 3791)
and Pubc Law 3 ( 2d Cong., 1st sess.), approved May 17,19 1.)
ohn . Dunap,
Comnssoner of Interna Revenue.
pproved September 1 , 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September 20,19 1, : 9 a. n.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
MPLOYM NT T RULINGS
INT RN L R NU COD
C PT R 9, SU C PT R . F D R L INSUR NC CONTRI UTIONS
CT
Secton 1 01: Deducton of ta from wages.
Reguatons 12 . Secton 0 .30 : Coec-
ton of, and abty for, empoyee ta .
Wthhodng tabe combnng empoyee ta under the Federa Insur-
ance Contrbutons ct and Federa ncome ta to be wthhed from
weeky wages pad on and after November 1, 19 1. (See Mn. 6703,
page 17 .)
Secton 1 26: Defntons. 19 1-1 -13617
Reguatons 12 , Secton 0 .20 : Who are em- Mm. 06 1
poyees.
Status after 19 0 of home workers for Federa empoyment ta
purposes Incudng ncome ta wthhodng.
Mmeograph O0S6 (C. . 1031-1, 99) amended.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C, une 7, 19 1.
Coectors of Interna Revenue and Others Concerned:
1. The purpose of ths mmeograph s to amend paragraph of
Mmeograph 6 S6 (C. . 19 1-1, 99) whch sets forth the names of
those States havng censng requrements respectng the perform-
ance of certan servces by certan home workers.
2. Informaton now before the ureau dscoses that the States of
Mssour, Oho, Oregon, and Tennessee have certan requrements re-
atng (a) to the nspecton of workshops, factores, and rooms where
persons are empoyed at abor; (b) to the manufacture of varous
artces of cothng and other tems n prvate homes; (c) to the
mantenance of a regster by an empoyer of home workers; or (d)
to the ssuance of santary permts to home workers. It s the opn-
on of the ureau that such requrements are not censng requre-
ments as contempated by the provsons of secton 1 20(d) (3) (C)
of the Federa Insurance Contrbutons ct, as added by the Soca
Securty ct mendments of 19 0. owever, n the case of Tennes-
see the provsons of Mmeograph 0 6. supra, are appcabe wth
respect to chdren under 16 years of age n vew of the fact that
such State requres work permts for such ndvduas.
3. Paragraph of Mmeograph 6 6 s amended by emnatng
Mssour, Oho, and Oregon from the st of States havng censng
(161)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 12 , 0 .20 .
162
aws fufng the requrements of secton 1 26(d)(3)(C) of the
Federa Insurance Contrbutons ct.
. Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos mT: R.
Fred S. Martn,
ctng Commssoner.
Secton 1 26: Defntons.
Reguatons 12 , Secton 0 .20 : Who are em-
poyees.
( so Subchapter C (Federa Unempoyment
Ta ct), Secton 1607; Reguatons 107,
Secton 03.20 .)
Status of ta cab drvers for Federa empoyment ta purposes.
S. S. T. 1 7 (C. . 1037-1, 3 ) revoked.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, une ,1961.
Coectors of Interna Revenue and Others Concerned:
1. The purpose of ths mmeograph s to state the present poston
of the ureau wth respect to the status, for empoyment ta purposes,
of owner-drvers and certan other drvers of ta cabs. In determn-
ng such poston further consderaton has been gven to the rung
pubshed as S. S. T. 1 7 (C. . 1937-1, 3 ), n the ght of the dec-
sons n the cases of ones v. Goodson (19 1), 121 Fed. (2d) 176;
Magruder v. Yeow Cab Co. of D. C, Inc. (19 ), 1 1 Fed. (2d) 32 ;
Unted States v. Davs (19 6), 1 Fed. (2d) 31 ; and Woods v.
Nchoas (19 7), 163 Fed. (2d) 61 ; Pubc Law No. 6 2 C. . 19 -2,
317 , enacted une 1 , 19 ; the decsons n the cases of Party t ab
Co. v. Unted States (19 9), 172 Fed. (2d) 7; New Dea Cab Co. v.
Fahs (19 9), 17 Fed. (2d) 31 ; conomy Cab Co. of acksonve
and Thrft Cabs, Inc., v. Fahs (19 9), 17 Fed. (2d) 321; and the
dena of certorar n the three atter cases, 70 S. Ct. 61, 62.
S. S. T. 1 7
2. In S. S. T. 1 7 t was hed that the drvers of ta cabs owned
by the M Company and operated on a renta bass n accordance wth
the terms of contracts entered nto between the drvers and the com-
pany were empoyees of that company for Fedeva soca securty ta
purposes. In such case the company furnshed garage space, an
offce, teephone servce, and abty nsurance; kept ts ta cabs re-
pared; and pad a of the operatng e penses e cept for gasone.
drver agreed to operate the ta cab as a unt of the company s feet
rather than as a separate unt; to use the ta cab n transportng
persons for hre ony; not to operate the ta cab whe under the
nfuence of nto cants or narcotcs or for any ega purpose; not
to tow any other vehce; to report every accdent n wrtng wthn a
specfed tme thereafter; and to obey n every partcuar the rues
of the company, and any further nstructons that mght be gven
hm. The drver was requred to depost a specfed sum to guarantee
19 1-1 -1361
Mm.66 2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
163
Regs. 12 , C .2G .
hs compance wth the terms of the agreement. In the event the
drver faed to operate the ta cab on any day, the depost mght be
apped by the company on the renta for such day. The company
reserved the rght to dscharge a drver mmedatey f such ndvdua
voated certan provsons of hs contract or f t appeared that he
was not a proper person to operate the ta cab.
C S OF ON S v. GOODSON
3. In ones v. Goodson the Unted States Crcut Court of ppeas
for the Tenth Crcut hed that the drvers of ta cabs owned by the
Y Y Operatng Co. and of ndvduay owned ta cabs operated
under the company s name were ts empoyees for soca securty ta
purposes.
Durng the perods nvoved the Y Y Operatng Co., a corpora-
ton, operated under ts name and nsgna a arge feet of ta cabs,
about one-haf of whch t owned; had a centra offce and garage,
two downtown statons, and a number of ca statons at varous
paces throughout Okahoma Cty, Oka.- and had a corps of per-
sonne consstng of more than 20 empoyees other than ta cab
drvers. The owner-drvers and other drvers of the ta cabs were
members of a oca unon whch had contracts wth the company.
Such contracts provded, among other thngs, that the unon woud
furnsh the company wth competent drvers; specfed ma mum
renta payments for a company car for each 12-hour shft and a
f ed tarff for an ndvduay owned car for each 2 -hour perod,
and a ma mum meage per hft for a company car wth a f ed
sum for a addtona meage; and provded that the company mght,
at ts opton, operate the ta cabs on a percentage bass. The com-
pany was obgated to keep ts cars repared and to furnsh o for
them.
The court found that the company had and e ercsed the rght to
say whether a drver shoud work on the day or the nght shft; to
say whch car he shoud drve f he operated a company car; to
requre that the company s nsgna and teephone number be paced
on a ndvduay owned and operated cars; to requre that drvers
purchase a of ther gasone from the company, and, n addton,
that the drvers of the ndvduay owned cars purchase a ther o
from t; to requre that the drvers operate ony wthn the cty mts
and not go outsde; and to requre that they teephone the mam offce
houry gvng ther whereabouts, mantan a good record for acc-
dents, be courteous to customers, and be presentabe n ther persona
appearance. The court found aso that the company had the rght
to dscharge a drver for nfracton of these requrements, and the
rghts to promugate rues from tme to tme and to dscharge drvers
for the voaton of such rues.
C S OF M OR D R v. Y LLOW C CO. OF D. C, INC.
. In Magruder v. Yeow Cab Co. of D. C, Inc., the Unted States
Crcut Court of ppeas for the Fourth Crcut hed that the
drvers who operated ta cabs whch they eased from the company
under bona fde ease agreements were not ts empoyees for empoy-
ment ta purposes. (The court dstngushed such case from the case
of ones v. Goodson.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 12 , 0 .20 .
16
Durng the year 19 1 the Yeow Cab Co. of D. C, Inc., mantaned
a teephone swtchboard and about 17 ca bo es, had a garage and a
servce staton, owned severa hundred ta cabs, and, n addton, hed
ega ttes to about 7 other ta cabs of whch t was not the equtabe
owner. of the ta cabs were panted n a unform coor and
desgn, and were operated under the censes and name of the com-
pany, whch carred nsurance thereon. The company eased ta cabs
to drvers under wrtten eases on a standard prnted form for a term
of weeks. The equtabe owners of the 7 ta cabs were drvers who
had operated under eases on the standard form, and had made pay-
ments n fu for the ta cabs. Such essees eected not to take ttes
to ther ta cabs, but contnued to drve them and pad the company
a set amount per week for nsurance and teephone servce. In add-
ton, the company eased certan of ts ta cabs under day eases
the substance of whch was that each essee shoud pay the company
a specfed renta per day, dependng upon the age of a ta cab. The
company pad no money to the drvers for ther servces.
The court found that the company dd not possess the rght to say
whether any essee shoud work on a day or nght shft, where he
shoud work, when he shoud work, or whether he shoud work at
a so ong as t receved the stpuated renta; that the essees were
not requred to take orders from the company, were free from contro
by the company, and drove the ta cabs when and f they peased;
and that the company dd not requre the drvers to observe certan
so-caed rues on cards paced n some of the ta cabs, such rues
havng been regarded by the comparty and the drvers ony as sug-
gestve and nformatve. The court found aso that under the ar-
rangements nvoved the company had no power to dsmss a drver
who operated under a wrtten ease for a term of weeks, or to dsmss
a drver who was a day essee e cept by refusa to contnue the
easng of a ta cab to hm on the ne t day.
C S OF UNIT D ST T S . D IS
. In Unted States v. Davs the Unted States Court of ppeas
for the Dstrct of Coumba hed that the drver of a ta cab eased
from a member of an assocaton of ta cab owners was not an em-
poyee of such member for Federa empoyment ta purposes.
Durng the perod nvoved Mr. Davs owned severa ta cabs whch
were panted n the coor scheme and desgn seected by the Inde-
pendent Ta Owners ssocaton, Inc., a nonproft nonstock corpora-
ton whch had severa hundred members. The assocaton acted as
agent for ts members n easng or rentng ther ta cabs to drvers;
operated a teephone swtchboard; had concessons at varous ponts
wthn the Dstrct; mantaned a abty n|ury fund; purchased
group fe nsurance and pad sck benefts; and had a subsdary whch
sod gasone, o, tres, and accessores to ts members and the other
drvers of the members ta cabs. Mr. Davs, through the assocaton,
eased a ta cab to a drver under a renta agreement on a day-to-day
bass at the rate f ed by members of the assocaton. The drver
agreed to compy wth an order of the Pubc Uttes Commsson
requrng a manfest, showng the orgn and destnaton of each trp
and the amount of fare receved therefor; to purchase at hs e pense
a gasone used n the ta cab from statons desgnated by members
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
16
Regs. 12 , 0 .20 .
of the assocaton; to observe and compy wth a rues and reguatons
adopted by members of the assocaton, partcuary those appyng
to courtesy, servce, rates, safe drvng, compance wth trafc regu-
atons, and reportng to the chef dspatcher before eavng on trps
beyond a specfed area; and to report each day, uness unavodaby
detaned, at the assocaton s servce ot. The drver agreed aso that
he woud not knowngy permt any other person to operate the ta cab
assgned to hm.
The court found that the ta cab owner dd not have the rght to
say whether the drver shoud work on a day or nght shft, where or
when he shoud work, and he pad no remuneraton to the drver.
The court agreed wth a vew of a dstrct court that the drver op-
erated the ta cab n hs own behaf, runnng the rsk of oss and
en|oyng the advantages of success.
C S OF WOODS v. NIC OL S
6. In the case of Woods v. Nchoas the Crcut Court of ppeas
for the Tenth Crcut hed that owner-drvers and other drvers usng
Mr. Woods ta cab servce and operatng under hs trade name of
Zone Cab Co., cense, and certfcate of convenence and necessty
were not hs empoyees for empoyment ta purposes. (The court
dstngushed such case from the case of ones v. Goodson, and reed
on the cases, among others, of Magruder v. Yeow Cab Co. of D. C,
Inc., and Unted States v. Sk (19 7), 67 S. Ct. 1 63, hodng owner-
drvers of trucks who hre ther own assstants, pay ther own e -
penses wth mnor e ceptons, and depend on ther own ntatve,
|udgment, and energy for a arge part of ther success to be nde-
pendent contractors.)
Durng the years nvoved, n order to compy wth the cty requre-
ments, Mr. Woods hed ega ttes to a number of ta cabs of whch
he was not the equtabe owner; furnshed the cense and the certf-
cate of convenence and necessty, as we as certan factes, for
whch he was compensated by a f ed fee day for each ta cab; and
was rembursed by the ta cab owners for a part of the costs of cense
pates, nsurance, rent on a garage, and the saares of a mechanc and
of teephone operators who aso acted as dspatchers. The poces
and the rues and reguatons for the operaton of the ta cabs were
formuated at meetngs of the drvers. Durng each shft a ta cab
owner, seected at the meetngs, acted as foreman and n such capacty
empoyed, dscpned, suspended, and dscharged drvers not ownng
ta cabs. Whether such a drver worked on the day or nght shft
was determned by agreement between the drver and the owner
or hs representatve; and the drver was responsbe to the owner,
rather than to Mr. Woods, wth respect to the method and manner
of operatng the ta cab. owever, a drvers were requred to pur-
chase gasone from the owner of the ta cab servce.
PU LIC L W NO. 6 2
7. Pubc Law No. 612 amended secton 1126(d) of the Federa
Insurance Contrbutons ct and secton 1607() of the Federa Un-
empoyment Ta ct by provdng, n part, that the term empoyee
does not ncude (1) any ndvdua who, under the usua common-aw
rues appcabe n determnng the empoyer-empoyee reatonshp,
has the status of an ndependent contractor or (2) any ndvdua
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 12 , 0 .20 .)
166
(e cept an offcer of a corporaton) who s not an empoyee under such
common-aw rues. Pubc Law No. 6 2 affrmed n effect the concept
of empoyee contaned n secton 02.20 of Reguatons 106 and secton
03.20 of Reguatons 107. The provsons of ths egsaton were
ncorporated nto these reguatons by Treasury Decson 6 3 C. .
19 -2.1 0 , dated September 7,19 .
C S OF P RTY C CO. . UNIT D ST T S
. In the case of Party Cab Co. v. Unted States the Crcut Court of
ppeas for the Seventh Crcut hed that the drvers who operated
ta cabs owned by the company under ora agreements were not ts
empoyees for empoyment ta purposes. (The court reversed a ds-
trct court decson reyng on Unted States v. Sk, supra, and n
effect, e pressed the vew that the ratonae of the Supreme Court n
such case carred tte weght at the present tme by reason of the
congressona nt nt n enactng Pubc Law No. 6 2. to appy the
common-aw test ony, n determnng who s an empoyee. )
Durng the perod nvoved the Party Cab Co. owned a number of
ta cabs; had a garage for the servcng of such vehces: and empoyed
teephone operators who receved cas for servce. The drvers op-
erated the company s ta cabs durng specfed perods on a day-to-day
bass: pad for the gasone and o used n the ta cabs; and pad the
company a f ed fee day. They were not requred to answer the
cas gven to them, to report as to ther whereabouts durng a shft,
or to account to the company for the fares and tps receved from
patrons. The company controed whether a partcuar drver worked
and when hs workng shft commenced and ended, and f he dsobeyed
ts nstructons, t coud refuse to et hm have and operate a ta cab.
Perodcay the company nstructed the drvers on such sub|ects as
safe drvng, the procedure to be foowed n cases of accdents, and
the dsposton of artces eft n ta cabs, and forbade them to drnk
whe on duty.
The court e pressed the vew that the matter of contro whch s
matera s that whch (he pantff e ercsed over the drvers durng
the perod they were n possesson of the cabs rather than what the
pantff mght do ether pror or subsequent to such perod. Con-
sderng such vew and the facts n the case t appeared to the court
that the Party Cab Co. had tte, f any, contro over the detas,
means, and method by whch the drvers performed ther servces.
N W D L C CO. . F ffS
CONOMY C CO. OF C SON ILL ND T RIFT C S, I C, . F S
9. In the above-entted cases the Unted States Crcut Court of
ppeas for the Ffth Crcut hed that the drvers who operated ta -
cabs whch they rented from the companes were not empoyees for
Federa empoyment ta purposes. (The court reversed pror dstrct
court decsons; ndcated that the Supreme Court decsons n the case
of Unted States v. Sk, supra, and certan other cases are no onger
controng by reason of the egsatve changes made by Pubc Law
No. 6 2; and reed on the case of Party Cab Co. v. Unted States.)
Durng the years nvoved the New Dea Cab Co. had a cty cense
to operate a ta cab busness; carred pubc abty and property
damage nsurance coverng the operaton of ts ta cabs; and had a
garage for servcng and reparng such ta cabs, wth an ad|onng
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
167
(Regs. 12 , -10 .20 .
parkng ot. Durng a part of the perod the company had teephones
n outyng dstrcts for the use of drvers ony n reportng break-
downs. The drvers of the ta cabs were members of a oca unon
wth whch the company had a contract contanng the terms on whch
such vehces were operated. Such contract specfed that the unon
was to be the soe representatve of the drvers, who rent cars from
the company for use as ta cabs, n a coectve barganng of the
essees wth the company, and to hande a grevances and dsputes;
obgated the company to permt ony members of, or ndvduas
egbe for membershp n. the unon to drve ta cabs operated under
ts name; provded for senorty rghts; and specfed the rates to be
charged bv the company as renta to the essees for day and nght
shfts, and the crcumstances under whch a drver was to be reeved
from payng renta for a or a part of a shft. The company agreed
.ot to refuse to rent ta cabs to a censed drver acceptabe to ts
nsurance carrer or e cept for two specfed reasons to refuse perma-
nenty to rent ta cabs to a drver wthout a hearng. ach drver
was requred to depost 10 wth the company as securty, and to ob-
tan gasone from such organzaton. They reported at the parkng
ot at the tmes f ed for the begnnng of shfts. When a drver
returned to the ot at the end of hs shft he pad the renta and for
the gasone used, but he made no report as to where he had been or
what he had earned. The court found that a drver was under no
contro of the company; had no nstructons as to where he shoud
seek patrons, what he shoud charge them, or what he shoud do wth
the ta cab durng hs shft; that a drver took the entre rsk of hs
day s busness and mght ose nstead of ganng; and that the com-
pany s ony nterest was to receve ts renta and pay for gasone.
In the case of the conomy Cab Co. of acksonve and Thrft
Cabs, Inc., the drvers operated pursuant to the terms of a unon
contract smar to the contract n the case of the New Dea Cab Co.
owever, such a drver gave the ta cab owner a bond of 10 nstead
of depostng cash to secure the day ta cab renta and for gasone,
and the charges to passengers were on a zone rate bass f ed n a unon
agreement. The ta payer had a centra offce wth a teephone swtch-
board for recevng cas for ta cab servce, concessons at two bus
termnas, and severa ca bo es n dfferent parts of the cty from
whch the drvers were supposed to ca the offce every GO mnutes,
but they dd not aways do so. The court stated that e cept for
these dfferences ths case s ke that of the New Dea Cab Co.
10. On October 10, 19 0, the Unted States Supreme Court dened
certorar n the cases of Party Cab Co. v. Unted States, New Dea
Cab Co. v. Fahs, and conomy Cab Co. of acksonve and Thrft
Cabs, Inc., v. Fahs.
SOCI L S CURITY CT M NDM NTS OF 10 0
11. Secton 20 (a), Soca Securty ct mendments of 19 0, ap-
proved ugust 2 , 19 0, amends secton 1 26(d) of the Interna Rev-
enue Code to read as foows:
(d) mpoyee. The term empoyee means
(1)
(2) ny ndvdua who, under the usua common aw rues ap-
pcabe n determnng the empoyer-empoyee reatonshp, as the
status of an empoyee; or
(3)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 12 , 0 .20 .
16
Poston of ureau
S. . T. 1 7 R O D
12. Consderng the trend of the |udca opnons, as ndcated n
the afore-mentoned cases, the rung pubshed as S. S. T. 1 7 no
onger s controng n determnng the status of ta cab drvers. It
s now the poston of the ureau that generay owner-drvers of
ta cabs are not empoyees for Federa empoyment ta purposes.
Lkewse, for such purposes, generay drvers who ease ta cabs
from other persons, pay a specfed renta day or weeky for the
use of the ta cabs, and retan as ther soe compensaton the fares
coected from patrons w be consdered not empoyees. S. S. T.
1 7 s hereby revoked.
13. If n any case doubt e sts as to whether the above poston s
appcabe, the facts n such case shoud be presented to the ureau
wth a request for a rung.
1 . Correspondence n regard to the contents of ths mmeograph
shoud refer to ts number and to the symbos mT: R.
Fred S. Mart ,
ctng Commssoner.
Secton 1 20: Defntons. 19 1-1 -13627
Reguatons 12 , Secton 0 .20 : Who are em- Mm. 66
poyees.
( so Secton 0 .227; aso Subchapter C (Fed-
era Unempoyment Ta ct), Secton 1C07;
Reguatons 107, Secton 03.20 ; and aso
Subchapter D (Coecton of Income Ta at
Source on Wages), Secton 1621; Reguatons
116, Secton 0 .10 .)
Status of nurses for empoyment ta purposes ncudng ncome
ta wthhodng.
S. S. T. 71 (C. . 1937-1, 07), modfed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, une 21, 19 1.
Coectors of Interna Revenue and Others Concerned:
1. The purpose of ths mmeograph s to state the poston of tht
ureau wth respect to the status of nurses, f er purposes of the Federa
Insurance Contrbutons ct, the Federa Unempoyment Ta ct,
and the ncome ta wthhodng under secton 1622 of the Interna
Revenue Code.
2. The usua common-aw rues appcabe n determnng the
empoyer-empoyee reatonshp govern the determnaton of the
empoyment ta status of nurses, both regstered and practca, and
the concusons set forth heren are based upon the appcaton of
such rues to stuatons generay e stng n the nursng fed.
regstered nurses
3. regstered nurse, by reason of her professona character
generay s consdered to be an ndependent contractor n the per-
formance of servces n attendance upon prvate patents. Ths po-
ston s based on the theory that the nurse, after an e tended perod
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
169
Regs. 12 , 0 .20 .
of prescrbed and supervsed tranng and the recept of a certfcate,
hods hersef out to the pubc as e ercsng an ndependent cang
requrng specazed sk. regstered nurse performng servces
under the foregong crcumstances s an ndependent contractor and
no abty for the Federa empoyment ta es and the ncome ta
wthhodng under secton 1622 of the Interna Revenue Code s
ncurred wth respect to the remuneraton for such servces. regs-
tered nurse performng servces n the empoy of a hospta or smar
nsttuton, or n a physcan s offce, s sub|ect to the drecton and
contro of the empoyer and s an empoyee of the person for whom
the servces are performed. In such case the Federa empoyment
ta es and the ncome ta wthhodng under secton 1622 of the
Interna Revenue Code attach to the remuneraton for the servces,
uness such servces are e cepted from empoyment.
PR CTIC L NURS S
. Investgaton ndcates that as a resut of speca tranng or
State censng requrements, many practca nurses have attaned a
professona or subprofessona status, hod themseves out to the
pubc, and perform servces whch are prmary nursng care or
are professona n nature. owever, the censng of practca
nurses s not a prmary or controng factor n determnng the status
of the nurse for empoyment ta purposes. It s ony a snge factor
to be consdered n determnng whether the nurse s an empoyee or
ndependent contractor.
. practca nurse engaged n the performance of servces for a
prvate patent whch prmary nvove the nursng care of and at-
tendance upon the patent usuay s not sub|ect to the drecton and
contro necessnry to consttute her an empoyee, and n the absence
of evdence to the contrary, s an ndependent contractor for purposes
of the Federa empoyment ta es and the ncome ta wthhodng.
Th2 status of such a nurse s not affected by the fact that n some
nstances she may perform certan servces of a househod nature n-
cdent to the nursng care rendered the patent.
6. practca nurse who performs servces under crcumstances
other than those outned n paragraph above s generay sub|ect to
contro and drecton wth respect to her servces and n such cases
s n an empoyment reatonshp. She may be empoyed by a hos-
pta or other smar nsttuton, by a physcan or by an ndvdua
househoder. Where a practca nurse s engaged prmary to perform
servces of a househod nature as dstngushed from servces nvov-
ng the care of a prvate patent, she s an empoyee. If the servces
are performed n the prvate home of the empoyer they consttute
domestc servce and effectve anuary 1, 19 1. the provsons of
secton 1 26(a)(7)( ) of the Federa Insurance Contrbutons ct
are appcabe n determnng whether the remuneraton for such serv-
ces consttutes wages sub|ect to the ta es mposed by the ct. Re-
muneraton for domestc servce as defned n secton 1607(c)(2)
of the Federa Unempoyment Ta ct and secton 1621(a)(3) of
the Interna Revenue Code (reatng to ncome ta wthhodng) s
e cuded from the ta mposed under the Federa Unempoyment Ta
ct and under secton 1622 of the Code.
9 016 2 12
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 12 , 0 .20 .
170
7. The rung pubshed as S. S. T. 71 (C. . 1937-1, 07), reatng
to temporary servces performed n a prvate home by a nurse, s mod-
fed to the e tent that t may be nconsstent wth the foregong.
. The Soca Securty ct mendments of 19 0 amend chapter 1
of the Interna Revenue Code by the addton of subchapter , Ta
on Sef- mpoyment Income, whch mposes a ta on the sef-em-
poyment ncome of every ndvdua for each ta abe year begnnng
after December 31, 19 0. Thus, t may be stated that generay, f
a nurse s not an empoyee for purposes of the Federa Insurance
Contrbutons ct, the provsons of the Sef- mpo3Tment Contrbu-
tons ct may be appcabe. Determnatons whether ta abty
f- ncurred n partcuar cases under the Sef- mpoyment Contrbu-
tons ct shoud be made wth due regard to the appcabe ncome
ta provsons of the Code snce an ndvdua s status as a sef-em-
poyed ndvdua s ntay dependent upon whether he s engaged
n a trade or busness. Doubtfu cases shoud be submtted to the
ureau for specfc rungs.
9. Correspondence reatng to ths mmeograph shoud refer to ts
number and the symbos mT: U .
Geo. . Schoeneman.
Commssoner.
Secton 1 26: Defntons. 19 1-23-13696
Reguatons 12S, Secton 0 .20 : Who are em- Mn. 669
poyees.
Status after 19 0 of home workers for Federa empoyment ta
purposes ncudng ncome ta wthhodng.
Mmeograph 6 0 (C. . 19 1-1,99) amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, October 9, 19 1.
Coectors of Interna Revenue and Others Concerned:
1. The purpose of ths mmeograph s to amend paragraph of
Mmeograph 6 6 (C. . 19 1-1, 99), dated anuary , 19 1, whch
sets forth the names of those States havng censng requrements re-
spectng the performance of certan servces by certan home workers.
2. Paragraph of Mmeograph 6 6 was amended by Mmeograph
66 1 (page 161, ths uetn), dated une 7,19 1, by emnatng Ms-
sour. Oho, and Oregon from the st of States havng censng aws
fufng the requrements of secton 1 26(d) (3) (C) of the Federa
Insurance Contrbutons ct. Informaton now before the ureau
dscoses that the provsons of the ct passed by the Nnety-fourth
Legsature of the State of Mane, effectve ugust 6, 19 9, requrng
empoyers of ndustra home workers to procure permts and re-
qurng home workers to obtan certfcates have been repeaed by an
ct approved May 7, 19 1.
3. Paragraph of Mmeograph 6 6, supra, s further amended by
emnatng Mane from the st of States havng censng aws fu-
fng the requrements of secton 1 26(d) (3) (C) of the Federa In-
surance Contrbutons ct, and paragraph of the mmeograph as
so amended reads:
t the present tme the performance of certan servces by certan home work-
ers s sub|ect to censng requrements under the aws of Puerto Rco and the
foowng States:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
171
IRegs. 12 , I 0 .20 .
Caforna. Massachusetts. Rhode Isand.
Connectcut. Mchgan. Tennessee.
Inos. New ersey. Te as.
Indana. New York. West rgna.
Maryand. Pennsyvana. Wsconsn.
. Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos mT: RR.
ohn . Dun,ap,
Commssoner.
Secton 1 26: Defntons. 19 1-26-13727
Reguatons 12 , Secton 0 .20 : Who are em- Mm. 671
poyees.
( so Subchapter C (Federa Unempoyment
Ta ct), Secton 1607; Reguatons 107,
Secton 03.20 ; and aso Subchapter D (Co-
ecton of Income Ta at Source on Wages),
Secton 1621; Reguatons 116, Secton
0 .10 .)
Status of varety entertaners for purposes of the Federa em-
poyment ta es, ncudng the ncome ta wthhodng under secton
.022 of the Interna Revenue Code.
Mmeograph 767 (C. . 19 , ) superseded.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, November , 19 1.
Coectors of Interna Revenue and Others Concerned:
L The purpose of ths mmeograph s to restate the poston of the
ureau wth respect to the status of varety entertaners, for purposes
of the Federa empoyment ta es, ncudng the ncome ta wthhod-
ng under secton 1622 of the Interna Revenue Code, and to supersede
Mmeograph 767 (C. . 19 , ).
2. The Unted States Court of ppeas for the Second Crcut hed
n a decson rendered on une , 19 1, n the case of Rngng ros.-
arnum cL aey Combned Shows, Inc., v. oseph T. IIggns (1 9
Fed. (2d) 6 ), whch nvoved ta pad by the corporaton under
tte I of the Soca Securty ct wth respect to the remuneraton
of ts featured performers, that the producng cowns, featured artsts,
and the members of the specaty acts who partcpated n the crcus
program presented by the corporaton were empoyees of the corpora-
ton under the usua common aw rues appcabe n determnng the
empoyer-empoyee reatonshp. The corporaton engaged the fea-
tured performers and acts for the entre season of 7 months under
contracts whch granted to the corporaton the rght to renew the con-
tracts on the same terms for the succeedng season and, f t dd so
renew, to prohbt the appearance of the performers n any other
crcus, theater, or Wd West show n the Unted States durng the off
season e cept wth the wrtten consent of the corporaton. Many of
the featured artsts have been performng wth the crcus over ong
perods of tme. In the case of an act composed of more than one
member, the corporaton contracted wth the head of the act and pad
hm the agreed-upon remuneraton for the servces of the entre act.
Payments were for agreed-upon sums per week and no eement of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 12 , 0 .20 .
172
proft or oss dependng upon the success of the crcus tour was n-
voved. The performers contracted to do specfc acts deveoped and
perfected by them and supped ther own costumes, paraphernaa,
anmas, and propertes. Meas, odgng, and transportaton for the
performers and ther equpment were supped by the corporaton and,
athough the performers were not requred to utze such factes, n
practce the factes were accepted by the performers on tour as no
other practca course was open to them. The corporaton seected the
acts and had the rght, whch t e ercsed, of suggestng changes or
mprovements, shortenng the act, and orderng the deeton of ob|ec-
tonabe parts. The corporaton f ed the tmes and paces n the
show for the appearances of the varous acts, set the ength of each act,
and coordnated a the acts to ft them nto the compete program
presented by t. The performers had no voce n determnng the
ctes n whch they were to perform and agreed to work n the crcus
wherever the corporaton ordered.
3. The court revewed the hstory of the soca securty egsaton
wth a vew to ascertanng the egsatve ntent as to the meanng to
be gven to the term empoyee and, n connecton wth the egsa-
tve hstory of the Soca Securty ct mendments of 19 0 (Pubc
Law 73 , 1st Cong., 2d sess.), stated (at pages 6 and G9):
The Conference Report on behaf of the Managers for the ouse sgnf-
canty took occason to reterate and endorse the statement made n enactment
of amendments n 1939 that a restrcted vew of the empoyer-empoyee reaton-
shp shoud not be taken n the admnstraton of the Federa od-age and surv-
vors nsurance system n makng coverage determnatons ; then t
concuded that ths 19.19 statement was equay appcabe to the agreed-upon
b, whch contempates a reastc nterpretaton of the common aw rues.
. The court ponted out that the reguatons menton such matters
as the rght to contro and drect the performance not ony as to the
resut but aso as to the detas and means by whch that s accom-
pshed, stressng that t s the rght to drect whch s mportant and
that t s not necessary for the empoyer actuay to drect or contro
the manner n whch the servces are performed. Other factors men-
toned n the reguatons and noted by the court are the rght to ds-
charge and the furnshng of toos for the work. The court aso re-
ferred to the permanency of the reatonshp as an eement of the
common aw test.
. The court found that the performers were an ntegra part of the
corporaton s busness of offerng entertanment to the pubc. They
were moded nto one ntegrated show, the crcus. It was not a oose
coecton of ndvdua acts ke a vaudeve show. The ndvduaty
of the performers was subordnated to the prmary purpose of enhanc-
ng the reputaton of the corporaton and of producng one ntegrated
show that wodd entertan the pubc. In dscussng the reance of the
corporaton on the decson of the court n the case of Rado Cty Musc
a Corp. v. Unted States (13 Fed. (2d) 71 ), whch hed that the
changng weeky acts at the Rado Cty Musc a were by ndepend-
ent contractors, the court contrasted ther short duraton of the acts
engagements n such case wth the more durabe reaton dscosed by
the contracts between the corporaton and the featured performers n
the crcus and the actua hstory of ther assocaton. The court aso
drected attenton to the mted supervson e ercsed by the Rado
Cty management n fttng an act nto the program presented by t
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
173
Regs. 12 , I 0 .60 .
whch partcuary featured moton pctures, and to the fact that the
performances at the Rado Cty Musc a remaned over the weeks
a seres of vaudeve and ke dsparate acts whch dd not, as n the
Rngng ros, case, become an ntegrated producton.
6. The decson of the court n the Rngng ros, case sustans the
rung made by the ureau. arety entertaners are empoyees for
purposes of the empoyment ta es, ncudng the ncome ta wthhod-
ng under secton 1622 of the Interna Revenue Code, where the facts
are substantay smar to those n the Rngng ros. case.
7. The rung made n paragraph 2 of Mmeograph 767, supra,
that varety entertaners who perform ther speca routnes n a seres
of short term engagements for a number of dfferent operators of
theaters, nght cubs, restaurants, and smar estabshments, free from
contro e cept that ncdenta to the contnuty of the entertanment
programs n whch they partcpate, are not empoyees of such estab-
shments for purposes of the Federa empoyment ta es ncudng
the ncome ta wthhodng, s ncorporated n and made a part of
ths mmeograph, whch supersedes Mmeograph 767. It s ponted
out, however, that whe the owner of a varety act supped to an estab-
shment under the above-descrbed condtons s an ndependent con-
tractor n hs deangs wth such estabshment, he s the empoyer of
the members of hs act f he e ercses over ther servces the contro
necessary under the usua common aw rues to estabsh the reaton-
shp of empoyer and empoyee.
. If doubt e sts as to the appcabty of ths mmeograph n any
case, the compete facts n the case shoud be presented to the ureau
wth a request for a rung.
9. Correspondence reatng to ths mmeograph shoud refer to the
number thereof and to the symbos mT: RR.
Fred S. Martn,
ctng Commssoner.
Secton 1 26: Defntons.
Reguatons 12 , Secton 0 .227: cusons
from wages.
Status of nurses. (See Mm. 66 , page 16 .)
Secton 1 30: Other aws appcabe. 19 1-22-136 7
Reguatons 12 , Secton 0 .60 : Use of pre- Mm. 66 6
scrbed forms.
( so Subchapter D (Coecton of Income Ta
,at Source on Wages), Secton 1627; Regua-
tons 116, Secton 0 .603.)
Form 9 1a, contnuaton sheet of Schedue of Form 9 1 var-
atons n preparaton and rues for reproducton.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, September 17,19 1.
Coectors of Interna Revenue and Others Concerned:
1. Form 9 1, mpoyer s uartery Federa Ta Return, com-
bnes the reportng of ncome ta wthhed from wages and the ta es
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 12 , 0 .G0 .I
17
under the Federa Insurance Contrbutons ct. Schedue of Form
9 1, uartery eport of Wages Ta abe Under the Federa Insur-
ance Contrbutons ct, provdes suffcent space for stng the ac-
count numbers, names, and wages of 1 or ess empoyees, and the
State n whch each empoyee was empoyed, Unted States coectors
of nterna revenue furnsh Schedue contnuaton sheets, Form
9 1a, to empoyers who need addtona space for the stng of
empoyees.
2. substanta number of empoyers who use mechanca equp-
ment n the preparaton of Schedue desre to use prvatey prnted
contnuaton sheets, n contnuous form. Many empoyers, who use
ether the prescrbed Forms 9 1a or prvatey prnted copes thereof,
desre to enter empoyees account numbers and names n a sequence
whch dffers from the sequence caed for on the prescrbed Form
9 1a. The purpose of ths mmeograph s to descrbe permssbe var-
atons n the sequence of such entres, and to state certan rues for the
prvate prntng of Forms 9 1a.
RI TIONS IN NTRI S ON FORM 9 1a
3. If, because of mtatons of hs mechanca equpment, an em-
poyer s unabe to make entres n the sequence and arrangement
caed for on the prescrbed Form 9 1a, the foowng varatons n the
preparaton of Form 9 1a are hereby permtted.
(a) oth the account number and the name, one above the other,
may be entered n coumn 17 or coumn 1 . It s preferred that the
account number be paced above the name.
( ) ouse numbers, check numbers, pant numbers, cock numbers,
or other nformaton whch the empoyer may desre to record on hs
retaned copy of Form 9 1a may be entered n coumn 20 of the org-
na Form 9 1a and bocked out or otherwse obscured before the org-
na Form 9 1a s fed wth the coector.
If an empoyer beeves t s necessary or desrabe to devate from the
nstructons on the prescrbed Form 9 1a, other than as descrbed
above, such empoyer shoud e pan the crcumstances, and request
permsson, n a etter addressed to the Commssoner of Interna
Revenue, attenton mT: RR, Washngton 2 , D. C.
RUL S FOR PRI T PRINTING OF FORM 9 1a
. Permsson s hereby granted to prvatey prnt Forms 9 1a whch
meet the foowng specfcatons:
(a) The atest revson of the prescrbed Form 9 1a shoud be used
as the bass for the prvatey prnted form, wth ony such changes
as are approved n ths mmeograph or are approved n a etter from
ths offce. (In the event of a further revson of the prescrbed Form
9 1a, however, the empoyer may contnue to use an e stng suppy
of prvatey prnted forms unt such suppy s e hausted.) copy
of the atest revson of Form 9 1a may be obtaned from any Unted
States coector of nterna revenue.
(6) Coor and quaty of paper: The forms must be prnted on whte
paper of substantay the same weght and te ture, and of quaty as
good, as that of the prescrbed form.
(c) Typography: The forms must be prnted n back nk usng
type not smaer than the correspondng type of the prescrbed form
and, as neary as possbe, of the same font.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
17
Regs. 12 , 0 .60 .
(d) Dmensons: The wdth of the form must not be ess than 7
ncnes nor more than y2 nches; and the vertca dmenson (ength)
must not be ess than IO 2 nches nor more than 10 nches. If a
prvatey prnted form has arger dmensons than those specfed
above, the e cess wdth or ength must be removed by cuttng, or by
tearng at perforatons provded for that purpose, before the form s
fed wth the coector.
(e) Coumn wdths: The coumns of the form may be wder or nar-
rower than the correspondng coumns of the prescrbed Form 9 1a,
provded that each coumn s wde enough for adequate reportng of
the nformaton caed for theren.
(/) ddtona coumns: If one or more addtona coumns are n-
cuded on the form, such coumns shoud be bocked out by means of
nes, dots, etc., on the orgna copy so that the nformaton entered
n such coumns w not be more than semvsbe.
(g) ertca nes: The vertca nes whch separate the four
coumns of the prescrbed Form 9 1a may, on the prvatev prnted
form, ether be omtted or repaced by ghter nes, provded that the
requred nformaton s entered under approprate coumn headngs.
ddtona, ght vertca nes may be nserted n coumns 17 and 19,
f desred.
(h) Coumn 0 may be omtted, provded that the capton and
entry of State, Possesson, or Terrtory of mpoyment (or Outsde
T|. S. ): s paced n the upper porton of the form, and a empoyees
sted on a snge page of the form have the same State, etc., of em-
poyment. (Space for ths capton and entry may be obtaned by
omttng the words Read Instructons Carefuy and the three
nes of prnt thereunder.)
() Reguary spaced horzonta nes may be nserted n the body
of the form.
(|) Omsson of nstructons: The nstructons appearng on the
rescrbed Form 9 1a may be omtted, but such nstructons shoud
e foowed n the preparaton of the prvatey prnted forms.
(k) The Government Prntng Offce mprnt must be omtted from
prvatey prnted forms. cept for ths omsson, and the omsson
descrbed n paragraph ( ), above, a other contents of the face of
the prescrbed Form 9 1a must be ncuded n prvatey prnted forms.
(I) ddtona nstructons: Ony the orgnas of prvatey prnted
forms shoud be fed wth the coector; carbon copes are not accept-
abe. If the forms are prnted n contnuous stye, they must be sepa-
rated before fng. Margna hoes for sprocket feed and stubs at
the top or bottom of the form must be removed before fng wth the
coector. The forms, as fed, must be wthn the dmensons specfed
n paragraph (d), above.
. Prvatey prnted forms whch conform to the specfcatons
stated above may be used wthout obtanng further permsson from
the ureau of Interna Revenue. Other varatons from the pre-
scrbed Form 9 1a may be permtted n specfc cases, but such per-
msson shoud be requested by etter. Such requests for permsson
shoud be addressed to the Commssoner of Interna Revenue, atten-
ton mT: RR, Washngton 2 , D. C, and must ncude a facsme
or accurate draft of the proposed form. (Such facsme or draft w
not be returned.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 11 , 11.606a.
176
COLUMN WIDT S FT R 19 1
6. It s e pected that a further revson of Form 9 1a w be made
for use n fng returns for the quarter endng March 31, 19 2, and
thereafter. For the beneft of empoyers who may desre advance n-
formaton as to the coumn wdths n such Form 9 1a, the coumnar
nes are descrbed beow:
(a) The dotted ne separatng coumns 17 and 1 w be 2 nches
from the eft edge of the form.
(b) The sod ne separatng coumns 1 and 19 w be nches
from the eft edge of the form. Thus, coumn 1 w have a wdth of
dys nches.
(c) The sod ne separatng coumns 19 and 20 w be 6n/16 nches
from the eft edge of the form. Thus, coumn 19 w have a wdth of
r/16 nches.
The specfed dmensons of Form 9 1a (Revsed anuary 19 1) are
77/a nches by 10 nches. No change n such dmensons s con-
tempated.
7. Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos mT: RR.
ohn . DuNL P,
Commssoner.
C PT R 9, SU C PT R . MPLOYM NT Y C RRI RS
Secton 1 30: Coecton and payment of ta es. 19 1-1 -13619
Reguatons 11 , Secton 11.606a: Use of Federa T. D.
Reserve banks and authorzed commerca banks
n connecton wth payment of empoyers ta
and empoyees ta wth respect to compensaton
pad on or after uy 1, 19 1.
TITL 2C INT RN L R NU . C PT R I, SU C PT R D, P RT 11.
MPLOY RS T . MPLOY S T . ND MPLOY R PR S NT TI S
T UND R T R ILRO D R TIR M NT T CT
Reguatons 11 amended wth respect to use of Federa Reserve
banks and authorzed commerca banks n connecton wth the
payment of empoyers ta and empoyees ta under the Raroad
Retrement Ta ct
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2- , D. C.
To Coectors of Interna Revenue and Others Concerned:
On May ,19 1, notce of proposed rue makng, regardng amend-
ments to Reguatons 11 26 CFR, part 11 , reatng to the payment
of empoyers ta and empoyees ta under the Raroad Retrement
Ta ct, was pubshed n the Federa Regster (16 F. R. 2 6). fter
consderaton of a such reevant matter as was presented by nterested
persons regardng the rues proposed, the amendments to Reguatons
11 set forth beow are hereby adopted.
Paragraph 1. Immedatey precedng secton 11.601 26 CFR
11.601 , the row of astersks foowng the provsons of paracraph
(1) of secton 3310(f) of the Interna Revenue Code, added by Treas-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
177
Regs. 11 , 11.606a.
ury Decson 79 C. . 19 0-2, 2 , approved uy 6, 19 0, s
strcken, and the foowng provsons of aw, beng paragraph (2) of
such secton 3310(f), are nserted n eu thereof:
(2) Use or government depostares. The Secretary may au-
thorze Federa Reserve banks, and ncorporated banks or trust
companes whch are depostares or fnanca agents of the Unted
States, to receve any ta mposed by ths tte, n such manner, at
such tmes, and under such condtons as he may prescrbe; and
he sha prescrbe the manner, tmes, and condtons under whch
the recept of such ta by such banks and trust companes s to be
treated as payment of such ta to the coector.
Par. 2. Immedatey after secton 11.G06 26 CFR 11.606 , the
foowng new secton s nserted:
Sec. 11.606a. Use of Federa Reserve anks and uthorzed Commerca
anks n Connecton Wth Payment of mpoyers Ta and mpoyees Ta
Wth Respect to Compensaton Pad o or fter uy 1.19 1. (a) In genera.
If the amount of empoyees ta deducted durng a caendar month after une 30,
19 1, pus the amount of empoyers ta mosed for such month, e ceeds 100
n the case of an empoyer, t w be the duty of such empoyer to depost the
aggregate amount of such ta es wth a Federa Reserve bank. The empoyer,
at hs eecton, may forward the remttance to a commerca bunk authorzed
by the Secretary of the Treasury to accept remttances of the afore-mentoned
ta es for transmsson to a Federa Reserve bank. If a porton of the afore-
mentoned ta es for a caendar month s reportabe under secton 11.001 on
the return on Form CT-1 for the ta -return perod mmedatey precedng such
month, t w be the duty of the empoyer to depost such porton n the same
manner as f t were for the Inst caendar month n such t return perod, e cept
that no depost sha be made for a caendar month pror to uy 1, 10 1.
(b) Procedure. The depost of the ta es for the frst or second caendar month
of a ta -return perod sha be made on or before the ffteenth day after the cose
of the month for whch the depost s made. The depost of the ta es for the
thrd caendar month of a ta -return perod sha be made on or before the ast
day of the frst caendar month foowng the cose of such perod. ach depost
sha be accompaned by a Raroad Retrement Depostary Recept (Form 1 ),
whch sha be prepared n accordance wth the nstructons appcabe thereto.
fter the Federa Reserve bank has vadated the depostary recept, such de-
postary recept w be returned to the empoyer. very empoyer makng
deposts pursuant to ths secton sha attach to hs return on Form CT-1 for
the ta -return perod wth respect to whch such deposts are made, n part or
fu payment of the ta es shown thereon, depostary recepts so vadated. If
the ta es due for such ta -return perod e ceed the aggregate amount of the
depostary recepts so attached, the empoyer sha pay to the coector the
baance due. If the aggregate amount of such depostary recepts e ceeds such
ta es, a credt or refund may be obtaned; and n the event a credt s taken on
the return on Form CT-1 for a subsequent quarter, the empoyer sha reduce
the amount of the depost otherwse requred under paragraph fa) for one of
the months of such subsequent quarter by the amount of such credt.
(c) Procurement of prescrbed form. Intay, Form 1 , Raroad Retre-
ment Depostary Recept, w so far as possbe be furnshed the empoyer
by the coector. n empoyer not supped wth the proper form shoud make
appcaton therefor to the coector n ampe tme to have such form avaabe
for use n makng hs nta depost wthn the tme prescrbed n ths secton.
Thereafter a bank form w be sent to the empoyer by the Federa Reserve
bank when returnng the vadated depostary recept. n empoyer may secure
addtona forms from a Federa Reserve bank by appyng therefor and advsng
the bank of the dentfcaton number to be shown on hs depostary recepts.
The dentfcaton number to be shown by an empoyer on each depostary
recept shoud be the same as the dentfcaton number requred to be shown by
the empoyer on each quartery return, Form 9 1, to be fed wth the coector
pursuant to Reguatons 116 26 CFR, part 0 , reatng to the coecton of
Income ta at source on wages. The address of the empoyer, as shown on each
depostary recept, shoud be the address to whch the recept shoud be returned
foowng vadaton by the Federa Reserve bank.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, 0 .201. 17
(Ths Treasury Decson s ssued under the authorty contaned
n sectons 1 3 and 3791 of the Interna Revenue Code ( 3 Stat. 1 3,
67; 26 U. S. C. 1 3 , 3791).)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved une 19,19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 21,19 1, : 3 a. m.)
C PT R 9, SU C PT R C F D R L UN MPLOYM NT T CT
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Ta cab drvers. (See Mm. 66 2, page 162.)
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Status of nurses. (See Mm. 66 , page 16 .)
Secton 1607: Defntons.
Reguatons 107, Secton 03.20 : Who are empoyees.
Status of varety entertaners. (See Mm. 671 , page 171.)
C PT R 9, SU C PT R D. COLL CTION OF INCOM T T
SOURC ON W G S
Secton 1621: Defntons.
Reguatons 116, Secton 0 .10 : mpoyee.
Status of nurses. (See Mm. 66 , page 16 .)
Secton 1621: Defntons.
Reguatons 116, Secton 0 .10 : mpoyee.
Status of varety entertaners. (See Mm. 671 , page 171.)
Secton 1622: Income ta coected at source. 19 1-2 -13706
Reguatons 116, Secton 0 .201: Requre- Mm. 6703
ment of wthhodng.
( so Subchapter (Federa Insurance
Contrbutons ct), Secton 1 01; Regua-
tons 12 , Secton 0 .30 .)
Weeky wthhodng ta tabe combnng empoyee ta under the
Federa Insurance Contrbutons ct and the Federa ncome ta
wthhodng from wages pad on and after November 1, 19 1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, October 22,19 1.
Coectors of Interna Revenue and Others Concerned:
1. For the convenence of those empoyers desrng to use a com-
bned wthhodng tabe, the attached conbned weeky wthhodng
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
179
Regs. 116, 06.201.
tabe has been constructed for use on and after November 1,19 1, on
the bass of the Revenue ct of 19 1 and the Federa Insurance Con-
trbutons ct. The tabe refects the hgher ncome ta wthhodng
rates prescrbed by the Revenue ct of 19 1, appyng to wages pad
on and after November L 19 1, and supersedes the tabe set forth n
the rung pubshed as m. T. 9 (C. . 19 1-1, 136). The tabe
shoud not be used wth respect to wages n e cess of 3,600 pad n
a caendar year, and t resuts n the correct aggregate wthhodng
ony f wages for ncome ta and Federa Insurance Contrbutons
ct ta wthhodng are dentca.
2. Snce the Interna Revenue Code provdes no tabe method of
determnng the amount of empoyee ta under the F. I. C. ., the
F. I. C. . empoyee ta rate, and amounts of ta used n the tabe
are shown to the nearest cent. The tabe s desgned to cover weeky
wages under 13 , but t can be e tended to wages of 13 and over
by utzng the weeky ncome ta wthhodng wage brackets (see
page 2 of the 19 1 Suppement to Crcuar N and addng the
F. I. C. . empoyee ta at 1/ percent to the ncome ta to be
wthhed.
3. In cases where the wage brackets fa wthn more than one
bracket of the ncome ta wthhodng tabe (for e ampe 129.67 to
130.3 ), the ncome ta s determned n accordance wth the per-
centage method (see page 12 of the 19 1 Suppement to Crcuar ),
whch permts the roundng of wages to the nearest doar for purposes
of computng the amount to be wthhed.
. For purposes of empoyer s quartery Federa ta returns (Form
9 1), the ureau w nterpose no ob|ecton, n the case of empoyers
usng the combned wthhodng tabe, to (a) determnng the amount
of F. I. C. . empoyee ta wthhed by appyng the y2 percent
F. I. C. . empoyee ta rate to tota wages ta abe for purposes of
such ct, and (b) determnng the amount of ncome ta wthhed
by subtractng such amount of F. I. C. . empoyee ta from the tota
ta wthhed.
. Wth respect to empoyees annua recepts on Form W-2 for 19 1
and thereafter, on whch empoyers are requred to show (a) tota
F. I. C. . wages pad, (b) empoyee ta deducted under the F. I. C. .,
(c) tota wages sub|ect to the ncome ta wthhodng, and (d) ncome
ta wthhed therefrom, no ob|ecton w be nterposed, n the case of
empoyers usng the combned wthhodng tabe, to determnng the
F. L C. . empoyee ta deducted from each empoyee s wages n the
year by appyng the y2 percent rate to wages, not n e cess of 3,600,
Under such ct, and determnng the amount of ncome ta wthhed,
by subtractng the empoyee ta so determned from the tota ta
wthhed from the empoyee s wages n the year.
6. Correspondence reatve to the contents of ths mmeograph
shoud refer to ts number and to the symbos mT: RR.
functons of the y2 percent
Fred S. Martn,
ssstant Commssoner.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, 0 .201. 1 0
Weeky Wthhodng Tabe Combnng Income Ta and mpoyees Federa
nsubance contkbutons act ta (1 pebcent)
Ths tabe to be used ony f wages for ncome ta wthhodng and wages for
empoyees F. I. C. . ta are dentca
If wages are
nd the number of wthhodng e emptons camed s
t east
nt ess
man
0
1
2
3

s
6
7

9
10
to
13.00
The amount of ncome ta and F. I. C. . ta to be wthhed sha be
I of
IMS of
of
1 of
1M of
1 7. of
I of
1M of
m of
I Iof
13.00
13.67
2. . 0
0.30
0.20
0.20
0.20
0.20
0.20
wfe.
0.20
0.20
0.20
0.20
13.67
1 .3
3.01
. 1
.21
.21
.21
.21
.21
.21
.21
.21
.21
1 .3
1 .00
3.12
.62
.22
.22
.22
.22
.2-2
.23
. 22
.22
.22
1 .00
1 .67
3.33
.73
.23
.23
.23
.23
.23
. 23
. 23
.23
.23
1 .67
16.3
3.
.
.2
.2
.2
.2
. 2
.2
.2
.2
.2
. 26
.2
.2
.2
1( .3
17.00
3.
.9
.2
.2
.2
.2
17.00
17.67
3.70
1.10
. 20
.26
.26
.26
.26
.26
.26
.26
.26
17.07
1S.3
3. 7
1.27
.27
.27
.27
.27
.27
.27
.27
.27
.27
1 .3
m.( )
3.9
1.3
.2
.2
.2
.2
.2
.2
.2
.2
.2
19.00
19.07
. 19
1.69
.29
.29
.29
.29
.29
.29
.29
.29
.29
19.67
20.3
.30
1.70
.30
.30
.30
.30
.30
.30
.30
.30
.30
20.3
21.00
. 1
1. 1
.31
.31
.31
.31
.31
.31
.31
.31
.31
21.00
21.67
.02
2.02
.32
.32
.32
.33
.32
.32
.33
.32
.32
.33
.32
.33
.32
.33
21.67
22.3
.73
2.13
.33
.33
.33
.33
22.3
23.00
. 1
2.2
.3
.3
.3
.3
.3
.3
.3
.3
.3
23.00
23.67
.0
2.
.3
.3
.36
.36
.3
.36
.3
.3
.3
23.67
2 .3
.10
2.60
.30
.36
.36
.36
.36
.30
.30
.30
.36
2 .3
2 .00
.27
2.07
.37
.37
.37
.37
.37
.37
.37
.37
.37
2 .00
2 .67
6.
2.
.3
.3
.3
.3
.33
.3
.3
.3
.33
2 .67
26.3
. 9
2.99
. 39
.39
.39
. 39
.39
.39
.39
.39
.39
26.3
27.00
.70
3.10
.60
. 0
. 0
. 0
. 0
. 0
. 0
. 0
. 0
27.00
27.07
.91
3.31
. 1
. 1
. 1
. 1
. 1
. 1
. 1
. 1
. 1
27.67
2 .3
6.02
3. 2
. 2
. 2
. 2
. 2
. 2
. 2
. 2
. 2
. 2
2 .3
29.00
0.13
3. 3
1.03
. 3
. 3
. 3
. 3
. 3
. 3
. 3
. 3
29.00
20.67
6.3
3. 7
1.2
.
.
.
.
.
.
.
.
29.67
30.3
6.
3.
1.2
.
.
. . ,
.
.
. 6
.
.
30.3
31.00
6. 0
3.90
1. 0
. 6
. 6
. 6
. 6
. 6
. 6
. 6
. 6
31.00
31.67
6.77
.17
1.07
. 7
. 7
. 7
. 7
. 7
. 7
. 7
. 7
31.67
32.31
6.
.2
1.0
.
.
.
.
.
.
.
.
32.3
33.00
6.90
.39
1. 9
. 9
. 9
. 9
. 9
. 9
. 9
. 9
. 9
33.00
33.67
7.20
.60
2.10
.60
.60
. 0
. 0
.60
. 0
. 0
.60
33.67
3 .3
7.31
.71
2.11
. 1
. 1
. 1
. 1
. 1
. 1
.61
. 1
3 .3
3 .00
7. 2
. 2
2.32
. 2
. 2
. 2
. 2
. 2
. 2
. 2
. 2
3 .00
3 .67
7.63
.03
2. 3
. 3
.63
. 2
.63
.63
. 3
. 3
.63
7.7
7.
.1
.2
2.
2.7
.
.6
.
.6
.6
.66
.6
.6
.66
.6
36.3
37.00
. 6
2.90
.
66
6
.
.6
37.00
37.67
.00
. 6
.66
. 6
. 0
. 6
.66
.
37.07
3 .3
.17
. 7
2.97
. 7
. 7
. 7
.67
. 7
. 7
. 7
. 7
3 .3
39.00
.2
.0
3. 1
.
.
.
.
.6
.
.
.
3 . .O0
30.67
. 9
. 0
3.39
.79
.69
.69
. 9
. 9
. 9
. 9
.69
39.67
0.3
.00
0.00
3. 0
. 0
.60
.60
.60
.00
.60
.00
.60
0.3
1.00
.71
0.11
3.61
1.01
.61
.61
.61
.01
.61
.61
.61
1.00
1.67
. 92
0.32
3. 2
1.22
.62
.62
.62
.02
.62
.62
.02
1.67
2.3
9.03
0. 3
3. 3
1.23
.63
.63
.63
.03
.63
.63
.03
2.3
3.00
9.1
6.
.0
1.
.6
.0
.6
.0
.6
.6
.6
3.00
3.67
9.3
0.7
.2
1.6
.66
.0
.66
.6
.6
.0
.0
3.67
.31
9. 0
G. 6
.20
1.00
.66
.00
.66
.CO
.06
.06
.06
.3
.00
9. 7
6.97
. 7
1. 7
.67
.67
.67
.67
.67
.67
.67
.00
.67
9.7S
7.1
.0
2.0
.6
.0
.0
.0
.6
.0
.6
. .67
6.3
9. 9
7.29
.69
2.09
.69
.69
.69
.09
.69
.69
.69
. 3
7.00
10.00
7. 0
.90
2.30
.70
.70
.70
.70
.70
.70
.70
7.00
7.67
10. 21
7.61
.11
2. 1
.71
.71
.71
.71
.71
.71
.71
7.67
.3
10.32
7.72
6.12
2. 2
.72
.72
.72
.72
.72
.72
.72
3.3
1.00
10. 3
7. 3
.33
2.73
.73
.73
.73
.73
.73
73
.73
9.00
.67
10.6
.0
.
2.9
.7
.7
.7
.7
.7
.7
.7
9.67
0.3
10. 7
.1
6.
2.9
.7
.76
.7
.7
.7
.7
.7
0.3
61.00
10. 6
.20
6.70
3.16
.76
.76
.76
.76
.70
.76
.76
1.00
1.67
11.07
. 7
.97
3. 37
.77
.77
.77
.77
.77
.77
.77
1.67
2.3
11. 13
.
. 9
3.3
.7
.73
.7
.7
.7
.7
.7
2.3
3.00
11.29
.69
6.19
3. 9
.99
.79
.79
.79
.79
.79
.79
SS3.00
3.67
11. 0
.90
0. 0
3. 0
1.20
. 0
. 0
. 0
. 0
. 0
. 0
3.67
.3
11.61
9.01
6. 1
3. 1
1.21
. 1
.61
. 1
. 1
. 1
. 1
.3
.00
11.72
9.12
6.02
.02
1. 2
. 2
. 2
. 2
. 2
. 2
. 2
.00
.67
11.93
9.33
6. 3
.23
1.63
. 3
. 3
. 3
. 3
. 3
.S3
.67
6.3
12.01
9. 1
6.
. 21
1.6
.
. 1
.
.
.
.
6.3
7.00
12. 1
9.
7.0
. 10
1.S
.
.
.
.
.
.
7.00
7.67
12.36
9.70
7.20
. CO
2.0.
. 6
. 6
. 6
. 3
. 6
. 6
7.67
.3
12. 7
9. 7
7.27
.07
2.07
. 7
. 7
. 7
. 7
. 7
.3
9.00
12. 3
9.9
7.
.
2.2
.fS
.
.33
.
.
.
9.00
9.07
12.79
10.19
7.69
6.09
2. 9
. 9
. 9
. 9
. 9
. 9
. 9
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 1
Regs. 116, 0 .201.
W tT Wthhodng Tabe Combnng Income Ta and mpoyees Federa
Insurance Contrbutons ct Ta (1 Percent) Contnued
If wages are-
0
1
2
3

g
6
7

9
10
ut ess
nd the number of wthhodng e emptons camed s
The amount of ncome ta and F. I. C. , ta to be wthhed sha be
1) o
1) of
1 T. or
1 or
I I o
r.ot
wart s
O. CO
so.; u
to.co
2. 0
0. 90
o.ro
0. CO
2. SI
.91
.91
.91
.91
.91
.91
2. 2
.92
. 92
.92
. I
92
. . 2
2.93
.93
.93
.93
.1-3
. S
.93
3. 21
.9
.
.9
.9-1
.9
. 9
3.2
.9
.9
.
.
. S
. 9
3. 31)
.96
.90
.90
.90
.
3.67
1.17
.97
.97
.97
.97
.9
.97
3. f
1.1
.9
.9
.9
.9
3.79
1.19
.99
.99
.99
.91)
.99
.10
.fO
1.00
1.00
1.00
1.00
1.00
.11
1.61
1.01
1.01
1.01
1.01
1. 1
.22
1.62
1.02
1.02
1.02
1.02
1.02
. 3
2.03
1.03
1.03
1.03
1.03
1.03
.
2.0
1.0
1.0
1.0
1.0
1.0
.6
2.0
1.0
1.0
1.0 .
1.0
1.(1
.90
2. 6
1.06
1.00
1.00
1.06
1.06
.97
2. 7
1.07
1.07
1.07
1.07
1.07
.0
2.
1.0
1.0
1.0
1.0
1.0
. 39
2. 9
1.09
1.09
1.09
1..09
1.09
. 0
2.90
1.10
1. 10
L 10
1.10
1.10
6. 1
2.91
1.11
1.11
1.11
1.11
1.11
. 2
3.32
1.12
1.12
1.12
1.12
1.12
. 3
3.33
1.13
1.13
1.13
1.13
1.13
. 9
3.3
1.1
1.1
1.1
1.1
1.1
6.2
3.7
1.1
1. 1
1.1
1.1
1.1
6.26
3.76
1.16
1.16
L 16
1. 16
1. 16
6.37
3.77
1.17
1.17
1.17
1. 17
1.17
6.6
.1
1.6
1.1
1.1
1.1
1.1
6. 69
.19
1. 9
1. 19
L 19
1. 19
1.19
6. 0
.20
1.60
1.20
1.20
1.20
1.20
7.11
.61
2.01
1.21
1.21
1.21
1.21
7.12
.62
2.02
1.22
1.22
1.22
1.22
7.23
. 63
2.03
1.23
1.23
1.23
1.23
7.
.0
2.
1.2
1.2
1.2
1.2
7.
6.0
2.
1.2
1.2
1.2
1.2
7.66
6.06
2. 6
1.26
1.26
1.26
1.20
7.97
. 7
2. 7
1.27
1.27
1.27
1.27
7.9
.
2.
1.2
1.2
1.2
1.2
.09
6. 9
2. 9
1.29
1.29
1.29
1.29
. 0
.90
3.30
1.30
1.30
1.30
1.30
. 1
6.91
3.31
1.31
1.31
1.31
1.31
. 2
.92
3.32
1.32
1.32
1. 32
1.32
. 3
6.33
3.73
1.33
1.33
1.33
1.33
.
6.3
3.7
1.3
1.3
1.3
1.3
. 9
6.3
3.76
1.3
1.3
1.3
1.3
9.26
6. 76
. 16
1.66
1.36
1.36
1.3
9.27
6. 77
. 17
1.67
1.37
1.37
1.37
9.3
6. 7
. 1
1.
1.3
1.3
1.3
9.69
7. 19
. 9
2.09
1.39
1. 39
1.39
9.70
7.20
.60
2. 10
1. 0
1. 0
1. 0
9. 1
7.21
.61
2.01
1. 1
1. 1
1. 1
10. 12
7. 2
6.02
2. 2
1. 2
1. 2
1. 2
10. 13
7.63
6.03
2. 3
1. .3
1. 3
1. 3
10.2
7.6
.0
2.
1.
1.
1.
10.
. 0
.
2.0
1.
1.
1. .
10. 6
.06
. 6
2.90
1. 0
1. 0
1. 6
10.67
.07
. 7
2. 7
1. 7
1. 7
1. 7
10.9
.
.
3. 3
1.
1. S
1.
10.99
. (1
. 9
3. 39
1. 9
1. 9
1. 9
11. 10
. 0
.90
3.30
1. 0
1. 0
1. 60
11.71
9. 21
6. (11
. 11
1. 1
1. 1
1. 1
11.72
9. 22
6.62
. 12
1.62
1. 2
1. 2
11.73
9.23
6. 63
.13
1. 3
1. 3
1.63
11.7
9. 2
6. 6
. 1
1.
1.
1.
11.7
9.2
6. 6.
.1
1. 6
1.
1.
11.76
9.26
0.66
.10
1. 6
1. 0
1. 0
11.77
9.27
6.67
.17
1. 7
1. 7
1. 7
12.7
10.2
7.6
6.1
2.
1.
1.
12.79
10.29
7.69
.19
2. U
1. 9
1. 9
12. 0
10.30
7.70
.20
2.00
1.60
1.60
12. 1
10.31
7.71
. 21
2.01
1.01
1.01
12. 2
10.32
7.72
.22
2. 62
1.02
1.62
12. 3
10.33
7. 73
.23
2.63
1.63
1.63
0.3
61.00
61.07....
62.3
63.00
63.67
6 .3
SfS.OO
C .f7
06.3
67.00
67.07
6 .3
69.00
69.07
70.3
71.00
71.67....
72.3 ....
73.00....
73.67
7 .3
7 .00
7 .67
7 .3 ....
77.00.._.
77.67....
7 .3 ...
79.00...
79.07.
ff.3 ...
1.00...
1.67...
S2.3 ...
3.00--.
3.07...
.3 ...
.00...
6.67...
0.3 ...
7.00...
7.07. _.
.3 ...
9.00...
9.67. ..
90.3 ...
91.00...
91.67...
92.3 ...
93.00...
93.07...
9-1.3 ...
9 .(10...
9 .67...
96.3 ...
97.00...
97.07...
9 .3 ...
99.00...
99.67...
100.3 ..
101.00..
101.67..
102.3 ..
103.00..
103.07..
10 .3 ..
10 .00..
10 .67..
100.3 ..
107.00.
107.07..
10 .3 ..
109.00-.
21) 7, o
12. 90
13.11
13. 12
13.33
13. .
13.
13.70
13. C7
13. 9
1 .19
1 . 0
1 . 1
1 . C2
1 . 3
1 . 1
1. .0
16. 20
1 . 27
1 .
1 . 69
1 . 70
1 .91
10.12
10. 13
10.
16.
10. 6
10. 77
16.9
16.99
17.20
17. 1
17. 2
17.63
17.
17.
1 .00
1 .27
1 .2
1 . 9
1 .70
1 .71
1 .92
19. 13
19.1
19.3
19. 6
19. 7
19.7
19.99
20.00
20.21
20. 2
20. 3
20. C
20.
20. 6
21.07
21.2
21.29
21. 0
22.01
22.02
22.03
22.0
22.0
22.00
22.07
23.0
23.09
23. 10
23.11
23.12
23.13
1 o
10.30
10. 1
10. 2
10. 73
10.9
10. C
11. 10
11.37
11.3
11. 9
11. 0
11. 1
12.02
12. 23
12.2
12.
12.66
12.67
12.
13.09
13.10
13.31
13. 2
13. 3
13. 7
13.9
13.96
1 .17
1 .3
1 .39
1 .60
1 . 1
1 . 2
1 .03
1 . 2
1 .2
1 . 6
1 .67
1 .0
16. 9
16. 10
16.11
16.32
16. 3
16.
16.76
16.96
16.97
17.1
17.39
17. 0
17. 01
17. 2
17. 3
1 . O
1 . 2
1 .20
1 . 7
1 .0
1 .00
1 . 90
19. 1
19. 2
19. 3
19.
19.
19. 6
19. 7
20.
20. 9
20. 0
20. 1
20. 2
20. 3
1) o
f.
7.70
.(11
. 02
. 13
II
. 0
. 0
a 7
.
S. 99
9. 30
9. 31
9. U
9.70
9.71
9.
10.10
10.17
10.2
10. 9
10.00
10.71
11.02
11.03
11.1
11.
11. 0
11. 7
11.
11. 9
12.00
12.31
12.32
12. 3
12.7
12.7
12. 6
13.17
13. 1
13.29
13.00
13. 61
13.72
1 .03
1 .0
1 .1
1 . 6
1 . 7
1 .6
1 . 9
1 .90
1 .01
1 . 32
1 . 33
1 .
1 .7
1 . 76
1 . 7
16. 1
10. 19
16.30
10 91
16.92
16.93
10.9
10.9
10.90
10.97
17.9
17.99
1 .00
1 .01
1 .02
1 .03
1 7 o

.10
. 1
. 12
. 1
. Nr
. ,
0. 27
o. rs
6.39
0. 7.1
6.71
6. 62
7. 13
7. 1
7. 2
7. 6
7. 67
7. OS
7. M
. 00
. 11
. 2
S. 0
.
S.
. 0
. 97
9. 2
9. 29
9. 0
9.71
9.72
9. 3
10. 1
10. 1
10.26
10. 7
10.
10.69
11.00
11.01
11.12
11. 3
11.
11.
11. 6
11. 7
11.9
12.29
12.30
12. 1
12.72
12.73
12.
13.1
13.10
13. 27
13. .
13. . 9
13. 70
1 . 31
1 .32
1 . 33
1 .3
1 . 3
1 .30
1 .37
1 .3
1 . 39
1 . 0
1 . 1
1 . 2
16. 3
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, 0 .201.
1 2
Weeky Wthhodng Tabe Combnng Income Ta and mpoyees Fedesa
Insurance Contrbutons ct Ta (1 Percent) Contnued
1/ wages are
nd the number of wthhodng e emptons ca
meds-
t east
ut ess
than
0
1
2
S

6
6
7

9
10
The amount of Income ta and F. 1 O. . ta to be wthhed s
abe-
31 of
1M or
1 of
1 of
1M of
1M of
I of
I of
I of
IM of
109.00....
109.67
m
M
w fm
w rm
WMM
wu o
WOfM
23.1
;20.
U .0
1 .
S12.
10.3
7.7
.2
2.6
1.6
1.6
109. 7..._
110.3
23.6
21.0
1 . 6
1 .
13.2
10.6
06
6.
2.
1.66
1.6
110.3
111.00
2 .16
21.66
19.06
16. 6
13. 6
11.30
.76
6.26
3.66
1.66
1.66
111.00....
111.67
2 .17
21. 7
19.07
16. 7
13. 7
11.37
.77
6.27
3.67
1.67
1.67
111.67
112.3
2 .1
21.6
19.0
16.
13.
11.3
.7
6.2
3.6
1.6
1.6
112.3
113.00
2 .19
21. 9
19.09
16. 9
13. 9
11.39
.79
6.29
3.69
1.69
1.69
113.00
113.67
2 .20
21.60
19.10
16.60
13.90
11. 0
a 0
6.30
3.70
1.70
1.70
113.07.
11 .3
2 .21
21.61
19.11
16.61
13.91
11. 1
. 1
6.31
3.71
1.71
1.71
11 .3
11 .00
2 .22
21.62
19.12
16.62
13.92
11. 2
. 2
6.32
3.72
1.72
1.71
11 .00
11 .67
2 .23
22.63
2a 13
17.63
1 .93
12. 3
9. 3
7.33
.73
2.13
1.7
11 .67
116.3
2 .2
22.6
2a 1
17.6
1 .9
12.
9.
7.3
.7
2.1
1.7
116.3
117.00
2 .2
22.6
20.1
17.66
1 .9
12.
9. 6
7.3
.7
2.16
1.7
117.00....
117.67
2 .26
22.66
2a 16
17.66
1 .96
12. 6
9. 6
7.36
.76
2.16
1.76
117.67.
11 .3
2 .27
22.67
20.17
17.67
1 .97
12. 7
9. 7
7.37
.77
2.17
1.77
11 .3 ....
119.00
2 .2
22.6
20.1
17.6
1 .9
12.
9.
7.3
.7
2.1
1.7
119.00....
119.67
2 .29
22.69
20.19
17. 9
1 .99
12. 9
9. 9
7.39
.79
2.19
1.79
119.67....
120.3
2 . 0
23.20
2a 60
1 .00
1 . 0
12. 0
10.20
7.60
6.00
2. 0
1. 0
120.3 ....
121.00
26.31
23.71
21.21
1 .61
16.01
13. 1
10.91
. 1
6. 1
3.21
1. 1
121.00....
121.67
26.32
23.72
21.22
1 .62
16.02
13.62
10.92
. 2
6. 2
3.22
1. 2
121.67....
122.3
26.33
23.73
21.23
1 .63
16.03
13.6
10.93
. 3
6. 3
3.23
1. 3
122.3 ....
123.00....
26.3
23.7
21.2
1 .6
16.0
13.6
10.9
.
6.
3.2
1.
123.00....
123.67....
26.3
23.7
21.2
1 .66
16.06
13.
10.9
.
6.
3.26
1.
123.67....
12 .3 ....
26.36
23.76
21.26
1 .66
16.06
13. 6
10.96
. 6
6. 6
3.26
1. 6
12 .3 ....
12 .00....
26.37
23.77
21.27
1 .67
16.07
13. 7
a97
. 7
6. 7
3.27
1. 7
12 .00....
12 .67....
27.3
2 .7
22.2
19.6
17.0
1 .6
11.9
9.
6.
.2
1.
12 .67....
126.3 ....
27.39
2 .79
22.29
19.69
17.09
1 . 9
11.99
9. 9
6, 9
.29
1. 9
126.3 .
127.00
27. 0
2 . 0
22.30
19.70
17.10
1 .60
12.00
9.60
6.90
.30
1.90
127.00....
127.67
27. 1
2 . 1
22.31
19.71
17.11
1 .61
12.01
9.61
6.91
.31
1.91
127.67....
12 .3
27. 2
2 . 2
22.32
19.72
17.12
1 .62
12.02
9.62
6,92
.32
1.92
12 .3 ....
129.00
27. 3
2 . 3
22.33
19.73
17.13
1 .63
12.03
9. 3
6.93
.33
1.93
129.00
129.67
27.
2 .
22.3
19.7
17.1
1 .6
12.0
9.
6.9
.3
1.9
129.67....
130.3
27.9
2 .3
22.76
20.16
17.6
1 .96
12.3
9.7
7.1
.6
1.9
130.3 ....
131.00
2 . 6
2 . 6
23.36
20.76
1 .16
1 .66
13.06
10.66
7.96
6.36
2. 6
131.00....
131.67
2 , 7
2 . 7
23.37
2tt 77
1 .17
1 .67
13.07
10. 7
7.97
.37
2. 7
131.67....
132.3
2 .
2 .
23.3
2tt 7
1 .1
1 .6
13.0
10.
7.9
6.3
2.
132.3
133.00
2 . 9
26. 9
23.39
20.79
1 .19
1 .69-
13.09
10. 9
7.99
.39
2. 9
133.00....
133.67
2 . 0
2 .90
23. 0
20. 0
1 .20
1 .70
13.10
10.60
.00
. 0
2.90
133.67....
13 .3
2 .61
2 .91
23. 1
20. 1
1 .21
1 .71
13.11
10.61
.01
6. 1
2.91
13 .3 -
13 .00....
2 . 2
2 .92
23. 2
20. 2
1 .22
1 .72
13.12
10.62
.02
6. 2
2.92
21M percent of the e cess over 13 pus
13 .00 and over
29.03
26. 3
23. 3
21.23
1 .63
16.03
13. 3
a 3
.23
6.63
3.03
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 3
Regs. 116, 0 .201.
Secton 1622: Income ta coected at source. 19 1-2 -13707
Reguatons 116, Secton 0 .201: Requrement Mm. 6702
of wthhodng.
Wthhodng ta tabes under the Revenue ct of 19 1 for payro
perods of 10 days and payro perods of 2 days.
Treasury Depar tment,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, October 22, 19 1.
Coectors of Interna Revenue and Others Concerned:
1. The attached wthhodng tabes coverng payro perods of 10
days and 2 days have been constructed on the bass of the Revenue ct
of 19 1. The percentage method of wthhodng and the reguar
tabes coverng weeky, bweeky, semmonthy, monthy, and day or
msceaneous payro perods are found n the 19 1 Suppement of
Crcuar .
2. Coectors may reproduce the 10-day and 2 -day payro perod
wthhodng tabes for dstrbuton to empoyers requestng them.
s ndcated on page 11 of the 19 1 Suppement, ths w be the ony
pan of dstrbuton of these tabes.
3. Correspondence reatve to the contents of ths mmeograph
shoud refer to ts number and to the symbos mT: RR.
Fred S. Martn,
ss n tant Co n m ssoner.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Rogs. 116, 0 .201. 1
Income Ta Wthhodng Tabe ffectve NovbbbI, 19 1
If the payro perod wth respect to an empoyee s a 10-day perod
nd the wages are
nd tbe number of wthhodng e emptons camed s
0
1
2
3

6
7

9
10 or
ut ess
more
than
The amount of ta to bo wthhed sha be
20.00:...
2C Of
wa ca
0
0
0
0
0
to
so
0
0
o
22. 0
.00
. 0
0
0
0
0
0
0
0
0
0
2 .00
. 0
1.00
0
0
0
n
0
0
(1
0
0
27. 0
.00
1. 0
0
0
0
0
0
0
0
0
0
30.00
.60
2.00
0
0
0
)
0
0
0
0
0
32. 0
6.00
2. 0
0
0
0
0
0
0
0
0
0
3 .00
0.60
3.00
0
0
0
0
0
0
0
0
0
37. 0
7.00
3. 0
0
o
0
0
0
0
0
0
0
0.00
7. 0
.00
. 0
0
0
0
(I
0
0
0
0
2. 0
.00
. 0
1.00
0
0
0
0
0
0
0
0
.00
. 0
.00
1. 0
0
0
0
0
(1
0
0
0
7. 0
9.00
6. 0
2.00
0
0
0
0
0
0
0
0
0.00....
9.60
6.00
2.60
0
0
0
0
0
0
0
0
2. 0....
10.00
6. 0
3.00
0
0
0
0
0
0
0
0
.00....
10. 0
7.00
3. 0
0
0
0
0
0
0
0
0
7. 0....
11.00
7. 0
.00
.60
0
0
0
II
0
0
0
60.00....
11.60
.00
. 0
1.00
0
0
0
0
0
0
0
62. 0....
12.00
. 0
.00
1. 0
0
0
0
0
0
0
0
6 .00....
12. 0
9.00
.60
2.00
0
0
0
0
0
0
0
67. 0
13.00
9. 0
6.00
2. 0
0
0
0
0
0
0
0
70.00
13. 0
10.00
6. 0
3.00
0
0
0
0
0
0
0
72. 0
1 .00
10. 60
7.00
3. 0
0
0
0
0
0
0
0
7 .00
1 .60
11.00
7. 0
.00
0
0
0
0
0
0
0
77. 0
1 .00
11. 0
.00
. 0
.60
0
0
0
0
0
0
0.00
1 . 0
12.00
.60
.00
1.00
0
0
0
0
0
0
2. 0
16.00
12. 0
9.00
. 0
1.60
0
0
0
0
0
0
.00
16.60
13.00
9. 0
6.00
2.00
0
0
0
0
0
0
7. 0
17.00
13. 0
10.00
6.60
2. 0
0
0
II
0
0
0
60.00
17.60
1 .00
10. 0
7.00
3.00
0
0
0
0
0
0
92. 0
1 .00
1 . 0
11.00
7. 0
3. 0
0
0
0
0
0
0
9 .00
1 . 0
1 .00
11. 0
. 00
.00
. 0
0
0
0
0
0
97. 0
19.00
1 . 0
12.00
. 0
. 0
1.00
0
0
0
0
0
100.00...
19. 0
16.00
12. 0
9.00
6.00
1. 0
0
0
0
0
0
10 .00...
20. 0
17.00
13.00
9. 0
6.00
2.00
0
0
0
0
0
110.00...
21. 0
1 .00
1 .00
10. 0
7.00
3.00
0
0
0
0
0
116.00...
22. 0
19. no
1 .00
11. 0
S.C I
.00
. 0
0
0
0
0
120.00...
23. 0
20.00
16.00
12. 0
9.00
6.00
1.60
0
0
0
0
12 .00...
2 . 0
21.00
17.00
13. 0
10.00
6.00
2. 0
0
0
0
0
130.00...
2 . 0
22.00
1 .00
1 . 0
11.00
7.00
3. 0
0
0
0
0
13 .00...
26. 0
23.00
19.00
1 . 0
12.00
.00
. 0
1.00
0
0
0
1 0.00...
27. 0
2 .00
20.00
16. 0
13.00
. 00
. 0
2.00
0
0
0
1 .00...
2 . 0
2 .00
21.00
17. 0
1 .00
10.00
6. 0
3.00
0
0
0
1 0.00...
29. 0
26.00
22.00
1 .60
1 .00
11.00
7.60
.00
. 0
0
0
1 .00...
30. 0
27.00
23.00
19. 0
16.00
12.00
. 0
6.00
1. 0
0
0
160.00...
31. 0
2 .00
2 .00
20. 0
17. 10
13.00
9. 0
6.00
2. 0
0
0
16 .00...
32. 0
29.00
2 .00
21. 0
1 .00
1 .00
10.60
7.00
3. 0
0
0
170.00...
33. 0
30.00
26.00
22. 0
: . no
1 .00
11. 0
.00
. 0
. 0
0
17 .00...
3 . 0
31.00
27.00
23. 0
20.00
16.00
12. 0
9.00
. 0
1. 60
0
1 0.00...
3 . 0
32.00
2 .00
2 . 0
21.00
17.00
13. 0
10.00
6. 0
2. 0
0
1 .00...
36. 0
33.00
29.00
2 . 0
22.00
1 .00
1 . 0
11.00
7. 0
3. 0
0
190.00...
37. 0
3 .00
30.00
26. 0
23.00
19.00
1 . 0
12.00
. 0
.60
1.00
19 .00...
3 . 0
3 .00
31.00
27. 0
2 .00
20.00
16. SO
13.00
9. 0
.60
2.00
200.00...
39. 0
36.00
C2.O0
2 . 0
2 .00
21.00
17.60
1 .00
10. 0
6. 0
3.00
210.00...
1.00
37. 0
33.10
30.00
20. 60
22. 0
.. I )
1 . 0
12.00
.00
.60
220.00...
3.00
39. 0
36.60
32.00
2 . 0
2 . 0
21.00
17. 0
1 .00
10.00
6. 0
230.00...
.00
1.60
37. 0
3 .00
30. 0
20. 0
23.00
19.60
16.00
12.00
. 0
2 0.00...
7.00
3. 0
39.60
36.00
32. 0
2 .60
2 .00
21. 0
1 .00
1 .00
111. 0
2 0.00...
9.00
. 0
1. 0
3 .00
3 . 0
30. 0
27.00
23. 0
20.00
16.00
12. 0
260.00...
1.00
7.60
3. 0
0.00
36. SO
32. 0
20.00
2 . 0
22.00
1 .00
1 . 0
270.00...
3.00
9. 0
.60
2.00
3 . 0
3 . 0
31.00
27. 0
2 .00
20.00
16 0
2 0.00...
.00
1. 0
7. 0
.00
0.60
30. 0
33.00
29. 0
26.00
22,00
1 . 0
290.00...
7.00
3. 0
9.60
6.00
2. 0
3 .60
3 .00
31. 0
S I
2 .00
20. 9
300.00...
9.00
. 0
61. 0
.00
. 0
0. 0
37.00
33. 0
30.00
20.00
22. 0
t east
0
20.00
22. 0
2 .00
27. 0
30.00
32. 0
3 .00
37. 0
0.00
2. 0
.00
7. 0
0.00
62. 0
.00
7. 0
60.00
62. 0
6 .00
67. 0
70.00
72. 0
7 .00
77. 0
0.00
2. 0
.00
7. 0
90.00
92. 0
96.00
97. 0
100.00
10 .00
110.00
11 .00
120.00
12 .00
130.00
13 .00
1 0.00
1 .00
1 0.00
1 .00
160.00
16 .00
170.00
17 .00
SI 0.00
1 .00
190.00
19 .00
200.00
210.00
220.00
230.01 ....
2 0.00
2 0.00
260.00
270.00
2 0.00
290.00
300.00 and over..
20 percent of the e cess over 300 pus
60. 00 6. 0
2. 0 9.00 . 0 1. 0 3 .00 3 . 0 31.00 27.00
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 Regs. 116, 0 .201.
// the payro perod wth respect to an empoyee s a 2 -day perod
nd the wages are
nd the number of wthhodng e emptons camed s
t east
at ess
than
0
1
2
3

6
6
7

9
10 or
more
The amount of ta to be wthhed sha bo
to
6.00
30 Of
to
0
to
0
0
0
0
to
to
0
1 6.00
63.00
11.20
12.60
1 .00
1 . 0
16. 0
1 .20
19. CO
21.00
22. 0
23. 0
2 .20
26.60
2 .00
29. 0
30. 0
3120
33.60
3 .00
36. 0
37. 0
39.20
0.60
2.00
3. 0
. 0
6.20
7.60
9.00
0. 0
1. 0
3.20
.60
7. 0
60.20
63.00
6 . 0
6 .60
71. 0
7 .20
77.00
79. 0
2.60
. 0
.20
91.00
93. 0
96.60
99. 0
102.20
10 .00
107. 0
110.60
11 . 0
120. 0
126.00
131.60
137.20
1 2. 0
1 0
1 .00
1 9.60
16 .20
1. 0
2. 0
.20
.00
7.00
. 0
9. 0
11.20
12.60
1 .00
1 . 0
16. 0
1 .20
19.00
21.00
22. 0
23. 0
2 .20
26.60
2 .00
29. 0
30. 0
32.20
33.60
3 .00
36. 0
37. 0
39.20
0.60
2.00
3. 0
. 0
7.60
0. 0
3.20
6.00
. SO
61.60
6 . 0
67.20
70.00
72. 0
7 .60
7 . 0
1.20
.00
6. 0
9.60
92. 0
9 .20
9 .00
100. 0
10 .00
110.60
110.20
121. 0
127. 0
133.00
13 .60
1 .20
1 9. 0
1 . 0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
II
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
II
63.00
70.00
0
0
0
0
70.00
77.00
77.00
.00
.00
91.00
91.00
9 .00
II
9 .00
10 .00...
112.00...
119.00...
126.00...
133.00...
1 0.00...
1 7.00...
SM.no.__
161.00...
16 .00...
17 .00...
1 2.00...
1 9.00...
196.00...
203.00...
210.00...
217.00
22 .00...
0
0
0
0
0
0
10 .00
1. 0
112.00
2. 0
.20
6.60
7.00
. 0
9. 0
11.20
12.60
1 .00
1 . 0
16. 0
1 .20
19.60
21.00
22. 0
23. 0
2 .20
2 .60
2 .00
29. 0
30. 0
32.20
33.60
3 .00
36. 0
39.20
2.00
. 0
7.60
0. 0
3.20
6.00
6 . 0
61.60
6 . 0
67.20
70.00
72. 0
7 .60
7 . 0
1.20
.00
6. 0
9.60
93. 0
99. 0
10 .00
110.60
116.20
121. 0
127. 0
133.00
13 .60
1 .20
119.00
126.00
133.00
1 0.00
1 7.00
0
1 .00
1. 0
o
1)
0
1)
0
0
0
0
161.00
2. 0
.20
6.60
7.00
. 0
9. 0
11.20
12.60
1 .00
1 . 0
16. 0
1 .20
19.60
21.00
22. 0
23. 0
26.20
26.60
29. 0
32.20
3 .00
37. 0
0.60
3. 0
6.20
9.00
1. 0
.60
7. 0
60.20
63.00
6 . 0
6 .60
71. 0
7 .20
77.00
79. 0
.00
9.60
9 .20
100. 0
106. 0
112.00
117.60
123.20
12S. SO
13 . 0
16 .00
17 .00
1 2.00
1 9.00
196.00
203.00
o
210.00
1. 0
2. 0
.20
.60
7.00
. 0
9. 0
11.20
12.60
1 .00
16. 0
19.60
22. 0
2 .20
2 .00
30. 0
33.60
30. 0
39.20
2.00
. 0
7.60
0. 0
3.20
6.00
. 0
61.60
6 . 0
67.20
70.00
7 .20
79. 0
6. 0
91.00
10. 60
102. 20
107. 0
113. 0
119.00
12 .60
0
0
0
217.00
22 .00
231.00
231.00
23 .00...
2 .00...
2 2.00...
2 9.00...
260.00...
273.00...
2 0.00...
ISM|OO...
0
0
23 .00
2 .00
II
2 2.00
0
0
0
0
2 9.00
1. 0
2. 0
.20
.60
. 0
11.20
1 .00
16. 0
19.60
22. 0
2 .20
2 .00
30. 0
33.60
36. 0
30.20
2.00
. 0
7.60
0. 0
3.20
6.00
. 0
63.00
6 .60
7 .20
79. 0
. 0
91.00
1 6. CO
102.20
107. 0
113. 0

266.00
273.00
0
0
0
0
0
0
0
0
0
0
2 0.00
0
0
29 .00
.0S. O___
30 .00
322.00
1. 0
.20
7.00
9. 0
12.60
1 . 0
1 .20
21.00
23. 0
26.60
29. 0
32.20
36.00
37. 0
0.60
3. 0
6.20
9.00
3.20
6 . 0
6 . 0
70.00
7 .60
1.20
6. 0
92. 0
9 .00
103.60
11
II
322.00
336.00...
3 0.00...
36 .00...
37 .00...
392.00...
06.00...
20.00...
3 .00...
.00...
62.00...
.336.00
3 0.00
36 .00
a
0
0
0
0
06.00
2. 0
.60
. 0
11.20
1 .00
16. 0
19.60
22. 0
2 .20
2 .00
30. 0
33.00
36. 0
30.20
3. 0
9.00
.60
60.20
6 . 0
71. 0
77.00
2.60
.20
3. 0
1. 0
.20
7.00
9. 0
12.60
1 . 0
1 .20
21.00
23. 0
26.60
29. 0
33.60
39.20
. 0
0. 0
6. 00
61.60
67.20
72. 0
7 . 0
.00
0
0
0
0
0
0
0
0
II
II
20.00
0
0
0
0
0
0
0
3 .00
.00
62.00
76.00
1. 0
.20
7.00
9. 0
12.60
1 . 0
1 .20
22. 0
2 .00
33.60
39.20
. 0
0. 0
6.00
61.60
67.20
72. 0
76.00
90.00...
90.00.
0 .00
0 .00
1 .00...
1 .00
32.00
2. 0
.60
. 0
12.60
1 .20
23. 0
29. 0
3 .00
0. 60
6.20
1. 0
67. 0
63.00
32.00
6.00...
60.00...
.00...
6.00. _.
60.00.
610.00
616.00...
6 .00...
672.00...
700.00...
72 .00...
6 .00
672.00
700.00
72 .00
7.v..n
7 6.00
S7 .I I...
7 .00
12.00
12.00.
0.00
20 percent of the e cess over 0 pus
0.00 and over
16 .00
1 .20
1 7.00
137. 20 127. 0
1
116.20
106. 0
96.60
6. 0
7 .60
6 . 0
010 2 13
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, 0 . 01.
1 6
Secton 1627: Other aws appcabe.
Reguatons 116, Secton 0 .603: Use of pre-
scrbed forms.
Permssbe varatons and rues for prvate prntng of Form 9 1a.
(See Mm. 66 6, page 173.)
C PT R 9, SU C PT R . G N R L PRO ISIONS FOR
MPLOYM NT T S
Secton 1633: Recepts for empoyees. 19 1-19-13663
Reguatons 116, Secton 0 . 01: Recepts for Crcuar 22 9
ta wthhed at source on wages.
Form W-2 (Revsed uy 19 1), Wthhodng Statements for
19 1. Rues for reproducton.
Crcuar 2199 (C. . 19 0-2, 119) revoked.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, ugust 21, 19 1.
Coectors of Interna Revenue and Others Concerned:
1. Form W-2 for 19 1 has been revsed for the purpose of smpfy-
ng ts preparaton by empoyers. The revsed form, whch s desg-
nated Form W-2 (Revsed uy 19 1), has the effect of reducng the
number of entres empoyers are requred to make. No entry of wages
ta abe under the Federa Insurance Contrbutons ct s requred to
be made f such wages are the same as the wages shown for ncome ta
purposes. In addton, ths snge wage entry w suffce f the FIC
wages are 3,600 and the wages for ncome ta purposes are more than
3,600. To factate producton, the sze of the revsed form has been
reduced to the dmensons ndcated n paragraph 3(e) of ths
crcuar.
2. Forms W-2 for 19 1 prevousy approved by the ureau n ac-
cordance wth Crcuar 2199 (C. . 19 0-2, 119), dated September
29, 19 0, w be accepted unt e stng suppes thereof have been
e hausted. It w be necessary, however, for empoyers usng such
forms ether to make a separate entry for FIC wages or, f t s
omtted n accordance wth revsed nstructons, to advse the em-
poyee why ony one wage fgure appears on the form. If the FIC
wage entry s omtted, the foowng statement must be entered by
rubber stamp or otherwse, on the empoyee copy of the form (wth-
out obscurng other entres) :
If your wages were sub|ect to FIC ta es, but are not shown, your FIC
wages are the same as wages shown under Informaton for Income Ta Re-
turn, but not more than 3,600.
3. Form W-2 (Revsed uy 19 1) may be reproduced, but ts re-
producton must have offca approva. Requests for such approva
must be addressed to the Commssoner of Interna Revenue, tten-
ton : C: Co: O, Washngton 2 , D. C, and must ncude the pro-
posed form of the reproducton and sampe of the paper to be used.
The foowng specfcatons must be met:
a) Coor and quaty of paper: The forms must be prnted on
wThte paper of substantay the same weght and te ture, and of
quaty as good as that used by the Government. The use of wa -
coated paper w not be permtted.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1 7
Regs. 116, 10 . 01.
(S) Typography: The reproducton must be prnted n back nk
usng type not smaer than the correspondng type on the offca
form, and, as neary as possbe, of the same font. mted re-
arrangement of the face of the form w be permtted, but the space
for the name of the empoyee must be above that used for the name
of the empoyer.
(c) Data to be shown on Form W-2: Reproduced Forms W-2 (Re-
vsed uy 19 1) must be desgned so as to provde for entry by
empoyers of the same data as to wages pad and ta es wthhed as
requred by the offca form. Permsson w not be granted for re-
productons whch woud permt empoyers to show, on the orgna
and trpcate copes, any payro deductons other than those ndcated
heren. There s no ob|ecton to the attachment of a stub, or e ten-
son, to the dupcate porton of the form ony, to provde addtona
nformaton not authorzed for reproducton on the form tsef.
(d) ddtona copes smar to Form W-2b (Revsed uy 19 1)
may be reproduced for the use of empoyers. It w be permssbe
to prepare forms as carbon mpressons of Form W-2, for use n con-
necton wth ta es other than Federa ncome ta and ta es due under
the Federa Insurance Contrbutons ct, provded such forms bear
no menton of the Interna Revenue Servce or the Unted States
Treasury Department. These forms or addtona copes must not
be paced ahead of Form W-2a n the assemby. Forms for devery
to State or oca ta ng authortes shoud be ceary abeed to nd-
cate the purpose for whch they are ntended and shoud not bear any
part of the desgnaton Form W-2.
(e) Dmensons: The offca sze of the form s 7 nches wde by
3 nches n depth but the depth may vary from 3 to 3 nches
and wdth from 7 nches to nches.
(/) Carbonsed forms or spot carbons are not permssbe. Inter-
eaved carbon, f used, must be of good quaty to precude smudgng.
(g) The Government Prntng Offce symbo must be omtted from
reproduced forms.
( ) uthorzed reproducton: n approved form must bear the
notaton pp. . I. R. and the date of ts approva n sma type on
the bottom margn, eft-hand sde of the face of both the orgna and
the coector s copy, Form W-2a.
. facsme of Form W-2 (Revsed uy 19 1) .or 19 1, s at-
tached for your nformaton and the nformaton of those who wsh
to reproduce the form. Ths facsme shoud be made avaabe to any
empoyers or prnters n your dstrct who wsh to reproduce the form.
The form w be prnted on whte paper of 16-pound commerca
weght, and w otherwse be arranged and foded smar to the
earer forms. The pages of the form are reproduced n the attached
facsme n the foowng order: front page, orgna copy; back page,
orgna copy; front page, empoyee s copy; front page, coector s
copy; back page, coector s copy; and front page, empoyer s copy.
. Crcuar 2199 (C. . 19 0-2, 119), dated September 29, 19 0,
s hereby revoked.
6. Correspondence reatve to the contents of tns crcuar shoud
refer to ts number and to the symbos C: Co.
ohn . Dt|nap,
Commssoner.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
So
a
9
Form W-2
(tn. uy 1031)
w WIT OLDING ST T M NT-19S1 ORICIN L
mtrn ,v n.. s.ryc. Wages Pad and Income and F. I. C. . Ta es Wthhed Do Not Lose Ths Statement g
MPLOY TO W OM P ID (Prnt nam., fu addng, and Soca Securty account numbw)
F D R L INSUR NC CONTRI UTIONS CT
TotaF.I.C. . wages (before pay-
ro deductons) pad n 19 1
.
F.I.C. . empoyee ta wth-
hed, f any
,
MPLOY R Y W OM P ID (Nam., odd , and
number)
INFORM TION FOR INCOM T R TURN
Tota wages (before payro de-
ductons) pad n 19 1

Federa ncome ta wth-

hed, f any
..-.
dentfcaton
NOTIC TO MPLOY : Th. statement U
mportant. It must be attached to your U. S. ncome
ta return for 19 1. S OT R SID .
If your wages were sub|ect to F.I.C. . ta es, but are not
shown, your F.I.C. . wages are the same as wages shown
under INFORM TION FOR INCOM T R TURN,
but not more than 3,600.
00
oc
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
INSTRUCTIONS FOR FILING . S. INCOM T R TURN
Who Mutt Fe. If you ncome n 19 1 was 600 or more,
you must fe an ncome td return ether on mpoyee s Optona
Income Ta Return (Form 10 0 ) or on Form 10 0. . Copes of
these forms may be obtaned from the Coector of Interna
Revenue, your empoyer, bank, or post offce.
snge person wth ess than 600 ncome shoud fe a
return to get a refund f ta was wthhed. marred person
wth ncome ess than her (or hs) own persona e empton(s)
shoud aways fe a |ont return wth husband or wfe to get the
smaer ta or arger refund for the coupe.
Fng on Form 10 0 . If your tota ncome was ess than
,000 and conssted entrey of wages sub|ect to ncome ta
wthhodng and reported on Wthhodng Statements (Forms
W-2), or of such wages and not more than 100 tota of other
wages, dvdends, and nterest, you may use mpoyee s Op-
tona Income Ta Return (Form 10 0 ). Th.e Coector w
compute the ta and send you ether a check for any refund
due you or a b for any amount you owe. e w determne
your ta from the tabe provded by aw whch aows about 10
percent of your tota ncome for chartabe contrbutons, nterest,
ta es, casuaty osses, medca e penses, and msceaneous tems.
I Fng on Form 10 0. If your ncome does not meet the tests
gven n the precedng paragraph, or you had ncome from any
other source, such as rents, annutes, etc., you must use Form
10 0 and compute your own ta . so, t w generay be to
your advantage to fe Form 10 0 f your deductons amount to
more than 10 percent of your ncome, or f you cam traveng
or rembursed e penses.
ont Returns of Marred Coupet. usband and wfe
may use Form 10 0 f ther combned ncome was ess than
,000 and conssted entrey of wages sub|ect to ncome ta
wthhodng and reported on Wthhodng Statements (Forms
W-2), or of such wages and not more than 100 tota of other
wages, dvdends, and nterest.
To assure any benefts of the spt-ncome provsons, a mar-
red coupe shoud fe a |ont ncome ta return. |ont return
on Form 10 0 never resuts n more ta than separate returns
because the ta s computed by the Coector on the combned
ncomes or on the separate ncomes, whchever resuts n the
smaer ta or arger refund for the coupe.
mpoyee avng Two mpoyers Durng Year. If
an aggregate of more than of F. I. C. . empoyee ta
was wthhed durng 19 1 because you worked for two or more
empoyers, cam the e cess over as Federa ncome ta
wthhed on your return for 19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, 0 . 01.
190
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
TO MPLOY R:
1. Prepare ths form n trpcate or each empoyee (a) from
whom ncome ta has been wthhed durng the year or (b)
whose wages, for purposes of ncome ta wthhodng, e -
ceeded the amount of one wthhodng e empton for any
payro perod (even though no ncome ta was wthhed).
2. F n:
(a) the empoyee s name, address, and Soca Securty
account number;
(b) tota F. I. C. . wages pad before any payro deductons.
If not sub|ect to F.I. C. ., enter None. No F. I. C. .
wage entry need be made f (1) F. I. C. . wages e acty
equa the tota wages for ncome ta wthhodng
purposes, or (2) F. I. C. . wages are 3,600 and the
tota wages for ncome ta wthhodng purposes e ceed
3,600;
(c) tota amount of F.I.C. .empoyeea deductedandwth-
hed, f any (but f there was an ad|ustment In 19 1 to
correct the ta for a pror year, enter the amount wth-
hed n 19 1 ncreased by the ad|ustment for an over-
coecton or decreased by the ad|ustment for an under
coecton);
(d) tota wages, for purposes of ncome ta wthhodng, pad
before any payro deductons;
(e) the amount of ncome ta deducted and wthhed, f any;
and
(f) your name, address, and dentfcaton number.
3. Gve orgna and mpoyee s Copy to empoyee.
. Forward ths trpcate copy and a other trpcate copes,
together wth your yeary Reconcaton Statement, FormW-3,
to your Coector of Interna Revenue wth your mpoyer s
uartery Federa Ta Return (Form 9 1) for the fourth
quarter of the caendar year (or wth your fna return).
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Form W-2o
- (R r. uy
. S. Treasury Department
IntemsIRevenue Servce
WIT OLDING ST T M NT 19 1
Wage Pad and Income and F. I. C. . Ta Wthhed
MPLOY TO W OM P ID (Prnt nam , fu addr Mf and Soca Securty oooonn numb )
F D R L INSUR NC CONTRI UTIONS CT
Tota F.I.C. . wages (beforepay-
ro deductons) pad n 19 1
F.I.C. . empoyee ta
hed, f any
L ,
wth-
MPLOY R T W OM P ID (Name, addon,
INFORM TION FOR INCOM T R R TURN
Tota wages (before payro de- Federa ncome ta wth
ductons) pad n 19 1 hed, f any
. : : :...
and dentfcaton
TO MPLOY R:
See nstructons on other sde
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, 0 . 01.
19
Secton 1633: Recepts for empoyees. 19 1-23-13697
Reguatons 116, Secton 0 . 01: Recepts for Crcuar 2299
ta wthhed at source on wages.
Use and reproducton by Federa, State, and Loca Governments
of Form W-2 (Revsed uy 19 1), wthhodng statements for 19 1.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, October 1,19 1.
Coectors of Interna Revenue and Others Concerned:
1. Genera.
Crcuar 22 9 (page 1 6, ths uetn), dated ugust 21,19 1, sets
forth the basc rues and specfcatons for reproducton by empoyers
of Form W-2 (Revsed uy 19 1). facsme of the revsed form
s attached to that crcuar. Certan modfcatons of the form w
be permssbe for Federa, State, and oca governmenta empoyers,
as stated beow n ths crcuar, provded offca approva s obtaned
n the manner provded n Crcuar 22 9. s stated n paragraph 2
of Crcuar 22 9, Forms W-2 for 19 1 prevousy approved by the
ureau n accordance wth Crcuar 2199 (C. . 19 0-2, 119), dated
September 29, 19 0, w be accepted unt e stng suppes thereof
have been e hausted.
2. Form W-2 Revsed uy 19 1) for State and Other Govern-
menta mpoyees Covered by State greement Under Secton 21
of the Soca Securty ct.
a. Certan empoyees of State and oca governments (other than
those performng covered transportaton servce wthn the mean-
ng of secton 1 26(k) of the Interna Revenue Code) have od-age
and survvors nsurance (O. . S. I.) coverage by reason of the State
havng entered nto an agreement therefor wth the Federa Securty
dmnstrator under secton 21 of the Soca Securty ct, added by
secton 106 of the Soca Securty ct mendments of 19 0. The
remuneraton of such empoyees does not consttute wages under the
Federa Insurance Contrbutons ct (F. I. C. .), nor s such re-
muneraton sub|ect to F. I. C. . empoyer ta or empoyee ta . ow-
ever, amounts equvaent to such ta es are requred to be pad under
secton 21 of the Soca Securty ct, whch s admnstered by the
Federa Securty gency and such gency w ssue reguatons
reatng thereto.
b. If the offca Form W-2 for 19 1 s used to show Federa ncome
ta wthhodng nformaton n the case of an empoyee wth wages
and empoyee contrbutons under a State-Federa agreement pur-
suant to secton 21 of the Soca Securty ct, no ob|ecton w be
nterposed by the ureau of Interna Revenue to the empoyer enter-
ng the amount of such wages and contrbutons n the spaces provded
for F. I. C. . wages and F. I. C. . empoyee ta . It shoud De borne
n mnd, however, that ths practce mght not be desrabe n those
States that permt an empoyee to deduct on hs State ncome ta re-
turn the amount the empoyee has pad for F. I. C. . ta uness a
ke deducton s to be permtted for O. . S. I. contrbutons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
19
Regs. 116, 0 . 01.
e. Certan empoyers, wth empoyees covered for O. . S. I. pur-
poses by agreement under secton 21 of the Soca Securty ct, may
desre to reproduce Forms W-2 and W-2a to show not ony the re-
qured Federa ncome ta wthhodng nformaton, but aso nfor-
maton concernng empoyee contrbutons wthhed, and wages pad,
wthn the meanng of a State-Federa agreement under secton 21 .
The empoyer may, sub|ect to obtanng approva as provded n
Crcuar 22 9, reproduce for use n such cases Forms W-2 and W-2a,
but wth the foowng addtona changes:
(1) There sha be deeted from the second ne of the headng
at the top of the face of the orgna and each copy of Form W-2
the phrase and F. I. C. . Ta es , and there sha be substtuted
therefor Ta and O. . S. I. Contrbutons.
(2) There sha be deeted from the face of the orgna of
Form W-2, and from the face of each copy, the foowng:
F D R L INSUR NC CONTRI UTIONS CT
Tota F. I. C. . wages (before I F. I. C. . empoyee ta wthhed,
payro deductons) pad n f any
10 1 I
(3) There sha be substtuted for the matera deeted as pro-
vded n (2) above, the foowng:
OLD- G ND SUR I ORS INSUR NC
UND R ST T -F D R L GR M NT
Tota O. . S. I. wages (before I O. . S. I. empoyee contrbuton
payro deductons) pad n wthhed, f any
19 1 I
( ) In the footnote foowng the astersk n the ower rght-
hand porton of the face of the orgna and empoyee s copy of
Form W-2 and of the copy desgnated Form W-2b
(a) There sha be substtuted O. . S. I. for F. I. C. .
where appearng n two paces n the footnote, and
(b) There sha be substtuted contrbutons for ta es
n the frst ne of the footnote.
( ) On the back of the orgna of Form W-2, the ast sentence,
appearng n the ower rght-hand porton, sha be changed t
read as foows:
If an aggregate of more than of O. . S. I. empoyee contrbutons
or F. I. C. . empoyee ta , or both, was wthhed durng 19 1 because you
worked for two or more empoyers, cam the e cess over as Federa
Income ta wthhed on your return for 19 1.
(6) The sze of the Forms W-2 and W-2a may be ncreased
to accommodate the foregong changes wthn the dmensona
mtatons provded n paragraph 3(e) of Crcuar 22 9.
d. The nstructons to empoyers on the back of the coector s copy,
Form W-2a, are to be observed where appcabe but may be omtted
on the reproduced form. If not omtted, O. . S. I. sha be sub-
sttuted for F. I. C. . where appearng and the term ta sha
be deeted after the word empoyee n subparagraph (c) of para-
graph 2 and the term contrbuton nserted n ts pace.
3. Form W-2 Revsed uy 10 1) for Governmenta mpoyees
Whose Wages re Not Sub|ect to F. I. C. . Ta es.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, 0 . 01.
19G
a. In many cases Federa, State, and oca governmenta empoyees
are not covered under the soca securty program and the ta es under
the Federa Insurance Contrbutons ct (F. I. C. .) do not appy
to ther wages. The empoyer may, sub|ect to obtanng approva
as provded n Crcuar 22 9, reproduce for use n such cases Form
W-2 (Revsed uy 19 1) wth a references to the Federa Insur-
ance Contrbutons ct and F. I. C. . wages and F. I. C. . ta es
deeted from the face of the orgna and copes of the form. If the
empoyer chooses to deete such references, addtona changes shoud
be made as foows:
(1) The second ne of the headng of the form shoud be
changed to read: Wages Pad and Income Ta Wthhed ;
(2) The entre footnote appearng n the ower rght-hand
corner, reatng to F. I. C. . wages, shoud be deeted;
(3) The capton Federa Insurance Contrbutons ct and
the two F. I. C. . entres beow such capton shoud be deeted;
( ) Informaton for Income Ta Return must reman n
the same reatve poston on the reproduced form as on the
offca form; and
( ) The ast nstructon on the back of the orgna Form
W-2, entted mpoyee avng Two mpoyers Durng Year,
shoud be deeted.
b. The nstructons to empoyers on the back of the coector s copy,
Form W-2a, are to be observed where appcabe but may be omtted
on the reproduced form. If not omtted, subparagraphs (b) and
(c) of paragraph 2 sha be deeted and subparagraphs (d), (e), and
(f) sha be appropratey redesgnated as (b), (c), and ( 3).
. Correspondence reatve to the contents of ths crcuar shoud
refer to ts number and to the symbos C: Co.
ohn . Dunaf,
Commssoner.
Secton 1633: Recepts for empoyees. 19 1-2 -13719
Reguatons 116, Secton 0 . 01: Recepts for Crcuar 231
ta wthhed at source on wages.
Form W-2, Wthhodng Statements for 19 2. Rues for reproducton
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C, October SO, 19 1.
Coectors of Interna Revenue and Others Concerned:
1. Form W-2 for 19 2 has been approved. It may be reproduced,
but ts reproducton must have offca approva. Requests for such
approva must be addressed to the Commssoner of Interna Revenue,
attenton: C: Co: O, Washngton 2 , D. C, and must ncude the
proposed form of the reproducton and a sampe of the paper to be
used. The foowng specfcatons must be met:
(a) Coor and quaty of paper: The forms are requred to be
prnted n brown nk on whte paper of substantay the same weght
and te ture, and of quaty as good as that used by the Government.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
197
Regs. 116, 0 . 01.
owever, n the event a suppy of buff paper has been purchased by a
reproducer n antcpaton of hs requrements, such suppy may be
used n reproducng the 19 2 Form W-2 f prnted n back nk.
(6) Typography. The reproducton must be prnted n type not
smaer than the correspondng type on the offca form, and, as neary
as possbe, of the same font. mted rearrangement of the face of
the form w be permtted, but the space for the name and address
of the empoyee must be above that used for the name and address of
the empoyer.
(c) Data to be shown on Form W-2: Reproduced Forms W-2 must
be desgned so as to provde for entry by empoyers of the same data
as to wages pad and ta es wthhed as requred by the offca form.
Permsson w not be granted for reproductons whch woud permt
empoyers to show on the orgna and trpcate copes any payro
deductons other than those ndcated heren. There s no ob|ecton
to the attachment of a stub, or e tenson to the dupcate porton of
the form ony, to provde addtona nformaton not authorzed for
reproducton on the form tsef.
(d) ddtona copes smar to Form -2b may be reproduced
for the use of empoyers. It w be permssbe to prepare forms as
carbon mpressons of Form W-2, for use n connecton wth ta es
other than Federa Income Ta and ta due under the Federa Insur-
ance Contrbutons ct, provded such forms bear no menton of the
Interna Revenue Servce or the Unted States Treasury Department.
These forms or addtona copes must not be paced ahead of Form
-2a n the assemby, e cept that, n cases where a State w accept
a copy of the Form W-2 n eu of ts own nformaton return, the
State copy may be paced n the second poston n the assemby so as
to provde a egbe copy for the State. Forms for devery to State
or oca ta ng authortes shoud be ceary abeed to ndcate the
purpose for whch they are ntended and shoud not bear any part of
the desgnaton Form W-2.
(e) Dmensons: The sze of the offca form s 7 nches wde by
yG nches n depth but the depth may vary from 3 to 3 nches and
wdth from 7 nches to nches.
(/) Carbonzed forms or spot carbons are not permssbe. Inter-
eaved carbon, f used, must be of good quaty to precude smudgng.
(g) The Government Prntng Offce symbo must be omtted from
reproduced forms.
( ) uthorzed reproducton: n approved form must bear the
notaton pp. . I. R. and the date of ts approva n sma type on
the bottom margn, eft-hand sde of the face of both the orgna and
the coector s copy, Form W-2a.
2. No entry of wages sub|ect to ta under the Federa Insurance
Contrbutons ct s requred to be made f such wages are the same
as the wages shown under Informaton for Income Ta Return.
In addton, ths snge wage entry w suffce f the FIC wages are
3,600 and the wages for ncome ta purposes are more than 3,600.
In any event, the amount of FIC empoyee ta wthhed must ba
entered.
3. facsme of Form W-2 for 19 2 s attached for your nforma-
ton and the nformaton of those who wsh to reproduce the form.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, S 0 . 01.
19
Ths facsme shoud be made avaabe to any empoyers or prnters
n your dstrct who wsh to reproduce the form. The form w be
prnted n brown nk on whte paper of 16-pound commerca weght,
and w otherwse be arranged and foded smar to the earer forms.
The pages of the form are reproduced n the attached facsme n
the foowng order: front page, orgna copy; back page, orgna
copy; front page, empoyee s copy; front page, coector s copy; back
page, coector s copy; and front page, empoyer s copy.
. Correspondence reatve to the contents of ths crcuar shoud
refer to ts number and to the symbos C: Co.
ustn F. Wnke,
ssstant Commssoner.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Fo n W-2 WIT OLDING ST T M NT 19 2 O I0IN 1
uZ ZT 1 Wages Pad and Income and F. 1. C. . To e Wthhed Do Not Lose Ths Statement
MPLOY TO W OM P ID (Prnt nam , h addrew. and Soca Securty account number)
F D R L INSUR NC CONTRI UTIONS CT
Tota F.I.C. . wages (before pay-
ro deductons) pad n 19 2
F.I.C. . empoyee ta wth-
hed, f any

MPLOY R Y W OM P ID (Name, addrew. and dentfcaton

number)
INFORM TION FOR INCOM T R TURN
Tota wages (before payro de-
ductons) pad n 19 2

Federa ncome ta wth-

hed, f any

NOTIC TO MPLOY : Ths statement s

mportant. It must be attached to your U. S. ncome
ta return for 19 2. S OT R SID .
If your wages were sub|ect to F.I.C. . ta es, but are not
shown, your F.I.C. . wages are the same as wa
under INFORM TION FOR INCOM T
but not more than 3,600.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 116, 0 . 01. 202
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
TO MPLOY R:
1. Prepare ths form n trpcate for each empoyee (a) from
whom ncome ta has been wthhed durng the year or (b)
whose wages, for purposes of ncome ta wthhodng, e -
ceeded the amount of one wthhodng e empton for any
payro perod (even though no ncome ta was wthhed).
2. F n:
(a) the empoyee s name, address, and Soca Securty
account number;
(b) tota F. I. C. . wages pad before any payro deductons.
If not sub|ect to F.I. C. ., enter None. No F. I. C. .
wage entry need be made f (1) F. I. C. . wages e acty
equa the tota wages for ncome ta wthhodng
purposes, or (2) F. I. C. . wages are 3,600 and the
tota wages for ncome ta wthhodng purposes e ceed
3,600;
(c) tota amount of F. L C. . empoyee ta deducted and wth-
hed, f any (but f there was an ad|ustment n 19 2 to
correct the ta for a pror year, enter the amount wth
hed n 19 2 ncreased by the ad|ustment for an over-
coecton or decreased by the ad|ustment for an under
coecton);
(d) tota wages, for purposes of ncome ta wthhodng, pad
before any payro deductons;
(e) the amount of ncome ta deducted and wthhed, f any;
and
(0 your name, address, and dentfcaton number.
3. Gve orgna and mpoyee s Copy to empoyee.
. Forward ths trpcate copy and a other trpcate copes,
together wth your yeary Reconcaton Statement, Form W-3,
to your Coector of Interna Revenue wth your mpoyer s
uartery Federa Ta Return (Form 9 1) for the fourth
quarter of the caendar year (or wth your fna return).
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
f
o
(6,
O
C t
Cn
o
F rm W-2b
C . Treasury Department
Interna Reyenue Servce
WIT OLDING ST T M NT 19 2
Wages Pad and Income and T. I. C. . Ta es Wthhed
MPLOY TO W OM P ID (Prnt nam , h addM , and Soca Securty account number)
F D R L INSUR NC CONTRI UTIONS CT
TotaF.I.C. . wages (beforepay-
ro deductons) pad n 19 2

F.I.C. . empoyee ta wth-

hed, any

INFORM TION FOR INCOM T R TURN

Tota wages (before payro de-
ductons) pad n 19 2

Federa ncome ta wth-

hed, f any

MPLOY R Y W OM P ID (Nam , addree. and dentfcaton

mmm Dumber)
If your wages were sub|ect to F. I. C. . ta es, but are not
shown, your F. I. C. . wages are the same as wages shown
under INFORM TION FOR INCOM T R TURN,
but not more than 3,600.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
CIS T RULINGS
INT RN L R NU COD
M NUF CTUR RS CIS T S
Reguatons 6 (19 0), Sectons 316.0, tc. 19 1-20-13672
T. D.
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, T RT 316.
CIS T ON S L S Y T M NUF CTUR R
Ta on teevson recevng sets, quck-freeze unts and components
therefor; credt or refund of ta pad on certan suppes for certan
arcraft.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton , D. C.
To Coectors of Interna Revenue and Others Concerned:
On May 19,19 1, notce of proposed rue makng regardng amend-
ments of Reguatons 6 26 CFR, part 316 to conform to the Rev-
enue ct of 19 0 (Pubc Law 1 , 1st Cong. 2d sess.), approved
September 23, 19 0 was pubshed n the Federa Regster 16 F. R.
720 . fter consderaton of a such reevant matter as was pre-
sented by nterested persons regardng the rues proposed, the amend-
ments to Reguatons 6 set forth beow are hereby adopted.
Paragraph 1. Secton 316.0, as amended by Treasury Decson 099
C. . 19 1-2, 267 , approved November 2 ,19 1, s further amended
)y strkng out (a) (3) and ( ) and nsertng n eu thereof the
foowng:
(3) Rados, teevson sets, and components; phonographs, phonograph
records, and musca nstruments;
( ) Mechanca refrgerators, quck-freeze unts, and components, and
ar condtonng unts;
Par. 2. Secton 316.2, as amended by Treasury Decson 3 C. .
19 , 613 , approved March 1 , 19 26 CFR 316.2 , s further
amended by addng at the end thereof the foowng new paragraphs.
The amendment made by secton 609 of the Revenue ct of 19 0 whch
broadens the scope of secton 3 3(a) (3) ( ) () wth respect to credts and
refunds n the ca e of artces used or resod for use for any of the purposes
provded n secton 3 1, s effectve wth respect to artces purchased by the
user thereof on or after November 1, 19 0. (See secton 316.20 .)
The ta es mposed on teevson recevng sets and quck-freeze unts and
components therefor by sectons 3 0 and 3 0 , as amended by sectons 60
and 606 of the Revenue ct of 19 0, are effectve wth respect to saes by the
manufacturer on or after November 1, 19 0.
Par. 3. Secton 316.3, as amended by Treasury Decson 3 26
CFR 316.3 , s further amended by addng at the end thereof the
foowng new paragraph:
Manufacturers, producers, or Importers of teevson recevng sets and quck-
freeze unts and components therefor are requred to pay ta on a such
(20 )
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 6 (19 0), 316.0, etc.
206
artces sod nnd devered on and after November 1, 19 0. owever, If the
purchaser obtaned possesson or the rght to possesson of an e stng teevson
recever or quck-freeze unt pror to November 1, 19 0, no ta s due on the
sae of such teevson recever or quck-freeze unt.
Par. . Immedatey precedng secton 316.7 26 CF 316.7 , there
s nserted the foowng:
S C. 3. DMINISTR TI C NG S IN M NUF CTUR RS
CIS T TITL OF COD R NU CT OF 19 1, P-
PRO D S PT M R 20, 19 1 .

(d) Credts, and Ta Free Saes of utomobe Rados. Secton
3 (a) (1) and (2) of the Interna Revenue Code (reat-
ng to ta n case of sae of tres to manufacturers of automobes,
etc., and credt on sae) are amended by strkng out tres or nner
tubes wherever appearng theren and nsertng tres, nner tubes,
or automobe rados ta abe under secton 3 0 ; and by strkng out
tre or nner tube wherever appearng theren and nsertng tre,
nner tube, or automobe rado ta abe under secton 3 0 .

S C. 60 . T L ISION R C I ING S TS R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .

(c) Technca mendments.

(3) Secton and secton 3 (a) are amended by
strkng out automobe rado wherever appearng theren and
nsertng n eu thereof automobe rado or teevson recevng
set .
Par. . The frst two paragraphs of secton 316.7 26 CFR 31C.7
are amended to read as foows:
Sec. 316.7. Ta on Use by Manufactuher, Producer, or Importer. If a per-
son manufactures, produces, or mports an artce covered by these reguatons,
e cept a tre, nner tube, or automobe rado or teevson recevng set, and
uses t for any purpose (other than as matera n the manufacture or produc-
ton of, or as a component part of, another artce manufactured or produced
by hm whch w be ta abe or sod free of ta under the provsons of secton
3 16.21 or 316.22), he sha be abe for ta wth respect to the use of such
artce n the same manner as f t were sod by hm.
If a person manufactures, produces, or mports tres, Inner tubes, or automobe
rado or teevson recevng sets, and ses them on or n connecton wth, or
wth the sae of, artces ta abe under secton 3 03 (a) or.(b) of the Interna
Revenue Code, or f he uses them for any purpose whatever, he sha be abe
for ta n such cases as f such tres, nner tubes, or automobe rado or teevson
recevng sets were sod by tm as separate artces. The ta w be computed
at the rates prescrbed by secton 3 00 or secton 3 0 . (See sectons 316.30 to
316.32, Incusve, and secton 310. .)
Par. 6. Immedatey precedng secton 316.20 26 CFR 316.20 ,
there s nserted the foowng:
S C. 6 3. DMINISTR TI C NG S IN M NUF CTUR RS
CIS T TITL OF COD R NU CT OF 19 1,
PPRO D S PT M R 20, 19 1 .

(d) Credts, and Ta Free Saes of uto mobe Rados. Secton
3 2, of the Interna Revenue Code (reatng to ta In case
of sae of tres to manufacturers of automobes, etc., and credt on
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
207 Regs. 6 (19 0), 316.0, etc

sae) are amended by strkng out tres or Inner tubes wherever

appearng theren and Insertng tres, nner tubes, or automobe rados
ta abe under secton 3 0 ; and by strkng out tre or nner tube
wherever appearng theren and Insertng tre, Inner tube, or auto-
mobe rado ta abe under secton 3 0 .

S C. 60 . T L ISION R C I ING S TS R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .

(c) Technca mendments.

(2) The ast sentence of secton 3 2 s hereby amended by
strkng out automobe rados and nsertng n eu thereof
automobe rado or teevson recevng sets .

Par. 7. The frst sentence of secton 316.20 26 CFR 316.20 s
amended by strkng out the words tre or nner tube and nsertng
n eu thereof the words tre, nner tube, or automobe rado or tee-
vson recevng set .
Par. . Secton 316.21 26 CFR 316.21 s amended as foows:
( ) y strkng out n the frst paragraph (other than a tre or
nner tube) and nsertng n eu thereof:
(other than a tre, nner tube, or automobe rado or teevson recevng set).
( ) y strkng out n the thrd paragraph the words tres and
nner tubes and nsertng n eu thereof the words:
tres, Inner tubes, or automobe rado or teevson sets.
Par. 9. Immedatey precedng secton 316. 26 CFR 316. , .
S C. 60 . T L ISION R C I ING S TS R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .
(b) Credt foe Ta Pad on utomobe Teevson Recevng
Sets. Secton 3 03(e) s hereby amended to read as foows:
(e) If tres, nner tubes, or automobe rado or teevson recevng
sets on whch ta has been mposed under ths chapter are sod on or n
connecton wth, or wth the sae of, a chasss, body, or motorcyce, there
sha (under reguatons prescrbed by the Secretary) be credted aganst
the ta under ths secton an amount equa to, n the case of an artce
ta abe under subsecton (a), per centum, and n the case of an
artce ta abe under subsecton (b), 7 per centum
(1) of the purchase prce (ess, n the case of tres, the part of
such prce attrbutabe to the meta rm or rm base) f such tres
or nner tubes were ta abe under secton 3 00 (reatng to ta on
tres and nner tubes) or, n the case of automobe rado or tee-
vson recevng sets, f such sets were ta abe under secton 3 0 ;
or
(2) f such tres, Inner tubes, or automobe rado or teevson
recevng sets were ta abe under secton 3 (reatng to use by
manufacturer, producer, or mporter), then of the prce (ess, n
the case of tres, the part of such prce attrbutabe to the meta rm
or rm base) at whch such or smar tres, nner tubes, or sets are
sod, t the ordnary course of trade, by manufacturers, producers,
or mporters thereof, as determned by the Secretary.
Par. 10. Secton 316. , as amended by Treasury Decson 099
26 CFR 316. , s further amended as foows:

G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 0 (19 0), 310.0, etc. 20

( ) y strkng out the headng and nsertng n eu thereof:

Sec. 310. . Credt for Ta es on Tres, Inner Tubes, utomobe Rado or
Teevson Recevng Sets.
( ) y strkng out the words automobe rados wherever they
appear n the frst two paragraphs and nsertng n eu thereof the
words automobe rado or teevson recevng sets .
(C) y amendng the ast paragraph to read as foows:
Saes of artces ta abe under secton 3 03 (a) and (b) orgnay equpped
wth ta -pad tres, nner tubes, or automobe rado or teevson recevng sets
to an e empt governmenta agency for Its e cusve use are not propery to be
regarded as resaes of tres, nner tubes, or automobe rado or teevson re-
cevng sets, as such, so as to entte the manufacturer of such tres, nner tubes,
or automobe rado or teevson recevng sets to a credt or refund of the
amount of ta pad by hm thereon.
Par. 11. Immedatey precedng secton 31G. 26 CFR 316. ,
there s nserted the foowng:
S C. -COo. T L ISION R C I ING S TS R NU CT OF
1C 0, PPRO D S PT M R 23, 19 0 .

(c) Technca mendments.
(1/ The frst sentence of secton 3 03(c) s hereby amended by
strkng out rados and nsertng n eu thereof: rado and tee-
vson recevng sets .

Par. 12. Secton 316. , as amended by Treasury Decson 099
26 CFR 316. , s further amended by strkng out the words and
automobe rados n the frst paragraph thereof and nsertng the
words or automobe rado or teevson recevng sets .
Par. 13. Immedatey precedng secton 316.60 26 CFR 316.G0 ,
there s nserted the foowng:
S C. 00 . T L ISION R C I ING S TS R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .
(a) Imposton of Ta on Teevson Recevng Sets. So much of
secton 3 0 (manufacturers e cse ta on rado recevng sets) as
precedes subsecton (c) s hereby amended to read as foows:
S C. 3 0 . T ON R DIO R C I ING S TS. T L ISION R -
C I ING S TS, P ONOGR P S, P ONOGR P R CORDS,
ND MUSIC L INSTRUM NTS.
There sha be Imposed upon the foowng artces (ncudng n
each case, e cept n the case of musca nstruments, parts or accessores
therefor sod on or n connecton wth the sae thereof) sod by the
manufacturer, producer, or mporter a ta equvaent to 10 per centum
of the prce for whch sod :
(a) Rado recevng sets, automobe rado recevng sets, teevson
recevng sets, automobe teevson recevng sets, phonographs, and
combnatons of any of the foregong.
(b) Chasss, cabnets, tubes, speakers, ampfers, power suppy unts,
antennae of the but-n type, and phonograph mechansms, whch are
sutabe for use on or n connecton wth, or as component parts of,
any of the artces enumerated n subsecton (a), whether or not pr-
mary adapted for such use. . .
Par. 1 . Sectons 316.60 and 316.61, as amended by Treasury Dec-
son 099 26 CFR 316.60 and 316.61 , are further amended to read
as foows:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
209
(Regs. 0 (19 0), 316.0, etc.
S . 316.60. Scope, of Ta . The ta attaches to the sae by the manufacturer
of (a) rado recevng sets, automobe rado recevng sets, teevson recevng
ets, automobe teevson recevng sets, phonographs, and combnatons of any
of the foregong; (b) chasss, cabnets, tubes, speakers, ampers, power suppy
unts, antennae of the but-n type and phonograph mechansms, whch are
sutabe for use on or n connecton wth, or as component parts of, rado re-
cevng sets, automobe rado recevng sets, teevson recevng sets, automobe
teevson recevng sets, phonographs, or combnatons of any of the foregong,
regardess of whether such components are prmary adapted for such use; (c)
phonograph records; and (d) musca nstruments. Parts and accessores for
such artces (e cept musca nstruments) are sub|ect to the ta when sod on
or n connecton wth the sae thereof.
utomobe rado or teevson recevng sets may not be sod ta free to manu-
facturers of automobes under the provsons of ether secton 3 2 or secton
3 03(c), as amended.
utomatc devces for payng or repeatng records, phonograph pck-ups, and
smar devces are sub|ect to the ta f sod on or n connecton wth or wth
the sae of rado recevng sets, automobe rado recevng sets, teevson re-
cevng sets, automobe teevson recevng sets, phonographs, and combnatons
thereof.
Sec. 316.61. Rado, Teevson, Ponogbafh Components. The term chasss
ncudes rado or teevson recevng apparatus of a types.
The term cabnets ncudes contaners sutabe for housng rado recevng
sets, automobe rado recevng sets, teevson recevng sets, automobe tee-
vson recevng sets, phonographs, and combnatons of the foregong.
The term tubes ncudes vacuum tubes of a types sutabe for use n con-
necton wth or as a part of rado recevng sets, automobe rado recevng sets,
teevson recevng sets, automobe teevson recevng sets, or phonographs.
The term speakers ncudes a devces for use n convertng eectrca
Impuses to sound whether or not equpped wth coupng unts (but not ncud-
ng ear phones) whch are sutabe for use on or n connecton wth or as
a part of rado recevng sets, automobe rado recevng sets, teevson recev-
ng sets, automobe teevson recevng sets, phonographs, and any combna-
tons thereof.
The term ampfers ncudes a apparatus for the ampfcaton of audo
frequency mpuses whch are sutabe for use n connecton wth or as parts
of rado recevng sets, automobe rado recevng sets, teevson recevng
sets, automobe teevson recevng sets, or phonographs.
The term power suppy unts ncudes a devces whch are sutabe for
use on or n connecton wth or as part of rado recevng sets, automobe
rado recevng sets, teevson recevng sets, automobe teevson recevng
sets, phonographs, and combnatons of any of the foregong whch convert
eectrc current of ordnary commerca and domestc votages nto eectrc
current of votages sutabe for operatng such artces.
The term antennae of the but-n type ncudes a types of aeras of
the knd contaned n a rado recevng set, automobe rado recevng set,
teevson recevng set, automobe teevson recevng set, or combnaton
thereof.
The term phonograph mechansms ncudes devces whch are sutabe for
use n combnaton rado and phonograph sets, or phonographs for the purpose
of payng records.
The artces defned In ths secton are sub|ect to the ta regardess of
whether such artces are prmary adapted for use In connecton wth rado
recevng sets, automobe rado recevng sets, teevson recevng sets, auto-
mobe teevson recevng sets, phonographs, or combnatons of any of the
foregong.
Par. 1 . Immedatey precedng secton 316.70 26 CFR 316.70 ,
there s nserted the foowng:
S C. 606. IMPOSITION OF T ON UIC -FR Z UNITS
R NU CT OF 19 0, PPRO D S PT M R 23, 19 0 .
So much of secton 3 0 (manufacturers e cse ta on mechanca
refrgerators and ar-condtonng unts) as precedes subsecton (c)
Is hereby amended to read as foows:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 6 (19 0), 316.0, etc.
210
S C. 3 0 . T ON M C NIC L R FRIG R TORS, UIC -
FR Z UNITS, ND S LF-CONT IN D IR-CONDITION-
ING UNITS
There sha be Imposed on the foowng artces (ncudng In each
case parts or accessores therefor sod on or In connecton wth the
sae thereof) sod by the manufacturer, producer, or mporter a ta
equvaent to 10 per centum of the prce for whch so sod:
(a) Refrgerators and uck-Freeze Unts. ousehod type
refrgerators (for snge or mutpe cabnet nstaatons) havng, or
beng prmary desgned for use wth, a mechanca refrgeratng
unt operated by eectrcty, gas, kerosene, or gasone; househod type
unts for the quck freezng or frozen storage of foods, operated by
eectrcty, gas, kerosene, or gasone; combnatons of such househod
type refrgerators and unts.
(b) Refrgeratng and Freezng pparatus. Cabnets, com-
pressors, condensers, condensng unts, evaporators, e panson unts,
absorbers, and contros (herenafter referred to as refrgerator com-
ponents ) for, or sutabe for use as parts of or wth, househod type
refrgerators or quck-freeze unts of the knd descrbed n subsec-
ton (a), e cept when sod as component parts of compete refrgera-
tors, refrgeratng or coong apparatus, or quck-freeze unts. Under
reguatons prescrbed by the Secretary, the ta under ths subsecton
sha not appy n the case of saes of any such refrgerator components
by the manufacturer, producer, or mporter to a manufacturer or pro-
ducer of refrgerators, refrgeratng or coong apparatus, or quck-
freeze unts. If any such refrgerator components are resod by such
vendee otherwse than on or n connecton wth, or wth the sae
of, compete refrgerators, refrgeratng or coong apparatus, or quck-
freeze unts, manufactured or produced by such vendee, then for the
purposes of ths secton the vendee sha be consdered the manufac-
turer or producer of the refrgerator components so resod.
Par. 16. Secton 316.70, as amended by Treasury Decson 696
C. . 19 9-1, 2 , approved pr 7, 19 9 26 CFR 316.70 , s
further amended as foows:
( ) y strkng out the headng of paragraph (b) and nsertng
n eu thereof the foowng:
(6) For the perod November 1, 19 2, to October 31, 19 0.
( ) y addng a new paragraph (c) to read as foows:
(c) For the perod begnnng November 1, 19 0. Subsecton (a) of sec-
ton 3 0 , as amended by secton 606 of the Revenue ct of 19 0, mposes a ta
on the sae by the manufacturer of househod type refrgerators (for snge
or mutpe cabnet nstaatons) havng, or beng prmary desgned for use
wth, a mechanca refrgeratng unt operated by eectrcty, gas, kerosene, or
gasone, and of househod type unts for the quck freezng or frozen storage of
foods operated by eectrcty, gas, kerosene, or gasone, and combnatons of such
unts and househod type refrgerators, ncudng n each case parts or accessores
therefor sod on or n connecton wth the sae thereof.
The term househod type refrgerator ncudes refrgerators for snge or
mutpe cabnet nstaatons, whch (1) are desgned for domestc use, (2)
are arranged to provde refrgerated storage space for the preservaton of food
products or ow temperature space for makng ce cubes and frozen desserts, (3)
have a net storage space not e ceedng 1 cubc feet, and ( ) have, or are
prmary desgned for use wth, a mechanca refrgerator unt operated by
eectrcty, gas, kerosene, or gasone.
The term househod type unts for the quck freezng or frozen storage of
foods ncudes unts soey for the quck freezng of foods or soey for the
storage of frozen foods and combnaton freezer and storage unts for rura or
urban home use. Unts desgned and constructed soey for commerca, ndus-
tra, or scentfc purposes are not ta abe.
manufacturer of househod type refrgerators or househod type unts for
the quck freezng-or frozen storage of foods ta abe under secton 3 0 (a) or
other refrgerators or refrgeratng or coong apparatus may purchase ta
free for use as a component -n the manufacture of such artces any of the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
211
Regs. 6 (19 0), 316.0, eto.
refrgeratng and freezng apparatus specfed n secton 3 0 (b). (See sec-
ton 316.71.) owever, f any of the refrgeratng or freezng apparatus spec-
fed n secton 3 0 (b) s purchased ta pad and used as a component n the
manufacture of a househod type refrgerator or househod type unt for the
quck freezng or frozen storage of foods ta abe under secton 3 0 (a), as
amended, the manufacturer of such refrgerator or unt may be aowed a credt
to the e tent of the ta pad on the refrgeratng or freezng apparatus so used
as a component. (See secton 316.20 .)
The ta does not appy to refrgerator cabnets whch are prmary desgned
for use wthout a mechanca refrgeratng unt.
Combnatons of househod type unts for the quck freezng or frozen storage
of foods and househod type refrgerators are ta abe ony f the norma tem-
perature refrgerator porton has a net storage space not e ceedng 1 cubc
feet.
Pah. 17. Secton 316.71, as amended by Treasury Decson 1 9
C. . 19 2-2, 226 , approved November 30, 19 2 26 CFR 316.71 ,
s further amended as foows:
( ) y strkng out the headng for paragraph (6) and nsertng
n eu thereof the foowng:
(6) For the perod November 1,19 |2, to October St, 19 0, ncutve.
( ) y addng at the end thereof the foowng new paragraph:
(c) For the perod begnnng November 1, 19 0. Subsecton (b) of secton
3 0 , as amended by secton 606 of the Revenue ct of 19 0, mposes a ta on
saes by the manufacturer of cabnets, compressors, condensers, condensng unts,
evaporators, e panson unts, absorbers, and contros for, or sutabe for use
as parts of or wth, househod type refrgerators or quck-frepze unts of the
type descrbed n secton 3 0 (a) of the Interna Revenue Code, as amended
by secton 606 of the Revenue ct of 19 0, ncudng n each case parts or acces-
sores therefor sod on or n connecton wth the sae thereof. Saes of such
refrgeratng apparatus as component parts of compete refrgerators, househod
type unts for the quck freezng or frozen storage of foods, or refrgeratng
or coong apparatus are not sub|ect to ta .
Par. 1 . Secton 316.72, as amended by Treasury Decson 1 9, and
secton 316.73, as amended by Treasury Decson 099 26 CFR 316.72
and 316.73 , are renumbered sectons 316.73 and 316.7 , respectvey,
and a new secton 316.72 s nserted mmedatey foowng secton
316.71 to read as foows:
Sec. 316.72. ppcaton of Ta . Where a househod type refrgerator or
quck-freeze unt s sod, the ta s based upon the sae prce of the assemby,
whch ncudes a components, and a parts and accessores therefor, sod on
or n connecton wth, or wth the sae of, the refrgerator or quck-freeze unt.
If a manufacturer of househod type refrgerators or quck-freeze unts buys
refrgerator components upon whch ta has been pad he .may take credt
aganst the ta due on hs sae of competed househod type refrgerators or
quck-freeze unts to the e tent of any ta pad on refrgerator components
formng a part of such refrgerators. (See secton 316.20 .)
manufacturer of refrgerator components, as specfed n secton 3 0 (b)
of the Interna Revenue Code, may se such components ta free to a manufac-
turer of refrgerators, refrgeratng or coong apparatus, or quck-freeze unts,
wthout regard to whether such refrgerators, apparatus, or unts are ta abe. To
estabsh the rght to e empton from ta on such sae by the manufacturer
of the refrgerator component, t s necessary that he obtan from the pur-
chaser a propery e ecuted e empton certfcate substantay n the form
prescrbed n ths secton.
Ths e empton from ta does not appy n the case of a sae of refrgerator
components by the manufacturer thereof to a whoesaer, |obber, deaer, etc.,
where such whoesaer, |obber, deaer, etc., does not quafy as a manufac-
turer of refrgerators, refrgeratng or coong apparatus, or quck-freeze unts.
Under secton 3 0 (b) of the Code a manufacturer who purchases a refrger-
ator component ta free under an e empton certfcate Is consdered the
manufacturer of the component so purchased and s abe for the ta on the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 6 (19 0), 316.0, etc. 212
resae thereof uness (1) such component Is resod on or n connecton wth,
or wth the sae of a compete refrgerator, refrgeratng or coong apparatus,
or quck-freeze unt manufactured or produced by hm or (2) such resae s
otherwse e empt from ta , such as sae for e port, sae to other manufac-
turers of refrgeratng equpment, etc
Foowng s the form of e empton certfcate whch w be acceptabe for
purposes of ths secton and whch must be adhered to n substance:
MPTION C RTIFIC T
19
(Date)
(To support ta free saes under secton 310 (b) of the Interna Revenue Code,
as amended by secton 006 of the Revenue ct of 19 0.)
The undersgned hereby certfes that he s a manufacturer or producer of
refrgerators, refrgeratng and coong apparatus, or quck-freeze unts and
that the refrgerator components specfed n the accompanyng order No. ,
or purchased wthn the perod from to
(such perod sha not e ceed 6 months) are purchased ta free by vrtue
of the provsons of secton 3 0 (b) of the Interna Revenue Code.
It s understood that f any of the refrgerator components purchased under
ths certfcate are resod by the undersgned otherwse than on or n con-
necton wth or wth the sae of compete refrgerators, refrgeratng or coong
apparatus or quck-freeze unts manufactured or produced by hm, the under-
sgned s consdered the manufacturer or producer of the artces purchased
hereunder and uness such resae s otherwse e empt must pay the ta on hs
saes of such refrgerator components, as provded n secton 3 0 (b) of the
Interna Revenue Code. Thus, the undersgned s abe for ta o a
R S L S OF SUC R FRIG R TOR COMPON NTS FO R P IR OR R PL C M NT PURPOS S
ON ITn R OUS OLD OR COMM RCI L R FRIG R TION UIPM NT.
It s further understood that the frauduent use of ths certfcate to secure
e empton w sub|ect the undersgned and a guty partes to a fne of not
more than 10,000, or to mprsonment of not more than years or both,
together wth cost of prosecuton.
(Nnuc)
( ddress)
If t s mpractcabe to furnsh a separate e empton certfcate for each order,
a certfcate coverng a orders between gven dates (such perod not to e ceed
C months) w be acceptabe.
The certfcate, wth supportng orders, nvoces, etc., must be mantaned by
the manufacturer, producer, or mporter of the refrgerator components for a
perod of not ess than years from the date on whch the ta free sae s made.
Where the certfcate s not obtaned pror to the tme the manufacturer
thereof s requred to fe a return coverng ta es due for the month durng whch
the sae was made he shoud ncude the ta on such sae n hs return for that
month. owever, f the certfcate s ater obtaned a cam for refund of ta
pad may be fed on Form 3, or a credt taken upon a subsequent return, but
such acton must be taken wthn the -year psrod of mtaton prescrbed by
secton 3313 of the Code.
For provsons reatng to ta free saes for the further manufacture of ta -
abe artces see sectons 310.21 to 31G.23, ncusve.
Tar. 19. Immedatey precedng secton 31C.20 2G CFR 31G.20 ,
there s nserted the foowng:
S C. 60 . T L ISION R C I ING S TS R NU CT OF
19 0, PPRO D S PT M R 23, 19 0 .

(c) Technca mendments.

(3) Secton 3 3(a)(1) and secton are amended by
strkng out automobe rado wherever appearng theren and
nsertng n eu thereof automobe rado or teevson recevng
set .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
213
Regs. 6(19 0), 316.3.
S C. 609. RTICL S SOLD FOR US OF IRCR FT NG G D IN
FOR IGN TR D R NU CT OF 19 0, PPRO D S P-
T M R 23, 19 0 .
ffectve wth respect to artces purchased (by the user thereof) on
or after the frst day of the frst month whch begns more than ten days
after the date of the enactment of ths ct, secton 3 3(a) (3) ( ) ()
(reatng to refunds n the case of artces used or resod for use as
shps stores, etc.) s hereby amended to read as foows:
(U) used or resod for use for any of the purposes, but sub|ect
to the condtons, provded n secton 3 1; .
Par. 20. Secton 316.20 , as amended by Treasury Decson 697
C. . 19 9-1, 2 1 , approved pr 7, 19 9 26 CFR 316.20 , s
further amended as foows:
( ) y nsertng the words or teevson recevng set after the
word rado n the frst sentence of the frst paragraph.
( ) y strkng out the ne t to the ast paragraph (whch para-
graph begns wth The provsons of secton 3 1 ) and nsertng n
eu thereof the foowng:
Under the provsops of secton 3 3(a) (3) ( ) (), pror to November 1, 19 0,
no credt or refund was aowabe wth respect to ta pad on artces sod for
use on certan arcraft, even though t was known at the tme of the sae that
the artces woud be so used. y vrtue of the provsons of secton 609 of the
Revenue ct of 1930, a manufacturer may be aowed a refund, or may take
credt aganst the ta shown to be due upon any subsequent monthy return, n
the amount of ta pad by bm wth respect to the sae of any artce whch s
used, or resod for use on or after November 1, 19 0, for any of the purposes, but
sub|ect to the condtons, provded n secton 3 1. (See secton 316.2 .) Re-
fund or credt w be made or aowed n such cases ony upon the submsson
of the evdence requred by the precedng paragraphs reatng to transactons
wthn the scope of secton 3 3(a) (3) ( ).
Where artces are sod by the manufacturer n accordance wth the provson
of secton 317(b) of the Tarff ct of 1930, as added by the ct approved une
2 , 193 , for use as suppes (ncudng equpment) upon, or n the mantenance
or repar of, arcraft regstered n any foregn country and actuay engaged n
foregn trade or trade between the Unted States and any of ts possessons, the
manufacturer who pad the ta to the Government may be aowed a refund or
may take credt aganst the ta due upon any subsequent monthy return, pro-
vded he has n hs possesson the evdence outned n secton 316.29.
(Ths Treasury Decson s ssued pursuant to the authorty con-
taned n sectons 3 0 and 3791 of the Interna Revenue Code ( 3
Stat. 19, 67; 26 U. S. C. 3 0,3791).)
ohn . Dunap,
Commssoner of Interna Revenue.
pproved September 13,19 L
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster September 17, 19 1, : 0 a. m.)
Reguatons 6 (19 0), Secton 316.3: La- 19 1-1 -136 6
bty for ta . S. T. 93
ppcaton of ta es mposed by subchapter of chapter 29 of
Interna Revenue Code to saes n the Unted States by the mporter
of artces named theren whch had prevousy been shpped out of
the Unted States ta -free.
dvce s requested whether manufacturers e cse ta es mposed
by subchapter of chapter 29 of the Interna Revenue Code are app-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 6 (19 0), 310. .
21
cabe to saes n the Unted States by the mporter of artces named
theren, whch had prevousy been shpped out of the Unted States
ta -free. It s stated that the artces were surpus property ds-
posed of by the Unted States n a foregn country whch were ater
returned by other persons and sod n the Unted States.
The varous sectons of the Interna Revenue Code mposng the
ta es under subchapter of chapter 29 of the Code provde that the
ta es sha be mposed upon artces sod by the manufac-
turer, producer, or mporter, .
It s hed that the sae n the Unted States by the mporter of any
of the artces named n subchapter of chapter 29 of the Code, whch
had prevousy been shpped out of the Unted States ta -free under
any of the sectons of the Code authorzng e empton, consttutes a
ta abe sae of the artces wth respect to whch the mporter s
habe for ta , regardess of the manner n whch the artces were ds-
posed of n the foregn country.
ccordngy the mporter of the afore-mentoned artces s abe
for the ta on the sae thereof uness he s abe to estabsh to the
satsfacton of the ureau that the ta was pad to the Government
on the orgna sae of the artces by the manufacturer and that no
cam for credt or refund has been aowed n the amount of the org-
na ta payment, or that the manufacturer dd not cam e empton
from the ta whch was otherwse due as a abty of the manufac-
turer, even though for some reason other than e empton, the ta
may not have been pad by the manufacturer.
In reachng the concusons e pressed heren, consderaton has been
gven to the rung pubshed as S. T. 67, C. . 1937-2, 0 , whch,
n substance, hods that the manufacturers e cse ta es do not appy
to a use or resae of a ta abe artce subsequent to the orgna sae
by the manufacturer, whether such orgna sae was made n a ta abe
transacton, or n one specfcay e empted from ta . In S. T. 67,
supra, the queston nvoved the ta abty of successve uses or saes
of a ta abe artce by the manufacturer or producer thereof sub-
sequent to hs orgna sae, whereas n the nstant case, the queston
reates to the ta abty of an orgna sae of a ta abe artce by the
mporter thereof, subsequent to an orgna e empt sae of the artce
by the manufacturer thereof. To the e tent that certan statements
n S. T. 67 may be regarded as nconsstent wth the foregong, they
are modfed to conform thereto.
S CTION 3 03(c), S M ND D
Reguatons 6 (19 0), Secton 316. : Def- 19 1-23-1369
nton of parts or accessores. S. T. 9 0
Term customer s as used In S. T. 92 (C. . 19 3, 11 7), reat-
ng to saes of gass cut to automobe patterns, defned.
dvce s requested whether the term customer s as used n S. T.
92 , supra, s ntended to ncude a patrons of a gass deaer, such as
repar shops, automobe deaers and nsurance companes, for whom
he cuts and nstas gass n automobes under mmedate repar or
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
21
Regs. 6 (19 0), 316. .
whether such term s ntended to ncude ony a consumer or ndvdua
owner for whom such servces are performed.
S. T. 92 , supra, hods that saes of gass cut to automobe patterns
are sub|ect to ta under secton 3 03(c) of the Interna Revenue Code,
as amended, e cept where, n connecton wth an mmedate repar |ob,
the gass s cut to pattern pursuant to a customer s order and s n-
staed by the person who cut the gass.
It s hed, that the term customer s as used n the above-stated
rung appes to any patron of the gass deaer, wthout any dstnc-
ton as between consumers or ndvdua owners and deaers or others
engaged n busness.
ccordngy, where upon order of hs customer, a gass deaer both
cuts and nstas repacement gass n an automobe under mmedate
repar, no e cse ta abty attaches, rrespectve of the character
of the customer for whom the servces are performed. owever,
where a gass deaer cuts repacement gass and ses t to another per-
son for nstaaton, e cse ta abty attaches to such sae.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 6 (19 0), 316.2 .
216
M NUF CTUR RS ND R T IL RS CIS T S
S CTIONS 2 06(b) ND 270 . PORT TION
Reguatons 6 (19 0), Secton 31G.2 : Saes 19 1-21-136 2
for port. S T 939
( so Sectons 316.1 (d) and 316.26.)
Reguatons 1 (19 1), Secton 320.21: Saes
for e port.
ppcaton of the e emptons from manufacturers and retaers
e cse ta es provded by the Interna Revenue Code, n respect of
e portatons, to the sae of artces to mercan ctzens, ncudng
members of the Unted States foregn servce and members of the
rmed Forces of the Unted States, traveng to or ocated n a for-
egn country or a possesson of the Unted States.
S. T. 929 (C. . 19 3, 11 3) modfed.
dvce s requested concernng the appcaton of the e emptons
from manufacturers and retaers e cse ta es provded by the In-
terna Revenue Code, n respect of e portatons, where artces are
sod to mercan ctzens, ncudng members of the Unted States
foregn servce and members of the rmed Forces of the Unted
States, traveng to or ocated n a foregn country or a possesson of
the Unted States.
The e empton from the manufacturers e cse ta es n respect of
e portatons s provded for n secton 270 of the Interna Revenue
Code, whch, nsofar as appcabe, reads as foows:
Under such rues nnd reguatons as the Commssoner wth the approva
of the Secretary may prescrbe, the ta sha not appy n respect
of artces sod or eased for e port or for shpment to a possesson of the
Unted States and n due course so e ported or shpped. .
Secton 316.1 (d) of Reguatons 6 (19 0 dton), reatng to the
manufacturers e cse ta es, defnes the term e portaton to mean
the severance of an artce from the mass of thngs beongng wthn
the Unted States wth the ntenton of untng t wth the mass of
thngs beongng wthn some foregn country or wthn a possesson
of the Unted States.
Secton 316.2 of Reguatons 6 provdes that to e empt from ta
a sae for e port t s necessary that two condtons be met, namey,
(1) that the artce be dentfed as havng been sod by the manu-
facturer for e port and (2) that t be e ported n due course. n
artce w be regarded as havng been sod by the manufacturer
for e port f the manufacturer has n hs possesson at the tme tte
passes or at the tme of shpment (whchever s pror), (a) a wrtten
order or contract of sae showng that the manufacturer s to shp
the artce to a foregn destnaton; or (b) where devery by the
manufacturer s to be made wthn the Unted States, a statement from
the purchaser showng (1) that the artce s purchased to f e stng
or future orders for devery to a foregn destnaton; or that the
artce s purchased for resae to another person engaged n the bus-
ness of e portng who w e port the artce, and (2) that such artce
w be transported to ts foregn destnaton n due course pror to use
or further manufacture and pror to any resae e cept for e port.
Secton 316.26 of Reguatons 6 provdes that e portaton n due
course may be evdenced by (1) a copy of the e port b of adng
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
217 I egs. G (1C C), 316.2 .
ssued by the deverng carrer, or (2) a certfcate by the agent or
representatve of the e port carrer showng actua e portaton of
the artce, or (3) a certfcate of andng sgned by a customs offcer
of the foregn country to whch the artce s e ported, or ( ) where
such foregn country has no customs admnstraton, a statement of
the foregn consgnee showng recept of the artce.
Where the e portaton s accompshed through the mas, proof
of such e portaton may be evdenced by a certfcate sgned by a post-
master showng that the artce was receved n the post offce for for-
wardng to a foregn country or a possesson of the Unted States.
Where an artce f maed n care of an rmy Post Offce ( . P. O.)
or Feet Post Offce (F. P. O.) t w be requred that the manufacturer
obtan addtona evdence to estabsh that the person to whom the
artce s maed s not ocated n the Terrtory of aska or awa.
The addtona evdence s necessary by reason of the fact that such
Terrtores by statutory provsons are ncuded n the term Unted
States/
Where an artce s sod for e port to a purchaser who s traveng
to a foregn country or a possesson of the Unted States, e portaton
may aso be accompshed by devery of the artce to such per on on
board a vesse or arcraft outsde the terrtora mts of the Unted
States. In such case, the proof of e portaton may be evdenced by a
statement sgned by the purser or responsbe offca of the foregn
bound vesse or arcraft, that the artce had been receved from the
manufacturer for utmate devery to the purchaser ony after the
carrer woud be outsde the terrtora mts of the Unted States and
that the devery of the artce to the purchaser had been so made.
It s hed that the sae of a ta abe artce to or for shpment to an
mercan ctzen, ncudng a member of the Unted States foregn
servce or a member of the rmed Forces of the Unted States, trave-
ng to or temporary or permanenty resdng n a foregn country or
a possesson of the Unted States may be consdered a sae for e port
and therefore e empt from ta f pror to or at the tme of sae or shp-
ment the manufacturer has knowedge that the artce s beng pur-
chased for e port and that t w be sod or otherwse dsposed of n a
foregn country or a possesson of the Unted States by such mercan
ctzen and that he w not return t to the Unted States at any tme.
Such knowedge may be evdenced by a statement or other equvaent
proof furnshed to the manufacturer by the purchaser before or at
the tme of sae or shpment. In addton to such evdence of ntent
(o e port, the manufacturer must secure and retan n hs fes proper
proof as outned above, that the artce was, n due course, actuay
e ported or shpped to a foregn country or a possesson of the Unted
States pror to use or further manufacture.
Whe the foregong rung reates to the e portaton of artces
wthn the scope of the manufacturers e cse ta es mposed by chap-
ters 2 and 29 of the Interna Revenue Code, t s equay appcabe
wth respect to artces wthn the scope of the retaers e cse ta es
mposed by chapters 19 and 9 of the Code.
S. T. 929, vpra, reatng to shpments of ta abe artces to members
of the rmed Forces of the Unted States ocated n a foregn country
or n a possesson of the Unted States, s modfed to the e tent that t
s nconsstent wth the foregong rung.
DS 01C 2 1
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 2, 130.C3. 21
TR NSPORT TION OF P RSONS, TC.
S CTIONS 3 69 ND 16 0, S M ND D
Reguatons 2. Secton 130. 2: Rate and 19 1-23-13699
appcaton of ta . M. T. 1
ppcaton of the ta on the transportaton of persons to a f ed
charge made by steamshp company for an a-e pense cruse whch
ncudes charges for meas and other nontransportaton servces.
dvce s requested concernng the appcaton of the ta on the
transportaton of persons to a f ed charge made by a steamshp com-
pany for an a-e pense cruse whch ncudes charges for meas and
other nontransportaton servces.
Sectons 3 69 (a) and (c) and 16 0 of the Interna Revenue Code,
as amended, mpose a ta of 1 per centum of the amounts pad, wth
certan e ceptons not here appcabe, for the transportaton of per-
sons by ra, motor vehce, water, or ar, and for seatng or seepng
accommodatons furnshed n connecton wth such transportaton.
Secton 130. 2 of Reguatons 2 provdes n part that where a pay-
ment covers charges for nontransportaton servces as we as for
transportaton of a person, such as charges for meas, hote accom-
modatons, etc., the charges for the nontransportaton servces may
be e cuded n computng the ta payabe wth respect to such pay-
ment, provded such charges are separabe and are shown n the e act
amounts thereof n the records pertanng to the transportaton charge.
If the charges for nontransportaton servces are not separabe from
the charge for transportaton of the person, the ta must be computed
upon the fu amount of the payment.
ccordngy, charges for meas and other nontransportaton serv-
ces whch are ncuded n a f ed or ump-sum payment for an a-
e pense cruse are not sub|ect to the ta on the transportaton of per-
sons, provded such nonta abe charges are separabe from the ta abe
charges for transportaton and seatng or seepng accommodatons
and are shown n the e act amounts thereof n the carrer s records.
Reguatons 2, Secton 130.63: Members of 19 1-2 -1370
mtary and nava servce. M. T. 2
ppcaton of the ta on transportaton of persons mposed by
sectons 3 69 and 16 0 of the Interna Revenue Code, as amended,
to amounts pad for transportaton of members of the rmed
Forces of the Unted States.
dvce s requested concernng the appcaton of the ta on the
transportaton of persons mposed by sectons 3 69 and 16 0 of the
Interna Revenue Code to amounts pad for the transportaton of
members of the rmed Forces of the Unted States. The questons
presented and the answers thereto are as foows:
ueston Does the ta appy where transportaton s procured by
a member of the rmed Forces of the Unted States by the use of a
Unted States Government transportaton request or to an amount
pad by a member of the rmed orces traveng under offca orders
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
219
Regs. 2, 130.63.
whch provde for rembursement by the Unted States of trave
e penses on a meage or other bass
nswer Pursuant to the amendment of secton 3 69(f)(1) of
the Interna Revenue Code by secton 307 of the Revenue ct of 19 3,
amounts pad on or after une 1,19 , for the transportaton of per-
sons are no onger ta -e empt by reason of the fact that such trans-
portaton s furnshed to the Unted States, or pad for by a person
who s entted to receve rembursement from the Unted States. The
Secretary of the Treasury, by vrtue of the authorty vested n hm
by secton 307(c) of the Revenue ct of 19 3, as amended, authorzed
e empton from the ta mposed by secton 3 69 of the Interna Reve-
nue Code as to any payment for transportaton of persons furnshed
to the Unted States upon a Unted States Government transportaton
request.
ccordngy, the ta on the transportaton of persons does not appy
where the transportaton s procured by a member of the rmed
Forces by the use of a Unted States Government transportaton re-
quest and no e empton certfcate s requred. owever, the ta
appes to an amount pad for transportaton by a member of the
rmed Forces traveng under offca orders whch provde for re-
mbursement by the Unted States of trave e penses on a meage or
other bass, and e empton from the ta cannot be obtaned by the
use of an e empton certfcate.
ueston Does the ta appy to an amount pad for transportaton
by a member of the rmed Forces of the Unted States traveng at
hs own e pense when on offca eave, furough, or pass
nswer Under the provsons of secton 3 69(f) (2) of the Interna
Revenue Code, as amended by Pubc Law 7 ( 1st Cong., 2d sess.)
C. . 19 1-1,177 , and Treasury Decson 36 C. . 19 1-1, 1 7
ssued pursuant thereto, the ta does not appy to amounts pad after
December 1 , 19 0, for transportaton or for seatng or seepng ac-
commodatons furnshed under speca tarffs provdng for fares of
not more than 2.02 cents per me appcabe to round trp tckets
sod to personne of the Unted States rmy, r Force, Navy, Marne
Corps, and Coast Guard, ncudng authorzed cadets and mdshpmen,
traveng n unform of the Unted States at ther own e pense when
on offca eave, furough, or pass. person camng e empton
under ths secton w be requred to e hbt to the agent of the carrer
a propery e ecuted certfcate to show that he s traveng on offca
eave, furough, or pass, but the surrender of an e empton certfcate
on Form 731, revsed, s not necessary n such case.
It w be noted that the afore-mentoned provsons of the aw and
reguatons restrct the e empton from payment of the ta to round
trp tckets sod to personne of the Unted States rmy, etc., under
speca tarffs provdng for fares of not more than 2.02 cents per
me. Therefore, n any case where the amount pad by a member of
the rmed Forces traveng at hs own e pense s n e cess of 2.02
cents per me the furough fare e empton provded by secton
3 69(f)(2) of the Code s not appcabe, and e empton from the
ta cannot be obtaned by the use of an e empton certfcate.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
MISC LL N OUS RULINGS
CUTI ORD R 102 2
19 1-1 -13623
. 0.102 2
CUTI ORD R 102 2 TT C ING T C N L ZON TO T
INT RN L R NU COLL CTION DISTRICT OF FLORID
y vrtue of the authorty vested n me by secton 36 0(a) of the
Interna Revenue Code, t s ordered that the Cana Zone be, and t s
hereby, attached to and made a part of the Interna Revenue Coec-
ton Dstrct of Forda for a purposes authorzed by the nterna
revenue aws of the Unted States.
Ths order sha be effectve as of anuary 1,19 1.
arry S. Truman.
The Whte ouse,
une 9, 19 1.
(Fed wth the Dvson of the Federa Regster une 11, 10 1, 10:22 a. m.)
D P RTM NT CIRCUL R 9
19 1-17-136 9
D. C. 9
Unted States of merca. Tbeasuby Savngs Notes. Seres
1 1. Department Crcuar No. 9. Fsca Servce. ureau of the Pubc Debt
Treasury Department,
Offce of the Secretary,
Washngton, May 10, 19 1.
Subpart
. Offerng of Notes.
. Descrpton of Notes.
C. Purchase of Notes.
D. Presentaton n Payment of Ta es.
. Cash Redempton at or efore Maturty.
F. Payment or Ressue to Other Than Inscrbed Owner.
G. Genera Provsons.
SU P RT . OFF RING OF NOT S
Secton 331.1. The Secretary of the Treasury, pursuant to the au-
thorty of the Second Lberty ond ct, as amended, offers for sae
to the peope of the Unted States, at par and accrued nterest as
provded n secton 331.12 hereof, an ssue of notes of the Unted
States desgnated Treasury Savngs Notes, Seres , whch notes, f
nscrbed n the name of a Federa ta payer, w be recevabe as
herenafter provded at par and accrued nterest n payment of n-
come, estate, and gft ta es mposed by the Interna Revenue Code,
(221)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
222
or aws amendatory or suppementary thereto. The notes may aso
be redeemed for cash at par and accrued nterest, wth certan e cep-
tons appcabe to bankng nsttutons, as provded n secton 331.16
hereof.
Sec. 331.2. Wthdrawa of Seres D Notes. The sae of Treasury
Savngs Notes, Seres D, offered under Department Crcuar No. 33
C. . 19 -2, 207 , dated ugust 17, 19 , as amended, s hereby
termnated at the cose of busness May 1 ,19 1.
Sec. 331.3. Duraton of Offer. The sae of notes of Seres of-
fered by ths crcuar w begn on May 1 , 19 1, and w contnue
unt termnated by the Secretary of the Treasury.
Sec. 331. . Defntons. (a) The word month as used heren
means the perod from and ncudng the 1 th day of any one caen-
dar month to but not ncudng the 1 th day of the ne t succeedng
month.
(b) The words ssue date mean the date as of whch a note s
ssued and w aways be the 1 th day of a caendar month.
(c) The words nterest accrua date or accrua date mean the
date upon whch a month s nterest accrues on a note, the frst accrua
date beng the 1 th day of the caendar month ne t foowng the
ssue date.
SU P RT . D SCRIPTION OF NOT S
Sec. 331. . Genera. Treasury Savngs Notes, Seres , w n
each nstance be dated as of the 1 th day of a caendar month. The
ssue date w be determned by the day of the month on whch pay-
ment at par and accrued nterest, f any, s receved and credted by
an agency authorzed to ssue the notes. For e ampe, payment re-
ceved and credted on any day durng the perod from and ncudng
May 1 ,19 1, to and ncudng une 1 ,19 1, woud resut n the ssue
of notes dated May 1 , 19 1. They w mature 3 years from that
date and may not be caed by the Secretary of the Treasury for re-
dempton before maturty. notes bearng ssue dates wthn any
one caendar year sha consttute a separate seres ndcated by the
etter foowed by the year of maturty. t the tme of ssue
the ssung agency w nscrbe on the face of each note the name and
address of the owner, w enter the ssue date, and w mprnt ts
datng stamp (wth current date). The notes w be ssued n de-
nomnatons of 100, 00, 1,000, ,000, 10,000, 100,000, 00,000,
and 1,000,000. change of authorzed denomnatons from hgher
to ower, but not from ower to hgher, may be arranged at any agency
that ssues Treasury Savngs Notes, Seres .
Sec. 331.6. cceptance for Ta es or Cash Redempton. If n-
scrbed n the name of an ndvdua, corporaton, or other entty pay-
ng ncome, estate, or gft ta es mposed under the Interna Revenue
Code, or aws amendatory or suppementary thereto, the notes w be
recevabe, sub|ect to the provsons of secton 331.1 of ths crcuar,
at par and accrued nterest, n payment of such ncome, estate, or gft
ta es assessed aganst the owner or hs estate. If not presented n
payment of ta es, or f not nscrbed n the name of a ta payer abe
to the above-descrbed ta es, and sub|ect to the provsons of secton
331.1G of ths crcuar, the notes w be payabe at maturty, or at the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
223
Msc.
owner s opton and request they w be redeemabe before maturty at
par and accrued nterest.
Sec. 331.7. Interest. Interest on each 1,000 prncpa amount of
Treasury Savngs Notes, Seres , w accrue monthy on the 1 th
caendar day of each month after the ssue date on a graduated scae,
as foows:
Frst to s th months, ncusve 1.20 each month
Seventh to twefth months, ncusve 1. 0 each month
Thrteenth to eghteenth months, ncusve 1.60 each month
Nneteenth to twenty-fourth months, ncusve 1.70 each month
Twenty-ffth to thrty-s th months, ncusve 1.S0 each month
The tabe appended to ths crcuar shows for notes of each denom-
naton, for each consecutve month after ssue date to maturty, (a) the
amount of nterest accrua, (b) the prncpa amount of the note wth
accrued nterest (cumuatve) added, and (c) the appro mate n-
vestment yeds. Sub|ect to the provsons of sectons 331.1 and
331.16 hereof, when Treasury Savngs Notes, Seres , are to be pad
on an nterest accrua date, the payment w ncude nterest accrung
on that date; otherwse, nterest w be pad ony to the nterest accrua
date ne t precedng the date of payment. Interest w be pad ony
wth the prncpa amount, and w not accrue beyond the maturty
date of the note.
Sec. 331. . Forms of Inscrpton . Treasury Savngs Notes, Seres
, may be nscrbed n the name of an ndvdua, corporaton, unn-
corporated assocaton or socety, or a fducary (ncudng trustees
under a duy estabshed trust where the notes woud not be hed as
securty for the performance of a duty or obgaton), whether or not
the nscrbed owner s sub|ect to ta aton under the Interna Revenue
Code, or aws amendatory or suppementary thereto. They may aso
be nscrbed n the name of a town, cty, county, or State or other gov-
ernmenta body, and n the name of a partnershp, but notes n the
name of a partnershp are not acceptabe n payment of ta es, snce a
partnershp s not a ta payng entty under the Interna Revenue Code.
The notes w not be nscrbed n the names of two or more persons
as |ont owners or coowners: or n the name of a pubc offcer, whether
or not named as trustee, where the notes woud n effect be hed as
securty for the performance of a duty or obgaton.
Sec. 331.9. Nontransferabty. The notes may not be transferred
n ordnary course, e cept that (1) f nscrbed n the name of a mar-
red man they may be ressued n the name of hs wfe, or f nscrbed
n the name of a marred woman they may be ressued n the name of
her husband, upon request of the person n whose name the notes are
nscrbed and the surrender of the notes to the agency that ssued
them; (2) f nscrbed n the name of a corporaton ownng more than
0 percent of the stock, wth votng power, of another corporaton, the
notes may be ressued n the name of the subsdary upon request of the
corporaton and surrender of the notes to the agency that ssued them;
upon the death or dsabty of an ndvdua nscrbed owner or
the dssouton, consodaton, or merger of a corporaton, unncorpo-
rated assocaton or partnershp named as owner, ressue or payment
may be made n accordance wth sectons 331.22 and 331.23 hereof: and
W payment but not ressue, may be made as a resut of ega proceed-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
22
ngs as set forth n sectons 331.2 and 331.2 hereof. The notes may
not be hypothecated and no attempted hypothecaton or pedge as
securty w be recognzed by the Treasury Department: Provded,
however, That the notes may be pedged as coatera for oans from
bankng nsttutons and f tte thereto s acqured by a bank because
of the faure of a oan to be pad, the notes w be redeemed at par
and accrued nterest to the nterest accrua date ne t precedng the
date of such acquston, uness acqured on an nterest accrua date,
on surrender to the agency whch ssued them, accompaned by proof
of the date of acquston and by request of the pedgee under power
of attorney gven by the pedgor n whose name the notes are nscrbed.
The notes w not be transferred to a pedgee. The notes w not be
acceptabe to secure deposts of pubc moneys.
Sec. 331.10. Ta aton. Income derved from the notes sha be
sub|ect to a ta es now or hereafter mposed under the Interna
Revenue Code or aws amendatory or suppementary thereto. The
notes sha be sub|ect to estate, nhertance, gft, or other e cse ta es,
whether Federa or State, but sha be e empt from a ta aton now
or hereafter mposed on the prncpa or nterest thereof by any State,
or any of the possessons of the Unted States, or by any oca ta ng
authorty.
SU P RT C. PURC S OF NOT S
Sec. 331.11. Offca gences. In addton to the Treasury De-
partment, the Federa Reserve banks and ther branches are hereby
desgnated agences for the ssue and redempton of Treasury Savngs
Notes, Seres . The Secretary of the Treasury, from tme to tme,
n hs dscreton, may desgnate other agences for the ssue of the
notes, or for acceptng appcatons therefor, or for makng payments
on account of the redempton thereof.
Sec. 331.12. ppcatons and Payment. ppcatons w be re-
ceved by the Federa Reserve banks and branches, and by the
Treasurer of the Unted States, Washngton, D. C. ankng nsttu-
tons generay may submt appcatons for the account of customers,
but ony the Federa Reserve banks, ther branches, and the Treasury
Department are authorzed to act as offca agences. The use of an
offca appcaton form s desrabe but not necessary. Such forms
may be obtaned upon request from any Federa Reserve bank or
branch or the Treasurer of the Unted States. very appcaton must
be accompaned by payment n fu, at par and accrued nterest, f any.
The amount of accrued nterest payabe by the purchaser w be com-
puted at the rate at whch nterest accrues on the notes ( 1.20 per
month per 1,000 par amount) for the actua number of days from but
not ncudng the ssue date to and ncudng the date funds are
credted to the account of the Treasurer of the Unted States. For
e ampe, f funds are credted on the 20th day of anuary the ssue
date w be anuary 1 , and days accrued nterest must be pad by
the purchaser. If coecton s deayed so that credt s not gven unt
February 1 , the ssue date w be February 1 , and no accrued nterest
w be coectbe. One day s accrued nterest for a 31-day perod s
0.03 71 per 1,000, for a 30-day perod 0.0 per 1,000, for a 29-day
perod 0.0 13 per 1,000, and for a 2 -day perod 0.0 2 6 per 1,000.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
22
Msc.
ny form of e change, ncudng persona checks, w be accepted,
sub|ect to coecton, and shoud be drawn to the order of the Federa
Reserve bank or the Treasurer of the Unted States, as payee, as the
case may be. ny depostary quafed pursuant to the provsons of
Treasury Department Crcuar No. 92, Revsed, as amended, w be
permtted to make payment by credt for notes apped for on behaf
of tsef or ts customers up to any amount for whch t sha be qua-
fed n e cess of e stng deposts.
Sec. 331.13. Reservatons. The Secretary of the Treasury re-
serves the rght to re|ect any appcaton n whoe or n part, and to
refuse to ssue or permt to be ssued hereunder any notes n any
case or n any cass or casses of cases f he deems such acton to be
n the pubc nterest, and hs acton n any such respect sha be
fna. If an appcaton s re|ected, n whoe or n part, any payment
receved therefor w be refunded.
Sec. 331.1 . Devery of Notes. Upon acceptance of a fu-pad
appcaton, notes w be duy nscrbed and, uness devered n
person, w be devered, at the rsk and e pense of the Unted States
at the address gven by the purchaser, by ma, but ony wthn the
Unted States, ts Terrtores and Isand Possessons, and the Cana
Zone. No deveres esewhere w be made.
SU P RT n. PR S NT TION IN P YM NT OF T S
Sec. 331.1 . t any tme after 2 months from the ssue date, durng
such tme and under such rues and reguatons as the Commssoner
of Interna Revenue, wth the approva of the Secretary of the Treas-
ury, may prescrbe, notes ssued hereunder n the name of a Federa
ta payer, may be presented by such ta payer, hs agent or hs estate
for credt aganst any ncome (current and back, persona and corpo-
raton ta es, and e cess profts ta es) or any estate or gft ta es (cur-
rent and back) mposed by the Interna Revenue Code, or aws amend-
atory or suppementary thereto, assessed aganst the nscrbed owner
or hs estate. For e ampe, a note dated anuary 1 may be presented
for credt aganst ta es due March 1 . The notes w be recevabe
by the coector at par and accrued nterest to the day (but no accrua
beyond maturty) when the ta es are due, f such day fas on the
1 th day of a caendar month, whether the notes are receved on or
before that day. If the ta es are due on any other day of the month
than the 1 th, accrued nterest w be credted to the accrua date ne t
precedng the day when the ta es are due. Notes are recevabe ony
n payment of ta es equa to or e ceedng the entre vaue of the
notes, ncudng accrued nterest. The notes must be forwarded to the
coector at the rsk and e pense of the owner and, for hs protecton,
shoud be forwarded by regstered ma, f not presented n person.
SU P RT . C S R D MPTION T OR FOR M TURITY
Sec. 331.16. Genera. ny Treasury Savngs Note, Seres , not
presented n payment of ta es w be pad at maturty, or, at the
opton and request of the owner, and wthout advance notce, w
be redeemed before maturty, at any tme after months from the
ssue date. For e ampe, a note dated anuary 1 may be redeemed
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
22G
for cash on or after May 13. If redempton pror to maturty s re-
quested on an nterest accrua date the redempton w ncude nterest
accrung on that date, otherwse redempton w be at par and ac-
crued nterest to the nterest accrua date ne t precedng the redemp-
ton date, e cept n the case of a note nscrbed n the name of a bank
that accepts demand deposts, n whch case payment, whether at
or before maturty, w be made ony at par, wth a refund of any
accrued nterest whch may have been pad at the tme of purchase
of the note. If a note s acqured by a bankng nsttuton through
forfeture of a oan, payment w be made at par and the accrued
nterest payabe as of the date of acquston.
Sec. 331.17. ecuton of Request for Payment. The owner
n whose name the note s nscrbed must appear before one of the
offcers authorzed by the Secretary of the Treasury to wtness and
certfy requests for payment, estabsh hs dentty, and n the presence
of such offcer sgn and compete the request for payment appearng on
the back of the note. fter the request for payment has been e ecuted,
the wtnessng offcer shoud e ecute the certfcate provded for hs
use.
Sec. 331.1 . Offcers uthorzed to Certfy Requests for Pay-
ment. offcers authorzed to certfy requests for payment of
Unted States Savngs onds: as set forth n Treasury Department
Crcuar No. 30, S th Revson, as amended, are hereby authorzed
to certfy requests for cash redempton of Treasury savngs notes
ssued under tns crcuar. Such offcers ncude, among others, Unted
States postmasters, certan other post offce offcas, offcers of a banks
and trust companes ncorporated n the Unted States or ts organzed
Terrtores, ncudng offcers at branches thereof, and commssoned
and warrant offcers of the rmed Forces of the Unted States.
Sec. 331.19. Presentaton and Surrender. Notes bearng prop-
ery e ecuted requests for payment must be presented and surrendered
to any Federa Reserve bank or branch or to the Treasurer of the
Unted States, Washngton 2 , D. C, at the e pense and rsk of the
owner. For the owner s protecton, notes shoud be forwarded by
regstered ma f not presented n person.
Sec. 331.20. Parta Redempton. Parta cash redempton of a
note, correspondng to an authorzed denomnaton, may be made n
the same manner as fu cash redempton, approprate changes beng
made n the request for payment. In case of parta redempton of a
note, the remander w be ressued n the same name and wth the
same ssue date as the note surrendered.
Sec. 331.21. Payment. Payment of any note, ether at maturty or
on redempton before maturty, w be made by any Federa Reserve
bank or branch or the Treasurer of the Unted States, foowng cear-
ance wth the agency of ssue, whch w be obtaned by the agency to
whch the note s surrendered. Uness otherwse nstructed, payment
w be made by check drawn to the order of the owner, and maed
to the address gven n hs request for payment.
SU P RT F. P YM NT OR R ISSU TO OT R T N INSCRI D OWN R
Sec. 331.22. Death or Dsabty. In case of the death or dsabty
of an ndvdua owner, f the notes are not to be presented n payment
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
227
Msc.
of ta es, payment w be made to the duy consttuted representatve
of hs estate, or they may be ressued to one or more of hs hers or
egatees upon satsfactory proof of ther rght; but no ressue w be
made n two names |onty or as coowners.
Sec. 331.23. Dssouton or Merger of Corporatons, tc. If a
corporaton or unncorporated body, n whose name notes are n-
scrbed, s dssoved, consodated, merged, or otherwse changes ts
organzaton, the notes may be pad to, or ressued n the name of,
those persons or organzatons awfuy entted to the assets of such
corporaton or body by reason of such changes n organzaton.
Sec. 331.2 . ankruptcy. If an owner of notes s decared bank-
rupt or nsovent, payment, but not ressue, w be made to the duy
quafed trustee, recever, or smar representatve f the notes are
submtted wth satsfactory proof of hs appontment and quafca-
ton.
Sec. 331.2 . Credtors Rghts. Payment, but not ressue, w be
made as a resut of |udca proceedngs n a court of competent |urs-
dcton, f the notes are submtted wth proper proof of such proceed-
ngs and ther fnaty.
Sec. 331.26. Instructons and Informaton. efore e ecutng the
request for payment or submttng the notes under the provsons of
ths subpart, nstructons shoud be obtaned from a Federa Reserve
bank or Dranch or from the Treasury Department, Dvson of Loans
and Currency, Washngton 2 , D. C.
subpart g. genera provsons
Sec. 331.27. Reguatons. cept as provded n ths crcuar, the
notes ssued hereunder w be sub|ect to the genera reguatons of
the Treasury Department, now or hereafter prescrbed, governng
bonds and notes of the Unted States; the reguatons currenty n
force are contaned n Department Crcuar No. 300, as amended.
Sec. 331.2 . Loss, Theft, or Destructon. In case of the oss,
theft, or destructon of a savngs note mmedate notce (whch shoud
ncude a fu descrpton of the note) shoud be gven the agency
whch ssued the note, and nstructons shoud be requested as to the
procedure necessary to secure a dupcate.
Sec. 331.29. Fsca gents. Federa Reserve banks and ther
branches, as fsca agents of the Unted States, are authorzed to per-
form such servces or acts as may be approprate and necessary under
the provsons of ths crcuar and under any nstructons gven by the
Secretary of the Treasury, and they may ssue nterm recepts pendng
devery of the defntve notes.
Sec. 331.30. mendments. The Secretary of the Treasury may at
any tme or from tme to tme suppement or amend the terms of ths
crcuar, or of any amendments or suppements thereto, and may at
any tme or from tme to tme prescrbe amendatory rues and regua-
tons governng the offerng of the notes, nformaton as to whch w
prompty be furnshed to the Federa Reserve banks.
. . Foet,
ctng Secretary of the Treasury.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
pc
2

CO
S

w
P
a
-
tn
w
|

o
w
a
u

a
O

S


I

U.
0
d
-

3-a e
3 3 g
g 9_sa.S feg
0)T3 3 oS C

a

2
I
I
.3
3
1
c
3 9
11
3
3 SS 3 SSSS3
hhhhhh f p p d e p p p p
SSSS33 SSSSb
SsS S3
e 3 3 S S2 2 S SfstfS
;TS 003000 OOOCOO
m SwSr rS



3
ps g
mm
m.m
100,120.00
100,2 0.00
100,360.00
100, 0.00
100, 600.00
100, 720.00
100, 70.00
101,020.00
101.170.00
101,320.00
101, 70.00
101, 62a 00
101,7 0.00
101,9 0.00
102,100.00
102,200.00
102, 20. I )
102.6 0.00
10,012.00
10,02 .00
10.036.00
10,0 .00
10,060.00
10,072. 00
10, 0 7.00
10,102.00
10,117.00
10,132.00
10,1 7.00
10,162.00
10,17 .00
10.19 .00
10.210.00
10,226.00
10,2 2.00
16, 2 .00
,006.00
6,012.00
6,01 .00
6,02 .00
,030.00
6,036.00
6,0 3. 0
,0 1.00
6,0 , 0
6,066.00
6,073. 0
6,0 1.00
6,0 9.00
,097.00
6,106.00
6,113.00
6,121.00
6, 129. 00
O O O C
1,00 .70
1,010.20
1,011.70
1,013.20
1,01 .70
1,016.20
1,017. 0
1,019. 0
1,021.00
1,022.60
1,02 .20
1,026. O
1,001
1,002
1,003
1.00
1,006
1,007
SSSSSS
C o
S3SS3
33333
od g c; r- p p
3
s M 22 3 2 2 2 S 21 M
S3
c: c
S
so,,
2 2
o ,
3 -a-g .
3 3 poassr m 2 ha
a s _ a,
a a
., -ags Isf|
s-3 S
s gs
3
be
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
229
Z v z. o S:
. -OS ;
.

.2
T
_o

I
a
-f

T-
O
a
a
r e- f
e - n r ro
c o e o
ss
33
u- .- fc O
33 S3 3 S3
g g
yT 3 - T r 1.- t- r
. | | r- M -Cv N
g S32
e r eo c so
c o c o

o c o o s o o o
t- _ f -
e f m n to
Oo odo o
1
SSSS S S
ooooe c oooo
ssssss
3 3 S S
333S 3 3
t 9 f 3 ) f, (C N f |
f m re r m M - - w o
o c c o o o r; o o oo o :
R- S32 SgSS 3aS SS
-r or a p r t -r tr r-
f-r-rTT MN
; u) O O OOfOOfOO n
S S S S3-3 S S

G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

Msc.
230
C NG IN NOM NCL TUR OF UR U OF INT RN L R NU
19 1-26-1373
Mm. 6720
Change n nomencature of 3ureau of Interna Revenue
Treasury Department,
Offce of Commssoner of Interna event|e,
Washngton 2 , D. C, November 1 ,19 1.
Offcers and mpoyees of the ureau of Interna Revenue and Others
Concerned:
1. The foowng changes are hereby made n the nomencature of
the ureau of Interna Revenue:
Present
Income Ta Unt.
Dvson.
Secton.
Subsecton.
Unt.
Revenue gents Dvson (fed).
ccounts and Coectons Unt.
Dvson.
Secton.
Subsecton.
Unt.
Supervsory Dvson (fed).
en Income Ta Dvson (N. Y.).
Processng Dvson ( ansas Cty).
cse Ta Unt.
Dvson.
Secton.
Subsecton.
Unt.
Revenue gents Dvson ( cse
Ta ).
mpoyment Ta Unt.
Dvson.
Secton.
Subsecton.
Unt.
coho Ta Unt.
Dvson.
Secton.
Subsecton.
Unt.
Fed Dstrct.
Technca Staff.
Technca Staff Dvson (fed).
Integence Unt.
Dvson.
Secton.
Subsecton.
Unt.
Speca gent s Dvson.
Offce of udget and Fnance.
udget and Fnance Offcer.
mended
Income Ta Dvson.
ranch.
Secton.
Unt.
Group.
Revenue gents Dstrct.
ccounts and Coectons Dvson.
ranch.
Secton.
Unt.
Group.
Supervsory Dstrct.
en Income Ta ranch.
Processng ranch.
cse Ta Dvson.
ranch.
Secton.
Unt.
Group.
Revenue gents Dstrct ( cse
Ta ).
mpoyment Ta Dvson.
ranch.
Secton.
Unt.
Group.
coho and Tobacco Ta Dvson.
ranch.
Secton.
Unt.
(3 roup.
Fed Dstrct.
ppeate Dvson.
ppeate Dvson Dstrct
Integence Dvson.
ranch.
Secton.
Unt.
Group.
Speca gent s Dstrct
udget and Fnance Dvson.
ead, udget and Fnance Dvson.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
231 . Mso.
Present mended
Personne Dvson. Personne Dvson.
Secton. ranch.
Subsecton. Secton,
t nt. Unt.
dmnstratve Dvson. dmnstratve Dvson.
Secton. ranch.
Subsecton. Secton.
Statstca Dvson. Statstca Dvson.
Secton. ranch.
2. The foregong changes n nomencature are effectve as of
November 13. 19 1, wth the e cepton of the Income Ta Dvson,
whch was effectve on November , 19 1. reguatons, mmeo-
graphs, forms, and other ureau and Treasury documents are hereby
amended nsofar as they are nconsstent wth ths mmeograph, e -
cept that the e stng suppes of such reguatons, mmeographs,
forms, and documents sha contnue to be used wthout change due
to the changes n nomencature made heren unt such suppes are
e hausted.
ohn . Dunap,
Commssoner.
pproved November 1 ,19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
19 1-26-1373
Mm.6720
(Suppement 1)
Change n nomencature of ureau of Interna Revenue
Treastry Department,
Offce of Commssoner of Interna Revenue,
Washngton 2-|. D. C, December 7, 19 1.
Offcers and mpoyees of the ureau of Interna Revenue and Others
Concerned:
Paragraph 1 of Mmeograph 6720 (page 230, ths uetn) dated
November 1 , 19 1, s amended wth respect to the changed nomen-
cature of the Technca Staff to read as foows:
Present mended
Technca Staff. ppeate Staff.
Technca Staff Dvson (fed). ppeate Staff Dstrct.
In a other respects. Mmeograph 6720 dated November 1 , 19 1,
sha reman unchanged.
ohn . Dttnap,
Commssoner.
pproved December 7, 19 1.
. . Foey,
ctng Secretary of the Treasury.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 3 ( pp.) 232
INDUSTRI L LCO OL
INT RN L R NU COD
Reguatons 3 ( ppend ). 19 1-1 -13620
T. D. 6
TITL 2 INT RN L R NU . C PT R I. SU C PT R C, P RT 1 2.
INDUSTRI L LCO OL
mendng append to Reguatons 3
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. The append to Reguatons 3, approved March 6, 19 2 (26
CFR. part 1 2), s hereby amended by modfyng Formua 2- for
the manufacture of specay denatured acoho to read as foows:
FORMUL NO. 2-
To every 100 gaons of ethy acoho add :
One-haf gaon benzo or one-haf gaon rubber hydrocarbon sovent.
(Ths formua must be used n a cosed and contnuous process uness t s
shown that t s not practcabe to do so.)
2. The append s further amended by nsertng n the specfca-
tons for denaturants n specay denatured acoho, mmedatey fo-
owng the specfcatons for pyrdne bases, specfcatons for rubber
hydrocarbon sovent, as foows:
RU R YDROC R ON SOL NT
Rubber ydrocarbon Sovent s a product derved from petroeum, meetng
the foowng requrements:
Dstaton range (accordng to . S. T. M. Specfcatons D- 6- O). When
10 percent of the sampe has been dsted nto a graduated recever, the ther-
mometer sha not read more than 72 C. (102 P.) nor ess than 9 C. (120 F.).
When 90 percent has been recovered n the recever the thermometer sha not
read more than 121 C. (2 0 F.).
3. The purposes of these amendments are to modfy specay de-
natured acoho Formua No. 2- to permt the use of ether benzo
or rubber hydrocarbon sovent as a denaturant, and to prescrbe spec-
fcatons for the atter matera.
. Ths Treasury Decson sha be effectve upon ts pubcaton
n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n 3 Stat. 3 , 3 , and 37 (26 U. S. C 3070, 310 , and 3176).)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved une 19,19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster une 26, 19 1)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
233
Regs. and Regs. 10.
DISTILL D SPIRITS
INT RN L R NU COD
Reguatons and Reguatons 10. 19 1-17-136 0
T. D. 9
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 1 3 M)
P RT 1
Transfer of vodka
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. In order to conform Reguatons , Producton of Dsted
Sprts (26 CFR, part 1 3:1 F. R. 33 ), and Reguatons 10, Ware-
housng of Dsted Sprts (26 CFR, part 1 ; 1 F. R. 1 6), to
the provsons of secton 2 3 of the Interna Revenue Code (Pubc
Law 72, 2d Cong., 1st sess.), approved uy 3, 19 1, such reguatons
are hereby amended.
2. Reguatons are amended as foows:
(a) Secton 1 3. 0 s amended; and
(b) Secton 1 3. 0 a s added.
Smp art W Ta payment, Remova, and Transfer of Dsted Sprts From
Cstern Room

authorzed removas of vodka
Sec. 1 3 0 . Transfers to Interna Revenue onded Warehouses. odka
may be removed to nterna revenue bonded warehouses as foows:
(a) In meta, porcean, gass, or paraffn-ned contaners for depost n
any nterna revenue bonded warehouse for storage n such contaners;
(6) In wooden packages, each contanng two or more metac cans hav-
ng a capacty of not ess than wne gaons each, for the purpose of
e portaton ony; and
(c) y ppene drect to tanks n an nterna revenue bonded warehouse
ocated on the dstery premses or contguous thereto.
( 3 Stat. 333, 33 as amended; 26 U. S. C. 2 7 , 2 3.)
Sec. 1 3. 0 a. Ta payment. odka may be removed, upon ta pnyment, as
foows:
(a) y ppene, to a contguous ta -pad bottng house or rectfyng
pant.
( 3 Stat. 20 , as amended, 33 , as amended; 26 U. S. C. 2 00, 2 S3.)
3. Sectons 1 .36 , 1 .366, and 1 .390 of Reguatons 10 are
amended to read as foows:
Suhpart S Depost of Sprts n Warehouse
depost n storage tanks
Sec. 1 .36 . In Warehouse on Dstery Premses. Dsted sprts of
160 of proof or more may be receved by ppene or n tank cars from a regs-
0 016 2 10
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. and Regs. 10.
23
tered dstery and brandy of any proof may be receved by ppene or n tank
cars from a frut dstery for depost n storage tanks n the nterna revenue
bonded warehouse ocated on dstery premses where produced: Provded,
That (a) rum of not ess than 1 0 of proof ntended for denaturaton may be
receved by ppene from a regstered dstery for depost n storage tanks;
(6) gn of any proof may be receved by ppene from a regstered dstery
and deposted n storage tanks; and (c) vodka of any proof may be receved
by ppene from a regstered dstery and deposted n meta, porcean, gass,
or paraffn-ned storage tanks. ( 3 Stat. 316 as amended, 333, 33 as amended;
26 U. S. C. 2S2 , 2 79, 2 3.)
Sec. 1 .366. In Warehouse Contguous to Dstery Premses. Dsted
sprts (other than sprts desgnated for fortfcaton or rum desgnated for
denaturaton) of 160 of proof or more may be receved by ppene or n tank
cars from a regstered dstery or a frut dstery for depost n storage tanks
n an nterna revenue bonded warehouse ocated contguous to the dstery
premses where produced: Provded, That (a) gn of any proof may be receved
by ppene from a regstered dstery for depost n storage tanks; and (6)
vodka of any proof may be receved by ppene from a regstered dstery for
depost n meta, porcean, gass, or paraffn-ned storage tanks. ( 3 Stat. 333,
33 as amended; 26 U. S. C. 2 79, 2 3.)
Subpart T Storage op Dsted Sprts n Warehouse
Sec. 1 .390. nds op Contaners. Dsted sprts may be stored In an
nterna revenue bonded warehouse:
(a) In the dster s orgna packages n whch receved, ncudng, n the
case of sprts ntended for temporary storage pendng e portaton, wooden
packages contanng two or more metac cans havng a capacty of not
ess than wne gaons each;
(6) In cases, where sprts are botted n bond;
(c) In casks, barres, or smar wooden packages, or n drums or smar
meta packages, havng a capacty of not ess than 10 wne gaons each,
fed from warehouse storage tanks or nto whch the contents of the ds-
ter s orgna packages were transferred n accordance wth sectons
1 .397-1 o. 07;
(d) In storage tanks (1) n any warehouse f the sprts are 160 or more
of proof; or (2) n a warehouse ocated on the premses of the dstery
where the sprts were produced and such sprts are rum of not ess than
1 0 of proof receved by ppene and are ntended for denaturaton ; or (3)
n a warehouse ocated on the premses of a frut dstery where the sprts
were produced; or ( ) n a warehouse ocated on or contguous to the prem-
ses of the dstery where the sprts wee produced and the sprts are gn
or vodka of any proof receved by ppene: Provded, That tanks for the
storage of vodka must be meta, porcean, gass or paraffn-ned; and
(e) In tank cars.
( 3 Stat. 316 as amended, 333, 3 2 as amended ; 20 U. S. C. 2 2 , 2 7 , 2 3, 2903.)
. The purpose of the proposed amendments s to e tend to vodka
of any proof the ppene transfer prveges now authorzed for gn
(a) upon transfer from the dstery to an nterna revenue bonded
warehouse ocated on or contguous to the premses of the producng
dstery and (6) upon ta payment from the dstery, or from an n-
terna revenue bonded warehouse ocated on or contguous to the prem-
ses of the producng dstery, and transfer to a contguous ta -pad
bottng house or rectfyng pant.
. It s found that compance wth the notce, pubc rue makng,
and effectve date requrements of the dmnstratve Procedure ct
(u U. S. C. 1001 et seq.), s unnecessary n connecton wth the ssuance
of these amendments as the changes made are of a berazng
character.
G. Ths Treasury Decson sha be effectve ugust 1, 19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
23
Regs. 10, S 1 . 61, 1 . 7 .
(Ths Treasury Decson s ssued under the authorty contaned n
3 Stat. 29 , as amended, 316, as amended, 333, 333, 33 , as amended,
3 2, as amended, 37 ; 26 U. SI C. 2 00, 2 2 , 2 7 , 2 79, 2 3, 2903,
3176.)
Geo. . Sctoeneman,
Commssoner of Interna Revenue.
pproved uy 26,19 1.
ohn S. Graham,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 31, 19 1, : 9 a. m.)
Reguatons 10, Sectons 1 . 61 and 1 . 7 . 19 1-17-136 1
T. D. 0
TITL 26 INT RN L R NU . C PT R I. SU C PT R C, P RT 1 .
W R OUSING OF DISTILL D SPIRITS
(Reguatons 10)
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. Sectons 1 . 61 and 1 . 7 of Reguatons 10, Warehousng
of Dsted Sprts (26 CFR, part 1 ), as amended, are hereby
amended as foows:
Subpart Wthdrawa of Dsted Sprts Fbom Warehouse

Sec. 1 . 61. nds of Contaners. Dsted sprts may be wthdrawn from
nterna revenue bonded warehouses (a) n the dster s orgna packages;
(6) n packages to whch the contents of orgna dster s packages were
transferred; (c) n cases, where botted n bond; ((f) n packages havng a
capacty of not ess than 10 gaons each, fed from warehouse tanks; (e) n
tank cars fed pror to depost n the warehouse or fed from the warehouse
storage tanks; (/) by ppene (1) from storage or gaugng tanks to a denaturng
bonded warehouse (ony rum of not ess than 1 0 of proof and provded both
warehouses are ocated on the dstery premses) ; (2) from storage or gaugng
tanks n a warehouse ocated on the dstery premses where the brandy was
produced to the fortfyng room of a contguous wnery (brandy of any proof),
or from storage or gaugng tanks n any warehouse ocated off the dstery
premses where the brandy was produced to the fortfyng room of a contguous
wnery (brandy of 160 of proof or more) ; (3) from storage or gaugng
tanks to a dstery for redstaton (ony sprts of 160 of proof or more) ;
or ( ) from gaugng tanks to a contguous ta -pad bottng house or rectfyng
pant (ony ta -pad sprts of any proof) ; or (g) n the case of ta -pad dsted
sprts ony, by tank car or tank truck to any premses authorzed to receve
dsted sprts n buk. Dsted sprts may be wthdrawn n tank cars ony
f the premses of the consgnor and consgnee are equpped wth sutabe ra-
road sdng factes. Where dsted sprts are to be warehoused n tank
cars the sdng factes must e tend nto the recevng warehouse. ( 3 Stat.
29 as amended, 316 as amended, 333, 33 , 33 as amended, 337, 3 2 as amended,
3 as amended, 3 1, 3 ; 26 U. S. C. 2 00, 2 2 , 2 7 , 2 2, 2 3, 2 6, 2903,
3031,3033,3070.)

G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 10, S 1 . , 1 .6 .
236
DR WING-OFF SPIRITS FROM G UGING OR STOR G T N S

Sec. 1 . 7 . Gaugng Tanks. When sprts are to be removed by ppene
they w be run nto a propery equpped gaugng tank, e cept that where no
gaugng tank s provded n the Interna revenue bonded warehouse, (a) brandy
may be transferred by ppene from storage tanks drect to a gaugng tank n
the fortfyng room of a contguous wnery; (6) rum of 1 0 of proof or more
may be transferred by ppene from storage tanks drect to a gaugng tank n a
denaturng bonded warehouse (ony If both warehouses are ocated on the
dstery premses) ; or (c) sprts of 160 of proof or more for redstaton
may be transferred by ppene from storage tanks drect to a gaugng rank n
a dstery on the same or contguous premses. ( 3 Stat. 29 as amended,
33 as amended, 92 ; 20 D. S. C. 2 00, 2 3, 017.)
2. The purpose of these amendments s to remove the present restrc-
tons mtng ppene transfers of fortfyng sprts of 160 of proof
or more from nterna revenue bonded warehouses to contguous
wneres to those nstances where the warehouse s on the premses of
the producng dstery and permt the ppene transfer of such
sprts from storage tanks n any warehouse to a contguous wnery.
3. It s found that compance wth the notce, pubc rue makng,
and effectve date requrements of the dmnstratve Procedure ct
( U. S. C. 1001 et seq.) s unnecessary for the reason that the changes
made are of a berazng character.
. Ths Treasury Decson sha be effectve ugust ,19 1.
(Ths Treasury Decson s ssued under the authorty contaned n
3 Stat. 29 as amended, 316 as amended, 333, 33 , 33 as amended,
337, 3 2 as amended, 3 as amended, 3 1, 3 , 37 , 92; 26 U. S. C.
2 00,2 2 , 2 7 , 2 2,2 3,2 6,2903, 3031, 3033, 3070, 3176, 017.)
Geo. . Sc O N M N,
Commssoner of Interna Revenue.
pproved uy 26,19 1.
ohn S. Graham,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster uy 31, 19 1, : 9 a. m.)
Reguatons 10, Sectons 1 . and 1 .69 . 19 1 26 13731
T. D. 71
TITL 2G INT RN L R NU . C PT R I, SU C PT R C, P RT 1 .
W R OUSING OF DISTILL D SI IUITS
(Reguatons 10)
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 0- , D. C.
To Dstrct Supervsors and Others Concerned:
1. Reguatons 10, Warehousng of Dsted Sprts (26 CFR,
part 1 ; 1 F. R. 233), arc hereby amended as foows:
Subpart Wthdrawa of Dsted Sprts From Warehouse
D T RMIN TION OF T R
Sec. 1S . S . Method of Determnaton. When packages of sprts are to be
ndvduay gauged for wthdrawa from the warehouse, the actua tare of the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
237
Regs. 10, 1 . , 1 .69 .
package w be determned: Provded, That the average Increase n tare may be
determned and used to estabsh the tare at the tme of gauge for wthdrawa
where t s shown to the satsfacton of the dstrct supervsor (1) that, due to
shortage of crtca materas, the propretor has been unabe to nsta buk gaug-
ng tanks for gaugng dsted sprts dumped from packages, as provded n sub-
part CC, (2) that the voume of ta -pad wthdrawas s not suffcent to |ustfy
the nstaaton and use of buk gaugng tanks, or (3) that, In the case of sma
ots, t s not feasbe to dump the sprts Into buk gaugng tanks of arge capac-
tes. Wrtten appcaton to use the average tare method of gaugng dsted
sprts for ta payment w be made to the dstrct supervsor by the warehouse-
man. Where the average tare method s used, the propretor w mprovse a
coumn on Form 1 20, headed ntry Tare, and w enter theren the tare on
entry gauge of each package to be wthdrawn.
Subpart FF Transfers n ond etween Interna Revenue
onded Warehouses
transfers between warehouses n same dstrct
Sec. 1 .69 . Transfers n Packages. When the propretor of the shppng
warehouse desres to make shpment of sprts n orgna packages, or n pack-
ages prevousy fed from warehouse storage tanks, or of bended brandes n
packages fed n the brandy-bendng department, he w prepare an orgna
and fve copes of Form 1619 fng n the headng and gvng detas as to sera
numbers of packages, date of orgna entry for depost, orgna gauge and ast
gauge (f other than the orgna). The propretor w enter n coumn (the
headng of whch w be amended to read ntry Tare ) the entry tares of the
packages. In the care of bended brandes the propretor sha aso show on
Form 1619 the date and sera number of the Form 16 coverng the bendng of
the brandes, the date of the orgna entry of the odest brandy n the bend and
the date of the orgna entry of the youngest brandy n the bend-. The propretor
sha e ecute on the s copes of Form 236 a descrpton of the packages to be
transferred and w gve a copes of Forms 23u and 1619 to the storekeeper-
gauger. Upon recept of the Forms 236 and 1619 the storekeeper-gauger w
wegh and e amne the packages and where t s determned that any package
bears evdence of unusua oss that cannot be satsfactory e paned, or of
tamperng, such package w be detaned pendng further nvestgaton n ac-
cordance wth the appcabe provsons of sectons 1 . 0-1 . 96. The store-
keeper-gauger w enter the shppng gross weghts on Form 1619. The quantty
to be transferred sha not e ceed the ma mum stated n the appcaton. Upon
wthdrawa for transfer to noncontguous premses, the word Transferred
foowed by the date of transfer, the number of the recevng warehouse, and the
State n whch such warehouse Is ocated, w be pany and duraby stenced
on the Government head of the package n etters and fgures not ess than one-haf
nch n heght. These marks may be abbre-ated as foows:
Trans. -1- 0
I. R. . W. -N. T.
Forms 236 and 1619 w be dsposed of n accordance wth the provsons of sec-
ton 1 .706. ( 3 Stat 300 as amended, 332 ; 26 U. S. C. 2 01, 2 7 .)
2. The purpose of the proposed amendment s to e tend the use of
the average tare method of gaugng packages of dsted sprts for
wthdrawa, whch w termnate at the cose of busness Decem-
ber 31, 19 1, and to permt ts use -where the necessty can be estab-
shed pursuant to the propretor s appcaton to the dstrct
supervsor.
3. It s found that compance wth the notce, pubc rue-makng
procedure, and effectve date requrements of the dmnstratve Pro-
cedure ct ( U. S. C. 1001 et seq.) s unnecessary n connecton wth
the ssuance of these reguatons for the reason that the change made
s of a berazng character.
. Treasury Decson 2 (16 F. . 967) s hereby revoked.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 1 , 190. 79, etc.
23
. T s Treasury Decson w be effectve upon the date of pubca-
ton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n 3 Stat. 300 as amended, 332, 37 ; 26 U. S. C. 2 01, 2 7 , 3176).
ohn . Dcnap,
Commssoner of Interna Revenue.
pproved December 6, 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed In the Federa Regster December , 19 1)
Reguatons 1 , Sectons 190. 79, tc. 19 1-26-13732
T. D. 70
TITL 26 INT RN L R NU C PT R L SU C PT R C, P RT 100.
R CTIFIC TION OF SPIRITS ND WIN S
(Reguatons 1 )
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. In order to conform Reguatons 1 , Rectfcaton of Sprts and
Wnes (26 CFR, part 190), to Pubc Law 161 ( 2d Cong.) page 3 2,
ths uetn , approved October 10, 19 1, whch amends secton
2 01(c) (1) of the Interna Revenue Code by strkng out, wherever
they appear, the words nnety proof and substtutng n eu thereof
the words eghty proof , sectons 190. 79, 190. , and 190. 6 of
such reguatons are hereby amended to read as foows:
Subpabt T Rectfcaton
L NDING OF STR IG T W IS I S ND PUR F fIT R NDI S
Sec. 1C0. 79. empton Fkom Ta . The rectfyng ta of 30 cents per proof
gaon does not attach to bends made e cusvey of two or more pure straght
whskes aged n wood for a perod of not ess than years and wthout the
addton of coorng or favorng matter or any other substance than pure water,
and f not reduced beow 0 proof, nor to bends made e cusvey of two or more
pure frut brandes dsted from the same knd of frut, aged n wood for a
perod not ess than 2 years and wthout the addton of coorng or favorng
matter or any other substance than pure water and f not reduced beow SO proof:
Provded, That the bendng s done under the mmedate supervson of the
Government offcer assgned to the pant or detaed to such duty by the dstrct
supervsor: nd provded further, That the foregong prohbton aganst the
addton of coorng or favorng matter sha not be construed to prevent the
bendng under the provsons of ths part of pure frut brandes otherwse
egbe, to whch a sma quantty of burnt sugar has been added under the
mtatons prescrbed In Reguatons (20 CFR, part 1S ). ( 3 Stat 300, as
amended, 37 ; 20 U. S. C. 2 01, 3170.)
Sec. 190. S . F rtn To Observe Condtons. ny bendng of such whsky
or brandy wthout supervson of a Government offcer as outned n secton
190. . or wth the addton of any coorng, favorng, or other substance, or f
reduced beow 0 proof, w necesstate payment of the rectfyng ta . ( 3
Stat. 300, as amended, 37 ; 20 U. S. C. 2S01, 3170.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
239
Regs. 1 , 192.273, etc.
Subpart Commodty Ta es on Rectfed Sprts and Products.
Sec. 190. 6. empton Fom Rectfcaton Ta . The ta of 30 cents per
proof gaon does not attach to gn produced by the redstaton of a pure
sprt oyer |unper berres and other aromatcs; to the m ng and bendng of
wnes, where such bendng s for the soe purpose of perfectng such wnes
accordng to recognzed commerca standards; to cordas or queurs on whch
a ta s mposed by secton 3030(a), I. R. C.; nor to bends made e cusvey
of two or more pure straght whskes aged n wood for a perod of not ess
than years and wthout the addton of coorng or favorng matter or any
other substance than pure water, and f not reduced beow 0 proof; nor to
bends made e cusvey of two or more pure frut brandes dsted from the
same knd of frut, aged n wood for a perod not ess than 2 years and
wthout the addton of coorng or favorng matter or any other substance
than pure water, and f not reduced beow 0 proof: Provded, That such
bended whskes and bended frut brandes are compounded under the m-
medate supervson of a revenue offcer n such tanks and under such condtons
and supervson as provded n subpart T of ths part. ( 3 Stat. 29 , as amended,
300, as amended, 37 ; 26 U. S. C. 2 00, 2 01, 3176.)
2. In order to fuy effectuate the purpose of Pubc Law 161 t
s desrabe that these reguatons be pubshed mmedatey and,
pursuant to secton 3791, Interna Revenue Code, be made retro-
actvey effectve as of October 10, 19 1, the date of approva of the
Pubc Law. .It s therefore found mpractcabe and contrary to
the pubc nterest to compy wth the notce, pubc rue makng, and
effectve date requrements of the dmnstratve Procedure ct
( U. S. C. 1001 et seq.).
3. Ths Treasury Decson sha be effectve on October 10, 19 1.
(Ths Treasury Decson s ssued under the authorty contaned
n 3 Stat. 29 , as amended, 300, as amended, 37 , 67; 26 U. S. C.
2 00, 2 01, 3176, 3791.)
ohn . Dun ap,
Commssoner of Interna Revenue.
pproved December 6, 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster December 7, 19 1, 11:39 a. m.)
Reguatons 1 , Sectons 192.273, tc. 19 1-16-13633
T. D. 7
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 192.
F RM NT D M LT LI UORS
(Reguatons 1 )
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. Reguatons 1 , approved May 20, 19 0 (26 CFR, part 192), as
amended, are further amended by addng sectons 192.273 through
192.2 0, as foows:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Regs. 1 , 192.273, etc.
2 0
S MPL S OF F RM NT D M LT LI UOR
Sec. 192.273. Genera. Sampes of fermented mat quor may be removed
wthout payment of ta , as provded In sectons 192.27 -192.27 , by brewers,
ether from the brewery or from the bottng house to a aboratory for anaytca
purposes (ncudng organoeptc e amnaton) to determne the character or
quaty of the product. ( 3 Stat. 37 ; 26 U. S. C. 3176.)
Sec. 192.27 . ppcaton. Whenever a brewer desres to remove sampes of
fermented mat quor wthout payment of ta , for anaytca purposes, he
sha fe appcaton, n trpcate, wth the dstrct supervsor. The appcaton
sha be seray numbered, begnnng wth number 1 and runnng consecu-
tvey thereafter. The appcaton sha set forth specfcay the sze, knd, and
number of sampes to be removed, the perod durng whch the sampes sha
be removed, and the name and address of the aboratory to whch the sampes
w be removed for anayss. Where t s desred to remove sampes reguary
the appcaton may be made for that purpose. The number and sze of the
sampes must be restrcted to the mnmum necessary for the purpose. state-
ment of the necessty for the anayss of sampes and for the number and sze
of such sampes sha be ncorporated n the appcaton. The brewer sha aso
ncorporate n the appcaton a statement that the sampes covered thereby w
not be used for purposes other than aboratory anayss. ( 3 Stat. 37 ; 26
U. S. C. 3176.)
Sec 192.27 . pprova of ppcaton. The dstrct supervsor must satsfy
hmsef as to the need for the number and sze of sampes desred and the
egtmacy of the purpose for whch they are to be used before approvng the
appcaton. The dstrct supervsor, upon approva or dsapprova of the app-
caton, sha return one copy to the brewer, forward one copy to the Comms-
soner, and retan the orgna n bs offce. ny approved appcaton may be
termnated f the Commssoner or the dstrct supervsor determnes that such
acton s warranted: Provded. That, e cept n cases nvovng wfuness or
where the pubc nterest requres otherwse, the brewer sha be notfed n
wrtng of the facts or conduct warrantng such acton and be accorded an
opportunty to demonstrate or acheve compance wth a awfu requrements.
( 3 Stat. 37 ; 26 U. S. C. 3176.)
Sec. 192.276. Labeng. ach botte or other mmedate contaner of fer-
mented mat quor to be removed, wthout payment of ta , for anaytca pur-
poses sha be abeed to show the nature and quantty of the contents, the name
and address of the aboratory to whch t w be removed, and the name and
address of the brewer. The abe sha bear the statement, Sampe for abora-
tory anayss ony not for sae or beverage use. ( 3 Stat. 37 ; 26 U. S. C. 3176.)
Sec. 192.277. Records. separate record sha be mantaned showng by date
the quantty of fermented mat quor removed pursuant to an approved appca-
ton and the sera number of such appcaton. Proper credt entry for the tota
quanttv so removed durng the month must be made n the summary on Form
103. ( 3 Stat. 37 ; 26 U. S. C. 3176.)
Sec. 192.27 . Resdues of Sampes. Resdues or remnants of sampes reman-
ng after aboratory anayss whch are not to be retaned as aboratory spec-
mens or for comparatve purposes must be destroyed or returned to the brewery
premses. The sampes or the resdues thereof may not, n any event, be sod,
or dsposed of otherwse. ( 3 Stat. 37 ; 26 T . S. C. 3176.)
Sec. 192.279. nayss on rewery Premses. ppcatons need not be fed
where sampes are to be taken for anayss n the brewer s aboratory ocated
on the brewery premses. ( 3 Stat. 37 ; 26 U. S. C. 3176.)
Sec 192.2 0. Ta paymf.nt. ny sampes of fermented mat quor removed
or used otherwse than as authorzed n sectons 192.273-192.279 sha be sub-
|ect to ta payment n accordance wth ths part. ( 3 Stat. 37 ; 26 U. S. C. 3176.)
2. The purposes of the proposed amendment are to authorze brew-
ers to remove sampes of fermented mat quor, wthout payment of
ta , ether from the brewery or bottng house, for anaytca purposes
(ncudng organoeptc e amnaton), and to prescrbe the procedure
governng such removas.
3. Ths Treasury Decson w be effectve upon the date of pub-
caton n the Federa Regster.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 1 Msc.
(Ths Treasury Decson s ssued under the authorty contaned
n 3 Stat. 37 ; 26 U. S. C. 3176.)
Geo. . Schoeneman,
Commssoner of Interna Revenue.
pproved uy 19, 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster uy 2 ,19 1)
Pabt 171: Msceaneous reguatons reat- 19 1-23-13701
ng to quor. T. D. 62
tte 26 nterna revenue. chapter . subchapter c, part 171.
msceaneous reguatons reatng to quor
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton So, D. C.
To Coectors of nterna Revenue, Dstrct Supervsors, and Others
Concerned:
1. Sectons 1(c), 2(b), 3(b), and 6 of the Revenue ct
of 19 1 (Pubc Law 1 3, 2d Cong.) provde as foows:
Sec. 1(c) Foor Stocks Ta . Secton 2 00 s amended by nsert-
ng at the end thereof the foowng new subsecton:
(1) 19 1 Foor Stocks Ta .
(1) Taw. Upon a dsted sprts upon whch the nterna
revenue ta mposed by aw has been pad, and whch on the effec-
tve date of secton 1(a) of the Revenue ct of 19 1, are hed
and ntended for sae or for use n the manufacture or producton
of any artce ntended for sae, there sha be eved, assessed, co-
ected, and pad a foor stocks ta of 1. 0 on each proof-gaon,
and a proportonate ta at a ke rate on a fractona parts of
such proof-gaon.
(2) R(turns. Under such reguatons as the Secretary sha
prescrbe, every person requred by paragraph (1) to pay any foor
stocks ta sha, on or before the end of the thrteth day foowng
the effectve date of secton 1(a) of the Revenue ct of 19 1
make a return and sha, on or before the frst day of the thrd
month foowng such effectve date, pay such ta . Payment of the
ta shown to be due may be e tended to a date not ater than
the frst day of the tenth month foowng the effectve date of
such secton upon the fng of a bond for payment thereof n such
form and amount and wth such surety or suretes as the Secretary
may prescrbe.
(3) Laws ppcabe. provsons of aw, ncudng penates,
appcabe In respect of nterna revenue ta es on dsted sprts
sha, nsofar as appcabe and not nconsstent wth ths subsec-
ton, be appcabe n respect of the foor stocks tn mposed here-
under. For the purposes of ths subsecton the term dsted
sprts sha ncude products produced n such manner that the
person producng them Is a rectfer wthn the meanng of secton
32 (g).
Sec 2(b) Foor Stocks. Subchapter F of chapter 20 s hereby
amended by Insertng at the end thereof the foowng new secton:
S C. 319 . 19 1 FLOOR STOC S T ON WIN S,
(a) Upon a wnes upon whch the nterna revenue ta m-
posed by aw has been pad, and whch on the effectve date of sec-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2 2
ton 2(a) of the Revenue ct of 19 1 are hed and Intended for
sae or for use n the manufacture or producton of an artce n-
tended for sae, there sha be eved, assessed, coected, and pad
a foor stocks ta at rates equa to the ncreases n rates of ta
made appcabe to such artces by secton 2(a) of the Revenue
ct of 19 1.
(b) Returns. Under such reguatons as the Secretary sha
prescrbe, every person requred by subsecton (a) to pay any foor
stocks ta sha, on or before the end of the thrteth day foowng
the effectve date of secton 2(a) of the Revenue ct of 19 1 make
a return and sha, on or before the frst day of the thrd month
foowng such effectve date, pay such ta . Payment of the ta
shown to be due may be e tended to a date not ater than the frst
day of the tenth month foowng the effectve date of secton 2(a)
of the Revenue ct of 19 1, upon the fng of a bond for payment
thereof n such form and amount and wth such surety or suretes as
the Secretary may prescrbe.
(c) Laves ppcabe. provsons of aw, ncudng penates,
appcabe n respect of the ta es Imposed by secton 3030(a) sha,
nsofar as appcabe and not nconsstent wth ths secton, be
appcabe wth respect to the foor stocks ta mposed by sub-
secton (a).
Sec. 3(b) Foor Stocks Ta Secton 31 0 s hereby amended by
Insertng at the end thereof the foowng new subsecton:
(g) 19 1 Fook Stocks Ta .
(1) Ta . Upon a fermented mat quors upon whch the
nterna revenue ta mposed by aw has been pad, and whch on
the effectve date of secton 3(a) of the Revenue ct of 19 1 are
hed by any person and ntended for sae there sha be eved,
assessed, coected, and pad a foor stocks ta at a rate of 1 per
barre of 31 gaons.
(2) Returns. Under such reguatons as the Secretary sha pre-
scrbe, every person requred by paragraph (1) to pay any foor
stocks ta sha, on or before the end of the thrteth day foowng
the effectve date of secton 3(a) of the Revenue ct of 19 1 make
a return and sha, on or before the frst day of the thrd month fo-
owng such effectve date, pay such ta . Payment of the ta shown
to be due may be e tended to a date not ater than the frst day of
the tenth month foowng the effectve date of secton 3(a) of the
Revenue ct of 19 1, upon the fng of a bond for payment thereof
n such form and amount and wth such surety or suretes as the
Secretary may prescrbe.
(3) Lacs ppcabe. provsons of aw, ncudng penates,
appcabe n respect of the ta es mposed by subsecton (a) sha,
nsofar as appcabe and not nconsstent wth ths subsecton, be
appcabe wth respect to the foor stocks ta mposed by ths
subsecton.
S C. 6. FF CTI D T OF P RT .
The amendments made by ths part sha take effect on the frst day of
the frst month whch begns more than 10 days after the date of the
enactment of ths ct.
2. Pursuant to the above provsons of aw, the foowng reguatons
are hereby prescrbed:
Subpart 19 1 Foor Stocks Ta es on Dsted Sprts, Fermented Ma
Lquors, and Wnes
Tabe of Contents
G N R L
Secton
171.300. Inventores, Forms 7 S- , 7 - , and 7 -C
171.301. Identfcaton of nventory.
171.302. Fng of return, Form 7 S, and Inventory.
171.303. Payment of foor stocks ta .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 3
Msc.
DISTILL D SPIRITS
Secton
171.30 .
171.30 .
Inventory of dsted sprts, Form 7 - .
(a) otted sprts.
(b) Sprts n buk.
(c) Sprts n process of rectfcaton or bottng.
(d) Sprts used n manufacturng nonbeverage products.
Sprts sub|ect to ta .
171.306.
Computaton of proof gaons.
R ND OT R F RM NT D M LT LI UORS
171.307.
171.30 .
eer and other mat quors sub|ect to ta .
Inventory of fermented mat quors, Form 7 - .
WIN S
171.309.
171.310.
Wnes sub|ect to ta .
Inventory of wnes, Form 7 -C.
(a) Method of reportng.
(6) Wnes n buk,
(c) Wnes used n manufacturng.
G N R L
Sec. 171.300. Inventores, Forms 7 - , 7 - , and 7 -C very person,
ncudng natura persons, corporatons, partnershps, or assocatons, hodng on
November 1, 19 1, dsted sprts and wnes upon whch the nterna revenue
ta mposed by aw has been pad and whch on such date are hed and ntended
for sae or use n the manufacture or producton of any artce ntended for sae,
sha, after the cose of busness October 31, 19 1, and before begnnng busness
on November 1, 19 1, prepare an nventory of dsted sprts on Form 7 -
and of wnes on Form 7 -C. very person, ncudng natura persons, corpora-
tons, partnershps, or assocatons, hodng on November 1, 19 1, fermented mat
quors upon whch the nterna revenue ta mposed by aw has been pad
and whch on such date are hed and ntended for sae, sha, after the cose of
busness October 31, 19 1, and before begnnng busness on November 1, 19 1,
prepare an nventory of fermented mat quors on Form 7 - . The nventory
forms must be provded by the ta payer at hs own e pense, but must be n the
form prescrbed by the Commssoner. ntres w be made as ndcated by the
headngs of the varous coumns and nes on the forms, and the nstructons ssued
n respect thereto, and as requred by ths subpart.
Sec. 171.301. Identfcaton of Inventory. The compete nventory of ds-
ted sprts (Form 7 - ), fermented mat quors (Form 7 - ), and wnes
(Form 7 -C) sha be prepared n dupcate. ach page of the nventory w
be consecutvey numbered and dentfed by showng ceary n the headng thereof
the name of the ndvdua, frm, assocaton, or corporaton hodng the ds-
ted sprts, fermented mat quors, or wnes, as the case may be, the trade
name (f any), the address (f ocated n a cty or town, the street and number,
the name of the cty or town, the posta zone, and the State; f not ocated n
a cty or town, the name of the county, the post offce (wth the dstance and
drecton therefrom), and the name or number of the road or hghway on whch
stuated), the cass of busness (restaurant, tap room, package store, whoe-
sae quor deaer, druggst, brewer, rectfer, etc.), and the knd and sera
number of the Federa speca ta stamp (f any) hed at such address. ach
nventory, whether for dsted sprts, fermented mat quors, or wnes, w
consst of 3 sectons as foows:
Secton 1. Lquors on the premses of the ta payer.
Secton 2. Lquors owned by the ta payer and stored esewhere.
Secton 3. Lquors owned by and n transt to or from the ta payer. The
means of transportaton and the name and address of the
consgnor or consgnee, as the case may be, w be reported.
ach page of the nventory w be ceary dentfed as to ts purpose by checkng
secton 1, 2, or 3, as the case may be, and w bear the sgnature and tte or
capacty of the person preparng the same. If the person preparng the nventory
s other than the propretor or hs empoyee, the address of such person must
aso be shown.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2
Sec. 171.302. Ft.ng of Rrrrra, Fobm 7 S, and Inventory. ach person re-
qured by secton 171.300 to prepare an nventory sha, upon competon of hs
nventory, make a return on Form 7 (Revsed 19 1), n trpcate, for ta -pad
dsted sprts, fermented mat quors and wnes hed on the premses of the
ta payer, owned by the ta payer and stored esewhere, and owned by and n
transt to or from the ta payer. The orgna and dupcate copy of the return,
to . ether wth the orgna nventory on Form 7 - , Form 7 - , and Form
7 -C, must be fed not ater than December 1, 19 1, wth the coector of n-
terna revenue of the dstrct n whch the ta payer s pace of busness s
stuated. The trpcate copy of the return (Form 7 ), together wth the
dupcate copy of the nventory, and a premnary work sheets, drafts of n-
ventores, etc., w be retane by the ta payer at the ocaton covered by the
return. The fng of a banket return wth one coector to cover a number
of paces of busness n dfferent coecton dstrcts s not permssbe. ew-
ever, one return may be fed coverng a number of separate paces of busness,
provded such paces are n the same coecton dstrct, and a separate, compete
nventory s prepared for each pace. Where one return s fed to cover a
number of separate paces of busness n the same coecton dstrct, the dup-
cate copy of each nventory, and reated work sheets, w be retaned at the
pace of busness for whch the nventory s prepared, and a st, showng the
addresses of the varous paces of busness covered by the return and the tota
quanttes of dsted sprts, fermented ma quors, and wnes hed at each
ocaton, w be attached to each copy of Form 7 , the trpcate copy of whch
w be retaned by the ta payer at the address shown on hs return. The re-
taned copes of the return, nventory, and reated work sheets sha be avaabe
for nspecton durng busness hours by nterna revenue offcers.
Sec. 171.303. Payment or Foor Stocks Ta . The foor stocks ta shown
by the return to be due may be pad to the coector of nterna revenue at the
tme the return s fed, but. f not pad at that tme, such ta must be pad
not ater than February 1, 19 2: Provded, That the tme of payment of the
ta may be e tended to a date not ater than September 1, 19 2, upon the fng
of a bond on Form 723- (Revsed 19 1), n dupcate, n a pena sum equa
to the ta shown on Form 7 to be due, pus any penaty ncurred by reason
of denquency n fng Form 7 , and pus an addtona amount equvaent
to 10 percent of such ta and penaty. onds, Form 723- , w be e ecuted
n accordance wth the nstructons prnted thereon and fed wth the coector
of nterna revenue.
DISTTLt D SPIRITS
Sec. 171.30 . Sptrtts Sub|ect to Ta . The foowng knds of dsted sprts,
among others, domestc or mported, f ta -pad pror to November 1, 19 1, are
sub|ect to the foor stocks ta of 1. 0 a proof gaon f, on that date, such
sprts are hed and ntended for sae or for use n the manufacture or producton
of any artce ntended for sae, ncudng a such sprts n transt, or stored
or possessed n a warehouse cr other pace, whether or not pedged by means
of warehouse recepts or otherwse as securty for the purchase prce or other
ndebtedness:
(a) thy acoho.
(b) Neutra sprts.
(c) Sprts gran, sprts cane, sprts frut, sprts vegetabe, etc.
(d) Whsky, gn, rum, brandy, and vodka.
(e) Cocktas contanng dsted sprts.
(/) Lqueurs, cordas, and smar compounds contanng dsted sprts.
(d) Tequa, okoehao, etc.
(ft) Wnes (ncudng vermouth) contanng more than 2 of acoho
by voume.
() Dsted sprts of any descrpton hed by any person for use n the
manufacture of any artce ntended for sae, regardess of whether the
artce to be produced s n tsef unft for beverage purposes.
(/) Dsted sprts of any descrpton n manufacturng processes whch
have not become unft for beverage use or egbe for drawback under secton
197.3 (6) and (c) of Reguatons 29 (26 CFR, part 197) by reason of such
use. Incuded n ths category are dsted sprts contaned n Inter-
medate products ft for beverage use and not yet egbe for drawback
under Reguatons 29, as we as dsted sprts contaned n the nta
stages of manufacture whch have not yet been rendered unft for beverage
use or egbe for drawback.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
Msc.
Sec 171.30 . Inventory of Dsted Sprts, Form 7 - . (a) otted
sprts. The nventory of botted dsted sprts w be prepared on Form
7 - , descrbng such sprts, as foows:
Co. 1 nd of sprts.
Co. 2. rand name.
fu cases
Co. 3. Sera numbers of cases.
Co. . Number of cases.
Co. . Sze of bottes.
Co. 6. Wne gaons per case.
OT R OTTL S
Co. 7. Number of bottes.
Co. . Sze of bottes.
WIN ND PROOF G LLONS
Co. 9. Tota wne gaons.
Co. 10. Proof.
Co. 11 Tota proof gaons.
The dsted sprts w be sted separatey by knds, that s, there w be
a separate stng of acoho, whsky, brandy, gn, rum, cordas, etc. ach
knd of sprts may be grouped accordng to brand name or proof. The content
of each partay ted open botte (regardess of sze) w be determned and
the tota contents of a such bottes of the same proof w be reported as a
separate entry, desgnated Msceaneous open bottes, n secton 1 of the
nventory. ntres w be made n each appcabe coumn of the form e cept
that sera numbers of cases of quors on the premses of the taspnyer or owned
by the ta payer and stored esewhere need not be reported on Form 7 - by
(a) monopoy States, (6) whoesae quor deaers under the Federa aw who
do not se to consumers drecty or who do not se through a reta department,
or (c) persons ownng stocks stored n commerca warehouses, provded that,
n the case of ether (a), (6), or (c), the quors are stored separatey by knd,
brand name, sze of bottes, wne gaons per case, and proof, and an accurate
physca nventory can be taken by e amnng the markngs on one case and
countng the number of cases n the ot or stack. owever, sera numbers of
cases of quors owned by and n transt to or from such ta payers must be re-
ported on Form 7 - .
(6) Sprts n buk. Dsters, rectfers, manufacturers, and other persons
hodng ta -pad dsted sprts n packages (barres or drums), tank cars, tank
trucks, or n tanks, w st such sprts n secton 1 of the nventory, reportng
the knd of sprts, wne gaons, proof, and proof gaons, the sera number
and knd of each contaner, and the name of the dster. Manufacturers
hodng sprts n process of manufacturt w report the batch number, the name
of the product beng manufactured, and the formua number (f any). The n-
ventory form may be appropratey modfed for the purpose of reportng such
data.
(c) Sprts n process of rectfcaton or bottng. Rectfers hodng ta -pad
sprts n process of rectfcaton, and rectfers or other botters hodng ta -pad
sprts n bottng tanks, w measure and proof the sprts, and show n secton
1 of the nventory the sera number and knd of receptaces contanng the
sprts, the knd of sprts, wne gaons, proof, and proof gaons. The nven-
tory form may be appropratey modfed for the purpose of reportng such data.
( ) Sprts used n manufacturng nonbeverage products. Dsted sprts
whch have been used, as defned n secton 197.3 (6) and (c) of Reguatons 29
(26 CFR, part 197), or whch have been rendered unft for beverage use, n the
1 Paragraphs (b) and (c) of secton 197.3 rend aa foows:
Sec. 107.3. Teems Used n thb Statute.
) ted. Dsted sprts ha be deemed to have been used n the manufacture
of a product desgnated n secton 32 0(1). Interna Revenue Code, when such sprts are
ether consumed n such manufacture or are ncorporated n the product, provded that
IZ L 2 y C Ute suc1 ,1s P aee. eakage, breakage or theft, pror to or durng the
process of manufacture, sha not be deemed to be consumed n such manufacture
k ) r ; The tme at whch dsted sprts sha be deemed to have been used s
k . .T TC,OI; , .the Sredents caed for by an approved formua, or formuas
proscrbed by the Unted States Pharmacopoea, the Natona Formuary, or the mercan
Insttute of omeopathy, as the case may be. (Sec. 32 0(1), I. R C.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2 6
manufacture of nonbevernge products, are not sub|ect to foor stocks ta es. Ds-
ted sprts recovered n the manufacture of nonbeverage products egbe for
drawback are not sub|ect to foor stocks ta es.
Sec. 171.306. Computaton of Proof Gaons. In computng proof gaons, a
decmas w be carred to three paces. The actua proof of the sprts as shown
on the abe or markngs on the case must be shown on the nventory. In
computng proof gaons (wne gaons tmes proof), the fractona parts of proof
w be used. For e ampe, 3 wne gaons tmes 6. proof equas 2.60 proof
gaons.
ND OT R F RM NT D M LT LI UORS
Sec. 171.307. eer and Other Mat Lquors Sub|ect to Ta . The foowng
knds of fermented mat quors, amcng others, domestc or Imported, If ta pad
pror to November 1, 19 1, are sub|ect to the foor stocks ta of 1 a barre (31
pons) If, on that date, such fermented mat quors are hed and ntended
for sae; ncudng a such beer and other mat quors n transt, or stored
or possessed n a warehouse or other pace, whether or not pedged by warehouse
recepts or otherwse as securty for the purchase prce or other ndebtedness:
(a) eer.
(6) e.
(c) Porter.
(d) Stout.
(e) Lager beer.
(/) Sake.
Sec. 171.30 . Inventory of Fermented Mat Lquors, Form 7 - . The In-
ventory of fermented mat quors w be prepared on Form 7 S- , descrbng
such quors, as foows:
buk contaners
Co. 1. Number of barres.
Co. 2. Number of barres.
Co. 3. Number of barres.
Co. . Number of barres.
Co. . Number of barres.
Co. 6. Number of barres.
Co. 7. The tota quantty (buk) n barres of 31 gaons.
ottes and Cans
fu cases
Co. . Number of cases.
Co. 9. Number of bottes or cans per case, and sze (botte or can) n
ounces ( ampe: 2 -12 to ndcate a case of twenty-four 12-
ounce bottes or cans).
Co. 10. Decma equvaent n barres per case.
LL OT R OTTL S ND C NS
Co. 11. Number of bottes or cans.
Co. 12. Sze of each botte or can, n ounces.
Co. 13. Decma equvaent n barres per botte or can.
Co. 1 The tota quantty (bottes or cans) n barres of 31 gaons.
IN S
Sec. 171.309. Wnes Sub|ect to Ta . The foowng knds of wnes, among
others, domestc or mported, f ta pad pror to November 1, 19 1, are sub|ect
to the foor stocks ta at rates shown beow f, on that date, such wnes are hed
and ntended for sae or for use n the manufacture or producton of any artce
ntended for sae, ncudng a such wnes n transt, or stored or possessed n a
warehouse or other pace, whether or not pedged by means of warehouse recepts
or otherwse as securty for the purchase prce or other ndebtedness:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 7
Msc.
nd Foor tfock torn
(a) St wnes, ncudng vermouth, and n artfca
or mtaton wnes, or compounds sod as st
wnes, contanng:
(1) Not more than 1 of acoho by voume 0.02 a gaon.
(2) More than 1 and not e ceedng 21 of
acoho by voume .07 a gaon.
(3) More than 21 and not e ceedng 2 of
acoho by voume .2 a gaon.
(6) Champngne and sparkng wnes, that s, efferves-
cent wne charged wth carbon do de resutng
from fermentaton of the wne n buk or n the
botte . 02 per each one-
haf pnt or frac-
ton thereof.
(c) rtfcay carbonated wne, that s, effervescent
wne artfcay charged wth carbon do de . 02 per each one-
haf pnt or frac-
ton thereof.
Wnes of any descrpton n manufacturng processes whch have not become
unft for beverage use are sub|ect to foor stocks ta es.
Sec. 171.310. Inventoby or Wnes, Form 7 -C. (o) Method of reportng.
The nventory of wne w be prepared on Form 7 -C. The nventory w be
dvded nto fve parts for the separate stng of the fve dfferent ta casses,
as foows:
(a) Wnes contanng not more than 1 of acoho by voume.
( ) Wnes contanng more than 1 but not e ceedng 21 of acoho by
voume.
(c) Wnes contanng more than 21 but not e ceedng 2 of acoho by
voume.
(d) Champagne and other sparkng wnes.
(e) rtfcay carbonated wnes.
For casses (a), (6), and (c) the nventory sha descrbe such wnes, as foows:
Co. 1. nd of wne.
Co. 2. Percent of acoho.
Co. 3. Number of barres or kegs (where appcabe).
FULL C S S
Co. . Number of cases.
Co. . Sze of bottes.
Co. 0. Wne gaons per case.
OT R OTTL S
Co. 7. Number of bottes not n cases.
Co. . Sze of bottes not n cases.
Co. 0. Wne gaons per botte.
WIN G LLONS
Co. 10. Tota wne gaons.
For casses (d) and (e) the nventory sha descrbe such wnes, as foows:
Co. 1. nd of wne.
SP R LING O C R ON T D WIN
Co. 11. Number of bottes.
Co. 12 Sze of bottes.
Co. 13. Number of ta abe unts (one-haf pnts or fractons thereof).
(6) Wnes n buk. Rectfers, whoesae deaers n quors, manufacturers,
and other persons hodng ta pad wnes n packages, tank cars, tank trucks,
or n tanks w measure and determne the acohoc content of the wnes:, and
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2
st such wnes n secton 1 of the nventory, reportng the number and knd of
receptaces contanng the wne, the knd of wne, the wne gaons, and the Ter-
cent of acoho by voume. The nventory form may be appropratey modfed
for the purpose of reportng such data.
(c) 1F e used n manufacturng. Wnes used n the manufacture of non-
beverage products and whch have become unft for beverage use are not sub|ect
to foor stocks ta .
3. The purposes of the proposed Treasury Decson are to requre
the takng of nventores of dsted sprts, fermented mat quors,
and wnes sub|ect to the foor stocks ta . the fms of returns and n-
ventores, the payment of the ta , and the retenton of copes of re-
turns, nventores, work sheets, etc., by the ta payer on hs premses,
and to provde for the e tenson of the date of payment by the fng
o a bond.
. It s found that compance wth the notce, pubc rue-makng
procedure, and effectve date requrements of the dmnstratve
Procedure ct ( U. S. C. 1001 et seq.) s mpractcabe and contrary
to the pubc nterest n connecton wth the ssuance of these regua-
tons because the purposes of the reguatons coud not be effectuated
uness the reguatons are mmedatey promugated.
. Ths Treasury Decson sha be effectve upon the date of ts
pubcaton n the Federa Regster.
(Ths Treasurv Decson s ssued under the authorty contaned
n the Revenue ct of 19 1 (Pubc Law 1 3, 2d Cong., approved
October 20,19 1).)
O N . DuNL F,
Commssoner of Interna Revenue.
pproved October 2 . 19 1.
Thomas . Lt ch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster October G, 19 1)
Part 171: Msceaneous reguatons reat- 19 1-2 -13709
ng to quor. T. D. 6
TITL 26 INT R L R U C rT R I. SU C PT R C, P RT 171.
MISC LL N OUS R GUL TION S R L TING TO LI UOR
Natona emergency transfers of dsted sprts
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. On uy 2 .19 1. a notce of proposed rue makng was pubshed
n the Federa Regster (16 F. R. 7 21) under part 171, Msceaneous
Reguatons Reatng to Lquor (20 CFR, part 171), to gve effect to
ouse ont Resouton 73 (Pubc Law 76, 2d Cong, page 3 ,
ths uetn ) whch added at the end of subchapter of chapter 2G
of the Interna Revenue Code, a new secton desgnated, Secton 31S3.
Natona mergency Transfers of Dsted Sprts, as foows:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 9
Msc.
ont Resouton
amendng chapter 20 of the nterna revenue code
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed. That chapter 20 of the Interna
Revenue Code s amended by addng at the end of subchapter a new-
secton desgnated 31 3 to read as foows:
S C. 31 3. N TION L M RG NCY TR NSF RS OF DISTILL D
SPIRITS.
(a) Tbansfebs Permtted. Under reguatons prescrbed by the
Secretary, dsted sprts of any proof ncudng acoho (the term
dsted sprts or sprts as herenafter used n ths secton sha
ncude acoho) ma. be removed n bond n approved contaners and
ppenes from any regstered dstery ncudng a regstered frut
dstery (such resstered dstery and regstered frut dstery
herenafter referred to as dstery ), nterna revenue bonded ware-
house, ndustra acoho pant or ndustra acoho tonded warehouse
to any dstery, nterna revenue bonded warehouse, ndustra acoho
pant or ndustra acoho bonded warehouse for redst-ton, or stor-
age, or any other purpose deemed necessary to meet the requrements of
the natona defense: Provded, That any such dsted sprts may be
stored n approved tanks n, or consttutng a part of, any nterna
revenue bonded warehouse or ndustra acoho bonded warehouse:
Provded further, That any such dsted sprts removed to an ndustra
acoho pant or ndustra acoho bonded warehouse may be wthdrawn
therefrom f of a proof of one hundred and s ty degrees or more for
any ta -free purpose, or upon payment of ta for any purpose, authorzed
by part II of subchapter C; and any such dsted sprts removed to a
dstery or nterna revenue bonded warehouse may be wthdrawn
therefrom f of a proof of one hundred and s ty degrees or more for any
ta -free purpose authorzed by part II of subchapter C or for any pur-
pose authorzed n the case of ke sprts produced at a dstery:
Provded further. That any such dsted sprts, upon remova from a
dstery or nterna revenue bonded warehouse for transfer to an ndus-
tra acoho pant or ndustra acoho bonded warehouse or for any
ta -free purpose authorzed by part II of subchapter C, sha be sub|ect
to the provsons of part II of subchapter C: Provded further, That
when a y dsted sprts are removed under the provsons of ths sec-
ton to a dstery, ndustra acoho pant, or ndustra acoho bonded
warehouse, the ta abty of the propretor of the dstery, nterna
revenue bonded warehouse, ndustra acoho pant, or ndustra acoho
bonded warehouse from whch the sprts are removed, and the ens
on such dstery, ndustra acoho pant, or ndustra acoho bonded
warehouse, sha cease; and at and from the tme the dsted sprts
eave the dstery, nterna revenue bonded warehouse, ndustra
acoho pant, or ndustra acoho bonded warehouse the ta sha be the
abty of the propretor of, and the ens sha be transferred to the
premses of, the dstery, ndustra acoho pant, or ndustra acoho
bonded warehouse to whch the dsted sprts are transferred:
Provded further, That when any dsted sprts are removed under the
provsons of ths secton to an nterna revenue bonded warehouse
the propretor of such warehouse sha be prmary abe for the ta
on the sprts at and from the tme the sprts eave the premses from
whch transferred: Provded further, That the provsons of secton 2901
of the Interna Revenue Code sha appy n respect of osses of any
dsted sprts transferred, or removed for transfer, under ths secton
to a dstery or nterna revenue bonded warehouse; and the provsons
of secton 3113 of the Code sha appy n respect of osses of any dsted
sprts transferred, or removed for transfer, under ths secton to an
ndustra acoho pant or ndustra acoho bonded warehouse: nd
provded further. That sectons 2 30 and 2 70 of the Interna Revenue
Code sha not appy to the producton or redstaton and remova of
any such sprts: nor sha sectons 2 00(a) ( ) and 32 0(f) of the Code
appy to the redstaton or to the mngng at a dstery or an nterna
9 010 02 17
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2 0
revenue bonded warehouse or In the course of remova, of any such
sprts.
(b) empton From Statutory Requrements. The Secretary
may temporary e empt propretors of dsteres, nterna revenue
bonded warehouses. Industra acoho pants, or ndustra acoho
bonded warehouses from any provson of the nterna revenue aws
reatng to dsted sprts, e cept those requrng payment of the ta
thereon, whenever n hs |udgment t may seem e pedent to do so to
meet the requrements of the natona defense. Whenever the Secretary
sha e ercse the authorty conferred by ths subsecton he may pre-
scrbe such reguatons as may be necessary to accompsh the purpose
whch caused hm to grant the e empton.
(e) Termnaton of Secton. The authorty conferred upon the
Secretary by ths secton sha e pre fve years from the date of enact-
ment of ths secton.
2. fter consderaton of such reevant matter as was presented
by nterested persons regardng the proposa, the foowng regua-
tons are hereby prescrbed:
Subpart G Natona mergency Transfers of Dsted Sprts
Secton
171.170. Scope of reguatons n ths subpart,
defntons
171.171. Meanng of terms.
171.172. pproved contaners.
171.17 . Carrer.
171.17 . Commssoner.
171.17 . Denaturng pant.
171.176. Dsted sprts.
171.177. Dstery.
171.17 . Dstrct supervsor or supervsor.
171.179. Frut dstery.
171.1 0. Incudng.
171.1 1. Incusve anguage.
171.1 2. Industra acoho bonded warehouse.
171.1 S. Industra acoho pant.
171.1 . Interna revenue bonded warehouse.
171.1 . I R. C.
171.1 6. Motor carrer.
171.1 7. Part II of subchapter C.
171.1 . Regstered dsery.
1711 0. Secretary.
171.100. Unted States.
171.191. U. S. C.
TR NSF RS P RMITT D
171.10 . uthorzed removas.
171.10G. Other transfers n bond authorzed by Commssoner.
INDS OF CONT IN RS
171.200. Genera.
171.201. Remova by ppene.
171.202. Remova by tank cars and tank trucks.
171.203. Remova by tank shps and tank barges.
171.20 . Scang of conveyances.
171.20 . Markng of contaners.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 1
Msc.
C RRI RS
Secton
171.207. Permt.
171.20 . ond Transportaton by carrer.
171.209. ond Transportaton by consgnor or consgnee.
171.210. pprova of tank trucks.
G UGING OF DISTILL D SPIRITS
171.212. Transferred between bonded premses by ppene.
171.213. Transferred between bonded premses by tank cars, tank trucks, or
tank barges.
171.21 . Receved n dstery or ndustra acobo pant for wcgbng ony.
171.21 . Removed for use of the Unted States.
171.216. Removed for other ta -free purposes or upon ta payment.
171.217. Determnaton of proof.
D SIGN TION OF DISTILL D SPIRITS
171.220. Genera.
171.221. Neutra Sprts M ed, Sprts M ed.
171.222. coho M ed, -Unfnshed coho M ed.
171.223. coho deposted n dsteres and nterna revenue bonded ware-
houses.
171.22 . Dsted sprts deposted n ndustra acoho pants and bonded
warehouses.
MPTIONS FROM ST TUTORY R UIR M NTS
171.227. Sunday nnd nght-tme operatons.
171.22 . Rectfcaton ta es.
171.220. uthorzed by the Commssoner.
TR N F RS IN DOND TO DISTILL RI S
uthorzed transfers.
Consent of surety, Form 1 33, on dstery bonds.
Transfer of ens.
Transfer procedure.
Depost n tanks.
Redstaton.
Records.
TR NSF RS 1 OND TO INT RN L R NU OND D W R OUS S
171.2 0. uthorzed transfers.
171.2 1. Consent of surety, Form 1 33, cn warehouse bond.
171.2 2. Transfer procedure.
171.2 3. Depost n tanks.
171.2 . Records.
TR NSF RS IN OND TO INDUSTRI L LCOTIOL PL NTS ND INDUSTRI L LCO OL
OND D W R OUS S
171.2 . uthorzed transfers.
171.2 9. Consent of surety, Form 1 33, on pant or warehouse bond.
171.2 0. Transfer of ens.
171.2 1. asc and wthdrawa permts.
171.2 2. Transfer procedure.
171.2 3. Depost n tanks at ndustra acoho pants.
171.2 . Depost n tanks at ndustra acoho bonded warehouses.
171.2 . Redstaton.
171.200. Records.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2 2
TR NSF RS IN OND FROM INDUSTRI L LCO OL PL NTS ND INDUSTRI L LCO OL
OND D W R OUS S TO DISTILL RI S ND INT RN L R NU OND D W R -
OUS S
Secton
171.2 . mendment of notce.
171.239. Transfer procedure.
R MO LS, FR OF T , FOR D N TUR TION
171.200. uthorzed wthdrawas.
171.261. asc and wthdrawa permts.
171.262. Consent of surety, Form 1 33, on denaturng pant bond.
171.203. Wthdrawa procedure.
171.26 . Records.
3 MO LS, FR OF T , FOR US OF T UNIT D ST T S
171.26 . uthorzed wthdrawas.
171.206. ppcaton and permt, Form 1 .
171.267. Wthdrawas of dsted sprts.
171.20 . Certfcate of recept,
R MO LS, FL OF T , FOR SCI NTIFIC PURPOS S, US OF OSPIT LS, TC.
171.270. uthorzed wthdrawas.
171.271. asc and wthdrawa permts.
171.272. onds.
171.273. Wthdrawa procedure.
R MO LS FO PORT TION WIT OUT P YM NT OF T
171.27 . uthorzed wthdrawas.
G N R L
171.27 . Losses.
171.270. Mngng durng course of remova same premses.
171.277. Mngng durng course of remova dfferent premses.
171.27 . stabshment of denaturng pants.
171.279. ddtona requrements.
171.2 0. Termnaton of reguatons.
uthorty. Sectons 171.170-171.2 0 ssued under secton 31 3 of the Interna
Revenue Code (U. S. C, tte 26, secton 31 3).
Subpart G Natona mergency Transfers of Dsted Sprts
Sec. 171.170. Scope of Reguatons n Ths Subpart. The reguatons n
ths subpart proscrbe the procedura and substantve requrements n addton
to the appcabe provsons of Reguatons 3, , , and 10 (26 CFR, parts 1 2,
1 3, 1S , 1 ), necessary to effectuate secton 31 3, I. R. C. ( . . Res. 73, 2d
Cong., approved uy 11, 19 1), concernng natona emergency transfers of
dsted sprts. Sub|ect to te provsons of ths subpart, propretors of regs-
tered dsteres, frut dsteres, and nterna revenue bonded warehouses w
be governed by the appcabe provsons of Reguatons , , and 10, respectvey,
and propretors of ndustra acoho pants, ndustra acoho bonded ware-
houses, and denaturng pants w be governed by the appcabe provsons of
Reguatons 3.
defntons
Sec. 171.171. Meanng of Terms. s used n ths subpart, uness the conte t
otherwse requres, terms sha have the meanngs ascrbed n sectons 171.172-
171.191.
Sec. 171.172. pproved Contaners. pproved contaners sha mean the
contaners prescrbed by Reguatons 3, , , and 10, and sha ncude raroad
tank cars, tank trucks, tank shps, tank barges, and such other contaners and
buk conveyances as authorzed by ths subpart or by the Commssoner.
Sec 171.173. Carrer. Carrer sha mean a person or agency reguary
engaged n the transportaton of movabe property by raroad, steamshp, tank
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 3
Msc.
shp, barge, motor truck, tank truck, or other vehce capabe of beng used as a
means of transportaton.
Sec. 171.17 . Commssoner. Commssoner sha mean the Commssoner
of Interna Revenue.
Sec. 171.17 . Denaturng Pant. Denaturng pant sha mean a denaturng
pant estabshed and operated under the provsons of Reguatons 3 (20 CFR,
part 1 2).
Sec. 171.17C. Dsted Sprts. Dsted sprts or sprts sha ncude
ncoho, but not those beverage sprts commony known as whsky, brandy,
rum, gn, etc., or other beverage sprts of ess than 100 degrees of proof, e cept
vven removed for redstaton or for storage pendng redstaton.
Sec. 171.177. Dstery. Dstery sha mean a regstered dstery es-
tabshed and operated under the provsons of Reguatons (20 CFR, part 1 3)
or a frut dstery estabshed and operated under the provsons of Reguatons
(20 CFR, par 1S ).
Sec. 171.17 . Dstrct Supervsor or Supervsor. Dstrct supervsor or
supervsor sha . mean the person havng charge of a supervsory dstrct of
the coho Ta Unt of the ureau of Interna Revenue.
Sec. 171.179. Frut Dstery. Frut dstery sha mean a dstery
estabshed and operated under the provsons of Reguatons (20 CFR, part
1 ).
Sec. 171.1 0. Incudng. The word ncudng sha not be deomed to e cude
thngs other than those enumerated whch are n the same genera cass.
Sec. 171.1 1. Incusve Language. Words n the pura sha ncude the
snguar, and vce versa, and words n the mascune gender sha ncude femaes,
assocatons, copartnershps, and corporatons.
Sec. 171.1S2. Industra coho ooted Warehouse. Industra acoho
bonded warehouse sha mean a bonded warehouse estabshed and operated
under the provsons of Reguatons 3 (26 CFR, part 162).
Sec. 171.1S3. Industra coho Pant. Industra acoho pant sha
mean an acoho pant estabshed and o| erated under the provsons of Regu-
atons 3 (20 CFR, part 1 2).
Sec. 171.1S . Interna Revenue onded Warehouse. Interna revenue
bonded warehouse sha mean a bonded warehouse estabshed and operated
under the provsons of Reguatons 10 (20 CFR, part 1 ).
Sec. 171.1 . I. R. C I. R. C. sha mean the Interna Revenue Code.
Sec. 171.1 0. Motor Carrer. Motor Carrer sha mean a motor carrer
censed under the Motor Carrer ct of 193 or an appcabe State aw, or a
prvate carrer empoyed by, or actng as agent for, the consgnor or consgnee,
who s actvey and reguary engaged generay n the egtmate busness of
transportaton, who possesses adequate factes to nsure safe devery at
destnaton of any dsted sprts transported by hm, and who s approved by
the dstrct supervsor; or the consgnor or consgnee actng as a prvate carrer.
Sec. 171.1 7. Part II of Subchapter C. Part II of subchapter C sha mean
sectons 3100-3120 of the Interna Revenue Code.
Sec. 171.1 . Regstered Dstery. Regstered dstery sha mean a
dstery estabshed and operated under the provsons of Reguatons (20
CFR, part 1 3).
Sec. 171.1 9. Secretary. Secretary sha mean the Secretary of the
Treasury.
Sec. 171.190. Unted States. Unted States sha ncude any Governmenta
agency of the Unted States.
Sec. 171.191. U. S. C U. S. C. sha mean the Unted States Code.
transfers permtted
Sec. 171.19 . uthorzed Removas. Dsted sprts of any proof may be
removed n bond n approved contaners and ppenes from any dstery,
nterna revenue bonded warehouse, ndustra acoho pant, or ndustra acoho
bonded warehouse to any dstery, nterna revenue bonded warehouse, ndus-
tra acoho pant, or ndustra acoho bonded warehouse for redstaton, or
storage, or any other purpose deemed necessary to meet the requrements of
the natona defense, as authorzed by ths subpart, or by the Commssoner.
ny such dsted sprts may be stored n approved tanks n, or consttutng
a part of, any nterna revenue bonded warehouse or ndustra acoho bonded
warehouse. Dsted sprts may be wthdrawn from ndustra acoho pants
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2
or ndustra acoho bonded warehouses f of a proof of ICO or more for any
ta -free purpose, or upon payment of ta for any purpose, authorzed by part
II of subchapter C. Dsted sprts may be wthdrawn from dsteres or
nterna revenue bonded warehouses f of a proof of 160 or more for any ta -
free purpose authorzed by part II of subchapter C or for any purpose authorzed
n the case of ke sprts produced at a dstery. ny such dsted sprts,
upon remova from a dstery or an nterna revenue bonded warehouse for
transfer to an ndustra acoho pant or ndustra acoho bonded warehouse
or fcr any ta -free purpose authorzed by part II of subchapter C, sha be
sub|ect to the provsons of part II of subchapter C and Reguatons 3. The
removas for ta -free purposes authorzed by part II of subchapter C ncude
removas for denaturaton, for use of the Unted States, for e port, and for
the other ta -free purposes authorzed by secton 310 , L R. C.
Sec. 171.196. Othek Transfers n ono uthorzed by Commssoner. In
addton to the purposes authorzed by ths subpart for the transfer n bond of
dsted sprts between dsteres, nterna revenue bonded warehouses, n-
dustra acoho pants, and ndustra acoho bonded warehouses, the Com-
mssoner may authorze the transfer n bond of dsted sprts between such
premses for any other purpose whch he deems necessary to meet the requre-
ments of the natona defense, sub|ect to such mtatons and condtons as
may be mposed by hm.
INDS OF CONT IN RS
Sec 171.200. Genera. pproved contaners, used for the remova for reds-
taton, storage, or other purposes authorzed by ths subpart, weghng tanks
used for gaugng, tanks used for storage, and ppenes used for remova of
dsted sprts as authorzed by ths subpart, sha be those authorzed by, an
sha conform as to constructon, securty, markng, etc., to the provsons of
ths subpart and the appcabe provsons of Reguatons 3, , , and 10. The
Commssoner may permt other constructon whch he fnds necessary because
of the requrements of the natona defense, sub|ect to sue mtatons and
condtons as may be mposed by hm, provded such substtute constructon
affords adequate protecton to the revenue.
Sec. 171.201. Remova by Ppene. Dsted sprts of any proof may be
removed by ppene for transfer n bond between dsteres, nterna revenue
bonded warehouses, ndustra acoho pants, and Industra acoho bonded
warehouses n accordance wth the provsons of ths subpart and the appcabe
procedure prescrbed by Reguatons 3. , , and 10, where the premses to whch
the dsted sprts are to be so transferred are ocated n the mmedate vcnty
of the premses from whch the dsted sprts are to be removed. Dsted
sprts of 100 or more of proof may be removed by ppene where the bonded
premses, or the estabshment, to whch the dsted sprts are to be transferred
are ocated n the mmedate vcnty of the premses from whch tho dsted
sprts are to be removed (a) from an ndustra acoho pant or ndustra
acoho bonded warehouse for any ta -free purpose, or upon payment of ta
for any purpose, authorzed by part II of subchapter C, or (6) from a dstery
or an nterna revenue bonded warehouse for any ta -free purpose authorzed
by part II of subchapter C or for any purpose authorzed n the case of ke
sprts produced at a dstery; both n accordance wth the procedure prescrbed
by ths subpart and the appcabe provsons of Reguatons 3, , , and 10.
s used n ths secton, by the term mmedate vcnty s meant the area
ntervenng between the two premses from ant to whch the sprts are trans-
ferred by ppene whch s ready susceptbe to observaton and supervson
by Government offcers assgned at the estabshments from and to whch the
sprts are transferred. The rues and procedure prescrbed n Reguatons 3,
, u. and 10, reatve to the constructon, approva, and use of ppenes for the
transfer of dsted sprts between premses sha be foowed, nsofar as
appcabe, n the constructon, approva, and use of ppenes under ths subpart.
Sec 171.202. Remova by Tank Cars and Tank Trucks. Dsted sprts of
any proof may be transferred n bond n tank cars or tank trucks between
dsteres, nterna revenue bonded warehouses, ndustra acoho pants, and
ndustra acoho bonded warehouses, n accordance wth the provsons of ths
subpart and the appcabe procedure prescrbed by Reguatons 3, , , and 10.
Dsted sprts of 100 or more of proof may be removed n tank cars or tank
trucks (a) from an ndustra acoho pant or ndustra acoho bonded ware-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
Msc.
house for nny ta -free purpose, or upon payment of ta for any purpose, author-
zed by part II of subchapter C, or (b) from a dstery or an nterna revenue
bonded warehouse for any ta -free purpose authorzed by part II of subchapter
C or for any purpose authorzed n the case of ke sprts produced at a ds-
tery ; both n accordance wth the procedure prescrbed by ths subpart and
the appcabe provsons of Reguatons 3, , , and 10.
Sec. 171.203. Remova by Tank Shps and Tank arges. Dsted sprts
of any proof may be transferred n bond n tank shps or tank barges between
dsteres, nterna revenue bonded warehouses, ndustra acoho pants, and
Industra acoho bonded warehouses, In accordance wth the provsons of ths
subpart. Tank shps and tank barges need not be cabrated, nor need cabra-
ton charts be prepared. The carrer must fe bond In accordance wth secton
171.20 or 171.209, as the case may be. Tank shps and tank barges must be
secure and a openngs affordng access to the dsted sprts must be
arranged n such mamer that they can be securey fastened and seaed. Pror
to fng, the Government ofcer sha Inspect each tank shp or tank barge and
determne whether the same can be securey fastened and seaed and s otherwse
sutabe for the transportaton of dsted sprts. The Government offcer w
not pWmt the fng of any tank shp or tank barge that s not equpped for
seang or whch w not afford adequate protecton to the dsted sprts.
Such shpments may be made ony where the premses cf both the consgnor and
the consgnee are equpped wth sutabe dock factes, and where the ds-
ted sprts are run drecty from the tank shp or tank barge nto sutabe
tanks on the consgnee s premses. Dsted sprts of 160 or more of proof
may be removed n tank shps or tank barges (a) from an ndustra acoho
pant or ndustra acoho bonded warehouse for any ta -free purpose, or upon
payment of ta for any purpose, authorzed by part II of subchapter C, or (6)
from a dstery or an nterna revenue bonded warehouse for any ta -free
purpose authorzed by part II of subchapter C or for any purpose authorzed n
the case of ke sprts produced at a dstery; both n accordance wth the
procedure prescrbed by ths subpart.
Sec. 171.20 . Seang of Conveyances. Where dsted sprts are to be re-
moved under the provsons of ths subpart from dsteres, nterna revenue
bonded warehouses, ndustra acoho pants, and ndustra acoho bonded
warehouses, n tank cars, tank trucks, tank shps, tank barges, or other buk
conveyances approved by the Commssoner, the storekeeper-gauger w, mme-
datey after fng, sea wth cap seas furnshed by the Government a open-
ngs affordng access to the sprts. The sera numbers of the cap seas so used
w be entered by the storekeeper-gauger on Form 230, 1 0, 1 3, or 170 , as
the case may be. Where the propretor provdes sea ocks for ockng convey-
ances n accordance wth Reguatons 3, such ocks w be used n eu of cap
seas.
Sec. 171.20 . Markng of Contaners. Where dsted sprts are removed
for any of the purposes authorzed by ths subpart from dsteres, nterna
revenue bonded warehouses, ndustra acoho pants, and ndustra acoho
bonded warehouses, the contaners sha be marked as prescrbed n ths secton.
If the conveyance s a tank car, tank truck, tank shp, tank barge, or other buk
conveyance approved by the Commssoner, a abe sha be securey aff ed by
the consgnor to the route board of the tank car or tank truck, or at a sutabe
ocaton on the tank shp, tank barge, or other buk conveyance, where t may
be ready e amned by Government offcers. The abe sha pany show the
name, regstry number, and address of the consgnor; the name, regstry or
permt number (f any), and address of the consgnee; the date of shpment;
the knd of dsted sprts; the proof and temperature ascertaned at the tme
of fng pror to remova; the number of nches above or beow the fu mark
(or other ceary desgnated gauge mark on the conveyance) ; the purpose of
wthdrawa (for transfer n bond, for denaturaton, for use of the Unted States,
etc.) ; and the quantty n proof gaons. If the dsted sprts are contaned
n more than one compartment of the conveyance, the nformaton wth respect
to proof, temperature, gauge mark, and quantty w be furnshed for each
compartment. In any event, such abe or abes sha be destroyed by the
consgnee after emptyng the conveyance. If the dsted sprts so removed
are n packages, drums, or smar contaners, the propretor w, under the
genera supervson of the storekeeper-gauger and before remova, mark such
contaners n accordance wth the appcabe provsons of Reguatons 3, . ,
and 10. The date and purpose of the remova and the regstry or permt number
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2 6
(f any) of the consgnee must be marked on the head of the package n every
nstance. When the dsted sprts to be wthdrawn are the mnged products
of dfferent dsters, the name and regstry number of the premses where the
dsted sprts were commnged sha be shown on the contaners (where
requred), and on the requred forms, n eu of the names and regstry numbers
of the producng dsters.
C RRI RS
Sec. 171.207. Pepmtt. ny carrer, as defned n sectcn 171.173, or any motor
carrer, as defned n secton 171.1 0, who desres to transport dsted sprts
of 1G0 or more of proof removed for any ta -free purpose authorzed by part
II of subchapter C, must procure permt (Form 1 ) so to do, n accordance
wth the appcabe procedure prescrbed by Reguatons 3. ny motor carrer
who desres to transport dsted sprts of any proof for transfer n bond
from dsteres and nterna revenue bonded warehouses to ndustra acoho
pants or ndustra acoho bonded warehouses, between ndustra acoho
pants or ndustra acoho bonded warehouses, or from ndustra acoho
pants and ndustra acoho bonded warehouses to dsteres and nterna
revenue bonded warehouses, must procure permt (Form 1 ) so to do, n
accordance wth the appcabe procedure prescrbed by Reguatons 3.
carrer, or motor carrer, who hods a permt pursuant to Reguatons 3 to
transport ta -free acoho, nndenatured ethy acoho, or specay denatured
acoho, and who desres to transport dsted sprts for any ta -free purpose,
or for transfer n bond, as provded by ths secton, must fe appcaton on
Form 1 for amendment of hs permt, Form 1 , to authorze the. transporta-
ton of such dsted sprts.
Sec. 71.20 . ond Transportaton by Carrer. carrer, or a motor carrer
other than a consgnor or consgnee, (a) who procures a permt (Form 1 )
prescrbed by secton 171.207 to transport ta -free dsted sprts of 160 or more
of proof, n tank trucks or tank barges, or to transport dsted sprts of any
proof, n tank trucks or tank barges, for transfer n bond from dsteres and
nterna revenue bonded warehouses to ndustra acoho pants and ndustra
acoho bonded warehouses, between ndustra acoho pants or ndustra acoho
bonded warehouses, or from ndustra acoho pants and ndustra acoho
bonded warehouses to dsteres and nterna revenue bonded warehouses, or
( ) who desres to transport dsted sprts of any proof, n tank trucks or tank
barges, for transfer n bond between dsteres and nterna revenue bonded
warehouses, must fe wth the dstrct supervsor a bond on Form 9: Provded,
That a bond w not be requred for tank barges f the appcant s a steamshp
(not ncudng tugboats) company, nor w a bond be requred for a sef-propeed
ank barge. If the transportaton s n tank trucks, the pena sum of the bond
sha be at the rate of 7 ,000 for each tank truck and not more than 200,000 for
the tota of a tank trucks used. If the transportaton s n tank barges, the
pena sum of the bond sha be 200,000 regardess of the number of tank barges
used. If the transportaton s to be by both tank trucks and tank barges, the
pena sum sha be at the rate of 7 ,000 for each tank truck or 200,000 for the
tota of a tank trucks used and at the rate of 200,000 for each tank barge or
group of tank barges used, sub|ect to a ma mum bond mtaton of 00,000 for
a tank trucks and tank barges used. The bond sha be fed n trpcate, appro-
pratey modfed. W ere a carrer hods a permt to transport ta -free acoho,
undenatured ethy acoho, or specay denatured acoho whch s supported by
bond, Form 9, and tes appcaton for amendment of the permt to authorze the
transportaton of ta -free dsted sprts as provded n secton 171.207, or
dsted sprts to be transferred n bond as provded n ths secton, the carrer
must fe consent of surety. Form 1 33, on hs bond, e tendng the terms thereof to
cover such dsted sprts, removed ta -free, or transferred n bond. The consent
of surety sha be n substantay the foowng form:
To e tend the terms of sad bond to be abe for dsted sprts wth-
drawn free of ta or removed for transfer n bond transported by hm, to
the same e tent as ta -free acoho transported by hm.
Sec. 171.209. ond Transportaton by Consgnor on Consgnee. consgnor
or consgnee, actng as a prvate carrer, (a) who procures a permt (Form 1 )
prescrbed by secton 171.207 to transport ta -free dsted sprts of 160 or more
of proof n tank trucks or tank barges, or to transport dsted sprts of any proof,
n tank trucks or tauk barges, for transfer n bond from dsteres and nterna
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 7
Msc.
revenue bonded warehouses to ndustra acoho pants and ndustra acoho
bonded warehouses, between ndustra acoho pants or ndustra acoho bonded
warehouses, or from ndustra acoho pants and ndustra acoho bonded ware-
houses to dsteres and nterna revenue bonded warehouses, or (6) who desres
to transport dsted sprts of any proof, n tank trucks or tank barges, for trans-
fer n bond between dsteres and nterna revenue bonded warehouses, must
fe wth the dstrct supervsor a bond on Form 9, propery modfed, n the pena
sum specfed n secton 171.20S: Provded, That n eu of fng such bond, the
consgnor or consgnee may fe consent of surety, Form 1 33, on hs bond, Form
30, 30 , 1 71, or 1 32- , as the case may be, e tendng the terms thereof to cover
the ta , or an amount equa to the ta , as the case may be, together wth a
penates and nterest, for whch he may become abe, on a dsted sprts
transported by hm n tank trucks or tank barges. Where the dstery bond,
Form 30 or 30 . s fed wthout surety, supported by consent of surety on the
dster s transportaton and warehousng bond, Form 1 71, the requred consent
sha e tend the terms of both bonds to assume such abty. Where bond,
Form 30, 30 , 1 71, or 1 32- s gven n an .amount ess than the pena sum
requred, a new or addtona bond on the respectve form, wth proper consent of
surety, or a separate bond on Form 9, n a suffcent pena sum must be furnshed
to cover the addtona abty. The bond sha be fed n accordance wth the
appcabe provsons of Reguatons 3, , , and 10, and of ths subpart. The
consent of surety sha be n substantay the foowng form:
To e tend the terms of the sad bond to cover abty for the ta or
an amount equa to the ta , together wth penates and nterest, on a
dsted sprts receved for transportaton or transported by the prnc-
pa and not awfuy devered, e ceptng ony osses of such sprts
otherwse provded for by aw.
Sec. 171.210. ppbova of Task Trucks. ach tank truck to be used for
the transportaton of dsted sprts must meet the requrements .of Reguatons
3, , . or 10. No appcaton for an orgna or amended permt, Form 1 ,
prescrbed by secton 171.207 for the transportaton n tank trucks of dsted
sprts, sha be approved uness and unt t s determned by the dstrct
supervsor, after nspecton, that the tank truck meets the requrements o the
reguatons. copy of Form 1 , certfed by the dstrct supervsor, sha be
attached to the route board of the tank truck. No bond prescrbed by sectons
171.20 and 171.209 for the transportaton n tank trucks of dsted sprts
transferred n bond between dsteres and nterna revenue bonded warehouses
sha be approved by the dstrct supervsor, uness and unt t s determned
by hm, after nspecton, that each tank truck meets the requrements of Regua-
tons , , or 10. If the tank truck meets such requrements, the dstrct super-
vsor w so advse the carrer, by etter, descrbng the tank truck by sera
number and capacty. Where the etter of approva covers more than one tank
truck, a sufScent number of sgned copes w be furnshed the carrer to pro-
vde one copy for each tank truck. The etter of approva sha be attached to
the route board of the tank truck. Where a tank truck has been approved and
Form 1 ssued coverng the transportaton of dsted sprts pursuant to
secton 171.207, such tank truck may aso be used for the transportaton of ds-
ted sprts transferred n bond between regstered dsteres and nterna
revenue bonded warehouses provded the pena sum of the bond s suffcent to
meet the requrements of secton 171.20 or 171.209, as the case may be.
G UGING OF DISTILL D SPIRITS
Sec. 171.212. Transferred etween onded Premses by Ppene. When
dsted sprts of any proof are transferred by ppene between dsteres,
nterna revenue bonded warehouses, Industra acoho pants, and Industra
acoho bonded warehouses, and when dsted sprts of 160 or more of proof
are removed, free of ta , from any such premses for transfer by ppene to a
denaturng pant, for denaturaton, as authorzed by ths subpart, such dsted
sprts sha be gauged n a weghng tank at the tme of transfer, ether n
the premses from whch they are removed or n the premses to whch they are
transferred, but the sprts need not be gauged n both premses: Provded, That
where nether of the premses Is equpped wth a weghng tank, the sprts may
be gauged by voume n accuratey cabrated tanks n ether of the premses.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2 S
Sec. 171.213. Transferred etween onded Premses by Tank Cabs, Tank
Trucks, or Tank arges. When dsted sprts of any proof are transferred
by tank cars, tank trucks, or tank barges, between dsteres, nterna revenue
bonded warehouses, ndustra acoho pants, and ndustra acoho bonded
warehouses, and when dsted sprts of 160 or more of proof are removed,
free of ta , from any such premses for transfer by tank cars, tank trucks, or
tank barges to a denaturng pant, for denaturaton, such dsted sprts sha
be gauged n a sutabe weghng tank n the shppng premses at the tme of
shpment and n the recevng premses at the tme of recept: Provded, That
where the shppng or recevng premses, or both, are not equpped wth a
weghng tank, the sprts transferred n tank cars or tank trucks may be weghed
on raroad car or tank truck scaes, as the case may be, ocated on the bonded
premses, by weghng the raroad car or tank truck both before aud after fng
or emptyng, or both, as the case may be: nd provded further. That where
the shppng or recevng premses, or both, are not equpped wth a weghng
tank, or raroad car or tank truck scaes, the sprts may be gauged by voume
n accuratey cabrated tanks, but, n any event, they must be gauged (ether
by weght or by voume) n both the shppng and recevng premses.
Sec. 171.21 . Receved n Dstery or Industra coho Pant for
Weghng Ony. When t s desred to transfer dsted sprts to an nterna
revenue bonded warehouse or ndustra acoho bonded warehouse and t s
desred to wegh the sprts upon recept and there are no weghng factes
at the warehouse, but there are such factes at the dstery or ndustra
acoho pant, as the case may be, ocated on the same or contguous premses,
the sprts may be receved n the dstery or ndustra acoho pant for
gaugng by weght pror to depost n the warehouse.
Sec 171.21 . Removed for Use of the Unted States. When dsted sprts
of 100 or more of proof are wthdrawn from dsteres, nterna revenue
bonded warehouses, ndustra acoho pants, and ndustra acoho bonded
warehouses, for use of the Unted States, they must be gauged by weght n a
weghng tank (e cept packages, whch must be gauged by weght on approprate
scaes) n each Instance at the premses from whch removed: Provded, That
where the shppng premses are not equpped wth a weghng tank and tha
sprts are transferred n tank cars or tank trucks, they may be weghed on
raroad car or tank truck scaes, as the case may be, ocated on the shppng
premses, by weghng the raroad car or tank truck both before and after
fng: nd provded urthcr. That where the shppng premses are not
equpped wth a weghng tank, or raroad car or tank truck scaes, the sprts
may be gauged by voume n accuratey cabrated tanks before remova.
Sec. 171.216. Removed for Other Ta -Free Purposes or Upon Ta payment.
When dsted sprts of 160 or more of proof are wthdrawn from dsteres,
nterna revenue bonded warehouses, ndustra acoho pants, and ndustra
acoho bonded warehouses, by ppene, tank car, or tank truck, for a ta -free
purpose (other than for remova for denaturaton, e portaton by tank shp,
or for use of the Unted States), or upon ta payment, as authorzed by ths
subpart, the sprts must be gauged by weght n each nstance.
Sec. 171.217. Determnaton of Proof. The proof of dsted sprts trans-
ferred n bond or wthdrawn free of ta for denaturaton or for use of the
Unted States, under the provsons of ths subpart, w be determned to the
nearest one-tenth of a degree. The addton of water to reduce the sprts to
a fat proof w not be requred e cept where the sprts are wthdrawn for
ta payment or for a ta -free purpose other than for denaturaton or for use of
the Unted States, uness n the atter case the governmenta agency to whch
the sprts are shpped desres to have the sprts so reduced.
desgnaton of dsted sprts
Sec. 171.220. Genera. Dsted sprts removed under the provsons of
ths subpart from dsteres, nterna revenne bonded warehouses, ndustra
acoho pants, and ndustra acoho bonded warehouses sha be desgnated
n accordance wth the appcabe provsons of Reguatons 3, , , and 10,
e cept as provded n sectons 171.221-171.22 .
Skc. 171.221. Neutra Sprts M ed, Sprts M ed. Where ds-
ted sprts, orgnay produced from dfferent knds of materas, are (a)
redsted together at dsteres n accordance wth secton 171.236, (6)
mnged In tanks at a dstery n accordance wth secton 171.23 , (c) mnged
n tanks at an nterna revenue bonded warehouse n accordance wth secton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 9
Msc.
171.2 3, or ( f) mnged n tnnk cars, tank trucks, tank barges, etc., n the
course of remova from a dstery or an nterna revenue bonded warehouse
n accordance wth secton 171.276 or 171.277, they sha be desgnated neutra
sprts m ed , f 190 or more of proof, or sprts m ed , f of a proof ess
than 100 .
Sec. 171.222. Lcono. M ed, Unfnshed coho M ed. Where
dsted sprts, orgnay produced from dfferent knds of materas, are (a)
redsted together at ndustra acoho pants n accordance wth secton
171.2 , (6) mnged n tanks at an ndustra acoho pant n accordance
wth secton 171.2 3, (c) mnged n tanks at an ndustra acoho bonded ware-
house n accordance wth secton 171.2 , or (d) mnged n tank cars, tank
trucks, tank barges, etc., n the course of remova from an ndustra acoho
pant or ndustra acoho bonded warehouse n accordance wth secton 171.270
or 171.277, they sha be desgnated acoho m ed, f 160 or more of proof,
or unfnshed acoho m ed, f of a proof ess than 160 .
Sec. 171.223. coho Deposted n Dsteres and Interna Rf.vf.nue
onded Warehouses. coho deposted n tanks at dsteres n accordance
wth secton 171.2 1 for purposes other than redstaton, or deposted n tanks
;; nterna revenue bonded warehouses n accordance wt : secton 171.2 0, may be
removed under te desgnaton of acoho or be redesgnated, upon remova, as
neutra sprts gran, neutra sprts cane, or neutra sprts frut, f
190 or more of proof, or sprts gran, sprts cane or sprts frut, f
ess than 190 of proof, n accordance wth the appcabe provsons of Regua-
tons , , and 10.
Sec. 171.22 . Dsted Sprts Deposted n Industra coho Pants
and onded Warehouses. Dsted sprts produced at dsteres and subse-
quenty deposted n tanks at ndustra acoho pants nnd ndustra acoho
bonded warehouses, sha be receved and accounted for n accordance wth
sectons 171.2 3 and 171.2 , respectvey,
e emptons prom statutory requrements
Sec. 171.227. Sunday and Nght Tme Operatons. Secton 31S3 of the
Interna Revenue Code provdes that, under reguatons, secton 2S36 of the
Interna Revenue Code sha not appy to the producton or redstaton of
dsted sprts at a dstery, nor sha secton 2S70 of the Code appy to
the remova of dsted sprts from any dstery or nterna revenue bonded
warehouse. Sectm 3103 of the Interna Revenue Code e empts ndustra
acoho pants and ndustra acoho bonded warehouses from the provsons
of sectons 2 36 and 2.S70 of the Code, sub|ect to the reguatory restrcton.
Dsted sprts may be produced or redsted at dsteres between 11 p. m.
Saturday and 1 a. m. Monday, or receved at or removed from dsteres, nterna
revenue bonded warehouses, ndustra acoho pants, or ndustra acoho
bonded warehouses between sundown nnd sunrse, or on Sunday, onh| for use
by the Unted States or any governmenta agency thereof, or for any other
purpose deemed by the Commssoner to be necessary to meet the requrements
of the natona defense: Provded, That dsted sprts may he receved or
removed n tank shps or tank barges at nght or on Sunday for any authorzed
purpose. (The term producton, as used heren, sha ncude mashng, settng
fennenters, and dstng.) When t s desred to so produce, redst, receve,
or remove dsted sprts, the propretor w make appcaton, n dupcate,
to the dstrct supervsor for permsson so to do. The appcaton sha specfy
te dates and hours on whch t s desred to conduct such operatons nnd the
purpose and the necessty therefor. The appcaton sha be fed suffcenty
n advance of the tme of the operatons specfed n the appcaton to enabe
the dstrct supervsor to determne the necessty therefor, nnd, f e approves
the appcaton, to assgn a Government offcer to supervse the operatons
where deemed necessary. Dstrct supervsors w approve such appcatons
ony where (a) the necessty therefor s shown, (6) the purpose s one authorzed
n ths subpart, and (e) Government offcers are avaabe for necessary super-
vson. Where t s desred to conduct operatons durng such hours reguary,
the appcaton may be made, and the permsson granted, accordngy.
Sec. 171.22 . Rectfcaton Ta es. Secton 31 3 of the Interna Revenue
Code provdes, under reguatons, that sectons 2 00(a)( ) and 32 0(f) of the
Interna Revenue Code, evyng commodty nnd occupatona rectfcaton ta es,
sha not appy to the redstaton of dsted sprts at a dstery, or to
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
260
the mngng of dsted sprts at a dstery or an nterna revenne bonded
warehouse, or n the course of remova therefrom.
Sec. 171.229. uthorzed by the Commssoner. Secton 31 3(b) of the In-
terna Revenue Code provdes that the Secretary may temporary e empt
propretors of dsteres, nterna revenue bonded warehouses, ndustra acoho
pants, or ndustra acoho bonded warehouses from any provson of the
nterna revenue aws reatng to dsted sprts, e cept those requrng pay-
ment of the ta thereon, whenever n hs |udgment t may seem e pedent to
do so to meet the requrements of the natona defense. y vrtue of and pur-
suant to authorty vested n the Secretary by Reorganzaton Pan No. 26 of
19 0 (1 F. R. 93 ), authorty s hereby conferred and mposed upon the Com-
mssoner of Interna Revenue to permt nonrecurrng operatons not authorzed
by ths subpart, where deemed necessary to meet e gences and the requre-
ments of the natona defense, sub|ect to such mtatons and condtons as
may e mposed by hm and provded such operatons afford adequate protecton
to the revenue.
TR NSF RS IN 10ND TO DISTILL RI S
Sec. 171.231. uthorzed Transfers. Dsted sprts of any proof may be
transferred n bond to any dstery from any other dstery, or from an n-
terna revenue bonded warehouse, ndustra acoho pant, or ndustra acoho
bonded warehouse, for redstaton ony, e cept (a) for gaugng n a weghng
tank pror to depost n a warehouse tank where a weghng tank s not ava-
abe n the warehouse, or (6) for temporary storage n ocked tanks pendng
transfer to warehouse tanks or, f 100 or more of proof, for remova for any
ta -free purpose authorzed by part II of subchapter C or for any purpose au-
thorzed n the case of ke sprts produced at a dstery.
Sec 171.232. Consent of Surety, Form 1 33, o.v Dstery onds. The
propretor of a dstery, n order to wthdraw dsted sprts from other
dsteres, or from nterna revenue bonded warehouses, ndustra acoho
pants, or ndustra acoho bonded warehouses, under the provsons of ths
subpart, sha fe consent of surety, Form 1 33, on hs dstery bond. Form
30 or SOY , as the case may be, e tendng the terms thereof to assume abty
for payment of the ta on the dsted sprts from the tme they eave the
dstery, nterna revenue bonded warehouse, ndustra acoho pant, or n-
dustra acoho bonded warehouse from whch they are removed. Where the
dstery bond. Form 30 or 30 , s fed wthout surety, supported by consent
of surety on the dster s transportaton and warehousng bond, Form 1 71, the
requred consent sha e tend the terms of both bonds to assume such abty.
Where the dstery bond, Form 30 or 30 , s n ess than the ma mum pena
sum and s Insuffcent to cover the ta on the sprts to be receved, pus the
quantty of sprts that w be produced at the dstery durng a perod of 1
days, a new or addtona bond n a suffcent pena sum sha be fed by the
dster. The consent of surety sha be n substantay the foowng form:
To e tend the terms of sad bond to nsure the payment of a ta es,
together wth penates and nterest, for whch the prncpa may become
abe on dsted sprts removed for transfer n bond to hm from regs-
tered dsteres, frut dsteres, Interna revenue bonded warehouses,
ndustra acoho pants, and ndustra acoho bonded warehouses,
pursuant to secton 31 ,3, I. R. C, and reguatons, from the tme the
dsted sprts eave the dstery, nterna revenue bonded warehouse,
ndustra acoho pant, or ndustra acoho bonded warehouse, from
whch removed, ncudng the transportaton, redstaton, storage,
and dsposton of the dsted sprts, as provded by aw and regua-
tons.
Sec 171.233. Transfer of Lens. When dsted sprts of any proof are
transferred n bond, under the provsons of ths subpart, to a dstery from
another dstery, or from an nterna revenue bonded warehouse, ndustra
acoho pant, or ndustra acoho bonded warehouse, the ta abty of the
propretor of the dstery, nterna revenue bonded warehouse, ndustra
acoho pant, or ndustra acoho bonded warehouse, from whch the sprts
are removed, and the ens on such dstery, ndustra acoho pant, or n-
dustra acoho bonded warehouse, sha cease; and at and from the tme the
dsted sprts eave the shppng dstery, nterna revenue bonded ware
house, ndustra acoho pant, or ndustra acoho bonded warehouse, the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
261
Msc.
ta sha be the abty of the propretor of, and the en sha be transferred
to the premses of, the recevng dstery.
Sec. 171.23 . Transfer Procedure. The transfer n bond of dsted sprts
to a dstery from another dstery or from an nterna revenue bonded ware-
house w be made pursuant to appcaton, Form 230, n accordance wth the
appcabe procedure prescrbed by Reguatons , , and 10: Provded, That
where the dster operates an nterna revenue bonded warehouse or another
dstery on premses contguous to the recevng dstery and the ocaton
of the warehouse or other dstery s such that the .storekeeper-gangers assgned
to the recevng dstery and to the warehouse or shppng dstery are abe
to mantan the same supervson of the transfer of sprts as s requred n
the case of the depost n a warehouse on the dstery premses, of sprts
produced at such dstery, the transfer may be made pursuant to Form 1 20
ony. Dsted sprts may be transferred to a dstery for redstaton wth-
out the speca appcaton of the dster, or the showng of the need for reds-
taton prescrbed by Reguatons and . Where the dster fes a consent
of surety pursuant to secton 171.232, the dstrct supervsor w so nform the
storekeeper-gauger n charge of the dstery. e w advse hm currenty
of any change n the pena sum of such bond. Where transfers are to be made
to a dstery pursuant to Form 236, the storekeeper-gauger at the recevng
dstery, upon recept of Form 233 from the propretor, w certfy to the
suffcency of the bond f t meets the requrements of secton 171.232 and consent
or surety has been fed as requred by such secton. If not, he w certfy to
that effect on Form 236. Where transfers are to be made to a dstery pursuant
to Form 1 20 ony, the storekeeper-gauger at the recevng dstery w make a
smar determnaton concernng the bond, but the transfer of the dsted
sprts w not be made unt such storekeeper-gauger has advsed the store-
keeper-gauger at the shppng premses that the bond s suffcent and that a
consent of surety has been fed. The transfer n bond ef acoho to a dstery
from an ndustra acoho pant or ndustra acoho bonded warehouse w be
made n accordance wth the procedure prescrbed by secton 171.239.
Sec. 171.23 . Depost n Tanks. When dsted sprts are receved at a ds-
tery pursuant to secton 171.231. they sha be deposted n cosed, ocked
tanks. When receved n packages, the contents must be dumped and deposted
rtnedatey n such tanks. Dsted sprts receved n packages, tank cars,
tank trucks, or tank barges, or by ppene, may be deposted n the same tanks.
Dsted sprts of dfferent proof, or whch were produced from dfferent knds
of materas, or by dfferent dsters, or at dfferent dsteres, or whch dffer
n knd accordng to the standards of dentty estabshed under the Federa
coho dmnstraton ct, or whch are otherwse heterogeneous, may be de-
posted n the same tanks. When dsted sprts produced from dfferent knds
of materas are mnged n tanks at a dstery, they sha be redesgnated n
accordance wth the provsons of secton 171.221 and may be removed eny (a)
for redstaton n accordance wth the provsons of secton 171.236, (6) for
transfer n bond as specfed n ths subpart, or (c) If 160 or more of proof,
for an authorzed ta -free purpose, or upon ta payment for use n the manu-
facture of beverage products ony where the source of materas from whch
dsted s not specfed or requred for abeng purposes. For record purposes,
dsted sprts deposted n tanks under the provsons of ths secton, e cept
for redstaton, sha be accounted for under the desgnaton of Sprts. Ds-
ted sprts receved for redstaton sha be accounted for as materas, under
the remova desgnaton (such as sprts gran, acoho, etc.), n accordance
wth the appcabe provsons of Reguatons. and .
Sec. 171.236. Redstaton. Dsted sprts receved at a dstery for
redstaton may be redsted separatey or wth other dsted sprts, n-
cudng dsted sprts of dfferent proof, or produced from dfferent knds of
materas, or produced by dfferent dsters, or at dfferent dsteres: Provded,
That where dsted sprts produced from gran, cane, frut, and other materas
are redsted together, the redsted sprts sha be desgnated n accordance
wth secton 171.221 and may be removed ony (a) for transfer n bond as
specfed n ths subpart, or (6) f 160 or more of proof, for an authorzed ta -
free purpose, or upon ta payment for use n the manufacture of beverage products
ony where the source of materas from whch dsted s not specfed or re-
qured for abeng purposes. The redstaton of dsted sprts w be n
accordance wth ths subpart and the appcabe provsons of Reguatons
and .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
262
Sec. 171.237. Records. Dsted sprts produced or redsted at regstered
dsteres and frut dsteres, and dsted sprts transferred n bond to, or
removed for an authorzed purpose from, regstered dsteres and frut ds-
teres, under ths subpart, sha be reported and accounted for n accordance
wth ths subpart and the appcabe provsons of Reguatons or , as the
case may be.
TR NSF RS IN OND TO INT RN L R NU OND D W R OUS S
Sec. 171.2 0. uthorzed Transfers. Dsted sprts of any proof may be
transferred n bond to any nterna revenue bonded warehouse from any ds-
tery, nterna revenue bonded warehouse, ndustra acoho pant, or ndustra
acoho bonded warehouse, for storage pror to remova (n) for redstaton,
(6) for transfer n bond to other bonded premses as authorzed by ths subpart,
or (c) f 160 or more of proof, for remova for any ta -free purpose authorzed
by part II of subchapter C or for any purpose authorzed n the case of ke
sprts produced at a dstery.
Sec. 171.2 1. Consent of Surety, Form 1 .33, on Warehouse ond. The
propretor of an nterna revenue bonded warehouse, n order to have dsted
sprts transferred n bond to hs warehouse from ndustra acoho pants and
ndustra acoho bonded warehouses, sha fe consent of surety, Form 1 33,
on hs transportaton and warehousng bond, Form 1 71, e tendng the terms
thereof to assume abty for payment of the ta on the dsted sprts from
the tme they eave the ndustra acoho pant or ndustra acoho bonded
warehouse from whch they are removed. Where the warehouse bond s n ess
than the ma mum pena sum and s nsuffcent to cover the ta on any dsted
sprts to be transferred, determned n accordance wth the provsons of
Reguatons 10 concernng the determnaton of bond abty, a new or addtona
bond n a suffcent pena sum sha be fed by the propretor. The consent of
surety sha be n substantay the foowng form:
To e tend the terms of snd bond to nsure the payment of a ta es,
together wth penates and nterest, for whch the prncpa may become
abe on dsted sprts removed for transfer n bond to hm from
ndustra acoho pants and ndustra acoho bonded warehouses,
pursuant to secton 31 3, I. R. C, and reguatons, from the tme the
dsted sprts eave the Industra acoho pant or ndustra acoho
bonded warehouse from whch removed, ncudng the transportaton,
storage, and dsposton of the dsted sprts as provded by aw and
reguatons.
Sec. 171.2 2. Transfer Procedure. The transfer n bond of dsted sprts
to nterna revenue bonded warehouses from dsteres or from other nterna
revenue bonded warehouses w be made pursuant to appcaton, Form 23C, n
accordance wth the appcabe procedure prescrbed by Reguatons , , and 10:
Provded, That where the warehouseman operates a dstery on premses
contguous to the warehouse premses, and the ocaton of the dstery s such
that the storekeeper-gangers assgned to the cstern room and to the warehouse
are abe to mantan the same supervson of the depost n the warehouse of
sprts produced at such dstery as s requred n the case of the depost
n a warehouse on the dstery premses of sprts produced at such dstery,
the transfer may be made pursuant to Form 1 20 ony. The dstrct supervsor
w nform the storekeeper-ganger n charge of the warehouse when any consent
of surety s fed pursuant to secton 171.2 1. The transfer n bond of dsted
sprts to an nterna revenue bonded warehouse from an ndustra acoho
pant or ndustra acoho bonded warehouse w be n accordance wth the
procedure prescrbed by secton 171.2 0.
Sec. 171.2 3. Depost n Tanks. Dsted sprts receved at an nterna
revenue bonded warehouse from dsteres, nterna revenue bonded ware-
bouses, ndustra acoho pants, and ndustra acoho bonded warehouses,
may he stored n wareou.se tanks, or n the contaners In whch they were
transferred to the warehouse. Dsted sprts transferred to warehouses n
packages, tank cars, tank trucks, or tank barges, or by ppene, may be deposted
n the same tanks, sub|ect to the provsons of ths secton. Dsted sprts
produced by the same dster, of dfferent proof, or whch were produced from
dfferent knds of materas, or whch dffer n knd accordng to the standards
of dentty estabshed under the Federa coho dmnstraton ct, or whch
are otherwse heterogeneous, may be deposted n the same tanks. Dsted
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
263
Msc.
sprts produced by dfferent dsters may be mnged and deposted n tbe
same tanks, e cept tbat sprts of ess than 190 of proof may be mnged ony
where the sprts are produced for, or sod to, tbe Unted States. When dsted
sprts produced from dfferent knds of materas are mnged n tanks at an
nterna revenue bonded warehouse, they sha be redesgnated n accordance
wth the provsons of secton 171.221 and may be removed ony (a) for transfer
n bond as specfed n ths subpart, or (b) f 100 or more of proof, for an
authorzed ta -free purpose, or upon ta payment for use n the manufacture of
beverage products ony where the source of materas from whch dsted s
not specfed or requred for abeng purposes. For record purpose, dsted
sprts deposted n tanks under tbe provsons of ths secton sha be accounted
for under the desgnaton of sprts. ddtona deposts of sprts may be
made n a warehouse tank after removas have been made therefrom wthout
the necessty of frst emptyng the tank. The -year perod on dsted sprts
commnged n warehouse storage tanks Is governed by the date of orgna
entry nto an nterna revenue bonded warehouse of the odest sprts.
Sec. 171.2 . Records. The recept and dsposton of dsted sprts at an
nterna revenue bonded warehouse sha be reported and accounted for n
accordance wth the provsons of ths subpart and the appcabe provsons of
Reguatons 10.
TR NSF RS I OND TO INDUSTRI L LCOTIOr. PL NTS ND INDUSTRI L LCO OL
OND D W R OUS S
Sec. 171.2 . uthorzed Transfers Dsted sprts of any proof may be
transferred n bond to any Industra acoho pant from any dstery, nterna
revenue bonded warehouse, ndustra acoho pant, or ndustra acoho bonded
warehouse, for redstaton ony, e cept (a) for gaugng n a weghng tank
pror to depost n a warehouse tank where a weghng tank s not avaabe n
the warehouse, or (6) for temporary storage n ocked tanks pendng transfer
to warehouse tanks or, f 100 or more of proof, for remova for any ta -free
purpose, or upon payment of ta for any purpose, authorzed by part II of
subchapter C. Dsted sprts of any proof may be transferred n bond to
any ndustra acoho bonded warehouse from any dstery, nterna revenue
bonded warehouse, ndustra acoho pant, or ndustra acoho bonded ware-
house for storage pror to remova (a) for redstaton, (6) for trnnsfer n bond
to other bonded premses as authorzed by ths subpart, or (c) f 160 or more of
proof, for any ta -free purpose, or upon payment of ta for any purpose, author-
zed by part II of subchapter C, n accordance wth ths subpart.
Sec. 171.2 9. Consent of Surety, Form 1 33, on I ant or Warehouse ond.
The propretor of an ndustra acoho pant or ndustra acoho bonded ware-
house, n order to have dsted sprts transferred n bond to hs pant or
warehouse, from dsteres or nterna revenue bonded warehouses, sha fe
consent of surety, Form 1 33, on hs bond, Form 1 32- , e tendng the terms
thereof to assume abty for payment of the ta on the dsted sprts from
the tme they eave the dstery or nterna revenue bonded warehouse from
whch they are removed. When Form 1 32- s n ess than the ma mum pena
sum and s nsuffcent to cover the ta on any dsted sprts to be transferred,
determned n accordance wth the provsons of Reguatons 3, concernng the
determnaton of bond abty, a new or addtona bond n a suffcent pena
sum sha be fod by the propretor. The consent of surety sha be n substan-
tay the foowng form:
To e tend the terms of.sad bond to nsure tbe paymenf of a ta es,
together wth penates and nterest, for whch the prncpa may become
abe on dsted sprts removed for transfer n bond to hm from
regstered dsteres, frut dsteres, and nterna revenue bonded
warehouses, pursuant to secton 31 3, I. R. C, and reguatons, from the
tme the dsted sprts eave tbe dstery or nterna revenue bonded
warehouse from whch removed, ncudng the transportaton, reds-
taton, storage and dsposton of the dsted sprts, as provded by
aw and reguatons.
Sec. 171.2 0. Transfer of Lens. When dsted sprts of any proof are
transferred n bond under the provsons of ths subpart to an ndustra acoho
pant or ndustra acoho bonded warehouse from a dstery, an nterna
revenue bonded warehouse, or another ndustra acoho pant or ndustra
acoho bonded warehouse, the ta abty of the propretor of the dstery,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
26
nterna revenue bonded warehouse, Industra acoho pant, or Industra
acoho bonded warehouse from whch the sprts are removed, and the ens
on such dstery, ndustra acoho pant, or ndustra acoho bonded ware-
house sha cense; and at and from the tme the dsted sprts eave the
shppng dstery, nterna revenue bonded warehouse, ndustra acoho pant
or ndustra acoho bonded warehouse, the ta sha be the abty of the
propretor of, and the en sha be transferred to the premses of, the recevng
ndustra acoho pant or ndustra acoho bonded warehouse.
Sec. 171.2 1. asc and Wthdrawa Permts. The propretor of an n-
dustra acoho pant or ndustra acoho bonded warehouse, n order to
wthdraw dsted sprts from dsteres and nterna revenue bonded ware-
houses, must fe appcaton on Form 1 31 wth the dstrct supervsor of hs
dstrct for amendment of hs basc permt, Form 1 33, to authorze the pro-
curement of such dsted sprts. ppcaton for wthdrawa permt- sha
be made on Form 1 36, propery modfed, for remova ether to the ndustra
acoho pant or to the ndustra acoho bonded warehouse. The dstrct
supervsor n ssung wthdrawa permt on Form 1 3C w modfy such form
to specfy Dsted Sprts and wthdrawa from a regstered dstery, frut
dstery, or nterna revenue bonded warehouse. Dsted sprts may be
shpped from dsteres and nterna revenue bonded warehouses to ndustra
acoho pants and ndustra acoho bonded warehouses ony pursuant to,
and upon recept of, proper wthdrawa permt on Form 1 36 authorzng suc
shpment, n accordance wth the procedure prescrbed n Reguatons 3.
Sec 171.2 2. Transfer Procedure. The transfer n bond of dsted sprts
of any proof to ndustra acoho pants and ndustra acoho bonded ware-
houses from dsteres and nterna revenue bonded warehouses sha be made
n accordance wth the appcabe procedure prescrbed by Reguatons , ,
and 10, coverng transfers n bond between dsteres and nterna revenue
bonded warehouses, e cept that Form 170 , (prepared by the consgnor pro-
pretor), n eu of Form 236, w be used wth Form 1 20 or Form 1619, as
the case may be. Form 170 w be prepared as ndcated by the headngs of
the varous coumns and nes on the form and the nstructons prnted thereon
or ssued n respect thereto, and as requred by ths subpart. The propretor
w prepare an orgna and fve copes of Form 170 n the ease of ntradstrct
transfers, and an orgna and s copes n the case of nterdstrct transfers,
and submt them wth the wthdrawa permt, Form 1 36, to the storekeeper-
ganger. The copes of Forms 170 and 1 20 or 1019 w be dsposed of n the
same manner as prescrbed for the dsposton of Forms 236 and 1 20 or 1619.
The transfer n bond of dsted sprts of any proof to ndustra acoho pants
or ndustra acoho bonded warehouses from ndustra acoho pants and
ndustra acoho bonded warehouses w be made n accordance wth the
appcabe procedure prescrbed by Reguatons 3.
Sec. 171.2 3. Depost n Tanks at NnrsrR L coho Pants. When
dsted sprts are receved at an ndustra acoho pant pursuant to secton
171.2 , they sha be deposted In cosed, ocked tanks. When receved n
packages, the contents must be dumped and deposted mmedatey n such
tanks. Dsted sprts receved n packages, tank cars, tank trucks, or tank
barges, or by ppene, may be deposted n the same tanks. Dsted sprts
of dfferent proof, or whch were produced from dfferent knds of materas,
or by dfferent dsters, or at dfferent dsteres, or whch dffer n knd
accordng to the standards of dentty estabshed under the Federa coho
dmnstraton ct, or whch are otherwse heterogeneous, may be deposted
n the same tanks. When dsted sprts produced from dfferent knds of
materas are mnged n tanks at an ndustra acoho pant, they sha be
redesgnated n accordance wth the provsons of secton 171.222 and may be
removed ony (a) for redstaton n accordance wth the provsons of sec-
ton 171.2 , (6) for transfer n bond as specfed n ths subpart or (c) f 160
or more of proof for an authorzed ta -free purpose, or upon ta payment for
nonbeverage purposes or for use n the manufacture of beverage products ony
where the source of materas from whch dsted s not specfed or requred
for abeng purposes. For record purposes, dsted sprts deposted In tanks
under the provsons of ths secton, e cept for redstaton, sha be cassfed
and accounted for as acoho. Dsted sprts receved for redstaton
sha be accounted for as materas, under the remova desgnaton (such as
sprts gran), n accordance wth the appcabe provsons of Reguatons 3.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
26 Msc.
Sec. 171.2 . Depost n Tanks at Industra coho onded Warehouses.
When dsted sprts are receved at ndustra acoho bonded warehouses from
ndustra acoho pants, ndustra acoho bonded warehouses, dsteres, and
Interna revenue bonded warehouses pursuant to secton 171.2 , they may be
stored n warehouse tanks, or n the contaners n whch they were transferred to
the warehouse. Dsted sprts transferred to warehouses n packages, tank
cars, tank trucks, or tank barges, or by ppene, may be deposted n the same
tanks. Dsted sprts of dfferent proof, or whch were produced from dfferent
knds of materas, or by dfferent dsters, or at dfferent dsteres, or whch
dffer n knd accordng to the standards of dentty estabshed under the Federa
coho dmnstraton ct, or whch are otherwse heterogeneous, may be
deposted n the same tanks. When dsted sprts produced from dfferent
knds of materas are mnged n tanks at an ndustra acoho bonded ware-
house, they sha be redesgnated n accordance wth the provsons of secton
171.222 and may be removed ony (a) for transfer n bond as specfed n ths
subpart or (6) f 160 or more of proof for an authorzed ta -free purpose, or
upon ta payment for nonbeverage purposes or for use n the manufacture of
beverage products ony where the source of materas from whch dsted s not
specfed or requred for abeng purposes. For record purposes, dsted sprts
(ncudng dsted sprts for redstaton) deposted n tanks under the prov-
sons of ths secton sha be cassfed and accounted for as acoho.
Sec. 171.2 . Redstaton. Dsted sprts receved at an ndustra aco-
ho pant for redstaton may be redsted separatey or wth other dsted
sprts, ncudng dsted sprts of dfferent proof, or produced from dfferent
knds of materas, or produced by dfferent dsters, or at dfferent dsteres:
Provded, That where dsted sprts produced from gran, cane, frut, and other
materas are redsted together, the redsted sprts sha be desgnated n
accordance wth secton 171.222 and may be removed ony (a) for transfer n
bond as specfed n ths subpart or (6) f 160 or more of proof, for an authorzed
ta -free purpose, or upon ta payment for nonbeverage purposes or for use n the
manufacture of beverage products ony where the source of materas from whch
dsted s not specfed or requred for abeng purposes. The redstaton of
dsted sprts w be n accordance wth ths subpart and the appcabe prov-
sons of Reguatons 3.
Sec. 171.2 6. Records. Dsted sprts redsted at ndustra acoho pants,
and dsted sprts transferred n bond to, or removed for an authorzed purpose
from, ndustra acoho pants and ndustra acoho bonded warehouses under
ths subpart, sha be reported and accounted for n accordance wth ths subpart
and the appcabe provsons of Reguatons 3.
transfers n bond from ndustra acoho pants and ndustra acoho
bonded warehouses to dste|es and nterna revenue bonded ware-
OUS S
Sec. 171.2 . mendment of Notce The propretor of a dstery or an nter-
na revenue bonded warehouse, n order to wthdraw dsted sprts from ndus-
tra acoho pants and ndustra acoho bonded warehouses, sha gve notce of
hs ntenton to procure such dsted sprts by fng wth the dstrct supervsor
of hs dstrct an amended Form 27- , 27 , or 27-D, as the case may be, n
accordance wth the appcabe procedure prescrbed by Reguatons , , or 10.
Sec. 171.2 9. Transfer Procedure. The transfer n bond of dsted sprts
from an ndustra acoho pant or ndustra acoho bonded warehouse to a
dstery pursuant to secton 171.231, or to an nterna revenue bonded warehouse
pursuant to secton 171.2 0, w be made pursuant to wthdrawa permt, Form
1 36 (propery modfed) n accordance wth the appcabe procedure prescrbed
by Reguatons 3, governng transfers .n bond of acoho between ndustra acoho
bonded premses, e cept that an addtona copy of Form 1 0 w be prepared
for the fes of the storekeepor-gauger at the recevng dstery or nterna
revenue bonded warehouse. The remanng copes of Form 1 0 w be dsposed
of n the manner prescrbed by Reguatons 3.
removas, free of ta , fob denaturaton
Sec. 171.260. uthorzed Wthdrawas. Dsted sprts of 160 or more
of proof may be wthdrawn, free of ta , for denaturaton, from a dstery
0 016 2 1
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
266
or an nterna revenue bonded warehouse, and, when transferred to an ndustra
acoho pant or ndustra acoho bonded warehouse, may be wthdrawn there-
from for dennturaton, sub|ect to the provsons of part II of subchapter C and n
accordance wth the procedure prescrbed by ths subpart and n Reguatons 3.
Such dsted sprts may aso be transferred from one denaturng pant to
another n accordance wth the provsons of Reguatons 3. The wthdrawa of
dsted sprts from ndustra acoho pants and ndustra acoho bonded
warehouses, for denaturaton, w be n accordance wth the procedure pre-
scrbed n ths subpart and by Reguatons 3.
Skc. 171.201. Rasc and Wthdrawa Permts. The propretor of a denatur-
ng pant, n order to wthdraw dsted sprts of 160 or more of proof, free
of ta , for denaturaton, from dsteres or nterna revenue bonded ware-
houses, must fe appcaton on Form 1 31, wth the dstrct supervsor of hs
dstrct, for amendment of hs basc permt, Form 1 33, to authorze the pro-
curement of such dsted sprts. ppcaton for wthdrawa permt sha
be made on Form 1 03, propery modfed, for remova to the denaturng pant.
The dstrct supervsor n ssung wthdrawa permt on Form 1 03 w modfy
such form to specfy dsted sprts and wthdrawa from a regstered ds-
tery, frut dstery, or an nterna revenue bonded warehouse. Dsted
sprts may be shpped from dsteres and nterna revenue bonded warehouses
to denaturng pants, ony pursuant to, and upon recept of, proper wthdrawa
permt on Form 1 G3 authorzng such shpment, n accordance wth the pro-
cedure prescrbed n Reguatons 3.
Sec. 171.202. Consent of Surety, Form 1 33, on Denaturng Pant ond.
The propretor of a denaturng pant, n order to wthdraw dsted sprts of
100 or more of proof, free of ta , for denaturaton, from dsteres or nterna
revenue bonded warehouses, sha te consent of surety, Form 1 33, on hs bond,
Form 1 32- , e tendng the terms thereof to assume abty for payment of
the ta on the dsted sprts from the tme they eave the dstery or nterna
revenue bonded warehouse from whch they are removed. When Form 1 32-
s n ess than the ma mum pena sum and s nsuffcent to cover the ta on
any dsted sprts to be wthdrawn determned n accordance wth the pro-
vsons of Reguatons 3, concernng the determnaton of bond abty, a new
or addtona bond n a suffcent pena sum sha be fed by the propretor.
The consent of surety sha be n substantay the foowng form:
To e tend the terms of sad bond to he abe for dsted sprts wth-
drawn free of ta by the prncpa from regstered dsteres, frut
dsteres, and nterna revenue bonded warehouses, pursuant to sec-
ton 31 3, I. R. C, and reguatons, to the same e tent as acoho wth-
drawn, free of ta from ndustra acoho pants and bonded warehouses.
Sec. 171.2( 3. Wthdrawa Proceduhe. The wthdrawa of dsted sprts of
100 or more of proof, free of ta , for denaturaton, from dsteres and nterna
revenue bonded warehouses, sha be made n accordance wth the procedure
prescrbed by secton 171.2 2 for the transfer of dsted sprts from such
premses to ndustra acoho pants nnd ndustra acoho bonded warehouses,
e cept that the dster or warehouseman, as the case may be, w present
to the storekeeper-ganger wthdrawa permt, Form 1 03, n eu of wthdrawa
permt, Form 1 30. The wthdrawa of such sprts from ndustra acoho
pants nnd ndustra acoho bonded warehouses, and other denaturng pants,
for dennturaton, w be n accordance wth the procedure prescrbed by Regu-
atons 3.
Sec 171.26 . Records. Dsted sprts of 100 or more of proof wthdrawn
free of ta for dennturaton ha he reported and accounted for by store-
keeper-gaugers and propretors on ther monthy reports prescrbed by Regua-
tons 3, , , or 10, as the case may be. For record purposes, dsted sprts
receved at a denaturng pant for dennturaton sha he cassfed and accounted
for as acoho. Upon denaturaton such sprts w be desgnated as com-
petey denatured acoho or specay denatured acoho, as the case may be,
and wthdrawn as such from the denaturng pant.
removas, free of ta , for use of ne unted states
Sec. 171.20 . uthorzed Wthdrawas. Dsted sprts of 160 or more
of proof may be wthdrawn, free of ta , for use of the Unted States, from any
dstery or nterna revenue bonded warehouse, and, when transferred to an
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
267
Msc.
ndustra acoho pant or ndustra acoho bonded warehouse, may be wth-
drawn therefrom for such purpose, sub|ect to the provsons of part II of sub-
chapter C and n accordance wth the procedure prescrbed by ths subpart and
n Reguatons 3. Pursuant to permt, Form 1 , ssued by the Commssoner
authorzng wthdrawas for use of the Unted States, such dsted sprts, n-
cudng acoho produced at ndustra acoho pants, may be so wthdrawn,
pror to denaturaton, from denaturng pants when such wthdrawas are
deemed necessary to meet the requrements of the natona defense. The wth-
drawa of dsted sprts from ndustra acoho pants and ndustra acoho
bonded warehouses, and from denaturng pants (when authorzed), for use
of the Unted States w be n accordance wth the procedure prescrbed n
ths subpart and by Reguatons 3.
Sec. 171.266. ppcaton and Permt, Form 1 . The head of the Govern-
menta department or ndependent bureau or agency desrng to wthdraw ds-
ted sprts of 160 or more of proof, free of ta , from dsteres and nterna
revenue bonded warehouses, sha fe appcaton, n quadrupcate, on Form
1 (appropratey modfed) drecty wth the Commssoner, n accordance
wth the appcabe procedure prescrbed by Reguatons 3. Upon recept of
an appcaton on Form 1 , the Commssoner w ssue a permt on such
form (appropratey modfed), n accordance wth the appcabe procedure
prescrbed by Reguatons 3. The orgna and one copy of Form 1 sha be
forwarded to the head of the department or ndependent bureau or agency
makng appcaton for the permt, who n turn sha retan a copy and forward
the orgna to the vendor named n the permt. One copy w be retaned by
the Commssoner for hs tes and the remanng copy w be forwarded to
the dstrct supervsor of the dstrct n whch the vendor named n the appca-
ton s ocated.
Sec. 171.267. Wthdrawas of Dsted Sprts. When wthdrawas of ds-
ted sprts of 160 or more of proof are to be made, free of ta , for use of
the Unted States, the propretor of the premses from whch the dsted
sprts are to be wthdrawn w present the permt, Form 1 , to the store-
keeper-gauger and desgnate the sprts to be wthdrawn.
(a) From dsteres and warehouses Where dsted sprts are wth-
drawn from dsteres and nterna revenue bonded warehouses, the store-
keeper-gauger w gauge the sprts and prepare Form 1 20, n quadrupcate.
The propretor w prepare Form 1 3, n quntupcate, and gve a copes to
the storekeeper-gauger. Upon reease of the shpment, the storekeeper-gauger
w retan one copy of Form 1 3 and one copy of Form 1 20, dever one copy
of each form to the propretor, forward two copes of Form 1 3 and one copy
of Form 1 20 to the consgnee, and forward the remanng copy of each form to
the consgnor dstrct supervsor.
(6) From ndustra acoho pants and warehouses. Where dsted sprts
are wthdrawn from ndustra acoho pants, ndustra acoho bonded ware-
houses, or denaturng pants (when authorzed), the propretor w prepare
Form 1 0 and Form 1 3, each n trpcate. Upon reease of the shpment, the
storekeeper-gauger w dever one copy of Form 1 3 and Form 1 0 to the
propretor, forward two copes of Form 1 3 and one copy of Form 1 0 to the
consgnee, and forward the remanng copy of Form 1 0 to the consgnor
supervsor.
Where shpment s by motor truck, the copes of Forms 1 3 and 1 20 or 1 0
for the consgnee w be seaed n an enveope addressed to the consgnee and
handed to the person n charge of the truck for devery. Where the dsted
sprts are to be transported by pubc carrer, the consgnor sha furnsh to
the storekeeper-gauger, for forwardng to the dstrct supervsor wth Forms
1 3 and 1 20 or 1 0, a copy of the b of adng, f any, coverng transportaton
of the sprts from the pont of shpment to destnaton.
Sec. 171.26 . Certfcate of Recept. Recept of each shpment of dsted
sprts wthdrawn for use of the Unted States sha be prompty certfed to on
Form 1 3, n dupcate, by the offca representatve of the Unted States or
governmenta agency thereof to whom devery of such shpment s made. Where
nspecton at destnaton dscoses a oss n transt, such oss w be noted on
each copy of Form 1 3 by the recevng offcer, who w state whether the
condton of the conveyance when receved ndcates that the oss was due to
theft or to other cause. One copy of the recepted Form 1 3 sha be forwarded
prompty to the dstrct supervsor from whose dstrct the wthdrawa s made,
and the remanng copy w be retaned by the consgnee.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2G
R MO LS, FR OF T , FOR SCI NTIFIC PURPOS S, US OF OSPIT LS, TC.
Sec. 171.270. uthorzed Wthdrawas. Dsted sprts of 160 or more of
proof may bo wthdrawn, free of ta , for scentfc purposes, use of hosptas,
States, etc.. from a dstery or an Interna revenue bonded warehouse, and, when
transferred to an ndustra acoho pant or ndustra acoho bonded ware-
house, may be wthdrawn therefrom for such purposes, sub|ect to the provsons
of part II of subchapter C and n accordance wth the procedure prescrbed n
Reguatons 3. The wthdrawa of dsted sprts from ndustra acoho pants
an,I ndustra aco o bonded warehouses for scentfc purposes, use of hosptas.
States, etc., w he n accordance wth the procedure prescrbed n ths subpart
and by Reguatons 3.
Sec. 171.271. asc a d Wthdrawa Permts. Where t s desred to wth-
draw dsted sprts of 100 or more of proof, free of ta , from dsteres or
nterna revenue bonded warehouses, as provded n secton 171.270, appcaton
sha be made on Form 1 7 propery modfed, n trpcate, to the dstrct super-
vsor for basc permt to use such dsted sprts. cton by the dstrct super-
vsor n respect to such appcatons w be n accordance wth the appcabe
provsons of Reguatons 3. permttee whose basc permt. Form 1 7. au-
thorzes the procurement of acoho free of ta an who desres to procure
dsted sprts of 100 or more of proof from dsteres or nterna revenue
bonded warehouses sha fe appcaton on Form 1 7 wth the dstrct super-
vsor for the amendment of hs basc permt to authorze the procurement of
such dsted sprts. Where a permttee hodng a basc permt. Form 1 7.
to use dsted sprts free of ta desres to procure ta -free dsted sprts
under such permt, appcaton on Form 1 0, propery modfed, w be fed
n accordance wth the provsons ot Reguatons 3. The dstrct supervsor n
ssung wthdrawa permt on Form 1 0 w modfy such form to specfy ds-
ted sprts and wthdrawa from a regstered dstery, frut dstery, or an
nterna revenue bonded warehouse. Dsted sprts may be shpped from ds-
teres and nterna revenue bonded warehouses to hoders of basc permts.
Form 1 7, ony pursuant to, and upon recept of, proper wthdrawa permt
on Form 1 0 authorzng such shpment n accordance wth the procedure
prescrbed n Reguatons 3.
Sec. 171.272. o ds. permttee who hods a permt, Form 1 7, prescrbed
by secton 171.271, to wthdraw dsted sprts of 100 or more of proof, free
of ta , from dsteres or nterna revenue bonded warehouses must fe wth
the dstrct supervsor a bond on Form 1 , when requred by, and n accord-
ance wth, the appcabe provsons of Reguatons 3. Where a permttee hods
a permt to wthdraw acoho free of ta from ndustra acoho pants or ndus-
tra acoho bonded warehouses, whc s supported by bond, Form 1 S, and
fes appcaton for amendment of the permt to authorze the wthdrawa of
ta -free dsted sprts as provded n secton 171.271, the permttee must fe
consent of surety. Form 1 33, on Is bond, e tendng the terms thereof to cover
such ta -free dsted sprts. The consent of surety sha be n substantay
the foowng form:
To e tend the terms of sad bond to be abe for dsted sprts wth-
drawn free of ta by the prncpa from regstered dsteres, frut
dsteres, and nterna revenue bonded warehouses, pursuant to sec-
ton 31 3, I. R. C, and reguatons, to the same e tent as acoho wth-
drawn free of ta from ndustra acoho pants and bonded ware-
bouses.
Sec. 171.273. Wthdrawa Procedure. The wthdrawa of dsted sprts of
100 or more of proof, free of ta , for scentfc purposes, use of hosptas, States,
etc., from dsteres and nterna revenue bonded warehouses sha be made n
accordance wth the appcabe procedure prescrbed by Reguatons 3, e cept
that Form 1 20 w be used n eu of Form 1 0. The Government offcer w
nsert on Form 1 20 the name and address of the consgnee. The wthdrawa
of dsted sprts for such purposes from Industra acoho pants and ndus-
tra acoho bonded warehouses sha be n accordance wth the procedure pre-
scrbed n ths subpart and by Reguatons 3.
R MO LS FOR PORT TION WIT OUT P YM NT OF T
Sfc. 171.27 . uthorzed Wthdrawas. Dsted sprts of 100 or more
of proof may be wthdrawn for e portaton n approved contaners, wthout
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
269
Msc.
payment of ta , from a dstery or nn Interna revenue bonded warehouse, and
when transferred to an ndustra acoho pant or ndustra acoho bonded
warehouse may be wthdrawn therefrom for e portaton wthout payment of ta ,
sub|ect to the provsons of part II of subchapter C and n accordance wth the
procedure prescrbed n ths subpart and the appcabe procedure prescrbed by
Reguatons 3 and 10. The wthdrawa of dsted sprts from ndustra aco-
ho pants and ndustra acoho bonded warehouses, for e portaton, w be
n accordance wth the procedure prescrbed n ths subpart and by Itcguatons 3.
G N R L
Sec. 171.27 . Losses. The provsons of secton 2901 of the Interna Revenue
Code nnd the appcabe provsons of Reguatons , , and 10 sha appy n
respect to osses of any dsted sprts transferred or removed for transfer
under ths subpart to a dstery or nterna revenue bonded warehouse or sus-
taned theren pror to transfer or remova for transfer to an ndustra acoho
pant or ndustra acoho bonded warehouse or remova for any ta -free pur-
pose authorzed by part II of subchapter C. The provsons of secton 3113 of the
Code and the appcabe provsons of Reguatons 3 sha appy n resrect to
osses of any dsted sprts sustaned subsequent to beng transferred or re-
moved for transfer under ths subpart to an ndustra acoho pant or ndustra
acoho bonded warehouse. The provsons of secton 3113 of the Code and the
appcabe provsons of Reguatons 3 sha appy n respect to osses of any
dsted sprts sustaned subsequent to beng removed from n dstery or nn
nterna revenue bonded warehouse, ndustra acoho pant, ndustra acoho
bonded warehouse, or denaturng pant for any ta -free purpose authorzed by
part II of subchapter C.
Sec. 171.276. Mngng Durng Course of Remova Same Premses. Ds-
ted sprts removed from dsteres, nterna revenue bonded warehouses,
ndustra acoho pants, ndustra acoho bonded warehouses, and denaturng
pants, under secton 31 3 of the Interna Revenue Code and ths subpart, for
transfer n bond, or f ICO or more of proof, or denaturaton or for use of the
Unted States, may be mnged n tank cars, tank trucks, tank barges, etc.,
durng the course of remova from the shppng premses. When dsted
sprts produced from dfferent knds of materas are so mnged, they sha be
redesgnated n accordance wth the appcabe provsons of sectons 171.221
and 171.222.
Sec. 171.277. Mngng Durng Course of Remova Dfferent Premses.
In order that transportaton factes may be utzed economcay, addtona
deposts of dsted sprts may be made n tank cars, tank trucks, tank barges,
etc., after remova from the premses of the orgna consgnor and durng the
course of transportaton to the premses of the utmate consgnee. Where
such an addtona depost s to be made, the Government offcer assgned to
supervse the depost w e amne the conveyance and determne whether the
seas are ntact, and whether there s any evdence of tamperng. The Gov-
ernment offcer w then remove ony those seas necessary to check the contents
as to dry nches and proof and to permt the depost of addtona sprts, after
whch he w determne the composte proof and the dry nches. The convey-
ance w then be seaed. When dsted sprts produced from dfferent knds
of materas are so mnged, they sha be redesgnated n accordance wth the
appcabe provsons of sectons 171.221 and 171.222. separate wthdrawa
form sha be prepared n respect of each such addtona depost as, for
e ampe, Forms 230 and 1 20 or Form 1 0 for transfers n bond. cept as
provded heren, the wthdrawa procedure sha be n accordance wth the
provsons of ths subpart concernng an orgna wthdrawa. The Government
offcer w note on the wthdrawa forms coverng the addtona depost the
fact that such a wthdrawa depost was made together wth nformaton con-
cernng nny shortages n the orgna shpment. In addton to the abe re-
qured by secton 171.20 to be aff ed to the conveyance at the tme of the
orgna wthdrawa, another abe sha be smary aff ed showng the nfor-
maton requred by secton 171.20 descrbng the addtona depost and,
n addton thereto, the composte proof and gaonage and the dry nches
remanng after the depost s competed. When such composte shpments are
to be made, the prescrbed abes w be prepared n such form as to permt
the attachment of addtona abes to the route board. When t s desred to
make addtona deposts n a conveyance, the consgnee propretor desrng to
foow such procedure w make appcaton, n dupcate, to the dstrct super-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
270
vsor for permsson so to do. The appcaton sha specfy the dates on whch
t s aesred to foow such procedure and the necessty therefor together wth
suffcent nformaton to enabe the dstrct supervsor to determne the neces-
sty therefor, and f he npproves the appcaton to advse the Government
offcers concerned so that proper contro and supervson can be e ercsed. Where
t s desred to foow such procedure reguary, the appcaton w be made,
and the permsson granted accordngy.
Skc. 171.27 . stabshment of Den a tthng Pants. Propretors of regs-
tered dsteres, frut dsteres, and nterna revenue bonded warehouses,
from whch dsted sprts of 160 or more of proof are wthdrawn tnder
secton 31 3, I. R. C, and ths subpart, may estabsh denaturng pants n
accordance wth the appcabe provsons of Reguatons 3 for operaton dur-
ng the effectve perod of ths subpart. cept when deemed necessary to meet
the requrements of the natona defense, the estabshment of such denaturng
pants w be restrcted to those estabshed n con|uncton wth premses from
whch dsted sprts are wthdrawn for dena uratm.
Skc. 171.279. ddtona Requrements. The Commssoner may requre the
propretor or the Government offcer to prepare such addtona copes of forms
prescrbed by ths subpart or by the pertnent provsons of Reguatons 3, ,
, and 10, or such other records, as he may deem necessary to meet the requre-
ments of the natona defense.
Sec. 171.2S0. Termnaton of Reguatons. The reguatons contaned n
ths subpart and a operatons authorzed thereunder sha cease to be effectve
years from the date of ennctment of secton 31 3, I. R. C. The quafed
status of ndustra acoho bonded warehouses and denaturng pants estab-
shed by nonproducers of acoho under part II of subchapter C and the
appcabe provsons of ths subpart and Reguatons 3 sha kewse cease and
the permts ssued therefor sha termnate on such date, e cept as to the
remova of any acoho stored theren at such tme.
3. Subpart F of ths part, consstng of sectons 171.1 0-171.1 3
(Treasury Decson 1 C. . 19 0-2, 197 , effectve November ,
19 0 (1 F. R. 7 9 ),) s hereby revoked.
. These reguatons w be effectve on the date of pubcaton n
the Federa Regster.
(Ths Treasury Decson s ssued under the authorty of secton
31 3 of the Interna Revenue Code (U. S. C, tte 26, secton 31 3).)
Fred S. Martn,
ctng Commssoner of Interna Revenue.
pproved November 2,19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster November 7, 19 1)
Part 171: Msceaneous reguatons reat- 19 1-26-1372
ng to quor. T. D. 69
tte 20 nterna revenue. chapter . sunchapter c. part 171.
msceaneous reguatons reatng to quor
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton 2 , D. C.
To Dstrct Supervsors and Others Concerned:
1. Secton 9 of the Revenue ct of 19 1 (Pubc Law 1 3, 2d
Cong.) provdes as foows:
S C. 9 . T R FUNDS ON SPIRITS LOST IN FLOODS OF 19 1.
(a) uthorsaton. The Secretary cf the Treasury s authorzed
and drected to make refund, or aow credt u the case of a dster
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
271
Msc.
or rectfer f he so eects, n the amount of the nterna revenue ta
and customs dutes pad on sprts prevousy wthdrawn, and ost, or
rendered unmarketabe, by reason of the foods of 19 1 whe such
sprts were n the possesson of (1) the person orgnay payng such
ta or such ta and duty on such sprts, (2) a rectfer for rectfca-
ton or for bottng, or whch have been used n the process of rectfca-
ton, under Government supervson as provded by aw and reguatons,
or (3) a whoesae or reta quor deaer, a hereafter referred to as the
possessor or possessors. The refunds and credts authorzed by ths
secton may e made to (1) any of the possessors, e cept a reta quor
deaer, or (2) to any dster, rectfer, mporter, or whoesae quor
deaer who repaced for the possessor the fu equvaent of the ds-
ted sprts so destroyed or rendered unmarketabe, wthout com-
pensaton, remuneraton, payment, or credt of any knd n respect of
the ta , or ta and duty on such dsted sprts. cam for the
amount of such ta . or such ta and duty, sha be fed wth the Secre-
tary of the Treasury wthn 90 days from the date of enactment of
ths ct. The camant sha furnsh proof to the Secretary s sats-
facton that (1) the nterna revenue ta on such sprts, or the ta
and duty f mported, was fuy pad, (2) such sprts were ost, or
rendered unmarketabe, by reason of damage sustaned as the resut
of the aforesad food condtons, (3) camant was not ndemnfed by
any vad cam of nsurance or otherwse aganst oss of the ta (or
ta and duty f mported) pad on the sprts, and ( ) n those cases
where appcabe, that the camant has repaced for the possessor the
fu equvaent of the dsted sprts so destroyed or rendered unmarket-
abe, wthout compensaton, remuneraton, payment, or credt of any
knd n respect of the ta , or ta and duty, on such dsted sprts.
(b) Destructon op Sprts. When the Secretary, pursuant to ths
secton, makes refund, or aows credt, n the amount of the ta , or
ta and duty, on sprts rendered unmarketabe, such sprts sha be
destroyed under the supervson of the Secretary.
(c) Credt. Where credt s aowed to a dster or rectfer for
the nterna revenue ta prevousy pad as aforesad, the Secretary
s authorzed and drected to provde for the ssuance of stamps to cover
the ta on sprts subsequenty wthdrawn or rectfed to the e tent of
the credt so aowed.
(d) Reguatons. The Secretary s authorzed to make such rues
and reguatons as may be necessary to carry out the provsons of ths
secton.
2. Pursuant to the foregong provsons of aw. the foowng regu-
atons are hereby prescrbed:
Subpart I Ta Refunds on Sprts Lost n Foods of 19 1
Tabe of Contents
Secton
171.320. Scope of reguatons n ths subpart.
defntons
171.321. Meanng of terms.
171.322. Camant.
171.323. Dsted sprts or sprts.
171.32 . Dstrct supervsor or supervsor.
171.32 . Fu equvaent.
171.320. Incudng.
171.327. Incusve anguage.
171.32 . Person orgnay payng ta or duty.
171.329. Possessor or possessors.
171.330. Ta .
P YM NT OF R FUNDS
371.331. Persons by whom refunds are payabe.
171.332. Persons to whom refunds may be made.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
272
CL IMS PROC DUR
Secton
171.333. ecuton and fng of cam.
171.33 . Return of cam for correcton or competon.
171.33 . Separaton of mported and domestc sprts; separate cam for duty.
171.330. Camant to furnsh proof of oss.
171.337. Supportng evdence.
171.33 . Supportng statement.
171.339. Repacement.
171.3 0. cton by dstrct supervsor.
D STRUCTION OF SPIRITS
171.3 1. Supervson.
Subpabt I Ta Refunds on Sprts Lost n Foods of 1931
Sec. 171.320. Scope of Reguatons n Ths Subpabt. The reguatons n
ths subpart prescrbe the procedura and substantve requrements necessary
to effectuate secton 9 of the Revenue ct of 19 1, Pubc Law 1 3, S2d Con-
gress, concernng the refund of ta on sprts ost n the foods of 19 1.
defntons
Sec. 171.321. Meam s of Terms. s used n ths subpart, uness the conte t
otherwse requres, terms sha have the meanngs ascrbed In sectons 171.322-
171.330.
Sec. 171.322. Camant. Camant sha mean the person to whom the
refund may be made, as provded n secton 171.332, and n the case where the
sprts are to be repaced, such person or persons and the possessor sha |on n
the cam or cams.
Sec. 171.323. Dsted Sprts or Sprts. Dsted sprts or sprts
sha ncude acoho and sprts commony known as whsky, brandy, rum, gn,
etc., upon whch ta was pad at the dsted sprts rate, and rectfed sprts.
Sec. 171.32 . Dstrct Supervsor or Supervsor. Dstrct supervsor or
supervsor sha mean the person havng charge of a supervsory dstrct of the
coho and Tobacco Ta Dvson of the ureau of Interna Revenue.
Sec. 171.32 . Fu quvaent. Fu equvaent sha mean a quantty of
sprts, n ta gaons, equa to the quantty ost or rendered unmarketabe.
Sec. 171.326. Incudng. Incudng sha not be deemed to e cude thngs
other than those enumerated whch are n the same genera cass.
Sec. 171.327. Incusve Language. Words n the pura sha Incude the
snguar and vce versa, and words n the mascune gender sha ncude femaes,
assocatons, copartnershps, and corporatons.
Sec. 171.32 . Person Orgnay Patno Tat ok Duty. The person org-
nay payng ta or duty sha ncude propretors of ndustra acoho pants
or bonded warehouses, propretors of nterna revenue bonded warehouses, ds-
ters, rectfers, and mporters.
Sec. 171.329. Possessor or Possessors. Possessor or possessors sha
mean the person or persons n whose possesson the sprts were hed at the tme
they were ost or rendered unmarketabe, as specfed n secton 171.331.
Sec. 171.330. Ta . The Ta sha ncude the ta pad on the sprts under
secton 2 00(a), I. R. C, n the case of unrectfed sprts. In the ca e of rectfed
sprts, the Ta sha ncude the ta pad on tbo sprts under secton 2 00(a),
I. R. C, and the rectfcaton ta , f any, and the corda ta of 10 cents per haf
pnt, f any, but sha not ncude the wne ta pad on any wne or vermouth
contaned n the rectfed sprts.
P YM NT OF FUNDS
Sec. 171.331. Persons by Whom Refunds re Payabe. The Commssoner
of Interna Revenue s authorzed and drected to make refund of the nterna
revenue ta es, and the ureau of Customs s authorzed and drected to make
refund of Customs dutes, pad on sprts prevousy wthdrawn, and ost, or
rendered unmarketabe, by reason of the foods of 19 1, whe such sprts wore
n the possesson of ( |) the person orgnay payng such ta , or such ta and
duty, on such sprts, (6) a rectfer for rectfcaton, or for bottng, or whch
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
273
Msc.
have been used In the process of rectfcaton, under Government supervson as
provded by aw and reguatons, or (c) whoesae or reta quo deaers.
Src. 171.332. I nsoNs o Whom Refunds May e Made. Under the provsons
of the aw the refund of the ta , or the ta and duty f the sprts were mported,
may be made to:
(a) any of the possessors refe/red to n secton 171.331, e cept a reta
quor deaer, or
(b) any dster, rectfer, mporter, or whoesae quor deaer who
repaced for the possessor the fu equvaent, n ta gaons, of the dsted
sprts so destroyed or rendered unmarketabe wthout compensaton, re-
muneraton, payment, or credt of any knd, n respect of the ta or duty on
such sprts.
CL IMS PROC DUR
Sec. 171.333. ecuton and Fng of Cam. The cam for refund sha
be e ecuted on Form 3 (Interna Revenue) n accordance wth nstructons
thereon, as far as appcabe, and fed wth the dstrct supervsor of the ds-
trct n whch the sprts were ost or rendered unmarketabe wthn 90 days
from October 20, 19 1, the date of enactment of the Revenue ct of 19 1.
Sec. 171.33 . Return of Cam for Correcton or Competon. It Is contem-
pated by ths subpart that cams w be fed (1) where the sprts have been
repaced before the fng of the cam: and (2) where the competon of the
cam s to awat determnaton, as provded n secton 171.339, as to the quan-
tty of sprts ost or rendered unmarketabe and the quantty repaced. In the
atter event, the cam w, upon such determnaton, e returned to the cam-
ant for the nserton of the necessary data. Cams w aso be returned whch
are otherwse defectve for any other reason.
Sec. 171.33 . Separaton of Imported and Domestc Sprts; Separate Cam
for Duty. If the cam for nterna revenue ta nvoves both domestc and
mported sprts, the quantty of each must be shown separatey n the cam.
separate cam w be requred n respect of refund of the duty on the m-
ported sprts.
Sec 171 M G. Camant to Furnsh Proof of Loss. The camant sha fur-
nsh proof to the satsfacton of the Commssoner that:
(a) the nterna revenue ta on such sprts, or the ta and duty f m-
ported, was fuy pad;
(b) such sprts were ost or rendered unmarketabe by reason of damage
sustaned as the resut of the foods of 19 1 ;
(c) the camant (ncudng the possessor f other than the camant)
was not ndemnfed by any vad cam of nsurance or otherwse aganst
the oss of the ta , or the ta and duty f mported, pad on the sprts, and
(d) n those cases where appcabe, that the camant as repaced for
the possessor the fu equvaent of the dsted sprts so destroyed or
rendered unmarketabe, wthout compensaton, remuneraton, payment or
credt of any knd n respect of the ta , or ta and duty, on such dsted
sprts.
Sec 171.337. Supportng vdence. The camant sha support hs cam
wth such evdence as he s abe to submt, ncudng nventores, statements,
nvoces, bs, records, stamps, abes, formuae, etc., reatng to the quantty
of ta -pad sprts n stock at the tme of the foods and averred to have been
ost or rendered unmarketabe.
Sec 171.33 . Supportno Statement. In the case of repacement of sprts
for a possessor, t sha be attested n the cam that the camant (dster,
rectfer, mporter, or whoesae quor dener, as the case may be) repaced for
the possessor the fu equvaent of the dsted sprts ost or rendered un-
marketabe as a resut of the foods, wthout compensaton, remuneraton, pay-
ment or credt of any knd, n respect to the ta or duty on such sprts, and
further that nether the camant nor the possessor was ndemnfed by any
vad cam of nsurance or otherwse aganst the oss of the ta , or the ta and
duty f mported, pad on the sprts so ost or rendered unmarketabe.
Sec. 171.339. Repacement. The repacement of sprts for a possessor and
competon of the cam may be effectuated after a reasonabe determnaton has
been made by the dstrct supervsor of the quantty of sprts destroyed or
rendered unmarketabe by the foods, as provded n secton 171.3 0. The fnd-
ngs of the supervsor respectng the quantty of sprts nvoved may be made
avaabe to the partes pror to the repacement and competon of the cam.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
27
The cam, however, sha be fuy competed respectng evdence of repacement
before submsson to the Commssoner, as provded by secton 171.3-10.
Sec. 171.3 0. cton by Dstrct Supervsob. The dstrct supervsor w
e amne each cam fed for refund of the nterna revenue ta or duty under
ths subpart and w cause such nvestgaton to be made as may be necessary
to estabsh the vadty of the cam. Upon concuson of hs e amnaton and
nvestgaton, the supervsor w prepare a bref summary of hs fndngs and
concusons respectng the quantty of dsted sprts found to have been ost
or rendered unmarketabe, and ncudng, where appcabe, hs concuson
whether the fu equvaent of the sprts tas been repaced for a possessor.
Cams for the refund of nterna revenue ta w thereupon be forwarded wth
a copy of the report of nvestgaton and the summary statement of the super-
vsor to the Commsscner of Interna Revenue. Cam nvovng refund of
the duty w be forwarded wth a copy of the report of nvestgaton and a copy
of the summary, statement of the supervsor to the Commssoner of Customs,
destructon of sprts
Sec 171.3 1. Supervson. When refund s made n the amount of the ta ,
or ta and duty, on sprts rendered unmarketabe as provded by ths subpart,
such sprts sha be destroyed by sutabe means under the supervson of an
nspector to be assgned for that purpose by the dstrct supervsor. The ds-
trct supervsor w be notfed by the Commssoner of Interna Revenue and
the ureau of Customs as to refunds granted n respect of unmarketabe sprts.
3. It s found that compance wth the notce, pubc rue-makng
procedure and effectve date requrements of the dmnstratve Pro-
cedure ct ( U. S. C. 1001 et seq.), s mpractcabe n connecton
wth the ssuance of these reguatons because of the tme mtaton
for fng the refund cams.
. Ths Treasury Decson sha be effectve upon the date of ts
pubcaton n the Federa Regster.
(Ths Treasury Decson s ssued under the authorty contaned
n secton 9 o the fevenue ct of 19 1 (Pubc Law 1 3, 2d
Cong.).)
O . DC L P,
Commssoner of Interna Revenue.
Fra k Dow,
Commssoner of Customs.
pproved November 29,19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Pubshed n the Federa Regster December , 1931)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
27
TO CCO, SNUFF, CIG RS, CIG R TT S, TC.
Reguatons , rtces 206, tc. 19 1-26-13729
T. D. 6
TITL 20 INT RN L R NU . C PT R I SU C PT R C. P RT 1 0.
T S ON TO CCO. SNCFF, CIG RS. CIG R TT S. CIG R TT P P RS ND
TU S, ND PURC S ND S L OF L F TO CCO
Increase n rate of ta and foor stocks ta on cgarettes
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2 , D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 26 CFR, part 1 0 , reatng to
the ta es on tobacco, snuff, cgars, and cgarettes, cgarette papers and
tubes, and purchase and sae of eaf tobacco, to sectons 21 and 22
of the Revenue ct of 19 1 (Pubc Law 1 3, 2d Cong., 1st sess.),
approved October 20, 19 1. such reguatons, but ony as prescrbed
and made appcabe to the Interna Revenue Code by Treasury Dec-
son C. . 1939-1 (part 1), 396 , approved February 11. 1939
26 CFR, Cum. Supp., p. 76 , are amended, effectve November 1,
19 1, as foows:
Paragraph 1. rtce 206, as renumbered by Treasury Decson
1 0 C. . 19 2-2, 2 , approved November , 19 2 26 CFR. Cum.
Supp., 1 0.206 s renumbered as secton 21 26 CFR 1 0.21 .
Par. 2. There s nserted mmedatey foowng artce 20 26
CFR, Cum. Supp., 1 0.20 the foowng:
Chapter II 19 1 Foor Stocks Ta es o Sma Cgarettes
S C. 21. T O CIG R TT S R NU CT OF 19 1, P-
I-RO D OCTO R 20, 19 1 .
(a) I CR S n Rate. Secton 2000(c)(2) (ta on cgarettes)
Is hereby amended by strkng out 3. 0 per thousand and nsertng
n eu thereof per thousand unt pr 1, 19 , and 3. 0 per
thousand on and after pr 1, 19 .
(b) ffectve Date. The amendment made by subsecton (a)
sha take effect on the frst day of the frst month whch begns more
than 10 days after the date of the enactment of ths ct.
S C. 22. FLOOR STOC S T ND FLOOR STOC S R FUND
ON CIG R TT S R NU CT OF 19 1, PPRO D
OCTO R 20, 19 1 .
Secton 2000 (reatng to ta on tobacco, etc.) s hereby amended by
addng at the end thereof the foowng new subsectons:
(f) 19 1 Foor Stocks Ta .
(1) Ta . Upon cgarettes sub|ect to ta under ths secton
weghng not more than three pounds per thousand, whch on the
effectve date of secton 21 of the Revenue ct of 19 1 are hed by
any person for sae, there sha be eved, assessed, coected, and
pad a foor stocks ta at a rate equa to the ncrease n rate of ta
made appcabe to such cgarettes by the Revenue ct of 19 1.
(2) Returns. very person requred by :hs subsecton to pay
any foor stocks ta sha, on or before the end of the month ne t
foowng the month n whch secton 21(a) of the Revenue ct of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
276
19 1 takes effect, under such reguatons as the Secretary sha
prescrbe, make a return and pay such ta , e cept that In the case
of such cgarettes hed by manufacturers and mporter , the Secre-
tary may coect the ta wth respect to such cgarettes by means
of stamps rather than return, and n such case may make an assess-
ment aganst such manufacturer or mporter havng cgarette ta
Stamps on hand on the effectve date of such secton for the dffer-
ence between the amount pad for such stamps and the ncreased
rate mposed by such secton.
(3) Laws appcabe. provsons of aw, Incudng pena-
tes, appcabe n respect of the ta es mposed by secton 2000,
sha, nsofar as appcabe and not nconsstent wth ths subsec-
ton, be appcabe wth respect to the foor stocks ta mposed by
ths subsecton.

bt. 200. Sec 1 0.200 Scope of Ta . The foor stocks ta under secton
2000(f) of the Interna Revenue Code, as added by secton 22 of the Revenue
ct of 19 1, s mposed upon sma cgarettes, whch at the frst moment of
November 1, 19 1, arc hed by any person for sae. The ta appes to a
ta -pad (stamped) sma c aretres hed by whoesae and reta deaers n
such artces, ncudng owners or operators of cgarette vendng machnes,
operators of Unted States rmy, Navy, and r Force post e changes, quarter-
master saes stores, commssary stores and shps servce stores; aso to ta -
pad (stamped) sma caarettes hed by manufacturers and mporters of such
cgarettes wthout regard to the pace where the cgarettes are hed; aso to
non-ta -pad (unstamped) sma cgarettes hed by domestc manufacturers n
ther factores and hed by mporters n customs custody. Sub|ect to the e emp-
tons provded for wth respect to the wthdrawa of sma cgarettes for e port
(see artce 1 secton 1 0.1S ), the wthdrawa of sma cgarettes for use
as sea stores (see artce 1 0 secton 1 0.1S0 ), and the wthdrawa of sma
cgarettes for use of the Unted States (see Reguatons 3 20 CFR, part 0 ).
the ta appes aso wthout regard to the dsposton of the sma cgarettes on
or after November 1, 19 1.
The term sma cgarettes means cgarettes weghng NOT more than 3
pounds per thousand, whch ncudes the standard and so-caed ng szes
of cgarettes.
rt. 207. Sec 1 0.207 Rate of Ta . The rate of foor stocks ta appcabe
to sma cgarettes s 0 cents per thousand. Ths rate s equa to the ncrease
n the rate of ta made appcabe to sma cgarettes by secton 2000(c) (2) of
the Interna Revenue Code, as amended by secton 21(a) of the Revenue ct
of 19 1.
rt. 20 . Sec 1 0.20S Payment of Ta The foor stocks ta Is payabe
on or before December 31,19 1, by every person who at the frst moment of Novem-
ber 1, 19 1, hed sma cgarettes for sae. The ta sha be pad at the tme of
fng the foor stocks ta return. (See artce 209 secton 1 0.209 .)
Manufacturers and mporters of sma cgarettes hodng such artces non-tn -
pad (unstamped) on November 1, 19 1, sha pay the ta appcabe thereto by
aff ng, at the tme of the wthdrawa of the sma cgarettes from the factory
or customs custody, stamps pad for at the rate of ta n effect on and after
November 1, 19 1. To permt the use for ths purpose of unattached sma cga-
rette ta stamps of Cass , purchased at the rate of ta n effect pror to the frst
moment of November 1, 19 1, manufacturers and mporters sha, wth respect to
such stamps, pay as part of ther foor stocks ta abty an amount equa to the
dfference between the amount pad for such stamps and the amount whch woud
have been pad f the stamps had been purchased on or after November 1,19 1.
rt. 209. Sec. 1 0.209 Return. (a) Genera. very person who hed
stamped sma cgarettes for sae on the frst moment of November 1, 19 1, sha
make and fe a return of the cgarettes so hed. The return sha be made on
Form 1 , Revsed, October 19 1, by manufacturers and mporters, and on Form
1 7, Revsed, October 19 1, by persons other than manufacturers and Importers.
Where stamped sma cgarettes are hed at ony one pace of busness, the
return sha be prepared n dupcate. The orgna return sha be fed wtb
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
277
Msc.
the coector of Interna revenue for the dstrct n whch such pace of busness
s ocated, whe the dupcate sha be retaned at such pace of busness.
Where stamped sma cgarettes are hed at more than one ocaton or pace
of busness, a separate return for each such ocaton or pace of busness, or a
consodated return coverng a such ocatons or paces of busness, may be fed
at the opton of the person abe to make return and pay ta . If a separate
return s made for each ocaton or pace of busness, the procedure set forth n
the precedng paragraph sha be foowed wth respect to each such return.
If a consodated return s made, the return sha be accompaned by separate
nventores of the cgarettes hed at each ocaton or pace of busness covered
by such return. Such separate nventores sha be prepared on the nventory
porton of Form 1 7, or Form 1 , whchever s appcabe, n trpcate. ach
separate nventory sha aso show the ta payer s name and the pace of busness
where the cgarettes are hed. The orgna and one copy of each separate n-
ventory sha be forwarded to the prncpa pace of busness for use n prepar-
ng the consodated return, whe the other copy of the separate Inventory sha
be retaned at the premses where the cgarettes are hed. The consodated
return sha be prepared n dupcate. The orgna return, together wth the
orgna of each separate nventory, sha be fed wth the coector of nterna
revenue for tht dstrct n whch the prncpa pace of busness s ocated, whe
the dupcate copes of the return and separate nventores sha be retaned at
such prncpa pace of busness.
Sma cgarettes sub|ect to foor stocks ta are regarded as hed by the owner
thereof at the frst moment of November 1, 19 1, athough at that tme the artces
are n transt to the owner, or n a warehouse, storeroom, or dstrbutng depot,
and sha be ncuded n the nventory and return of the owner. Where tte does
not pass to the consgnee unt devery, sma cgarettes n transt at the frst
moment of November 1, 19 1, are regarded as owned or hed by the consgnor at
that tme.
The requred return sha be fed and ta sha be pad on or before December
31, 19 1. Faure to fe the return and pay the ta due thereon wthn the tme
specfed w sub|ect the ta payer to the penates set forth n artce 211 sec-
ton 1 0.211 .
(6) Manufacturers and mporters. In addton to the requrements set forth
n paragraph (a) of ths artce, a manufacturer or mporter sha, for the pur-
pose of the payment of the ta specfed n artce 20 secton 1 0.20S , ncude
n hs returr. an nventory of a unattached cgarette stamps of Cass hed at
the frst moment of November 1, 19 1, and of a such stamps ordered and pad
for at the rates n effect pror to November 1, 1901, but not receved unt after
the frst moment of that date.
(c) Records. very person requred by ths chapter to keep any copy of any
return or separate nventory, sha keep such copy as part of hs records, and
n addton, sha keep at each separate premses for whch nventory s fed,
compete and accurate records showng the detas of the nventory, and how and
by whom the nventory was taken. Such records sha be retaned for a perod
of at east years from November 1, 19 1, and sha at a tmes be open for
nspecton by nterna revenue offcers.
kt. 210. Sec. 1 0.210 Refunds. cam for refund may be fed by any per-
son who has pad a foor stocks ta on sma cgarettes (ncudng unattached
sma cgarette ta stamps) and who cams that he made an overpayment or an
erroneous payment of such ta . Such cam must be made on Form 3, contan
the nformaton requred by the form, and be supported by a statement of the
facts and evdence upon whch the cam s based. The cam sha be fed wth
the coector of nterna revenue to whom the ta was pad.
bt. 211. Sec. 1 0.211 Penates and Interest. The penaty under secton
3C12 (d)(1) and (e) of the Interna Revenue Code for denquency n fng a
return s percent of the amount of the ta f the faure s for not more than
30 days, wth an addtona percent for each addtona 30 days or fracton,
thereof durng whch faure contnues, not to e ceed 2 percent n the aggregate.
The penaty does not appy where the return s ater fed and faure to fe the
return wthn the prescrbed tme s shown to the satsfacton of the coector to be
due to reasonabe cause and not to wfu negect.
Where an assessment of the foor stocks ta s made, and payment s not made
n fu wthn 10 days after ssuance of the frst notce and demand (Form .17),
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
27
there w accrue, under secton 36 of the Interna Revenue Code, a percent
penaty and nterest at the rate of 0 percent per annum computed upon the entre
porton of the assessment from the date of ssuance of Form 17 unt date of
payment.
In case a fase or frauduent nventory and return s wfuy made, the penaty
under secton 3012 (d) (2) and (e) of the Interna Revenue Code s 0 percent of
the tota ta due.
The severa crmna penates set out n artce 113 secton 1 0.113 , are aso
appcabe to the foor stocks ta .
ecause the ncrease n the rates of ta set forth n ths Treasury
Decson becomes effectve on November 1, 19 1, t s hereby found
mpractcabe to ssue ths Treasury Decson wth notce and pubc
procedure thereon under secton (a) of the dmnstratve Proce-
dure ct, approved une 11,19 6, or sub|ect to the effectve date m-
taton of secton (c) of sad ct.
(Ths Treasury Decson s ssued under the authorty contaned n
secton 3791 of the Interna Revenue Code ( 3 Stat. 67; 26 U. S. C
3791).)
ohn . Dunap,
Commssoner of Interna Revenue.
pproved November 23, 19 1.
Thomas . Lynch,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster November 2S, 19 1, S: 7 a. m.)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
279
Msc.
TO CCO ND SNUFF
19 1-1 -13622
T. 303
Tobacco and snuff manufactured n and removed from domestc factores durng
the month of May 19 1, compared cth the same month of 19 0

Manufactured
Ta -pad
Removed
Ta -free
May 10 1
May 19 0
May 19 1 May 11 0
May 19 1
May 19 0
Twst
Pounds
3, M, 01
09. 90
2 6. 2 2
3,333,006
9.10 , 61
3. 01.1 7
Pounds
3. 91:262
70. 0 2
212. 722
2.37 .270
9,1S9.: 16
3. 01. 3
Pounds
3. M . 311
371. 33
2 0. 29
3,337, 039
, 703, 170
3. 31.602
Pounds
3,3 f. t 3
309.176
2 .12
2, 71. 19
,9 , 0 1
3.39F. 7f
Pounds
63.6 0
33,609
Pounds
20,066
77,910
Fne-cut chewng.,
Scrap chewng
3.0 S
91. 03
2. 0
1. 9
27 .366
1.336
Smokng
Snuff
Tota
20, 1 . 9 19, 1 9. 10 19, 7 2,361
1 , 7 , 63 . 3 3 ,167
19 1-16-136 1
T. 306
Tobucco and snuff manufactured n and removed from domestc factores durng
the month of une 19 1, compared wth the same month of 19 0
Manufactured
Ta -pad
Removed
Ta -free
une 10 1
une 19 0
une 1S 1
une 19 0
une 19 1
une 19 0
Pug
Pounds
3,3 0,606
372,6
2 6,126
Pounds
3, 21,763
72,2 )
26 , 302
3,61 ,201
9, 333,1 9
3, 70 . 922
Pounds
3, 267, -
3 6,71
2 . 02
3, 0 , 2
,32 , 92
3. 160,019
Pounds
3, -9,622
371, 136
2 , 909
3,906, 7
9,000,0 1
3, 7S7,071
Pounds
70, 7
7 , 73
Pounds
61,1 0
1 9, 1
Twst _
Scrap chewng
3, 6 , S1
, 96, 1
3. 20 ,773
1 . 6
33
3 , 01
1,0
SnuIT
373, 1
.1
1 , 763, 197
20, 13,3 7
639, 2 9 601, 761
fgure are (ob|ect to revson unt ncorporated n the tota for the caendar year
to be pubshed n the Commssoner s annua report.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2S0
19 1-1 -136 9
T.309
Tobacco and snuff manufactured n and removed from domestc factores durng
the month of uy 19 1, compared ch the same month of 19 0
Manufactured
Ta -pad
Removed
Ta -free
uy 19 1
uy 1C 0
uy 19 1
uy 19 0
uy 19 1
uy 19 0
rum
Pounds
Pounds
3,0 , 32
33, 09
21 , 26
3,101,36
0,911,207
2, 2 ,3 1
Pounds
3,013, 203
317,07
223, 22
3,229,6 1
6.66 , 301
2,270. 73
P unds
3,167, 2 9
33 , 3
20 ,0
3,201, 0
6, S , 2 1
2, 3C, 070
Pounds
0.2
3,102
Pounds
33.333
2,630
Twst
3,19f, 67
327, 06
216, t
2,667, 9
6. 1 , 0
2, 2 9, 90
Scrap chewng1
1 , 32
2 3,691
2,137
1. 37
329.3 3
1.7 /
Snuff
Tota
1 ,776,622
10, 73, 3
1 , 02, 6
16,329, 61
07,720
0 . 3
19 1-21-13Ca3
T. 312
Tobacco and snuff manufactured n and removed from domestc factores durng
the month of ugust 19 1, compared wth the same month of 19 0
Manufactured
Tar-pad
Removed
Ta -free
urust
19 1
umst
19 0
utust
19 1
upust
19 0
ugust
19 1
upust
19 0
Pounds
3,762. 7 1
12. 2
262.6
3. 02.0 1
0. 7 1.0 3
3.6 .333
Pounds
Pounds
Pounds
3,920.316
3 . S
261.396
.202. 1
9.6 . 67
3.93 .310
Pounds
11 . .16
Pou mf
3. 0.
0 . 9
2 . 9
3,7 7. ( 6
363. 9
2 . 723
3.719. 0
9. 2 ,332
3, 610.601
2 ,39
79,3 9
9 , US
Scrap chewng
. 270.012
10.206,
1 .60
312. 0
1.720
12.19
10.1 9
.7
3.932. 9
21.66 ,160
23,069,3 0
21,232, 96
22, 1 , 9
7 ,706
706,2 6
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 1
Msc.
19 1-23-13703
T. 31
Tobacco and snuff manufactured n and removed from domestc factores durng the
month of September 19 1, compared wth the tame month of 19 0
Manufactured
Ta -pad
Removed
Tan free
September
19 1
September
19 0
September
1S 1
September
19 0
September
19 1
September
19 0
Pounds
3, 1 .079
30 , 7
233,00
3.292. 91
9, 669.03
3.0 9, 707
Pounds
Pounds
3,1 .092
27 . 016
229, 1
3, 19 . 2
9. 291. 2
2.913.3 1
Pounds
Pounds
11 . 70
63,0
Pounds
6,266
137,119
Fne-cut chewng
3, 03. 1 3
69,12
212.9 3
3,312. 127
3 . COO
223. 673
Scrap chewng
3. 1.7 6
10. 600, 710
3, 0, 6
10. 0 C 773
6, . 71
7.71
2.373
7.0 6
33.600
3.0 1
Snuff
3. 203, 002
3. 20 . 107
Tota
19, 777, 62 , 21, 30, 762 19,060, 730 20, 706,0 9 , 172 627,0 2
19 1-2 -13721
T.317
Tobacco and snuff manufactured n and removed from domestc factores durng
the month of October 19 1, compared wth the same month of 19 0
Manufactured
Ta -pad
Removed
Ta - roc
October
19 1
October
19 0
October
19 1
October
19 0
October
19 1
October
19 0
a::::::::::::::::::::::::
Pounds
3,292. S60
32 .
227,27
3,27 ,309
.017,0
3.1 ,397
Pounds
3,716.6
76.33
232, 73
3. 0,9 9
11,91 ,101
3,621,9 6
Pounds
2,922,219
277. 20
2 3,939
3, 09,927
7,717, 2
3,237, 39
Pounds
Pounds
,
3 ,10
Pounds
113.992
76,62
3,361,963
362, 13
22 ,6 3
Scrap chewng
3.336.619
11, 7 , 00
,99
2 6, 79
3,790
9,923
361,6 7
2.2 2
Smokng
Snuff _
1 ,291, 12
23, 16,90
17, 0 ,772 22,370, 03
3,601,62
3 ,326 | 6 , 9
9 010 2 19
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2 2
CIG R TT S ND SM LL CIG RS
19 1-1 -13621
T.302
Cgarettes and sma cgars manufactured n and removed from domestc factores
durng the month of Mag 19 1, compared wth the same month of 19 0
Sma cgarettes
Large cgarettes
Sma cgars
19 1
19 0
19 1
19 0
19 1
19 0
Manufactured
36,60 . 6 ,9
32,770, 60.009
3,99 , 730, 266
3 ,969.r ,167
32. 673. 70 220
2,30 . S99, 2 0
,70
9,000
300
63, 00
, 260
,30
6,6 . 2 0
C, 1.62u
197,000
.0 6. 70
,79 ,060
Removed ta -free
19 1-16-13639
T. 30
Cgarettes and sma cgars manufactured n and removed from domestc fac-
tores durng the month of une 19 1, compared wth the same 7onth of 19 0
Sma cgarettes
Large cparettcs
Sma cgars
19 1
19 0
19 1
It 0
19 1
I960
Manufactured
3 , 96 , 3 ,37
32, 7 , 20 . , 070
3, 62, 793, 922
3 , CO , I2 , 3
, 90
3. 10
2, 700
, 0, 30
. 613. 060
,7 ,
6, 1 ,620
2,01)0
32, Sf, 372,3C0
2, 9 , 72,1 0
0, O
300
19 1-1 -136
T. 30b
Cgarettes and sma cgars manufactured n and removed from domestc
factores durng the month of uy 19 1, compared tcth the same month of
19 0
Sma cgarettes
Large cgarettes
Sma cgars
19 1
19 0
19 1
19 0
19 1
19 0
32, 077, 69, 30
29, 73 , M2, . .70
2, 3, 76 ,3 2
30,13 ,966,20
27,373,9 2, 0
2, 19, 21,9
7, 0
1,0 0
600
27,7 0
,1 0
1 0
,3 , 60
, 0, 00
,0 2,0 0
, 66,010
Removed ta -pad
Removed ta -free
fgures are sub|ect to revson unt ncorporated n the tota for the caendar year
to be pubshed n the Commssoner s annua report.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 3
Msc.
19 1-20-1367
T.311
Cffarette and sma cgars manufactured n and removed from domestc factores
durng the month of ugust 19 1, compared wth the same month of 19 0
Sma cgarettes
Large cgarettes
Sma cgars
ns
10 0
19 1
19 0
19 1
19 0
Manufactured
0.003.779,113
3G, 01. 00,6 0
3, 99, 136, t 70
3. 2 1. 6 3, 379
39, 126. 127. 606
,009.0 6, 992
0 ,700
6 .700
,000
9 .030
7, IS)
, 100
6. 37,900
6, 672. 620
12,000
7,911.6 0
7, 7 , 30
3,000
Removed ta-pa
19 1-22-13691
T. 31
Cgarettes and sma cgars manufactured n and removed from domestc fac-
tores durng the month of September 19 1, compared wth the same month of
19 0
Sma cgarettes
Large cgarettes
Sma cgars
1961
19
19 1
1C 0
19 1
19 0
Manufactured
3 , 1. --.0, f ff
30, 799, 32. 92
2,7/3, 07.131
3 , 712. 607. T 9
30, 6, to7, 133
3, . . SO, 3
61, C0
6,100
6,000
2.:oo
, 727. 190
, C D, COO
2 ,000
f, 933, 330
6,732, C20
Removed tar pad _
12,000
Removed a -ree
19 1-2 -13722
T.31
Cgarettes and sma cgars manufactured n and removed from domestc factores
durng the month of October 19 1, compared wth the same month of 19 0
Sma cgarettes
Large cgarettes
Sma cgars
19 1
19 0
19 1
19 0
19 1
19 0
Manufactured
0,9 7, 73,66
37, 77. 119,3 6
3, 1 ,79 , 0
32, 0,0 ,772
29,737,61 ,37
3,223,36 ,2 7
11 .000
11 ,600
300
9 ,900
69,900
300
7,031,990
6, 03,220
,000
6,707,260
7,2 , 100
2,000
Removed ta -pad
Removed ta -free
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2S
L RG CIG RS0
19 1-1 -13629
T. 30
Large cgars manufactured n and removed from domestc factores durng the month
of May 19 1, compared wth the same month of 19 0
May 1961
May 1S- 0
Removed:
Ta -pad
. 913, O
39.9 0. 2
Cass
I.30 , 3M
1 , 700, 72
17 . 760, 210
SI. 396, 19
21 . 3 , 6
10, 9 3, 099
6. 6.63
1. S6 ,12S
1 ,266, 706
1 , 12, 32
1.126, 92
196. 9 1. 2 9
,72 .21
6, 23. 79
Cass f
Cass C
Cass I)
Cass
Cass F _.
Cass G
Tota ta -pa d
3, 2,9 0
6,210,322
3 , 60 . 3 3
3,100,169
19 1-17-136 2
T. 307
Large cgars manufactured n and rtmoved from domestc factores durng the
month of une 19 1, compared th the same month of 19 0
une 19 1
une 19 0
Removed:
6,919,291
1,162, 2
Ta -pad
CI|wk .
1, 10,9 3
17,211, 02
176,692,961
1,297, 663
220, 0,020
10,316, 213
6, 6,03
1,931, 60
20,307,12
161.200, 7
, 61. 79
20 , 2, 27
9,307.3 3
6. 2 ,62
Cass
Cass C
Cass D
Cass
Cass F
Cass G
Tntn T-nar
3,02 ,276
6,360,777
60.019, 76
3,7 2,3
Ta -free
fgures are sub|ect to revson unt ncorporated n the tota for the caendar year
to be pubshed n the Commssoner s annua report.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
Msc.
19 1-19-1366
T. 310
Large cgars manufactured n and removed from domestc factores durng the
month of uy 19 1, compared th the same month of 10 0
uy 19 1
uy 19 0
Removed:
300, 2 , 2
3 ,0 , 03
Ta -pad-
Cass
1,33 , 779
10,73 ,92
161,33 ,703
, 07, 39
1 2,0 3, 9
,119,7 2
. 1 9, 11
1,9 1,133
10, 00, 03
103. 2 ,31
, 106. 716
172, 1 , 9
P, 6, 66
,260.003
Cass C
Cass O
Cass --. --.
Cass F
Cass O
Tota ta -pad
23, 26, 919
,31 , 2
13, 7 0, 690
1, 73,33
Ta -free
19 1-21-136
T. 313
Large cgars manufactured n and removed from domestc factores durng the
month of ugust 19 1, compared wth the same month of 19 0
ugust 19 1
ugust 19 0
Removed:
Ta -pad
02.99 , 970
6-1, 29 ,122
Cass
2,02 ,396
21,0 2,3 7
1 , 7 6, 77
, 27,336
222, ,06
10,396, 97
, 1,132
3,011,700
2 , 6, 739
1 ,00 , 639
,31 ,073
2 0, 72 , 1 1
10, 6 ,333
7, 6, 7 6
Cass
Cass C
Cass D
Cass
Cass F
Cass 0
Tota ta -pad
01, 73,363
0,21 , 6
3,07 ,971
6,0 ,3 1
Ta -free
19 1-2 -13713
T. 316
Large cgars manufactured n and removed from domestc factores durng the
month of September 19 1, compared wth the same month of 19 0
September
19 1
September
19 0
Manufactured
6.2 ,123
2, 20. 12
Removed:
Ta - pak
1, ,91
1 , 6 , 3
16 ,1 2, 0
1,97 ,6 9
201, 20,327
9,667,9 3
,70 ,062
1,7 ,1 9
1 ,392,
171.912.922
3, 7,70
213. 01, 0
9.202,0
, 77,72
Cass C.
Cass D
Cass F
Cass
Tota ta -pad
.7 6. If
,37 , 320
7 . 79,
, 60 ,1 1
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2 6
19 1-26-13733
Tob. 319
Large cgars manufactured n and removed from domestc factores durng the
month of October 19 1, compared wth the same month of 19 0
October 19 1
Manufactured
Removed:
Ta -pad
Cass
Cass
Cass C
Cass D
Cas ...
Cass
Cass
Tota ta -pad
Ta -free
662.963,2 3
6 9.322.3
2,012. 2
22, 66.36
1 6. 2 1.200
6.r97, 1
2 0,693. 60
11,77 .911
7.319.790
2. 20 . S91
1 . 7S3, os;
1 9,11 ,60
0, 06, 71
222,711, 32
11,2
627.260. 01
. ,972
,73 , 3
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 7
Msc.
OINT COMMITT ST FF SUMM RY OF PRO ISIONS
OF T R NU CT OF 19 1
19 1-26-13730
NU CT OF 10 1 S GR D TO Y T CONF R S
It Is estmated that the Revenue ct of 19 1 as agreed to by the conferees
w produce appro matey .7 bon annuay when fuy effectve under th|
busness condtons antcpated for the caendar year 19 1. Of ths amount t
s antcpated that 2,76 mon w be coected n the fsca year 19 2. Tota
coectons n the fsca year 19 2 are estmated at 00.9 bon under present
aw. s a resut t s antcpated that the addtona revenue reazed by ths
b w ncrease coectons n the fsca year 19 2 to about 63.7 bon.
The ncrease n coectons n the fsca year 19 2 s smaer than the ncrease
n ta abtes n a fu year of operaton, both because the changes are not
effectve for the entre fsca year 19 2, and because coectons tend to ag
behnd the ncurrng of abtes. s shown n tabe 1, t s estmated that the
b w ncrease ndvdua ncome ta abtes by 2,2 0 mon n a fu
year of operaton, or by 1,190 mon n the fsca year 19 2. In the case of
corporate ncome and e cess profts ta es, It s antcpated that the b w
ncrease abtes by 2,207 mon n a fu year of operaton, or by 7 7
mon n the fsca year 19 2. cse ta es are estmated to be ncreased by
1,20 mon by the b n a fu year of operaton, and by 7 7 mon n
the fsca year 19 2. These fgures ncude not ony the rate changes made by
the b, but aso the structura changes as we.
The ncrease n e cse ta coectons n the fsca year 19 2 assumes that the
changes n these ta es w become effectve as of November 1, 19 1.
Tabe 1. stmated effect of the conference b on ta abtes n a fu year
of operaton and on coectons n the fsca year 19 2
I In mons
Fu year
effect
Fsca year
19 2 effect
2. 2 0
o 207
1, 20
1,190
cse ta es
1 7 7
7 7
,0C1
2,207
Net ncrease after aowng for reducton n ndvdua ncome ta es due to ower dvdends.
ssumes e cse ta changes are effectve Nov. 1,19 1.
Note. The above estmates ncude structura chanpes n the ndvdua and corporate ta es.
I. Changes n the Indvdua Income Ta
The b contans a new rate schedue for computng the surta of ndvduas
whch provdes for an ncrease n ta abty of 11 percent of the present ta
on the frst 2,000 ( ,000 n the cases of marred coupes) of surta net ncome 1
and n the case of surta net ncome n e cess of ths amount about 11.7 percent
of the ta computed under present aw or 9 percent of the surta net ncome
remanng after the deducton of the present ta , whchever Is the smaer.
Ths Increase provded by the b appes ony to the ta on ordnary ncome.
The 2 percent aternatve ta on capta gans s ncreased to 26 percent. The
rate ncreases on ordnary ncome, n effect, are made as of November 1, 19 1,
the date when ncreased wthhodng becomes effectve, and are to termnate
as of December 31, 19 3. The change n the aternatve ta on capta gans
Is effectve wth respect to the caendar years 19 2 and 19 3.
1 Surta net ncome Is ncome after deductons and e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
2
The b aso grants to heads of househods 0 percent of the benefts of
ncome spttng now en|oyed by marred persons. For caendar year ta -
payers ths head-of-househod provson s to be effectve begnnng n 19r 2.
It s estmated that n a fu year of operaton the ndvdua ncome ta rate
changes (ncudng capta gans) w ncrease abtes by 2, mon and
that on the same bass the head-of-househod provson w decrease revenues
by mon. Thus, t s estmated that the combned effect of these pro-
vsons w be to ncrease abtes n a fu year of operaton by 2, 30 mon.
Snce, n effect, the rate changes do not become operatve unt November 1,
and the head-of-househod provson for practcay a ta payers w not be
effectve unt anuary 1, 10 2, coectons n the fsca year 19 2, endng une
30, 10 2, w not fuy refect the ncreases provded. Therefore, fsca year
19 2 coectons are e pected to be ncreased by ony about percent of the
2, 30 mon, or by 1, 1 mon.
. R T C NG S
For ta abe years begnnng after October 31, 19 1, the b ncreases the
present ndvdua ncome ta es by the ower of ether about 11.7 percent of
the present combned norma ta and surta , or appro matey 9 percent of
the surta net ncome1 after present ta es. owever, n the frst 2,000
surta net ncome bracket the ncrease s to be 11 percent nstead of 11.7
percent. These ncreases are ncorporated n the surta rate schedue and are
to termnate as of December 31,19 3.
The combned norma ta and surta bracket rates under present aw and
under the b for 19 2 and 19 3 are shown n the frst two coumns of tabe 2.
These are the margna ta rates for snge persons (other than heads of house-
hods) under present aw and the conference b. ecause of ncome spttng,
however, these are not the margna rates for marred coupes. These margna
rates under present aw and under the conference b are shown n the thrd and
fourth coumns of tnbe 2. The surta bracket rates under the conference b
range from 22.2 percent on the frst 2,000 of surta net ncome, to 92 percent on
surta net ncome of 200,000 and over. Ths can be compared wth rates under
present aw rangng from 20 percent on the frst 2,000 to 91 percent on ncome
of 200,000 and over. The margna rates for marred coupes under the b
aso range from 22.2 percent to 92 percent, but as ndcated by the tabe, the
atter rate s not effectve unt a surta net ncome e e of 00,000 s reached.
The b rases the effectve rate mtaton, or ma mum combned norma tu
and surta on tota net ncome, from the 7 ereent provded by present aw to
percent. Ths effectve rate mtaton prevents an ndvdua s tota net n-
come from beng ta ed at a rate hgher than percent, athough the bracket
rate on ncome n e cess of 200,000 permts a porton of an ndvdua s ncome
to be ta ed at as hgh a rate as 92 percent.
The b aso provdes a new surta rate schedue for the caendar year 19 1,
addng to the present ta burden about one-s th of the ncrease provded for
19 2 and 19 3. Tms, for 19 1 the present ta s ncreased by the ower of ether
neary 2 percent of the e stng aw ta , or by about 1 percent of surta net
ncome after deductng the present ta . Ths s roughy the equvaent of
makng the fu 11.7 percent or 9 percent ncrease ekctve November 1. 19 1.
The combned norma ta and surta bracket rates under the b for the caendar
year 19 1 range from 20. percent on the frst 2,000 of ta abe ncome to 91
percent on ta abe ncomt over 200,000. The effectve rate mtaton for
caendar year 19 1 ta payers s 7.2 percent.
The b aso adds a provson whch makes nappcabe, for 19 1, the penates
and addtons to ta for wfu faure to make decaratons or pay estmated ta
wth respect to the addtona ta mposed on ndvduas by ths b.
The b, n effect, rases the aternatve ta on capta gans of ndvduas from
2 percent to 26 percent. Ths ncrease s appcabe to ta abe years begnnng
after October 31,19 1, and before November 1, 19 3. No ncrease s provded for
years whch do not begn n ths perod even though they end n t.
Under the b new wthhodng tabes are provded to refect the Increased
ta es. The wthhodng n these tabes s at 20 percent as contrasted to 1
1 Surta net Income Is Income after deductons and e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2 9
Msc.
Tabe 2. Margna ndvdua ncome norma fa and surta rates under present
aw, and the conference b for caendar years 19 2 and 19 3
Surta not neome eves
(n thousands)1
Snge persons
Present
Conference
M
Marred coupes
Present
aw
tO to t2..
2 to ..
Percent
1 to 16...
to ..
to 10
10 to f 12
12 to 1
1 to 110
10 to SIS...
1 to 20
20 to 122.
22 to 2
2 to 26- -
20 to 12 -
3 to 32
32 to 30
30 to 3
3 to 0
0 to
to 0 -
0 to 2
2 to 60
1 to 6 ..
I to 70
to 76
0
0 to 100
100 to 120
120 to 1 0
1 0 to 1 0
1 0 to 160
160 to 1 0
1 0 to 200
200 to 300
300 to 00
00 and over..
Percent
22.2
2 . 6
29
3
3
2

3
0
9
02
M
66
67
67
6
6
72
72
7
77
77
0
0
3
,v
sr,


90
90
00
M
91
91
92
92
91
Percent
Income after busness and persona deductons and e emptons.
percent n the tabes n present aw. Smar ad|ustments are made n the per-
centage method of wthhodng. wthhodng ta rate of 20 percent coects the
fu amount ordnary due on the begnnng rates provded by the b after
aowance for the standard deducton.
Tabe 3 shows the effectve rates of ta under present aw and under the b
for snge persons wth no dependents, for marred coupes wth no dependents,
and for marred coupes wth two dependents, at seected net ncome eves.
Ths effectve rate tabe dffers n two mportant respects from the margna
rates prevousy shown: (1) The effectve rates show the accumuatve rate on
a ncome up to any specfc ncome eve and, therefore, represent the average
rates at whch the entre ncome s ta ed, and (2) they are based on net ncome
before e emptons and, therefore, show the effectve e emptons on the actua
ta pad. On the same bass as the effectve rates, tabe shows the amount of
ta pad at seected net ncome eves under the conference b and compares
these ta es wth those under present aw.
Net Income a Income after deductons, but before e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
290
Tabe 3. Comparson of ndvdua ncome ta effectve rates under present av
and the conference b
Net Income (after deductons
but before e emptons)
Snge perron, no
dependents
Present aw
Conference
b
Marred coupe, no
dependents
Present aw-
Conference
b
Marred coupe, 2
dependents
Present aw
Conference
1,000....
1, 00
2.nM____
3,000....
1,000
6,000
,000
10,000...
1 ,000...
20.000...
2 ,000
0.000...
100.000..
300.000..
00,000..
1,000,000
Percent
.0
.0
12.0
1 .0
10. 3
17.7
1S.9
22.3
2 .
29.7
3 .7
30.2
61
06.
2.
.0
7.0
Percent
.6
.9
13.3
1 .
1 . 1
19.7
21.0
2 .9
27.3
33.1
3 .
3.
ft 9
09. 7
. 1
7.2
S.O
Percent
Percent
Percent
Percent
.0
.0
12.0
1 .0
1 .2
17.7
s. I
2 . 7
2 .
26.9
39. 2
2. S
7 .2
0.7
.9
.
.9
13.3
1 .
16.9
19.7
21.0
2 .3
27.3
30. 0
3.
0. 9
76.
2.
7.2
--
.0
.0
10.
1 .
1 .9
19.3
22.3
2 .1
37.
61.9
73.
0.
.7
.
.9
11.
o
17.7
a.
2 .0
2 .0
2.2
6.0
76.1
2.2
7.1
Ma mum effectve rate mtaton of 7 percent.
1 Ma mum effectve rate mtaton of 1 percent.
Tabe . Comparson of ndvdua ncome ta burdens under present ate wth
those under the conference b for 19 2 and 19 3
SINGL P RSON, NO D P ND NTS
Net Income faftcr deducton
but before e emptons)
mount of ta
Present
Conference
ow
b
0
( . 0

. 0
2F0
310. 0

6 2. 0
70
7 . 0
f
1, 0 2. 00
1,7 0
1,992.00
2. 36
2.72 .00
Net ncome (after deductons,
but before e emptons)
1 .000
20,000
2 ,000
0,000
100,000...
1300,000...
00,000...
1,000,000..
mount of ta
Present
aw
00.79
2 7. 27
29.27
70.000
Conference
b
, -
7, 762.00
10,9 0.00
2 , 66.00
tM 00
2 2. 16 . 00
36, 16 .00
1 SS0.OO0.00
M RRI D COUPL , NO D P ND NTS
1. 00..
2,000..
3,000..
M,( ._
,000.-
,000..
10,000
1 ,000
60
66. 60
160
176.00
360
399.60
too
621.60
760
6 3.60
1, 16
1. 76. SO
.res
2, 10). 00
3.260
3, 6 .00
20,000
2 ,000
0,000
100,000...
300,000...
60 ,000...
1,000,000..
, S72
6,72
19. . 92
2. 776
. 22. 72
03. S
, 6.00
7. SOS. tf
21. S0.00
66.932.00
229.362.00
12,32 .00
72, 32S.CC
M RRI D COUPL , 2 D P ND NTS
3,000
,000
.000...
,000...
10,000-
1 ,000-
20,000..
120
320
620
1,1 2
1, 92
2,900
, 6
133. 20
366.20
677.20
1, 2 1. 60
1, 773. 60
3, 236. 00
,000. 00
2 .000
0.000
100.000...
300.000...
00.000...
1,000,000..
6,26
1 ,
61,912
221. 0
02, 6
7, 1 6
7,00 .00
21,0 .00
6,032. 00
22 . 272 00
11,22 .
71,22 .00
1 Ma mum effectve rate mtaton of 7 percent.
1 Ma mum effectve rate mtaton o percent.
. n D OF- OUS OLD PRO ISION
For a person quafyng as a head of househod secton 301 of the b pro-
vdes a new surta tabe appcabe for ta abe years begnnng after October 31,
10 1. Thus, for a caendar year ta payer, the provson w not become effectve
unt 19 2. The new surta tabe s constructed to gve heads of househods
appro matey one-haf of the benefts of ncome-spttng.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
291
Msc.
The b defnes a head of a househod, for purposes of obtanng the benefts
of ths speca provson, as an ndvdua who s not marred and who mantans
a househod n whch ves
(1) One of hs chdren (ncudng an adopted chd), one of ther
descendants or a stepchd (but the chd, descendant, or stepchd f mar-
red must be a dependent of the ta payer and not fe a |ont return) ; or
(2) ny person (not fng a |ont return wth a spouse), who has a
gross ncome of ess than 600, more than haf of whose support s supped
by the ta payer and who hears one of the foowng reatonshps to the
ta payer:
(a) hroter or sster or stepbrother or stepsster,
(b) parent or one of ther ancestors,
(e) stepparent,
(d) nephew or ne e,
(e) n unce or aunt, or
(f) son-n-aw, daughter-n-aw, mother-n-aw, father-n-aw, sster-
n-aw, or brother-n-aw.
ta payer s consdered as mantanng a househod ony f durng the year
he furnshes more than haf the mantenance costs of such househod. Moreover,
the ndvdua who makes t possbe for the ta payer to gan the benefts of the
head-of-househod status must actuay ve n the ta payer s househod durng
the entre ta abe year uness he s temporary absent, for e ampe, attendng
schoo or for reasons of heath. Under ths defnton t s mmatera how
much gross ncome an unmarred chd or grandchd vng wth the ta payer
may have.
Tabe shows the amount of ta pad at seected net ncome eves for heads
of househods wth one dependent, for snge ndvduas wth one dependent,
and for marred coupes wth no dependents. It aso shows how much ess the
ta of the head of househod and the ta of the marred coupe are than that
of the snge person at the same ncome eve. Ths represents the benefts of
ncome spttng, whch present aw grants n fu to marred coupes and whch
the b grants n part to heads of househods. The ast coumn of the tabe
e presses the ncome-spttng benefts granted heads of househods as per-
centages of the ncome-spttng benefts avaabe to marred coupes. Ths
shows that the b grants about 0 percent of the benefts of ncome spttng to
heads of househods.
Tabe . Comparson of ndvdua ncome ta burdens for heads of househods
under the conference b wth those for snge persons wth 1 dependent and
for marred coupes under the b for 19 2 and 19 3
Seected net ncome
eves 1
mount of ta
mount of ta dffer-
ence between nec
person wth 1 de-
pendent and
Percent ta
dfference
between
head of
househod
and sn o
person s
of that
between
marred
coupe and
snqo
person
ead of
househod
nch
ndvdua
Marred
coupc
fng
a |ont
return
wth 1
dependent
wth 1
e empton
Road of
househod
Marred
ccupe
2/100
66. 00
177.00
06. 00
177.00
390.00
6. 0
1.7 .00
2, 00.00
,660.00
7, 0 .00
10, M .00
2 ,016.00
69.100.00
3 ,012.00
0,000.00
60.60
177. 00
399. 60
3.60
1, 76. 0
2,10 . 00
3,6 .00
, 6.00
7, 0 .00
21, 0.00
0,032.00
12,32 .00
72,32a 00
3,000
are. oo
0 .20
1,0 .00
2,30 .00
.1 0.00
6, 36.00
9,02 .00
2 ,900.00
63,0 0 no
2 . 0 .00
2 0,000.00
21.00
10 .00
196.00
3.20
211.20
390.00
1.016.00
1,9 2.00
3,036.00
0,130.00
12,22 .00
23, 2 .00
7,672.00
0.0
9.2
9.
60.2
9.
60.1
9.
60.0
.1
10.000
1 ,000
eo.oo
20,000
972.00
1, 20.00
3,0 6.00
6,120.00
11,20 .00
2 ,000
0,000
100.000
00.000
1,000.000
Income after deductons but before e emptons.
Ma mum effectve rote mtaton of ercent.
Under present nw the ta payer Is aowed a dependency credt provded the dependent
has a gross Income of ess than 00. Sec. 310 of ths b, dscussed esewhere n ths
summary, rases the aowabe gross ncome of a dependent to 600.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
292
C. DISTRI UTION OF T URD N
Tabe 6 shows the dstrbuton of the ndvdua ncome ta burden under
present aw and the b by ad|usted gross ncome casses. It aso dstrbutes by
the same casses the number of ta abe returns, the ad|usted gross ncome, the
vaue of the e emptons and the norma ta and surta net ncome.
The tabe ndcates that of 23, mon n tota ndvdua ncome ta
abty under the b, 9,63 mon w come from those wth ad|usted gross
ncomes under ,000 and 16,2 7 mon from those wth ad|usted gross ncomes
of over ,000.
Tabt.e 6. stmated dstrbuton of ndvdua ncome ta returns, ncome
e emptons and ta abty under present raes and under the conference
b when fuy effectve
(Money amounts n mons of doars
d|usted cross ncome
casses
Tota
number of
ta abe
returns
d|usted
gross n-
come
aue of
e emp-
tons
Surta
net n-
come
Tota
ta ,
present
aw
Toa ta
under
Ta n-
crease, con-
ference b
over pres-
ent tow
confer-
ence
b.
Under 1,000
1, 0 ,09
6,991.07
10,90 .01
9, 30.797
6,2 2,777
1, 6
10, 7
27,27
33, 62
27.90
1,121
, 36
12,91
1 , 96
11.2 0
272
,209
11.226
1 ,31
13, 2 7

60
..::(
2. 92
3,1 7
2,96
p
1,000 to 2,000.
M
2,21
2, 71
2,672
93
2 7
316
293
2,000 to 3,000
3,000 to ,000
,000 to ,000
Tota under ,000-
3 . 60, 7 7
101.073
6,230
3,26
.6
9.63
9
,000 to 10,000
6.6 , 679
1,3 2, 6
2 7, 1 1
70,11
1 .276
1,967
79
1 9
2, 0
19, 70
,200
,67
2, 9
6 7
316
310
12, 2
2,637
9
13
3
3
1
2 ,916
1 .7 2
6,970
3,966
1,966
3
1
17
6,0 0
3,
2,2 9
1, 62
1,276
37
192
206
6,637
3. 79
2, 39
2,039
1,3
391
197
210

92
10,000 to 2 ,000
2 ,000 to 0,000
2 0
0,000 to 100,000
177
77
13

100,000 to 2 0,000
2 0,000 to 00,000
00,000 to 1,000,000..
1,000,000 and over
Tota over ,000
.326,711
79. 027
1 , 33
3.303
1 ,771
16.217
. :6
Tota
, 1 7,
1 0, 100
62,063
9 ,631
23,
26,
2, 30
P RC NT G DISTRI UTIONS
Under 1,000
.23
1 . 2
2 .69
2 2
1 .17
0. 6
6.0
1 .
1 .
1 . 9
1. 1
.76
20. 1
21. 97
1 1
0.2
.36
11.62
1 . 1
13. 71
0.23
3. 9
9. 7
12.2
11.39
0.23
3.61
9.63
12 31
11. 6
0.2
1,000 to 2,000
n
2,000 to 3.000
10.16
13.00
12.0
3,000 to ,000
,000 to ,000
Tota under ,000....
1.10
66.12 7 . 9
.7
37.02
37.2

,000 to 10.000
1 .0
3.0
.60
.16
.0
23.79
10. 1
.
260
1. 2
.36
.1
.17
20.1
.2
. 0
.22
2 .7
1 .26
7.21
.10
2.03
.
.19
.1
21.66
1 . 7
9.76
7.9
. 11
1.61
. 2
.
21.7
1 .99
9. 1
7.
.23
L
.76
. 1
22.9
16.12
111.
10,000 to 2 ,000
2 ,000 to 0,000
0,000 to 100.000
n
100,000 to 2 0,000
.06
2 0,000 to 00,000
1
m
o
( )
.
.21
.17
00,000 to 1,000,000
1 .
3.
2 . 1
6.22
62.9
62. 76
60.73
Tota
100.00
100.00
100.00
100.00
100.00
100.00
1 Incudes norma ta , surta , and aternatve ta on net ong-term capta gans and ncrease from rate
changes, ncudng capta) gans, under the conference b and decrease due to head of househod provson,
Less than 00,000.
Less than 0.00 percent.
Note. Fgures are rounded and may not add to totas.
Income after busness but before persona deductons and e emptons.
Income after busness and persona deductons and e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
293
Msc.
II. Genera Corporate Ta Changes
The b provdes a corporate ncome ta rate of 30 percent on the frst 2 ,000
of each corporaton s ncome, and a 2 percent rate on a ncome n e cess of
2 ,000. Ths can be compared wth present aw rates of 2 percent on the frst
2 ,000 of ncome, and 7 percent on a ncome n e cess of 2 ,000. Under the
b the top corporate ncome ta rate, taken together wth the 30 percent e cess
profts ta rate, gves a combned rate of 2 percent appyng to ad|usted e cess
profts net ncome, as compared wth a combned rate of 77 percent under e stng
aw. The b provdes a ceng rate of 1 percent for e cess profts ta and con-
sodated return purposes, whch when taken together wth the ma mum effectve
rate of about 2 percent under the corporate ncome ta , means that n no case
w more than about 70 percent of a corporaton s ncome be taken n ncome,
consodated return, and e cess profts ta es. Present aw provdes a ceng rate
on ncome ta es and e cess profts ta es, taken together, of 62 percent. The ta
rate on capta gans s ncreased from 2 percent to 20 percent. The b aso
reduces from to 3 percent the proporton of the average base perod net n-
come whch may be taken nto account n computng the e cess prcfts credt.
The norma ta and surta rate changes provded by the b are effectve as of
pr 1, 19 1, and are to termnate as of pr 1, 19 . The ceng rate change
nso s effectve as of pr 1,19 1, and w not be generay operatve after un-;
30, 19 3, the termnaton date for the e cess profts ta . The change n the cap-
ta gans ta rate s appcabe to the caendnr years 19 2, 19 3, and 19 . The
change n the percentage of average base perod net ncome taken nto account for
e cess profts ta purposes s effectve uy 1, 19 1 and, ke the ceng rate, w
not be operatve after the termnaton of the e cess profts ta .
It s estmated that n a fu year of operaton these changes n corporate rates
w ncrease abtes by 2, mon before consderaton s gven to th
effect on ndvdua ncome ta es of the smaer amounts whch w be avaabe
for corporaton dvdend payments. Of ths amount, 2,2 0 mon s attrbutab e
to the ncreases In the corporate norma ta and surta and 12 mon s at-
trbutabe to the ncrease n the capta gans ta . The addtona 2 3 mon
s attrbutabe to ncreases n e cess profts ta abtes. It s estmated that
after the decrease In ndvdua ncome ta coectons resutng from smaer
dvdend payments Is taken nto account, the net ncrease provded by the b
wth respect to corporate rates w be 2,3 3 mon.
In the fsca year 19 2, endng une 30,19 2, t s estmated that the ncreases n
corporate rates provded by the b w ncrease revenues n ths year by 901
mon.
. NORM L T , SURT ND C PIT L G INS T R T C NG S
For ta abe years begnnng after March 31, 19 1, the b provdes a cor-
porate norma ta rate of 30 percent as compared to a norma ta rate of 2
percent under e stng aw. The corporate surta rate under both the b and
e stng aw s 22 percent. Changes are aso provded n the b n the credts
aowed Western emsphere trade corporatons and the credts for dvdends
pad and receved on preferred stock of pubc uttes, whch retan the ta df-
ferenta provded n these cases under e stng aw. These rate and credt
changes are to termnate as of pr 1, 19 .
Snce corporatons wth ncomes of 2 ,000 or ess are sub|ect ony to the norma
ta , ther rate of ta s ncreased from 2 percent to 30 percent under the b.
The combned norma ta and surta on ncomes n e cess of 2 ,000 s ncreased
from 7 percent to 2 percent. Tabe 7 compares for corporatons wth seected
net ncomes the combned corporate norma ta and surta effectve rates under
the b wth those under e stng aw and under the aw n effect pror to the
enactment of the Revenue ct of 19 0. The tabe Indcates that under the pro-
vsons of the b the effectve rate, or average rate on the entre ta abe Income,
for a corporatons s percentage ponts above e stng aw.
Tabe shows for corporatons wth seected net ncomes the combned cor-
porate norma ta and surta abtes under the b, under e stng aw, and
under the aw n effect pror to the enactment of the Revenue ct of 19 0. The
ncrease n ta abtes of the b over e stng aw ranges n the cases shown
from 20 percent on ncomes under 2 ,000, to 10.0 percent on Incomes of 100,-
000,000.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
29
The b aso provdes a new corporate norma ta rate for 19 1 for caendar
year corporatons. Ths rate s 2 percent whch, when combned wth the 22
percent surta rate, gves a top rate of 0 percent for 19 1. Thus, the ta rates
n 19 1 of these caendar year corporatons are ncreased by three-quarters of the
ncrease appcabe n 19 2 and 19 3. Ths s roughy the equvaent of makng
the fu -percentage-pont ncrease effectve pr 1, 19 1. For corporatons
wth ta abe years begnnng pror to uy 1, 19 0, and endng after March 31,
19 1, the b provdes a formua for proratng the ta es due under the aw n
effect pror to the Revenue ct of 19 0, under e stng aw and under the b
for years begnnng after March 31, 19 1. For corporatons wth ta abe years
begnnng after une 30, 19 0, and endng after March 31, 19 1, the b prorates
the ta es due under e stng aw and under the b for years begnnng after
March 31, 19 1. In genera these proraton formuas provde that the ta due
on the entre ncome s to be computed at the two or three dfferent rates app-
cabe. Then these ta es are mutped by a fracton of whch the numerator s
the number of days n the corporaton s ta abe year n whch the rate n queston
s effectve, and the denomnator Is the tota number of days n ts ta abe year.
The sum of these fractona ta es s the corporaton s fna obgaton. Ths
atter procedure s aso made appcabe wth respect to the termnaton of the
rate ncreases n 19 for corporatons wth ta abe years begnnng before and
endng after pr 1,19 .
Tabe 7. Comparson of corporate combned norma ta and surta effectve
rates under present aw and the conference b
ffectve rates of combned norma ta
and surta (percent)
Perocntape
pont ncreeso
of conference
b over
Net ncome sub|ect to norma a and surta
Prc-19 0
Present aw
Conference
b
present aw
21.00
2 .00
30.00
6.00
21.00
2 .00
30.00
6.00
10.000
22.00
2 .00
30.00
6.00
2 ,000
23.00
2 .00
30.00
.00
30,000
2S.00
2 .f7
33.67
6.00
0,000
3 .2
33.2
3 .2
6.00
0,000
3 .00
36.00
1.00
6.00
60,000
3 .00
37. 3
2. 3
.00
7 ,000
3 .00
39.67
.67
6.00
100,000 _
3 .00
1. 0
6. 0
6.00
200,000
3 .00
.2
9.2
.00
00,000
3 .00
. U0
0.90
.00
1,000.000
3 .00
6.
1.
.00
3 .00
6.9
61.9
6.00
100,000,000
3 .00
6.99
61.99
6.00
Tabe . Comparson of corporate norma ta and surta abtes under
prc-19 0 aw, present aw, and conference b
Net Income sub|ect to norma ta and
surta
Combned norma ta and surta
Increase n ta abty
of conference b over
present aw
Prc-10 0
Present
aw
Conference
b
mount
Percent
210
260
300
60
ft 00
1,0 0
1,2 0
1, 00
260
20.00
2,200
2,100
3,000
00
20.00
,7 0
6,2 0
7, 00
1.2 0
20.00
, 00
,600
10, 100
1. 00
17.
13,700
13,300
1 ,300
2.000
1 .0
19.000
1 ,000
20, 00
2,600
13. 9
22, 00
22,700
2 .700
3.000
13.22
2 .600
2u. ;;n
33, 00
3,7 0
12.61
3 ,000
1,600
6,600
6,000
12.0
76,000
, 00
9 , 00
10,000
11.30
190.000
229, 00
2 , 00
2 ,000
10. 9
3 0.000
6 ,600
1 , 00
0.000
10.76
3, 00.000
, 69 , 00
. 19 . 00
600,000
10.6
3 ,000,000
6,99 , 00
1,99 ,600
,000,000
10.6
1,000-
1,000
10,000
2 ,000
30,000
0,000
0,000
60,000
76,000
100,000
200,000
00,000
1.000,000...
10,000.000...
100,000,000-.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29
Msc.
s n the case of the aternatve ta on capta gans of Indvduas, the h
rases the capta gans ta for corporatons from 23 percent to 20 percent.
Ths ncrease s appcabe to ta abe years begnnng after March 31, 1931,
and before pr 1, 19 . It does not appy to years begnnng before pr
1, 19 1, even though they end wthn ths perod. It does not, for e ampe,
appy to the caendar year 19 1.
. C ILING R T OR M IMUM R T LIMIT TION
Under e stng aw the norma ta , surta , 2 percent ta on consodated
returns, and e cess profts ta together may not e ceed 62 percent of a cor-
poraton s e cess profts net ncome (ncome determned for e cess profts before
deductng the e cess profts credt and unused e cess profts credt carry-over).
Thus, for corporatons wth effectve ncome ta rates of about 7 percent under
present aw, ths means that the e cess profts ta may not e ceed about 1
percent of ther e cess profts net ncome.
The b adopts a new type of ceng rate. The ceng rate n ths b s
1 percent of e cess profts net ncome wth respect to ta abe years begnnng
after pr 1, 19 1, but appes ony wth respect to e cess profts ta abty
and the proporton of the ta abty under the consodated returns ta whch
s attrbutabe to the e cess profts ta net ncome. For corporatons wth
ncome ta effectve rates of about 2 percent the IS percent rate under the new
formua s the equvaent of about a 70 percent ceng rate on abtes under
the ncome tn es, consodated return ta , and e cess profts ta , taken together.
owever, because of the 2 ,000 surta e empton, the effectve ncome ta
rates of corporatons wth ta abe ncomes of ess than 2 0,000 s ess than 0
Tabe 9. Corporaton norma ta and surta effectve rates under the conference
b th a comparson of the ma mum effectve rates of ncome and e cess
proft ta es under a 70 percent ceng on ncome and e cess profts ta es
wth the ceng rate tnder the conference b (1 percent ceng rate on
e cess profts ta es aone)
Current ncome
ffectve rate
or norma ta
and surta
under con Ter-
ence b
Ma mum effectve rate of ncome and
e cess promts ta
70 percent
ncome and
e cess profts
ceng
19 percent
e cess profts
ta ceng
Percentage
I Mnt
dfference
10.000
2 .000
30,000
0.000
0.000
( 0.000
02. 00
70,000
0.000
90,000
100,000.
10 ,333-
1 0.000
200.000
2 0.000
300,000
00,000
00,000
1,000,000
10,000.000
100,000,000
Percent
30.00
30.00
33.67
3 .2
1.00
2. 3
3.20
. 1
. 13
. 9
ft 0
6.92
.33
9.2
9. 0
0.17
0.63
0.90
1.
1.9
1.99
Percent
30.00
30.00
3 .67
9. 0
ro.
60.33
61.20
63. 3
6 .7
67. 6
69.00
70.00
70.00
70.00
70.00
70.00
70.00
70.00
70.00
70.00
70.00
Percent
30.00
30.00
3 .67
9. 0
6.00
60.33
61.20
62. 1
63.13
63. 9
6 . 0
6 .92
06.33
67.2
67. 0
0 .17
6 .63
6 .90
69.
69.9
6S.99
Percent
1.29
2.62
3.67
. 0
6.0
3.67
2.7
2.20
1. 3
1.37
1.10
.
.0
.01
s a resut of the 2 ,000 surta e empton and the 2 ,000 mnmum credt, the ma mum effectve rate
on ncome and e cess profts ta abtes s aways ess than 70 percent for corporatons wth ncomes beow
10 ,333.
a resut of the 2 ,000 mnmum e cess profts ta credt, the ma mum cfTectvc e cess profts ta
s wth ncomes beow 62, 00 s aways ess than 1 percent.
For ths purpose the e cess profts net Income Is substtuted for the norma ta net
Income and surta net ncome n computng the varous ta es nvoved. The 30 percent
e cess profts ta rate Is apped to ad|usted e cess profts net ncome that Is, e cess profts
net Income after deducton of the e cess profts credt and the unused e cess profts credt
carry-over.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
296
percent. s a resut a ceng rate of 70 percent on ther combned ncome
and e cess profts abtes s qute dfferent from an 1 percent ceng on
ther e cess profts ta abtes. Tabe 9 shows, for seected Income eves,
the effectve ncome ta rates under the b, and the ma mum effectve rates
wth te 70 percent ceng formua and the 1 percent ceng formua. The
tabe ndcates that for corporatons wth ncomes over . 62, 00 the 1 percent
formua s the more generous, resutng n a ma mum ta savng of about
percent of tota ncome for corporatons wth ncomes of about 10 ,333.
Under e stng aw the ceng rate s 62 percent as compared wth a top
effectve ncome ta rate (combned norma ta and surta ) of 7 percent. Wth
the ncrease of percent n the norma ta provded n the b an equvaent
ceng rate woud be 67 percent. Wth the new type of ceng rate the addton
under the b to brng the over-a rate for the argest companes from 2
percent to 67 percent, woud be 1 percent of e cess profts net ncome. The
ncrease to 1 percent s thus, n effect, an ncrease n e cess profts ta for
those corporatons whch are affected by the ceng rate.
For caendar year corporatons the b provdes a ceng rate on e cess
profts ta abty n 19 1 of 17M percent. Ths represents three-fourths of
the fu ncrease made n the ceng rate and s roughy the equvaent of
makng the ncrease q the ceng rate effectve pr 1,19 1. For other corpora-
tons wth years begnnng before and endng after pr 1. 19 1, a proraton
formua s provded smar to that prevousy dscussed n connecton wth
the corporate rate changes.
C. P RC NT G OP T R G S P RIOD N T INCOM T N I fTO
CCOUNT IN COMPUTING T C SS PROFITS CR DIT
Under present aw a corporaton n computng ts e cess profts credt on
the bass of average earnngs may take nto account ony percent of ts
average earnngs n ts three best years n the perod 19 6- 9. The b (eec.
602) reduces ths percentage to 3 percent.
Ths change s effectve as of uy 1, 19 1, and becomes noperatve at the
tme of the termnaton of the e cess profts ta , une 30, 19 3. For caendar
year corporatons the credt to be used n determnng the credt for 19 1 w
be percent. For other corporatons wth ta abe years begnnng before
and endng after uy 1, 10 1, tne credt s prorated between the percent
Tabe 10. stmated corporate net ncome, ta abe returns, and ta abty
under present ac and under the conference b1
Number of
ta abe
returns
Ta abe
Income and e cess
profts ta abtes
Increase
Ta abe net Income casses
net
ncome
Present
aw
Conference
b
Present
aw
Mon
2,161
1, 06
2,01
39,311
Mon
0
20
99
21, 26
W
Mon
10
2
110
3,233
0,000 to 100,000
292. 01
7. 192
30. 77
,022
6
602
1.009
23.6 9
1 , 1 2
.0 6
1.200
23,3
300
2 ,91
312
2, 33
12
P RC NT G DISTRI UTION
1 ,1 3
6,2 0
23. 6
26,230
2.
Up to 2 ,000
7a
11.37
7.3
10.
. 0
3. 7
.
2.31
2.22
3.
91.62
2. 0
2.32
3. 9
91.29
.26
3.2
.3
.16
2 ,000 to 0,000
0,000 to 100,000
100,000 and over
7.2
Tota, e cudng capta gans
100.00
100.00
100.00
100.00
oaoo
ased on a eve of profts before ta (Commerce bass) of bon.
For corporatons wth ncomes under 62, 00 the 2 ,000 mnmum e cess-profts ta
credt prevents a hgher effectve rate than 1 percent under both formuas.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
297
Msc.
and the 3 percent on a bass smar to that prevousy dscussed n connecton
wth the corporate ncome ta changes.
D. DISTRI UTION OF T URD N
Tabe 10 shows the combned corporate ncome and e cess profts ta abtes
of corporatons n varous ncome casses under e stng aw and under the
conference b. The tabe ndcates that of the 1 .1S2 corporatons wth
ta abe net ncome, 292, 01, or about 70 percent of the tota, have ncomes of
ess than 2 ,000. These corporatons, whch have . percent of the tota
ta abe ncome, bear about .3 percent of the ncrease n ta abtes provded
by the b. The ,022 corporatons wth ncomes of 100,000 and over, whch
consttute about 31 percent of the tota number of corporatons wth ta abe
net ncome, have 7.2 percent of the tota ta abe ncome, and bear about
.2 percent of the ncrease provded by the b.
III. Ta - empt Organzatons
The b mposes the reguar corporate ncome ta on certan undstrbuted
profts of the foowng organzatons fuy e empt from ncome ta under sec-
ton 101 of the present aw: Farmers purchasng nnd marketng cooperatves,
mutua savngs banks, and State chartered savngs and oan assocatons (ncud-
ng cooperatve banks) as wp as Federa savngs and oan assocatons. Other
provsons of the b whch dea wth ta -e empt organzatons ncude an
amendment ta ng the unreated busness of coeges and unverstes of States
and oca governments; an amendment specfcay e emptng from ncome ta
for years pror to 10 1 the feeder corporatons of certan types of educatona
and chartabe organzatons; an amendment e emptng from ta pubshng
busnesses of educatona organzatons under certan condtons nnd for a
mted perod of tme; and an amendment provdng a deducton for a mted
perod of tme for repayments of debts ncurred under certan crcumstances n
the acquston by coeges of unreated busnesses.
It s estmated that n a fu year of operaton the provsons referred to above
w ncrease revenues by 2 mon.
. COOP R TI S (S CTION 31 )
Secton 101(12) of the Code e empts from ncome ta a farm cooperatves
whch meet certan specfed requrements. Ths e empton ncudes not ony
cooperatves marketng the products of farmers but aso coo)eratves purchas-
ng products and reseng them to farmers. The chef requrements whch must
be met by cooperatves n order to be e empt from ncome ta under secton
101(12) arc as foows:
1. They must be farmers , frut growers , or ke assocatons organzed
and operated on a cooperatve bass for the purpose of marketng products or
purchasng suppes for ther members.
2. Substantay a of ther stock (other than preferred nonvotng stock)
must be owned by producers marketng products or purchasng suppes
through the cooperatves.
3. The marketng of products of nonmembers may not e ceed 0 percent
n vaue of the cooperatve s tota marketng.
. The purchasng for nonmembers may not e ceed 0 percent of the co-
operatve s tota purchasng, nnd the purchasng for persons who are nether
members nor producers may not e ceed 1 percent of the cooperatve s tota
purchasng.
. Nonmembers must not be dscrmnated aganst n the aocaton of
patronage dvdends or refunds to the accounts of patrons.
t the present tme, the advantages whch are derved from e empton can be
summarzed as foows: Frst, the earnngs of a cooperatve whch are pad out
to sharehoders n the form of dvdends on capta stock are not ta abe to an
e empt cooperatve but are ta abe to other cooperatves. Second, any part of
the net margns or profts whch are retaned as reserves and not aocated to the
accounts of patrons are not ta abe to an e empt cooperatve but are ta abe In
the case of other cooperatves. Thrd, nonoperatng ncome such as nterest,
dvdends, rents, and capta gans and aso the ncome from certan busness done
wth the Unted States Government or ts agences, s ta abe to the ordnary
cooperatve even when aocated to the accounts of patrons, but s ta -free to
the e empt cooperatve whether or not aocated.
0 010 2 20
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
29
Secton 31 of the b contnues the Income ta e empton provded by secton
101(12) of the Code but removes from ts appcaton earnngs whch are paced
n reserves or surpus and not aocated or credted to the accounts of patrons.
In addton to beng ta -free wth respect to patronage dvdends pad or ao-
cated to patrons, as s generay aso true n the case of other cooperatves, the
cooperatves comng under secton 101(12) are aso to reman e empt wth re-
spect to amounts pad as dvdends on capta stock, and wth respect to amounts
aocated to patrons where the ncome nvoved was not derved from patronage,
ns n the case of nterest, rents, or ncome derved from busness done wth the
Federa Government. mounts whch are aocated or pad to patrons, wth
respect to patronage, are to be deductbe to the cooperatve f made on or
before the 1 th day of the nnth mouth foowng the cose of the year n whch
the patronage occurred. Smary, where nonpatronage ncome s aocated
to patrons before the mdde of the nnth month of the year, t s deductbe n
the precedng year.
s a resut of ths acton, a earnngs or net margns of cooperatves w be
ta abe ether to the cooperatve, ts patrons, or ts stockhoders, wth the e -
cepton of net margns on patronage whch are pad or aocated to patrons on
the bass of purchases of persona, rather than busness, e pense tems. Wth
ths e cepton, funds whch are aocated to the accounts of patrons, or pad
n cash or merchandse, are ta abe to them. Ths s true n the case of ether
ta abe or ta -e empt cooperatves. Funds whch are not pad or aocated to
patrons but are retaned as reserves by the cooperatves w be ta abe to the
cooperatve. Ths aso w be true of both types of cooperatves. Funds pad
out as dvdends on ordnary capta stock n the case of the e empt cooperatve
w be ta abe to the stockhoder, whe n the case of the ta abe cooperatve
a ta s mposed at both the stockhoder and the cooperatve eves.
In the case of ether a ta -e empt or a ta abe cooperatve net margns
earned on patronage (but not earnnss from other sources) whch are pad or
aocated to patrons on the bass of persona e pense tems have been hed to
have no ncome ta consequences to the patrons, on the grounds that they rep-
resent a return wth respect to e pendtures by the patron of a persona nature,
for whch no ncome ta deducton has been taken by hm.
Wth respect to patronage dvdends, any corporaton, e cept those e empt
from ta under secton 101 (10) and (11) and those ta ed under suppement
G, are requred by the b to make nformaton returns gvng the name and
address of patrons to whom they have made aocatons or cash and merchandse
payments amountng to 100 or more and the amount of such aocatons. In
addton, the Secretary of the Treasury s gven the authorty to requre these
nformaton returns wth respect to a patronage dvdends Irrespectve of the
sze of the patronage dvdends. The organzatons to whch ths provson s
not appcabe ncude R cooperatves, mutuc dtch or rrgaton companes,
cooperatve teephone companes, mutua casuaty and re nsurance companes,
and mutua fe nsurance companes.
The amendments made by the b wth respect to the ta treatment of co-
operatves e empt under secton 101(12) of the Code are appcabe to ta abe
years begnnng after December 31, 19 1. The amendment requrng certan
nformaton returns wth respect to patronage dvdends s appcabe to the
caendar year 1901 and subsequent years.
. MUTU L FIN NCI L INSTITUTIONS
1. Mutua savngs banks (sectons SIS, S G).
The prmary functon of mutua savngs banks s to provde safe and con-
venent factes to care for savngs. They aso have the responsbty of n-
vestng the funds eft wth then so as to be abe to gve ther depostors a
return on ther savngs.
Most mutua savngs banks were started by groups of ndvduas who put up
guaranty funds whch were repad out of subsequent earnngs. The organzers
apponted boards of trustees to manage the affars of tte banks. The boards
of trustees, whch are generay sef-perpetuatng, drect the poces of the
banks, sub|ect to the mtatons mposed upon them by the aws of the severa
States n whch they operate. The depostors themseves have no voce ether
n the choce of trustees or n the management of the bank s affars. owever,
snce a mutua savngs bank has no capta stock, everythng that the bank earns
s, n theory, hed for the beneft of the depostors.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
299
Msc.
Wth respect to outets for ther funds, mutua savngs banks are sub|ect to
mtatons smar to those whch appy to ether bankng nsttutons. They
are not mted to makng oans ony to depostors or members. Tabe 11 shows
the types of assets hed by mutua savngs banks as of December 30, 19 0, and
n the case of federay nsured mutua savngs banks, the types of rea estate
oans as of une 30, 19 0, and ther earnngs, e penses, and dvdends for the
year endng December 30, 19 0. The tabe ndcates that Unted States Govern-
ment obgatons represent neary 1 percent, and oans 3 percent of the tota
oans and nvestments of these banks. Tabe 11 aso ndcates n the case of
federay nsured mutua savngs banks, for whch statstcs are avaabe, that,
as of une 30, 19 0, about 33 percent of the rea estate oans hed by these banks
were ether nsured by the Federa ousng dmnstraton or guaranteed by
the eterans dmnstraton. The tota deposts of mutua savngs banks as
of une 27, 19 1, were 20, 00 mon and ther capta accounts, 2,290 mon,
ndcatng that they have reserves of sghty over 11 percent of ther deposts.
Tabu 11. Types of assets hed oy mutua savngs banks as of Dee. SO, 19 0; and,
for federay nsured mutua savngs banks, types of rea estate oans hed as of
une SO, 19 0; and earnngs, e penses, and dvdends n the caendar year 19 0
L SS TS OF LL MUTU L S INGS N S IN T UNIT D ST T S, S OP
D O. 30, 1990
IDoar amount n mons
Item
mount
22,3
797
10, 6

Other securtes
2,2 3
,137
2 2
Number of banks. 29.
LL F D R LLY INSUR D ND CON NTION L R L ST T LO NS LD Y
INSUR D MUTU L S INGS N S, UN 30, 1960
Doar amounts n nvons
Tota rea estate oans.. _.
Federay nsured:
Insured F and guaranteed mortgage oans on I- to -faray propertes
Insured F and guaranteed oans on or more famy propertes..
Tota
Conventona oans..
r of nsured mutua savngs banks, 192.
, 7
1,36
1S
1,779
3,663
RNINGS, P NS S ND DI ID NDS OF INSUR D MUTU L S INGS N S
FOR T Y R NDING D C. 30, 19 0
(Doar amounts n thousands)
Current operatng earnng , tota
Interest, dscount, and other Income on rea estate oans.
Interest on U. . Government obgatons, drect and guaranteed..
Other current earnngs
Current operatng e penses
Net current operatng earnngs-
Dvdends (nterest) pad on deposts
Net profts ater nterest and dvdends
Number of nsured mutua savngs banks, Dec. 30, 19 0,19 .
7 ,69
231,730
1 2, 7
6 ,60
11 , 70
363,22
2 7,770
91,176
Source: nnua Report o the Federa Depost Insurance Corporaton for the year ended Dec. 31,1960,
Fp. and 272, and Operatng Insured Commerca and Mutua Savngs anks, ssets and Labtes,
unc 30. 19 0, Rept. No. 33, Federa Depost Insurance Corporaton.
These statstcs are pubshed reguary n the Federa Reserve uetn.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
300
Under present aw secton 101(2) of the Code e empts mutua savngs banks
from the payment of ncome ta . The effect of the e empton has been to reeve
mutua savngs banks of ncome ta on the amounts retaned as undvded
profts and addtons to surpus.
Secton 313 of the b removes the ncome ta e empton of mutua savngs
banks but permts them to deduct amounts pad or credted to the accounts of
depostors and permts them to deduct certan amounts credted to a reserve
for bad debts. The deducton for addtons to bad debt reserves may be a
reasonabe addton to a reserve for bad debts determned wth due
regard to the amount of the ta payer s surpus or bad debt reserves e stng
at the cose of December 31, 19 1. Ths addton to bad debt reserves may
he determned under reguatons provded by the Commssoner of Interna
evenue on a smar bass as that now used n a case of ordnary commerca
banks. owever, n the case of mutua savngs banks the nsttuton s to be
permtted to make any addtons to these reserves whch t deems necessary
unt the reserves, pus surpus and undvded profts, equa 12 percent of ts
tota deposts. The mtaton of 12 percent of tota deposts s a mtaton ony
as to addtons to reserves whch the nsttuton can make, wthout reference to
the rues provded by the Commssoner of Interna Revenue. The atter con-
cevaby mght n some cases permt addtons to reserves n e cess of 12 percent
of tota deposts. In addton, mutua savngs banks are to be aowed, as a
deducton from gross ncome, any amount currenty pad to the Unted States,
to any Federa nstrumentaty e empt from Federa ncome ta es, or to any
mutua fund estabshed under the authorty of the aws of any State, n repay-
ment of ndebtedness ncurred pror to September 1, 19 1. On the remanng
ncome, mutua savngs banks are to be sub|ect to the reguar corporate ncome
ta (but not the e cess profts ta ). n e cepton s made n the case of mutua,
nonstock nsttutons organzed pror to September 1, 19 1, for the purpose
of provdng reserve funds for, and nsnrance of, shares or deposts n mutua
savngs hanks. These organzatons w contnue to be e empt from ncome
ta under Fecton 101 of the Code. Ths provson s effectve wth respect to
ta abe years begnnng after December 31, 19 1.
Secton 3 0 of the b aso deas wth mutua savngs banks havng fe In-
surance departments, and provdes that ther fe nsurance departments, even
though not separatey ncorporated, are to be treated separatey for ta purposes
and ta ed n the same manner as fe nsurance companes generay, f the ac-
counts of these departments are segregated from the other occounts of the bank.
Ths provson aso s effectve wth respect to ta abe years begnnng after
December 31, 19 1.
2. Savngs and oan assocatons (secton S13).
The prmary functon of savngs and oan assocatons s to provde factes
for savng and to provde a means for fnancng the purchase of homes. These
organzatons, whch aso go under the name of budng and oan assocatons,
are typcay nonstock corporatons whch secure ther funds through deposts,
whch are known as shares. Savngs and oan assocatons may be chartered
by the States or by the ome Loan ank oard. Of the ,9 0 assocatons
whch were dong busness at the end of 19 9, 1, 0 were Federa assocatons
and the remander were State-chartered nsttutons. The former group ac-
counted for 7.1 bon, or neary 0 percent, of the 1 .7 bon of tota assets of
a the assocatons.
Not a of the earnnss of savngs and oan assocatons are dstrbuted n
the form of cash or credted to the sharehoders accounts. Some earnngs are
set asde n varous reserve accounts, and some are retaned as undvded profts.
t the end of 19 9, the genera reserves and undvded profts of a savngs and
oan assocatons n the Unted States amounted to 1.1 bon. Ths was over
7. percent of the 1 .7 bon of prvate savngs nvested n these nsttutons.
Most of the assets of savngs and oan assocatons take the form of mortgage
oans, usuay on resdenta propertes. Thrty years ago, ths type of oan
accounted for over 90 percent of the assets of these nsttutons; today, the per-
centage s somewhat ower, athough mortgage oans represented 0 percent
of a assets hed at the end of 19 0. Tabe 12 shows for 19 0 the types of
assets hed by savngs and oan assocatons at the end of the year 19 0, and
n the case of federay nsured assocatons, the types of mortgage oans hed
at the end of the year and the net ncome, dvdends, and addtons to undvded
profts durng the year.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
301
Msc.
Tabe 12. Types of assets hed by savngs and oan assocatons as of Dec. SO,
19 0, and for federay nsured assocatons, types of rea estate oans hed as of
Dec. SO, 19 0, and ncome, dvdends, and undvded profts and reserves n 19 0
1. SS TS OF LL S INGS ND LO N SSOCI TIONS ND INSUR D S INGS ND
LO N SSOCI TIONS S OF D C. 30, 19 0
Doar amounts n mons
savngs
Insured savngs
and oan
assocatons
Item
and oan
assocatons
Cash -. - -
1 10, 92S
13, 10
013
1, 01
6,0 0
13,6
11, 1 3
00
1,202
2, 00
II. F D R LLY INSUR D ND CON NTION L FIRST-MORTO O LO NS LD
Y INSUR D S INGS ND LO N SSOCI TIONS, D C. 30, 1960
Doar amounts n mons
Item
mount
Tota frst-mortgage oans
Federay nsured:
-guaranteed oans -
F -nsured oans
Tota
Conventona oans
11,1
733
2, 07
3,2 1
III. INCOM , DI ID NDS, ND UNDI ID D PROFITS OF INSUR D S INGS ND
LO N SSOCI TIONS, FOR T Y R ND D D C. 30, 19 0
Doar amounts In thousands
Item
Net ncome
Dvdends
Undv ded profts and
11,3 7
262,7 1
1 , . 66
Premnary.
The dfference between ths fgure and the comparabe category shown n pt. I s due to dfferences n
accountng methodoogy.
Sources: Statstca Summary, 1961, ome Loan ank oard, pp. Sand 1 ; Operatona nayss Secton
ome Loan ank oard.
State-chartered savngs and oan assocatons at present are e empt from
ncome ta under secton 101( ) of the Code. In addton, Federa savngs
and oan assocatons whch are chartered by the Federa Government are
e empt from ncome ta under the ome Owners Loan ct of 1933 and are
covered by subsecton (1 ) of secton 101 of the Code provdng for the e emp-
ton of Unted States nstrumentates.
Secton 313 of the b removes the ncome ta e empton of savngs and oan
assocatons, ncudng Massachusetts cooperatve banks and those chartered
by the Federa Government, but aows tham to deduct dvdends pad to depos-
tors and the amounts paced n bad-debt reserves. The deducton for addtons
to bad-debt reserves s the same as that prevousy descrbed n the case of
mutua savngs banks. Thus, the deducton may be a reasonabe addton to
reserve for bad debts but n no case ess than the nsttuton deems necessary,
unt the reserves equa 12 percent of tota deposts or share accounts. In add-
ton, savngs and oan assocatons are to be aowed as a deducton from gross
ncome any amount currenty pad to the Unted States, to any Federa nstru-
mentaty e empt from Federa ncome ta es, or to any mutua fund estabshed
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
302
under te authorty of the aws of any State, In repayment of ndebtedness
ncurred pror to September 1, 19 0. On the remanng ncome the savngs and
oan assocatons are sub|ect to the ordnary corporate ncome ta (but not
e cess profts ta ). s n the case of mutua savngs banks, mutua nonstock
organzatons estabshed pror to September 1, 19 1, for the purpose of pro-
vdng reserve funds for, or nsurance of, shares or deposts n savngs and
oan assocatons (ncudng cooperatve banks) are to contnue to be e empt
under secton 101 of the Code. Ths provson s effectve wth respect to
ta abe years begnnng after December 31, 19 1.
C. UNR L T D USIN SS INCOM OF ST T ND LOC L GO RNM NT
COLL G S ND UNI RSITI S (S CTION 339)
The Revenue ct of 19 0 mposed the reguar corporate ncome ta on certan
ta -e empt organzatons whch are n the r.ature of corporatons, wth respect
to so much of ther ncome as arses from actve busness enterprses whch
are unreated to the e empt purposes of the organzaton (ncudng certan
ease-back ncome). owever, ths provson does not appy to such ncome
of unverstes and coeges, of States and oca governmenta unts. Secton
39 of the b e tends the present ta to the unreated busness ncome of
unverstes and coeges of States and of other governmenta unts. s a resut,
governmenta unverstes and coeges w be ta abe on ncome derved from
any unreated busness actvtes carred on by the schoos themseves (ncud-
ng the ncome derved from eases for over years of property purchased wth
borrowed funds). Ther feeder corporatons carryng on a trade or busness
aso w be fuy ta abe.
Ths amendment s effectve wth respect to ta abe years begnnng after
December 31, 19 1.
D. DUC TION L F D R CORPOR TIONS (S CTION 601)
The Revenue ct of 19 0 ncuded a seres of provsons whch, under spec-
fed condtons, resuted n the mposton of ta es on educatona, chartabe,
and certan other ta -e empt organzatons, foundatons, and trusts. mong
these provsons was one whch for 19 1 and subsequent years specfcay
dened e empton to feeder corporatons, that s, corporatons carryng on a
trade or busness for proft whose profts nure e cusvey to organzatons
e empt under secton 101 of the Code. Wth respect to pror years the ta
status of such corporatons was then n tgaton. Wth respect to these years
the Revenue ct of 19 0 provded that no ta woud be asserted for years
pror to 19 7 uness a defcency had aready been asserted, or ta es had aready
been assessed or pad.
Secton 601 of the b amends secton 302 of the Revenue ct of 19 0 to provde
that for years pror to 19 1 e empton s not to be dened feeder corporatons
f ther profts nure to a reguary estabshed schoo, coege, or unversty or
to a reguary estabshed hospta, or nsttuton for the rehabtaton of phys-
cay handcapped persons. The secton further provdes that t s not to
be construed as havng any effect on the ta status of feeder corporatons of
other types of educatona or chartabe organzatons for years pror to 19 1.
. PU LIS ING USIN SS C RRI D ON Y T - MPT ORG NIZ TIONS
. (S CTION 3 7)
s ponted out n the precedng dscusson, the Revenue ct of 19 0 mposed
the corporate ncome ta on the unreated busness ncome of certan ta -
e empt organzatons. Ths provson has resuted n some cases n the m-
poston of ta upon unverstes wth respect to ncome derved from the opera-
ton of a pubshng busness. Secton 3 7 of the b provdes that ncome from
ths type of actvty sha contnue to be e empt even though n fact unreated
to the functon of the ta -e empt organzaton f by the end of 2 years the
operaton of the pubshng busness becomes substantay reated tc the e ercse
or performance by the organzaton of Its educatona or other purpose or func-
ton descrbed n secton 101(6).
Ths amendment s appcabe wth respect to ta abe years begnnng after
December 31,19 0, and pror to anuary 1,19 3.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
303
Msc.
F. D DUCTION OF R P YM NTS OF IND T DN SS IN T C S OF DUC -
TION L ORG NIZ TIONS C RRYING ON C RT IN TYP S OF UNR L T D
TR D S OR USIN SS S (S CTION 3 )
Secton 3 of the b adds a new provson to secton 22(a) of the Code
whch deas wth the ta aton of the unreated busness ncome of certan ta -
e empt organzatons. It provdes that educatona organzatons wth reguar
student bodes and facutes whch carry on an unreated trade or busness as
a partnershp are to receve deductons for ta abe years begnnng before
anuary 1, 19 , wth respect to so much of the gross ncome receved from
the partnershp as s requred to repay ndebtedness ncurred by the organ-
zatons n acqurng the unreated trade or busness. owever, the deducton
s permtted ony wth respect to so much of the ncome as s requred to be used
for repayment of the ndebtedness by a contract entered nto by the educa-
tona organzaton pror to anuary 1, 19 0. In addton, the partnershp
must have been formed pror to anuary 1, 19 0, substantay a of ts assets
must have been acqured by the educatona organzatons pror to the same
date. so, the deducton s mted to repayments of ndebtedness ncurred
pror to anuary 1, 19 0.
Ths provson s effectve wth respect to ta abe years begnnng after
December 31, 19 0, and pror to anuary 1, 19 .
I . Structura Changes n the Income Ta es
1. Surta e emptons and mnmum e cess profts ta credts of reated corpora-
tons (secton 121).
Under e stng aw the 2 ,000 corporate surta e empton and the 2 ,000
mnmum credt under the e cess profts ta are avaabe to any corporaton
whether or not t s a member of a group or chan of reated corporatons.
Secton 121 of the b adds a new subsecton (c) to secton 1 of the Interna
Revenue Code, deang wth cases where, after December 31, 19 0, corporatons
spt up nto two or more corporatons for the purpose of obtanng one or more
addtona 2 ,000 surta e emptons and 2 ,000 mnmum e cess profts credts.
The new subsecton provdes that f a corporaton transfers, after that date, a
or a part of ts property other than money to a newy organzed corporaton (or
to a dormant corporaton utzed for that purpose), the transferee corporaton
w not be aowed to have 2 ,000 of ts ncome e empt from surta , nor be
aowed a mnmum e cess profts credt of 2 ,000, f after the transfer and
durng any part of the ta abe year the od corporaton or ts stockhoders, or
both, own 0 percent or more of ts votng stock or 0 percent of the tota vaue
of ts stock, uness t can show by a cear preponderance of the evdence that the
corporate spt-up was not made wth a ma|or purpose of obtanng an addtona
surta -e empton or mnmum e cess profts credt.
though t s provded that, n genera, the transferee corporaton n such
cases w have no surta e empton or mnmum e cess profts credt, the
Secretary s authorzed to aow a or any part of the surta e empton or the
mnmum e cess profts credt to the transferee corporaton, or to apporton
ether the e empton or credt between two or more corporatons, f that w not
resut n ta avodance. Thus, f the orgna corporaton s spt up nto two or
more corporatons and then qudated, the surta credt and the mnmum e cess
profts credt whch the od corporaton woud have had may be aowed to one
of the new corporatons or equtaby dvded between them. Or f the od cor-
poraton contnues to operate part of the busness but has an ncome for any
ta abe year of ess than 2 ,000 that part of the surta e empton or the mn-
mum e cess profts credt whch t does not need may be aocated to the new
corporaton.
In determnng the e tent of an ndvdua s hodngs of the stock of a corpora-
ton for the purpose of determnng contro, he s to be deemed to own stock hed
drecty or ndrecty by or for hs spouse or mnor chdren, and aso that porton
of the stock owned by a corporaton, partnershp, estate, or trust n whch he
hods an Interest, whch refects the e tent of hs nterest n such corporaton,
partnershp, estate, or trust.
Ths provson of the b does not prohbt or dscourage e panson of an
e stng busness accompaned by the formaton of new corporatons, as ds-
tngushed from the mere spt-up of an e stng busness nor does t prevent
an udvdua or a group of ndvduas who may own the stock of a corporaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
30
from formng addtona corporatons to engage n a smar or a dfferent bus-
ness. corporaton wshng to e pand ts actvtes may use a part of ts funds,
whether or not those funds represent accumuated earnngs, to form the capta
of a new corporaton, acqurng the stock of the new corporaton n e change for
those funds. Or an Indvdua who owns a the stock of a corporaton may use
any cash or property he owns to form a new corporaton. In such cases the new
corporaton w be aowed the fu surta e empton and the mnmum e cess
profts credt.
Ths provson of the b appes ony to ta abe years n whch the e cess
profts ta s n effect
2. ddtona wthhodng upon agreement by empoyer and empoyee (secton
203).
t the present tme wthhodng on wages and saares s provded ony at
the frst bracket rate of ta even though part of the empoyee s ncome may be
sub|ect to a hgher rate of ta . Secton 203 of the b amends secton 1 22 of the
Code to provde that addtona wthhodng may be authorzed where both the
empoyer and empoyee agree to t. -. -
3. Payments to benefcares of deceased empoyees (secton SOS).
Secton 22(b) (1) of the Code e cudes from gross ncome amounts receved
under a fe nsurance contract pad by reason of the death of the nsured,
whether n a snge sum or otherwse. owever, by ts terms, ths provson s
mted to fe nsurance payments, and the e cuson does not e tend to death
benefts pad by an empoyer by reason of the death of an empoyee. Secton
302 of the b e cudes from gross ncome death benefts not n e cess of 3,000
pad by any one empoyer wth respect to any snge empoyee s benefcary or
benefcares n accordance wth a pree stng contract.
Ths provson s effectve wth respect to ta abe years begnnng after De-
cember 31, 19 0.
. ass of |ont and survvor annutes ncuded n the gross estate (secton SOS).
Secton 113(a)( ) of the Code provdes that property acqured by bequest,
devse, or nhertance sha have a bass for determnng gan or oss equa to
ts far market vaue at the date of the decedent s death or, f the decedent s
e ecutor eects the optona vauaton date, at a date 1 year after the decedent s
death. owever, a property whch s ncuded n the decedent s gross estate
for estate ta purposes does not take a new bass upon the decedent s death.
ont and survvor annuty s ncudbe n the decedent s gross estate but s
treated as a gft for bass purposes so that, for purposes of gan, It as the
same bass as n the hands of the donor.
Secton 303 of the b amends sectons 22(b) (2) and.113(a) ( ) of the Code
to provde that where a |ont and survvor annuty s ncuded n the decedent s
gross estate, ts bass s to be the vaue of the property ncuded n the estate
and that bass s to be the consderaton pad for the purpose of determnng
that porton of the annuty whch the survvor must ncude n gross ncome.
Ths amendment s to appy ony where the decedent des after December 31,
19 0.
. Income from dscharge of ndebtedness (secton SO|).
Secton 22(b) (9) of the Code e cudes from gross ncome, n the case of a
corporaton, the amount of ncome attrbutabe to the dscharge of ndebtedness
evdenced by a bond, debenture, note, certfcate, or other evdence of ndebted-
ness. Gan may arse from the dscharge of ndebtedness, for e ampe, where
a corporaton buys back ts own bonds at ess than ther face vaue. The prov-
sons of ths secton are temporary under e stng aw and e pre automatcay
on December 31, 19 1. Secton 30 of the b provdes for the permanent enact-
ment of the secton.
The e cuson provded by secton 22(b) (9) s to be appcabe ony f the cor-
poraton consents to a reducton n the bass of ts propertes under secton
113(b)(3) n accordance wth the reguatons then n effect. The reducton of
bass under secton 113(b) (3) Is n an amount equa to the ncome e cuded under
secton 22(b) (9). In the event an amount s e cuded from gross ncome under
these provsons, an ad|ustment s made for unamortzed premum or unamortzed
dscount on the dscharged obgaton.
stng reguatons provde that an amount equa to the e cuded ncome s
frst to be apped n reducton of the bass of the specfc property (other than
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
30
Msc.
nventory, notes, or accounts recevabe) n the acquston of whch the ndebted-
ness was ncurred. The reducton of bass n such case merey refects an ad-
|ustment n the purchase prce of the property. The reducton of bass under
the reguatons s then successvey apped to the foowng casses of property:
(1) Property securng the ndebtedness, (2) other property of the ta payer, and
fnay (3) Inventory and accounts and notes recevabe. Wthn these casses,
the reducton n bass s apped proportonatey to the property ncuded n the
cass wthout regard to whether the property Is deprecabe or nondeprecabe.
It s understood that the Secretary of the Treasury w requre by reguatons
that, after ad|ustment of the bass of certan property acqured wth the purchase
money Indebtedness, whatever reducton n bass of property remans to be taken
under secton 113(b) (3) w be taken, n genera, aganst deprecabe property
or property sub|ect to cost depeton and ony as a ast resort aganst nonde-
precabe property. Thus, n genera, a reducton n the bass of nondeprecabe
property w be made ony after the e hauston of deprecabe property or prop-
erty suh|ect to cost depeton.
Secton 30 of the b makes a technca amendment to secton 22(b)(9) to
aow for greater fe bty as to the tme for tng the requred consent to a
reducton of bass. Under the present aw, the ta payer must fe ts consent
wth ts return for the ta abe year. The b amends the secton to provde that
the consent sha be fed at such tme as the Secretary of the Treasury may
prescrbe.
Ths amendment s to be effectve wth respect to ta abe years endng after
December 31, 19 0.
Secton 30 of the b aso e tends for an addtona 3-year perod the e -
cuson provded for raroad corporatons under secton 22(b) (10) of the Code.
Secton 22(b) (10) provdes that the amount of ncome attrbutabe to the ds-
charge of any ndebtedness of a raroad corporaton, as defned n secton 77(m)
of the Natona ankruptcy ct, sha be e cuded to the e tent that such Income
s deemed to have been reazed by a modfcaton or canceaton of ndebtedness
pursuant to an order of the court n a recevershp proceedng or a proceedng
under secton 77 of the Natona ankruptcy ct. Under present aw ths secton
aso e pres automatcay on December 31, 19 1. Unke secton 22(b) (9), sec-
ton 22(b) (10) does not requre a reducton n the bass of the ta payer s prop-
ertes as a condton to the e cuson of the ncome. The e tenson of the e -
praton date of secton 22(b) (10) made by ths secton of the b s to December
31, 19 .
6. ddtona aowance for certan members of the rmed Forces (secton S0 ).
The Revenue ct of 19 0 added a new secton 22(b) (13) to the Code whch
e cudes from ta abe ncome the compensaton of members of the rmed Forces
of the Unted States receved for actve servce n combat zones such as orea.
Ths e cuson covers a the pay of ensted men and warrant offcers and the
frst 200 per month pad to commssoned offcers. The present e cuson ony
appes to servces performed after une 2 ,19 0, and pror to anuary 1,19 2.
Secton 30 of the b makes three changes In the e stng provson. Frst,
the e empton s e tended for 2 years beyond the present termnaton date to
anuary 1, 19 . Second, the e empton s e tended to ncude the compensaton
of mtary personne receved whe hosptazed as a resut of wounds, dsease,
or n|ury ncurred whe servng n a combat zone. Thrd, une 2 , 19 0 (and
not une 27) s to be consdered the date when combat commenced.
These amendments to secton 22(b) (13) are appcabe to ta abe years end-
ng after une 2 , 19 0.
7. LIFO method of accountng (secton S06).
Under the present aw ta payers usng the LTFO nventory method have unt
the end of 19 2 n whch to make repacements of nventores nvountary
depeted durng Word War II. They have unt the end of 19 to make repace-
ments of nventores Invountary depeted durng the present emergency. ow-
ever, nventory repacements are requred to be attrbuted to the most recent
qudatons not aready repaced, so that a repacement before the end of 19 2
must be treated as a repacement of nventory qudated durng the present
emergency before any nventory ncreases can be treated as repacements of
nventory qudated durng Word War II.
Secton 300 of the b provdes, n effect, that repacements made pror to 19 3
are frst to be deemed to be repacements of qudatons durng the Word War II
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
306
perod rather than frst beng deemed to be repacements of qudatons durng
the present emergency.
Ths provson s effectve wth respect to ta abe years endng after une
30, 19 0.
. Medca e penses (secton 307).
Secton 23( ) of the Code permts the deducton of a ta payer s medca
e penses ony to the e tent that such e penses e ceed percent of the ta -
payer s ad|usted gross ncome.
Secton 307 of the b removes ths percent mtaton for any ta payer, f
ether the ta payer or hs spouse s age 6 or over, but ony wth respect to
the medca e penses of such ta payer and hs spouse.
Ths b does not affect the ma mum mtatons of present aw on the
amount of the deducton.
Ths provson of the b s effectve wth respect to ta abe years begnnng
after December 31, 10 0.
9. ectons to me the standard deducton and to fe |ont or separate returns
(sectons 90 , 312).
Secton 23(aa) of the Code permts an ndvdua the use of an optona stand-
ard deducton n eu of temzng hs deductons. The eecton to use ether
of these methods of handng deductons s bndng upon the ta payer for the
ta abe year wth respect to whch the opton s e ercsed.
Under secton 1 of the Code, marred ta payers may fe ether separate
returns or a snge |ont return. The eecton, once made, as to whch type
of return to fe s bndng wth respect to the ta abe year for whch the return
s fed.
Secton 30 of the b provdes that ndvduas who have used the standard
deducton when fng ther return may substtute temzed deductons at any-
tme wthn the perod of the statute of mtatons. Moreover, ta payers who
have temzed ther deductons are aso to have the opton to amend ther return
wthn the same perod n order to take advantage of the standard deducton.
Ths provson s effectve wth respect to ta abe years begnnng after December
31, 19 9.
Secton 312 of the b provdes that marred ndvdua ncome ta payers
who fe separate returns may e ercse the rght to change ther eecton and
fe |ont returns at any tme wthn the perod of the statute of mtatons.
Ths provson s effectve wth respect to ta abe years begnnng after December
31, 19 0.
10. pendtures n the deveopment of mnes (secton 300).
Under e stng aw and reguatons a e pendtures made wth respect to a
mne pror to the tme t has reached the producton stage must be captazed,
e cept that ncdenta ncome from the producton of ore whe the mne s
beng deveoped s offset by deveopment e pendtures, ony the e cess of such
e pendtures over such recepts beng captazed. mounts so captazed are
deductbe for ncome ta purposes ony through depeton aowances.
Incuded n the e pendtures whch must be so captazed are the costs of
shafts, tunnes, gaeres, etc., whch are necessary to make the ore or other
mnera accessbe. Such e pendtures are requred to be captazed ony unt
the mne reaches the producton stage, whch occurs when the ma|or porton
of the mnera producton s obtaned from workngs other than those opened
for the purpose of deveopment, or when the prncpa actvty of the mne
becomes the producton of deveoped ore rather than the deveopment of add-
tona ores for mnng.
fter a mne reaches ths producton stage, contnued e pendtures must be
made to e tend tunnes, gaeres, etc., as the workng face of the ore or other
mnera recedes. Such e pendtures are generny deductbe currenty. ow-
ever, If they are e traordnary n scope they are treated as prepad e penses to
be deducted rataby as the ore benefted by the e pendture s produced and sod.
Secton 309 of the b provdes that the ta payer, wth respect to e pendtures
pad or ncurred nfter December 31, 19 0, n the deveopment of a mne or other
natura depost may eect ether to deduct deveopment e pendtures, whether
ncurred before or after the producton stage has been reached, n the year
when they are ncurred, or to treat deveopment e pendtures ncurred before
the producton stage has been reached as deferred e penses, to be deducted
rataby as the ore or mnera s sod. Such an eecton may be made for each
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
307
Msc.
year, but must be for the tota amount of net deveopment e pendture made
n that year wth respect to the mne.
Ths provson appes ony when the e pendtures are made after the e stence
of ores or mneras n commercay marketabe quanttes has been determned
and the deveopment stage has begun. It does not appy to o or gas wes.
pendtures made for the purchase of deprecabe property are not to be
counted as deveopment e pendtures for ths purpose but the deprecaton
charges whch appear as the resut of the use of such property for deveopment
purposes may quafy for such treatment as deveopment costs.
If the ta payer eects to defer them, e pendtures made for deveopment w
contnue to ncrease the ad|usted bass of the mne for computng gan or oss
as under e stng aw; however, ths bass w then be reduced as the deductons
aowabe under ths provson of the b occur. though thus ncuded n
the ad|usted bass for the purpose of computng a gan or oss from a sae,
In order to prevent dupcaton of ta benefts, such deveopment e pendtures are
not to be taken nto account n determnng the ad|usted bass of the property
for the purpose of computng depeton based upon costs.
The b aso provdes that If the ta payer eects to defer the deducton of
deveopment e pendtures ncurred durng the deveopment stage, the amount
to be so deferred n any year w be the e cess of the deveopment e pendtures
n that year over the net recepts durng that year from the ores or mneras
produced.
Ths provson of the b s effectve wth respect to ta abe years begnnng
after December 31, 10 0.
11. arnngs of dependents (secton 310).
Secton 2 (b) (1) (D) of the Code nows a ta payer, as a credt aganst net
ncome, an e empton of 600 for each dependent whose gross ncome n the
year s ess than 00.
Secton 310 of the b amends secton 2 (b) (1) (D) to permt e empton for
dependents whose gross ncome s ess than 600.
Ths amendment appes to ta abe years begnnng after December 31, 10 0.
12. ppcaton of the ntercorporate dvdends-receved credt n the case of
resdent foregn corporatons (secton 311).
Under present aw foregn corporatons engaged n trade or busness wthn
the Unted States are sub|ect to the reguar corporate ncome ta es wth respect
to that porton of ther ncome whch s derved from sources wthn the Unted
States. owever, where such corporatons pay dvdends to a Unted States
domestc corporaton, no dvdends-receved credt s aowed the atter, athough
such credt woud be aowed f the domestc corporaton were recevng dvdends
from another domestc corporaton. Thus, two fu corporate ta es are pad
wth respect to dvdend ncome receved from foregn corporatons engaged n
trade or busness wthn the Unted States (to the e tent that the dvdends are
pad out of ncome derved from sources wthn the Unted States), whe as a
resut of the Intercorporate dvdends-receved credt, dvdends pad by one
domestc corporaton to another are sub|ect ony to a tte more than one fu
corporate ncome ta .
Secton 311 of the b amends secton 26(b) of the Code, reatng to the dv-
dends-receved credt, to provde that under certan condtons dvdends receved
from foregn corporatons engaged n trade or busness wthn the Unted States
are to be egbe for the percent ntercorporate dvdends-receved credt.
The credt s to be made avaabe ony f the foregn corporaton has been engaged
n trade or busness wthn the Unted States, and has derved 0 percent or more
of ts gross ncome from sources wthn the Unted States, durng an unnter-
rupted perod of 36 months or more ncudng the ta abe year n whch the
dvdends are pad. If the corporaton has been n e stence ess than 36 months,
these condtons must be met durng the entre perod of ts e stence. The
credt to be aowed s an amount equa to percent of the dvdends receved
out of the foregn corporaton s earnngs durng the current year, but not n
e cess of that part of the percent whch s proportonate to the rato of the
gross ncome durng the current year from sources wthn the Unted States to
ts tota gross ncome for that year. Wth respect to any dstrbutons not out
of the current year s earnngs, the credt s to be aowed wth respect to an add-
tona amount equa to percent of the dvdends receved out of the foregn
corporaton s earnngs durng the unnterrupted perod (but not ncudng the
current year), but not n e cess of that part of the percent whch s propor-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
30S
tonate to the rato of the corporaton s gross ncome from sources wthn the
Unted States durng the unnterrupted perod (but not ncudng the current
year) to ts tota gross ncome (urng the same perod.
Ths provson of the h s effectve wth respect to ta abe years begnnng
after December 31, 19 0.
13. Capta gans of corporatons mpropery accumuatng surpus (.secton 102
of Code) (secton 31 ).
Secton 102 of the Code mposes an addtona ta on corporatons mpropery
accumuatng surpus to avod payment of surta by stockhoders. Ths add-
tona ta s mposed on the undstrbuted secton 102 net ncome , whch s, n
genera, net ncome mnus the norma ta , surta , and e cess profts ta of the
corporaton. Under present aw, the secton 102 ta appes to the ong-term
capta gans of the corporaton as we as to ts ordnary ncome.
Secton 31 of the b amends secton 102 n order to e cude net ong term
capta gans from the undstrbuted ncome sub|ect to the secton 102 ta . The
amendment aso provdes, n effect, that the capta gan ta s not to be aowed
as a deducton n computng ncome sub|ect to the secton 102 ta .
Ths provson s effectve wth respect to ta abe years begnnng after De-
cember 31, 19 0.
t. Lqudaton of corporatons (secton 31G).
Under the Revenue ct of 19 0, domestc corporatons, ncudng persona hod-
ng companes, may be qudated under secton 112(b)(7) of the Code for a
mted perod wthout payment of capta gan tn by the stockhoders on the
apprecaton n vaue of assets hed by the companes. In genera, n the case oC
gan on stock hed by ndvduas ony hat porton of the dstrbuton to the
shnreho-ers whch represents accumuated earnngs s to be ta ed, to the e tent
of the gan, as ordnary ncome. So much of the remander, to the e tent of the
baance of the gan as conssts of money, cr of stock, or of securtes acqured by
the corporaton after a basc date ( ugust 1 , 1 0) s to be treated as n capta
gan.
Under secton 112(b) (7) In ts pre-19 0 form, a smar eecton was avaabe
when the pan of qudaton was adopted after the date of enactment of the
Revenue ct of 19 3 and put nto effect durng the caendar year 19 . Under
the nmentment made by the Revenue ct of 19 0, ths eecton was restored for
pans of qudaton adopted after December 31, 19 0, and effected durng any
one caendar month n 19 1.
Secton 316 of the b e tends the appcaton of secton 112(b) (7) so that
ta payers may e ercse a smar eecton to cover qudatons of corporatons
durng 19 2.
Ths provson s effectve wth respect to ta abe years endng after Decem-
ber 31, 19 1.
1 . Corporate reorganzatons (spn-offs) (secton 317).
Secton 317 of the b adds a new secton 112(b) (11) to the Code to provde
for the nonrecognton of gan from the recept of stock n corporate e changes
carryng out transactons known as spn-offs. spn-off occurs when a part of
the assets of a corporaton s transferred to a new corporaton and the stock n
the atter s dstrbuted to the sharehoders of the orgna corporaton wthout
a surrender by the sharehoders of stock n the dstrbutng corporaton.
The benefts of the provson are mted to reorganzatons n whch the new
corporaton as we as the od corporaton s ntended to carry on a busness after
the reorganzaton and where ony stock (other than preferred) s dstrbuted.
Nonrecognton of gan aso s to be dened n cases where the reorganzaton was
prncpay a devce for the dstrbuton of the earnngs and profts of the cor-
poratons whch are partes to the reorganzaton.
Secton 317 of the b aso adds a new secton 113(a) (23) to the Code pro-
Tdng that, n the case of stock dstrbuted n a spn-off, the bass of the new
stock, and the od stock, respectvey, n the sharehoder s hands, s to be de-
termned by aocatng between the od stock and the new stock the ad|usted
bass of the od stock.
These provsons are to be effectve wth respect to ta abe years endng after
the date of the enactment of ths b, but are to appy ony to dstrbutons of
stock made after that date.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
309
Msc.
16. Gan from sae or e change of the ta payer s resdence (secton S1 ).
Secton 31 of the b amends the present provsons reatng to a gan on the
sae of a ta payer s prncpa resdence. stng aw provdes that when a
persona resdence s sod at a gan the dfference between ts ad|usted bass and
the amount receved for ts sae s ta abe as a capta gan.
The b provdes that when the sae of the ta payer s, prncpa resdence s
foowed wthn a perod of 1 year by the purchase of a substtute, or when
the substtute s purchased wthn a year pror to the sae of the ta payer s
prncpa resdence, gan s to be recognzed ony to the e tent that the seng
prce of the od resdence e ceeds the cost of the new one. Thus, f a dweng
purchased n 1010 for 10,000 s sod n 10 1 for 1 ,000, there woud ordnary
be a ta abe gan of 3,000 under e stng aw. Under the b no porton of
the gan s to be ta abe provded a substtute prncpa resdence s pur-
chased by the ta payer wthn the stated perod of tme for a prce of 1 ,000
or more. If the repacement cost s ess than 1 ,000, say 1 ,000, the amount
ta abe as gan s to be 1,000.
The provson appes to cases where one resdence s e changed for another,
where a repacement resdence s constructed by the ta payer rather than
purchased, and where the repacement s a resdence whch had to be recon-
structed n order to permt ts occupancy by the ta payer. The b provdes
that n the case of the constructon of a new house the new house must be
used as the ta payer s prncpa resdence wthn 1 months after the sae of
the od house. In other cases the new house must be used as the prncpa
resdence wthn a year after the sae of the former resdence.
In cases where the repacement s but or reconstructed, ony so much of
the cost s to be counted as an offset aganst the seng prce of the od
resdence as s propery chargeabe nganst capta account wthn a perod
begnnng 1 year pror to the date of the sae of the od resdence, and endng
1 months after such date n the case of constructon of a new house, or 12
months after such date n the case of reconstructon of an e stng house.
Ths speca treatment s not mted to the nvountary converson type of
case, where the ta payer s forced to se hs home because the pace of hs
empoyment s changed.
The ad|usted bass of the new resdence s to be reduced by the amount of
gan not recognzed upon the sae of the od resdence. Thus, f the repacement
s purchased for 19,000, the od resdence cost 10,000 and was sod for 1 ,000,
the ad|usted bass of the new resdence s to be 19,000 mnus ,000, or 1 ,000.
Ths s equa to the cost of the od resdence pus the addtona funds nvested
at the tme the new resdence s purchased. If the second resdence had been
purchased for 1 ,000, so that 1,000 gan on the sae of the od resdence
woud be recognzed, ts bass woud be 1 ,000 mnus ,000, or 10,000.
For the purpose of quafyng a gan as a ong-term capta gan the hodng
perod of the resdence acqured as a repacement n a set of transactons
whch quafy under the terms of the amendment s to be the combned perod
of ownershp of the successve prncpa resdences of the ta payer.
The new provson e tends to cases n whch smar treatment s avaabe
under e stng aw under the nvountary-converson provsons of secton 112(f).
Such cases arse when a home s destroyed by fre or s ost by sezure or by the
e ercse of the powers of requston or condemnaton and the proceeds are
nvested n a repacement. In such cases the new provson, and not secton
112(f), s to appy. The atter requres the tracng of the e pendture of the
funds obtaned as a resut of the oss of the prevous resdence. so, no reef
s avaabe under secton 112(f) n cases where the repacement s acqured
before the actua condemnaton or requston of the prevous resdence.
The ta payer s not requred to have actuay been occupyng hs od resdence
on the date of ts sae. Reef s to be avaabe even though the ta payer
moved nto hs new resdence and rented the od one temporary before ts
sae. Smary, he may obtan reef even though he rents out hs new res-
dence temporary before occupyng t, f he occupes It wthn 1 year or 1
months, as the case may be, after the sae of hs former resdence.
The speca treatment s to be avaabe ony wth respect to one sae or
e change per year, e cept when the ta payer s new resdence s nvountary
converted, n whch case he s to be treated as though a year had eapsed
snce the tme of the prevous sae of an od resdence.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
310
The ownershp of stock n a cooperatve apartment corporaton Is to be treated
as the equvaent of ownershp of a resdence, provded the purchaser or seer
of such stock uses the apartment whch t enttes hm to occupy as hs prncpa
resdence.
Reguatons are to be ssued under whch the ta payer and hs spouse actng
sngy or |onty may obtan the benefts of the b even though the spouse
who sod the od resdence was not the same as the one who purchased the
new one, or the rghts of the spouses n the new resdence are not dstrbuted
n the same manner as ther rghts n the od resdence. These reguatons are
to appy ony f the spouses consent to ther appcaton and both od and new
resdence are used by the ta payer and hs spouse as ther prncpa resdence.
Where the ta payer s resdence s part of a property aso used for busness
purposes, as n the case of an apartment over a store budng or a home on
a farm, and the entre property s sod, the provson appes ony to that part
of the property used as a resdence, ncudng the envrons and outbudngs
reatng to the dweng but not those reatng to the busness operatons.
These provsons appy to a traer or houseboat If t s actuay used as
the ta payer s prncpa resdence.
In cases where there s an unreported ta abe gan on the sae of the ta -
payer s resdence, ether because he dd not carry out hs ntenton to buy a
new resdence or because some of the technca requrements were not met,
the perod for the assessment of a defcency s e tended to 3 years after the
ta payer has notfed the Commssoner ether that he has purchased a new
resdence, or that he has not acqured or does not ntend to acqure a new
resdence wthn the prescrbed perod of tme.
The benefts of the b w appy to the sae of a ta payer s prncpa resdence
made after December 31, 19 0.
17. Percentage depeton (secton 319).
Under e stng aw depeton based on cost Is avaabe to a mnng ndustres
and n addton percentage depeton s avaabe to o, gas, sufur, meta
mnes, and certan nonmetac mnerns. The aowabe rate of percentage
depeton s percent n the case of coa, and 1 percent In the case of the other
nonmetac mneras e cept sufur whch s aowed 23 percent.
Secton 319 of the b sets up a new group of mneras to whch percentage
depeton s avaabe at the rate of percent. Ths rate s e tended to the
foowng substances none of whch are presenty entted to percentage depe-
ton: sand, grave, sate, stone (ncudng pumce and scora), brck and te
cay, shae, oyster she, cam she, grante, marbe, sodum chorde, and, f
from brne wes, cacum chorde, magnesum chorde, and bromne.
Coa s ncreased from ts present percent rate to 10 percent.
The b adds a 10 percent rate for woastonte, asbestos, cacum carbonates
other than marbe and oyster and cam she, perre, and the magnesum com-
pounds doomte, bructe, and magneste or magnesum carbonate.
The b adds to the st of nonmetac mneras for whch percentage depe-
ton s avaabe at a 1 percent rate the foowng substances not now recevng
percentage depeton: bora , fuer s earth, trno, refractory and fre cay,
qunrtzte, apte, garnet, datomaeeous earth, and metaurgca and chemca
grade mestones.
The b makes a technca revson n the 1 percent depeton provsons of
present aw. The atter ncudes at the 1 percent rate tbenardte (from
brnes or m tures of brne). The b emnates the parenthetca mtaton.
The amendments made by ths secton of the b appy to ta abe years
begnnng after December 31, 19 0.
IS. Redempton of stock to pay death ta es (secton S20).
The Revenue ct of 19 0 amended secton 11 (g) of the Code to provde that
the redempton of stock n a decedent s estate n an amount not n e cess of
the estate, nhertance, and successon ta es (ncudng nterest) on the estate
s, n certan cases, not to be treated as a ta abe dvdend. mong other
requrements, ths provson s mted at present to cases where the vaue of
the stock n the corporaton comprses more than 0 percent of the vaue of the
net estate of the decedent.
Secton 320 of the b makes the benefts of secton 11 (g) appcabe to cases
where the stock comprses more than 3 percent of the vaue of the decedent s
gross estate.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
311
Msc.
Ths amendment w be appcabe ony to amounts dstrbuted on or after
the date of enactment of the b.
10. Indvduas earnng ncome abroad (secton 321).
Secton 116(a) of the Code e empts from ncome ta ctzens of the Unted
States who are bona fde resdents of a foregn country wth respect to ncome
earned outsde the Unted States, and dsaows deductons chargeabe aganst
ths ncome.
The e cuson s aowed ony wth respect to nn entre ta abe year wth
respect to whch the ndvdua s a bona fde resdent of the foregn country.
Thus, e empton s dened an ndvdua n hs frst year abroad uness he
becomes a bona fde resdent of the foregn country as of anuary 1. Secton
321 of the b changes ths by grantng an addtona e cuson wth respect to
an unnterrupted perod whch ncudes an entre ta abe year- wth respect
to whch an ndvdua was a bona fde resdent of a foregn country.
In addton, the term bona fde resdent abroad has been construed qute
strcty wth the resut that many persons who have gone abroad to work even
for a reatvey ong perod of tme have been unabe to meet the test of a
bona fde resdent of a foregn country. The b adds a paragraph to secton
116(a) of the Code provdng that Income earned abroad by a ctzen of the
Unted States who Is present n a foregn country or countres for 17 out of 1
consecutve months s to be e cuded from ncome, and that deductons charge-
abe to such ncome s to be dsaowed n computng hs Federa ncome ta .
These two changes made by the b are effectve wth respect to ta abe years
begnnng after December 31,19 0.
The b aso amends secton 1621(a) ( ) ( ) of the Code to provde that there
s to be no wthhodng by the Unted States where t s reasonabe to beeve
that the ncome s pad to a person who w quafy for the e cuson on the
bass of presence n a foregn country for 17 out of 1 consecutve months or
on the bass of bona fde foregn resdence. In addton, t provdes that there
s to be no wthhodng of ncome ta es for the Unted States upon an amount
earned for servces performed n foregn country f wthhodng on that amount
s requred for a foregn country. These changes n the b are effectve as of
anuary 1, 19 2, wth respect to wages pad on or after that date.
SO. Offset of short- and ong-term capta gans and osses (secton S22).
Secton 322 of the b amends the treatment of the capta gans and osses
of ndvduas provded by e stng aw. Present aw e cudes 0 percent of a
ong-term capta gan or oss from the computaton |ot net capta gan, net
capta oss and net ncome, but ncudes 100 percent of a short-term capta oss
n such computatons. s a resut a 1 short-term oss can wpe out a 2
ong-term gan.
Under the b, ong-term gans are ncuded n gross ncome at 100 percent
and a deducton from gross ncome s aowed equa to 0 percent of the amount
by whch the ta payer s net ong-term gan e ceeds hs net short-term oss.
Thus, f a ta payer has a net ong term gan of 1,000 and a net short-term
oss of ke amount, no deducton s to be aowabe. If the net ong-term gan
s 2,000 an the net short-term oss s 1,000, the deducton aganst gross
ncome w be 0 percent of the e cess of 2,000 over 1,000, or 00. ence the
amount actuay ta ed as a ong-term capta gan w be 00. Under e stng
aw the 1,000 of short-term oss offsets the porton of the ong-term gan ncuded
In the cacuaton of net ncome, and no ta abty e sts.
Long-term osses, ke ong-term gans, are to be taken nto account n fu.
Long-term osses w therefore offset short-term gans on a doar-for-doar
bass, |ust as short-term osses w offset ong-term gans. If the net ong-term
oss e ceeds the net short-term gan, the unreduced e cess w be offset aganst
other ncome up to 1,000. The net oss whch s not absorbed n ths manner
w be carred forward as a short-term capta oss, whether arsng out of
short- or ong-term operatons.
The amendment appes ony to ta abe years begnnng on or after the date
of enactment of ths ct.
21. Saes of and wth unharvested crops (secton 323).
Secton 117(|) of the Code provdes, n effect, that a net gan from saes
(ncudng e changes and nvountary conversons) of propertes used n the
trade or busness of the ta payer, ncudng rea property so used, f hed
more than C months s to be treated as a capta gan. In the case of a net
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
312
oss. It s treated as an ordnary oss. Where unharvested crops are sod wth
the and, or unrpe frut s sod together wth the and and the trees, queston has
arsen as to the proper appcaton of the present aw to the unharvested crops
or the unrpe frut.
Secton 323 of the b adopts the prncpe that saes (ncudng e changes
and nvountary conversons) of and, together wth growng crops, are not such
transactons as occur n the ordnary course of busness and provdes that the
gan from the sae of the crop n such cases s to be treated as a capta pan
rather than ordnary ncome, whe a oss from such a sae s to be treated as
an ordnary oss. Ths s accompshed by appyng secton 117(|) n the case
of these saes. owever, the b provdes that no deducton sha be aowed
whch s attrbutabe to the producton of such crops or frut, but that the
deductons so dsaowed sha be ncuded n the bass of the property for the
purpose of computng the gan or oss from the sae.
The provsons of ths secton are appcabe to saes or other dspostons
occurrng n ta abe years begnnng after December 31, 19 0, e cept that
deductons n years begnnng pror to anuary 1, 19 1, w be dsaowed If they
reate to saes or other dspostons made n ta abe years begnnng nfter
that date.
22. Gans from saes of vestock (secton 32-).
Secton 117( ) of the Code provdes, n effect, that a net gan from saes (n-
cudng e changes and Invountary conversons) of property used n the trade
or busness of a ta payer and hed for more than 0 months s to be treated
as a capta gan. In the case of a oss, t s to be treated as an ordnary oss.
owever, secton 117(|) states that ths treatment s not to appy to property
of a knd whch woud be propery ncudbe n the nventory of the ta payer
f on hand at the cose of the ta abe year, or property hed by the ta payer
prmary for sae to customers n the ordnary course of hs trade or busness.
In the case of farmers there has been consderabe doubt as to whether a ve-
stock hed for draft, dary, or breedng purposes s property used n the trade
or busness, or whether n some cases the vestock shoud be deemed hed
prmary for sae to customers n the ordnary course of hs trade or busness.
Secton 32 of the b amends secton 117(|)() to provde that the term
property used n the trade or busness ncudes vestock, regardess of age,
hed by the ta payer for draft, breedng, or dary purposes, and hed by hm
for 12 months or more from the date of acquston. Under the b, the term
vestock does not ncude poutry. Thus secton 117 (|) w appy to vestock
used for draft, breedng, or dary purposes, whether od or young; and the
hodng perod w start wth the date of acquston, not wth the date the
anma s put to such use.
The b makes the amendment appcabe wth respect to ta abe years be-
gnnng after December 31, 19 1, e cept that the e tenson of the hodng perod
from 6 to 12 months appes ony n the case of ta abe years begnnng after
December 31, 1900.
S3. Coa royates (secton 32 ).
Secton 32 of the b e tends to the recpents of coa royates the capta
gans treatment now avaabe to tmber under secton 117(k)(2) of the Code.
Percentage depeton Is not to be avaabe n the case of these coa royates. It
s provded that the essor s hodng perod s to run to the tme the coa s mned.
The b provdes that these provsons sha be nappcabe to ncome reazed
by the owner as a coadventurer, partner, or prncpa n the mnng of such coa.
It s aso made cear that the term coa ncudes gnte.
ecause treatment of coa royates as capta gans w automatcay e cude
such ncome from ncome sub|ect to e cess profts ta , the b provdes conform-
ng amendments to the e cess profts ta aw. Where the ta payer corporaton
computes ts e cess profts credt by the ncome method, these royates are
to be e cuded from the ta payer s base perod ncome. Smary, for the pur-
poses of computng the nvested capta credt and computng capta changes,
the essor s nterest n the coa property from whch the royates are derved
s to be treated as an nadmssbe asset.
It s aso provded that n the case of the speca surta es for persona hod-
ng companes (secton 00 of the Code) and the speca surta es for corpora-
tons mpropery accumuatng surpus (secton 102 of the Code), coa royates
are to contnue to be treated as under present aw and not as capta gans.
Secton 323 appes to ta abe years endng after December 31, 19 0, but ony
wth respect to amounts receved or accrued after that date.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
313
Msc.
S. Coapsbe corporatons (secton 336).
Secton 32( of the b amends secton (m) of the Code, whch denes
capta-gans treatment to the sae, e change, or retrement of stock n a co-
apsbe corporaton. It e tends the appcaton of ths secton to cases where
the corporaton s used to convert nventory profts nto capta gans. Secton
117(m) was added to the Code by the Revenue ct of 10 0. The reports on
the b whch became the Revenue ct of 19 0 ustrated the ntent of the
provson by the case of a corporaton organzed for the producton of a snge
moton pcture. Upon the competon of the fm, but pror to the reazaton
by the corporaton of any ncome therefrom, the corporaton woud be qudated
and ts assets dstrbuted. No tn woud be pad by the corporaton because
t had reazed no ncome. ach former sharehoder woud pay a ta upon
the dfference between the cost of hs stock and the far market vaue of hs
porton of the far market vaue of the moton pcture and any other assets so
dstrbuted. Pror to the Revenue ct of 10 0 ths gan mght have been ta ed
as a ons-term capta gan wth a ma mum effectve rate of 2 percent;
under the aw as amended by that ct the gan s now ta ed as ordnary ncome.
Secton 117(n) was drafted so as to appy ony when a corporaton was formed
or avaed of prncpay for the manufacture, constructon, or producton of
property.
Secton 321 of ths b e tends the appcaton of secton 117(m) to corpora-
tons formed or avaed of prncpay for the purchase of property whch s n-
ventory or stock n trade n the hands of the corporaton. Thus t prevents the
use of coapsbe corporatons as a means of convertng nto capta gans the
profts on nventory and stock n trade. The procedure used s to transfer a
commodty to a new or dormant corporaton, the stock of whch s then sod to
the prospectve purchaser of the commodty who thereupon qudates the cor-
poraton. In ths manner the accreton n the vaue of the commodty, whch
n most of the actua cases has been whsky, s converted nto a gan reazed
on the sae of stock of a corporaton, thns gvng rse to the possbty that t
mght be ta ed as a ong-term capta gan.
Ths amendment appes wth respect to ta abe years endng after ugust
31, 19 1, but w ony appy to gans reazed after that date. The determna-
ton of the ta treatment of gans reazed n ta abe years begnnng pror to
September 1, 10 1, w be made as f ths secton bad not been enacted and
wthout nferences drawn from the fact that the amendment made n ths b
s not specfcay retroactve and wthout nferences drawn from the mtatons
contaned n secton 117(m) as amended by secton 320 of the b.
2 . Deaers n securtes (secton 327).
Under e stng aw, deaers n securtes are permtted to hod some securtes
as a persona nvestment. Gans or osses on those securtes whch are hed
by the ta payer n hs capacty as a deaer are treated as ordnary ncome.
Capta gan or oss treatment s accorded the resuts of the sae of securtes
whch the ta payer hods as an nvestor. stng aw aso permts the transfer
of securtes from such a ta payer s nvestment account to hs nventory account
and vce versa wth correspondng changes n ta abtes.
Secton 327 of the b provdes that n the case of a deaer In securtes capta
gans treatment s to be avaabe ony under certan specfc condtons. The
securty n queston must have been ceary dentfed n the deaer s records
as a securty hed for nvestment wthn a perod of 30 days after the date of
ts acquston or after the date of enactment of the Revenue ct of 19 1,
whchever s ater, and must not at any tme thereafter have been hed by the
ta payer prmary for sae to customers n the ordnary course of hs trade
or busness. Uness these terms are comped wth, the gan on the sae of
the securty s to be ta ed as ordnary ncome.
Ordnary oss treatment s not to appy where the securty sod was, at any
tme after ths secton becomes appcabe, ceary dentfed n the deaer s
records as a securty hed for nvestment.
Ths amendment w not affect the appcaton of secton 117(1) of the Code
whch provdes, n the case of banks, that, f osses from the sae of a securtes
durng a year e ceed the gans, then the net oss sha be treated as an ordnary
oss.
The amendment appes to saes or e changes made more than 30 days after the
date of enactment of ths ct.
0S 0 T 2 21
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
31
26. Sae of property between spouses and between an ndvdua and a controed
corporaton (secton S2 ).
Secton 32 of the b denes ta benefts avaabe under e stng aw n cer-
tan cases where deprecabe assets are sod by a ta payer to hs spouse or to
a corporaton controed by hm. The foowng s an e ampe of the ta bene-
fts n the case of the sae of deprecabe property by a ta payer to a controed
corporaton: ssume that a ta payer owns and operates a corporaton engaged
n reta trade, that he aso owns as an ndvdua the budng used by ths
corporaton and that the current vaue of the bu Ing s we n e cess of ts
ad|usted bass. If the budng s sod to the corporaton, a capta-gans ta
w ordnary be pad, but the budng then has. n the hands of the corporaton,
an ad|usted bass whch s greater than the bass n the hands of the ndvdua
sharehoder by the amount of the gan reazed on the sae to the corporaton.
The property beng deprecabe the corporaton w then be abe to wrte off
the ncrease n the ad|usted bass over the remanng fe of the budng. The
resutng addtona deprecaton charges are an offset to ordnary Income.
Thus, n effect, the mmedate payment of a capta-gans ta has been subst-
tuted for the emnaton, over a perod of years, of the corporate ncome ta es
on an equvaent amount. The dfferenta between the capta-gans rate and
the ordnary rates makes such a substtuton advantageous when the sae may
be carred out wthout oss of contro over the asset because the corporaton
to whch the asset s sod s controed by the ndvdua who made the sae.
smar advantage s possbe where such a sae s made between husband
and wfe.
Secton 32 of ths b emnates the ta advantage from such transactons
by denyng capta-sans treatment to the transferer wth respect to saes or
e changes of deprecabe p operty between a husband and wfe, or between an
ndvdua and a corporaton more than 0 percent of the outstandng stock of
whch s owned by the ndvdua, hs spouse and hs mnor chdren or mnor
grandchdren.
Ths provson s appcabe to ta abe years endng after pr 30, 19 1, but
ony wth respect to saes or e changes made after May 3,19 1.
27. Termnaton payments to empoyees (secton 329).
Some empoyment contracts provde for payments to the empoyee, after the
empoyment perod, based on a share of future profts or a percentage of future
gross recepts. Such payments when receved are ta ed under present aw as
ordnary ncome, snce they are hed to be n the nature of payments of addtona
compensaton. owever, f the empoyee chooses to receve a ump-sum payment
n eu of the contract rghts upon termnaton of hs empoyment, the entre
ump sum s ncuded n one year s ncome.
Secton 329 of the b provdes, wth certan restrctons, for capta-gan
treatment of amounts receved by an empoyee, upon termnaton of hs empoy-
ment, n e change for hs reease of a of hs rghts to receve a percentage of
future profts or recepts. Ths provson s mted to cases where the ta payer
has been empoyed for more than 20 years, has hed such rghts to future profts
for at east 12 years durng hs term of empoyment and has the rght to receve
a percentage of future profts for fe or for a perod of years or more after
the termnaton of hs empoyment. It s not necessary that the contract specfy
that the payments be for fe or for more than years. It s ony necessary that
the effect of the contract s to gve the ta payer the report to sc such future
profts for fe or for a perod of more than years.
Ths provson s effectve wth respect to ta abe years begnnng after
December 31, 19 0.
2 . Net operatng oss deductons (secton 330).
The Revenue ct of 19 0 provded that the net operatng oss for a year may
be carred back to offset ncome of the precedng year and may be carred forward
to offset ncome of the fve succeedng years. Ths provson was made effectve
for osses n 19 0 and ater years. Losses n years pror to 19 0 under present
aw may be carred back 2 years and carred forward 2 years. The effect of
the change n the 19 0 ct was to permt osses n 19 0 and subsequent years to
be apped to offset possbe ncome n s other years, whereas osses n 19 9
and earer years coud be apped to offset possbe ncome n four other years.
Secton 330 of the b permts net operatng osses n 19 and 19 9 to be car-
red forward 3 years. The effect of ths change s to permt osses n these 3 years
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
31
Msc.
to be apped to offset ncome In fve other yours two pror years nnd three subse-
quent years.
Secton 330 appes ony to ta abe years begnnng after December 31, 19 7,
and before anuary 1, 19 0. Thus a ta payer wth a fsca year endng Novem-
ber 30, 19 S, woud not be entted to the benefts of ths secton for s net operatng
oss ncurred n such fsca year. In the case of a fsca year endng November 30,
the 2 years of operatng osses to whch the secton w appy are the fsca years
endng November 30, 19 9, and November 30, 19 0. The reef s e tended to
both ndvduas and corporatons. In the case of a corporaton commencng
busness after December 31, 19 , a 3-year carry-over s aso aowed for a ta abe
year begnnng after December 31,19 0, and before anuary 1, 19 S.
29. Restrcted stock optons (secton 331).
The Revenue ct of 19 0 added a new secton 130 to the Code, whch provdes
that the grantng to empoyees of certan types of stock optons s not to gve rse
to ta abe ncome to the recpent. To be e cuded under ths provson the opton
must fa wthn a defned category of restrcted sock optons.
Secton 130 requres that to quafy as a restrcted stock opton the opton
prce at the tme of the grantng must be percent or more of the far market
vaue of the stock. In many cases, the grantng of stock optons s sub|ect to
ratfcaton by the corporaton s stockhoders. Thus, at the tme of the acton by
a corporaton s board of drectors the opton may be fuy quafed as to the per-
cent mtaton, hut because- of the deays ncdent to acton by a corporaton s
sharehoders, the far market prce may have so changed by the tme of ther rat-
fcaton that the opton no onger quafes under the statute.
Secton 331 of the b provdes that the date of the grantng of a restrcted
stock opton whch s sub|ect to stockhoder ratfcaton sha, f approved by the
stockhoders, be deemed to have been granted as of the date of acton by the
board of drectors.
Ths amendment s to be effectve as f t had been enacted as part of the stock
opton provson of the Revenue ct of 19 0.
SO. Foregn ta credt for ta es pad by a foregn corporaton (secton 332).
stng aw permts a domestc corporaton, ownng the ma|orty of the votng
stock of a foregn corporaton, to cam a foregn ta credt for ncome ta es pad
by the foregn corporaton to a foregn government wth respect to the proporton
of ts profts whch are pad as dvdends to the domestc corporaton. Secton 332
of the b amends secton 131(f)(1) of the Code to provde that the foregn
ta credt s to be aowed f the mercan corporaton owns 10 percent or more of
the votng stock of the foregn corporaton.
Ths provson s effectve wth respect to dvdends receved durng ta abe
years begnnng after December 31,19 0..
Under present aw f a foregn subsdary of an mercan corporaton owns
a of the votng stock of another foregn corporaton, the dvdends receved by
the mercan parent wth respect to the earnngs of the second subsdary are
egbe for a foregn ta credt, assumng the frst subsdary meets the tests pre-
vousy dscussed. Secton 332 of the b e tends the foregn ta credt to appy
In the case of dvdends receved by an mercan parent corporaton from a for-
egn corporaton (f hodng 10 percent of the stock of ths corporaton) out of
earnngs whch that foregn corporaton has n turn receved from another for-
egn corporaton n whch t owns 0 percent or more of the votng stock.
Ths provson s effectve wth respect to dvdends receved by a foregn cor-
poraton from another foregn corporaton durng ta abe years begnnng after
December 31, 19 0.
31. Informaton at source on payments of nterest (secton 333).
Under present aw the furnshng of nformaton at the source s requred on
a payments of nterest of . 000 or more. Secton 333 of the b removes ths
600 requrement wth respect to nterest and gves the Secretary of the Treasury
the dscreton to requre nformaton returns on nterest payments of any amount.
No change s made n the provsons of present aw whch authorze that payments
of dvdends n any amount be reported at the dscreton of the Secretary.
32. batement of ncome ta es for certan members of the rmed Forces dyng
n combat zones or as a resut of n|ures receved n such zones (secton
S3).
Indvduas dyng whe n actve servce durng Word War II as members of
the mtary or nava forces of the Unted States or other Unted Natons were
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
316
forgven ther ncome ta wth respect to the year of death and the pror yenr.
They aso were reeved of unpad ncome ta es at the tme of ther death.
Secton 33 of the b provdes smar treatment for members of the rmed
Forces of the Unted States dyng whe servng n combat zones or whe hosp-
tazed as a resut of wounds, dsease, or n|ures ncurred whe servng n com-
bat zones.
The b provdes for the forgvng of ncome ta for the year of death of sucn
Indvduas and for pror ta abe years endng after the commencement of hos-
ttes n orea. so, such ndvduas are reeved of any ncome ta es (n-
cudng nterest and addtons to ta ) for any other year whch were unpad nt
the date of ther death. The provson s effectve wth respect to ndvduas
dyng after une 2 ,19 0, and pror to anuary 1,19 .
SS. Stock dstrbutons of proft-sharng pans (secton 33 ).
Secton 10 (b) of the Code provdes for the ta aton of dstrbutons to em-
poyees from e empt penson and proft-sharng funds. s a rue both the em-
poyee and the empoyer contrbute to such funds. The amounts so contrbuted
are then nvested, frequenty n the stock of the empoyer company. If the tota
dstrbutons payabe wth respect to any empoyee are pad to hm wthn one
ta abe year on account of hs separaton from servce, the empoyee s ta abe
at capta gan rates upon the e cess of the tota dstrbutons over the tota
of amounts contrbuted by hm. The vaue of the dstrbuton for ta purposes
under present aw s the sum of the cash receved and the market prce of any
stock or other securtes at the tme of dstrbuton.
Secton 33 of the b provdes that n the case of such dstrbutons consstng
of stock n the empoyer corporaton the apprecaton n the vaue of the stock
whch occurred snce the stock was deposted n the fund s not to be sub|ect
to capta-gan ta unt the empoyee ses the stock, rather than at the tme
t s dstrbuted to hm as under present aw. Ths amendment made no
change n the present ta treatment of that porton of the vaue of such stock
whch does not represent apprecaton n vaue.
Ths amendment appes to dstrbutons made after December 31, 19 0.
3. . Lfe nsurance companes (secton 3SG).
In secton 01 of the Revenue ct of 19 0, the formua used for computng
the net ncome of fe nsurance companes was amended, the acton beng effec-
tve ony for 10 9 and 19 0. Under ths stopgap formua, as used for 19 9 and
19 0, the ta abe ncome of each fe nsurance company reatng to ts fe
nsurance busness s determned by deductng from ts net nvestment ncome
a percentage of that ncome. To that amount s added 3 percent of the
unearned premums and unpad osses resutng from any accdent and heath
busness. pproprate ad|ustments are made wth respect to e empt nterest
and the credt for dvdends receved. The norma ta s obtaned by appyng
the ordnary corporaton norma ta rate to that entre amount, and the surta
s obtaned by appyng the ordnary surta rate to that porton n e cess of
2 ,000. The percentage to be deducted n arrvng at the ta abe ncome s the
same for n fe nsurance companes, and s determned and procamed for each
year by the Secretary of the Treasury, by comparng the aggregate amount needed
n the prevous year by a fe nsurance companes to meet ther fe nsurance
pocy obgatons, and any other nterest on ndebtedness, wth the aggregate net
nvestment ncome of a fe nsurance companes ess 3 percent of the un-
earned premums and unpad osses of those companes whch had heath and
accdent nsurance. For 19 0 ths percentage, based on 19 9 data, was sghty
more than 90 percent; for 19 1, based on 19 0 data, t woud probaby be between
7 and S percent.
Secton 330 of the b substtutes a dfferent formua for the ta aton of
fe nsurance companes n 19 1. Under t the ncome ta s n genera to be
3 percent of so much of the net nvestment ncome of each company as s not
n e cess of 200,000, and 0 percent of the amount over 200,000. It w be
noted that 3 percent of 200,000 s appro matey the same as 27 percent of
2 ,000; and that G percent of net nvestment ncome s appro matey the
same as 2 percent of 12 to 13 percent (100 percent ess or 7 percent) of the
entre net ncome. For those companes wth accdent and heath nsurance an
approprate ad|ustment s made so that the ta computed at the 3 and 6 .
percent rates s appro matey the same as a ta at the ordnary 27 and r 2
percent rates on the ncome (determned as before) from that part of ther
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
317
M.se.
busness. s under the present stopgap formua, approprate ad|ustments are
made for e empt nterest and the credt for dvdends receved.
It s e pected that n 19 1 a number of companes, mosty sma, w not
earn ther nterest requrements, or w earn an amount ony sghty n e cess
of ther requrements. Under the stopgap formua these companes woud have
pad ordnary corporaton norma ta es and surta es on the same percentage of
ther net nvestment ncomes as the other companes whose net nvestment ncome
materay e ceeded ther pocy requrements. Under the b a measure of
reef s accorded such companes: those wth not nvestment ncomes whch
are ess than ther pocy requrements w, n genera, pay a ta at 3 or
6 percent on ony 00 percent of ther net nvestment ncomes, whe those wth
net nvestment ncomes of from 100 to 10 percent of ther pocy requrements
w pay a ta at the rate of 3 or C , percent on amounts varyng from 0 to
100 percent of ther net nvestment ncomes. Wth respect to companes whch
aso do an accdent and heath nsurance busness, n determnng whether or
not ther net nvestment ncome s ess than that requred to meet ther fe-
nsurance-pocy requrements, or not more than 10 percent of that amount,
the tota net nvestment ncome s reduced by one-haf of 3 / percent of ther
unearned premums and unpad osses on the accdent and heath poces.
The appcaton of the new formua s mted to ta abe years begnnng n
19 1.
So. enture capta companes (secton 337).
Secton 337 of the b w permt certan so-cafd venture capta companes
to quafy as reguated nvestment companes. Under Suppement of the
Code, reguated nvestment companes whch dstrbute currenty at east 90
percent of ther ncome, and meet certan other tests set out n secton 361(b)
of the Code, are not ta ed upon amounts dstrbuted to sharehoders. One of
these tests s that the company must not nvest more than 0 percent of ts
assets n companes n whch t hods more than 10 percent: of the vaue of the
votng securtes. Ths rue has the effect of denyng speca treatment to
companes whch undertake to contro the enterprses n whch the buk of ther
funds are paced. It ceary e cudes a hodng company n the ordnary sense
of the word.
Secton 337 of the b amends secton 301 of the Code to permt venture capta
companes to quafy as reguated nvestment companes. Ths s accompshed
by wavng, under certan condtons, the 10 percent mtaton as to certan types
of hodngs. To quafy for ths e cepton the nvestment company must obtan
a certfcaton from the Securtes and change Commsson whch states thnt
the nvestment company s a regstered management nvestment company as de-
fned n the Investment Company ct of 0 and that ts prncpa busness s the
furnshng of capta to companes prncpay engaged n the deveopment or
e potaton of nventons, technoogca mprovements, new processes or prod-
ucts not prevousy generay avaabe. Ths certfcaton w be made under
reguatons to be Issued by the Securtes and change Commsson.
The b nso provdes that the 10 percent rue sha not be waved n the
case of an nvestment company whch has more than 2 percent of ts funds
nvested n companes, n whch t has an nterest of more than 10 percent and
the securtes of whch t has hed for more than 10 years.
the other mtatons on reguated nvestment companes now mposed
under Suppement are retnned.
Secton 337 s effectve wth respect to ta abe years begnnng after December
31, 19 0.
36. changes and dstrbutons under S C orders (secton 33 ).
Suppement R of chapter 1 of the Code provdes, n genera, that gan sha
not be recognzed to a corporaton transferrng property to another corporaton
whch s a member of the same system group f the transfer s under order of
the Securtes and change Commsson. system group s there defned
as a chan of corporatons connected wth a common parent through 90 percent
ownershp of each cass of stock other than stock preferred both as to dvdends
and assets.
Secton 33 of the h amends suppement R to provde that, n addton to
the present defnton of a system group, corporatons be permtted to quafy
as a system group f the parent owns 90 percent of each cass of stock other
than preferred stock and other than stock whch s preferred as to dvdends
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
31
but cot as to assets If the vaue of such stock Is ess than 1 percent of the
aggregate vaue of a casses of nonpreferred stock.
Ths amendment s effectve wth respect to ta abe years affected by an
e change or dstrbuton made after December 31, 19 7.
37. Famy partnershps (secton SO).
Secton 3 0 of the b oeas wth the ta treatment of the so-caed famy
partnershp. It adds to the defnton of partner n secton 3797(a) of the
Code a new sentence provdng that for Federa ncome ta purposes a person
s to be recognzed as a partner f he owns a capta nterest n a partnershp
n whch capta s a matera ncome producng factor, whether or not ths
capta nterest was acqured by purchase or gft from any other person. Thus
a gft of a famy partnershp nterest s to be respected regardess of the
motves whch actuated the transfer. The amendment eaves the Commssoner
and the courts free to nqure n any case whether the donee or purchaser
actuay owns the nterest n the partnershp whch the transferor purports to
have gven or sod hm.
The provson aso adds a new secton 191 to the Code, deang wth the
aocaton of partnershp ncome for ncome ta purposes. Ths provdes that
n the case of any partnershp nterest created by gft the aocaton of ncome,
accordng to the terms of the partnershp agreement, s to be controng for
ncome ta purposes e cept when the shares are aocated wthout proper
aowance of reasonabe compensaton for servces rendered to the partnershp
by the donor, and e cept to the e tent that the aocaton to the donated capta
s proportonatey greater than that attrbutabe to the donor s capta. In
such cases a reasonabe aowance w be made for the servces rendered by
the partners, and the baance of the ncome w be aocated accordng to the
amount of capta whch the severa partners have nvested. owever, the
dstrbutve share of a partner n the earnngs of the partnershp w not be
dmnshed because of absence due to mtary servce.
When more than one member of a famy s a member of a partnershp, a
nterests purchased by one member of the famy from another w be treated
as though the transfer were made by gft. For ths purpose the famy of an
ndvdua ncudes hs spouse, ancestors, nea descendants, and any trust for
the prmary beneft of such persons.
The amendment made by the b s appcabe to ta abe years begnnng
after December 31, 19 0, wth the e press ntenton that no nferences wth
respect to ta abe years begnnng pror to anuary 1, 19 1, are to be drawn
from the enactment of the amendment. If the ta abe year of any famy
partner s dfferent from that of the partnershp the amendment w appy to
a fsca year of the partnershp begnnng n 19 0 f t ends wthn fsca years
of a the famy partners whch begn n 19 1, but t w not appy f t ends
wthn a fsca year of any famy partner whch began n 19 0.
S . War osses (secton S ).
Secton 127 of the Code, n genera, authorzes war oss deductons for proper-
tes n enemy hands when the Unted States entered Word War II In 19 1, for
propertes whch ater came under enemy contro, and for propertes destroyed
or sezed n the course of mtary or nava operatons. Ths deducton s mted
to the ta payer s deprecated cost or other bass of the property. Secton 127
aso provdes that f any of the property was recovered, the far market vaue
of the recovered property, not the amount deducted, s to be ta ed as ordnary
ncome to the e tent that the deducton resuted n a reducton of ta .
Where ony one property s nvoved, f the far market vaue of the recovered
property e ceeds the amount of the deducton, the vaue of the recovered
property Is ncudbe n ncome ony to the e tent that the deducton resuted
n a reducton n ta . Where the war oss embraces more than one property
where war oss deductons have been taken for two or more propertes and ony
one of these propertes s recovered, and f the recovered property has appre-
cated n vaue, the deducton prevousy taken not ony wth respect to ths
property but aso wth respect to the property not recovered s taken nto con-
sderaton n determnng how much of the far market vaue of the property
recovered represents a prevous reducton n ta .
Secton 3 1 of the b amends secton 127 of the Code to provde that, at the
eecton of the ta payer, n the case of war oss recoveres the vaue of the
recovered property w not be ncuded n gross ncome for the year of the
recovery; however, n such cases the ta for the year n whch the deducton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
319
Msc.
was taken (or the ta for another year affected by a carry-over or carry-back)
s to be recomputed by reducng the deducton by the amount of the recovered
property, taken at ts deprecated cost or other bass on the date of the oss or
ts far market vaue on the date of the recovery, whchever the ta payer
chooses, and the ncrease, f any, n the ta so resutng s to be added to the
ta for the year of the recovery.
Cases have aso arsen where war osses have been deductbe but no deducton
was camed. In such cases, f other war osses were deducted wth a ta
beneft, secton 127 of the Code operates to requre the far market vaue of
the property on the date of the recovery to be ncuded n ncome n the year
of the recovery to the e tent not n e cess of the benefca deductons for other
war osses. Under secton 3 1 of the b there woud be no ta n the year of
the recovery wth respect to property for whch no deducton was camed n the
year of the oss, f the ta payer eects the new procedure.
If the ta payer eects to have the new procedure appy to one of severa
recoveres t must be apped to a other recoveres, past or future, even though
a refund or defcency for a pror year woud otherwse be barred. If, as the
resut of ths eecton, the bass of property recovered n any year s changed
the effects of that change n deprecaton, base perod ncome, etc., n subse-
quent years must be refected n changed ta abtes, even though those years
are otherwse cosed.
No nterest s to be pad or assessed on refunds or defcences arsng from
ths provson.
In genera, the eecton to use the new procedure must be made before anuary
1,19 3, e cept that t may be made after December 31,10 2, f there s a recovery
after that date.
Ths provson s appcabe to ta abe years begnnng after December 31,
19 1.
39. Mne e poraton e pendtures (secton S f).
Under present aw, e pendtures for ascertanng the ocaton, e tent, and
quaty of mnera deposts cannot be deducted (uness such e pendtures pro-
duce no usefu resuts, n whch case they can be deducted as n the case of any
other oss), but must be captazed. mounts so captazed can be recovered
for ta purposes ony through depeton aowances. If the depeton aowance
s based upon a percentage of gross ncome from the property, ths deducton
s the same whether a arge or a sma sum was spent for e poraton.
Secton 3 2 of the b provdes that wth respect to e pendtures made to
ascertan the e stence, ocaton, e tent, or quaty of any depost of ore or
other mnera (other than o and gas), pror to the deveopment stage of a
mne, the ta payer (whether e porng for one or more mnes) may eect
to deduct n any ta abe year any amount up to 7 ,000 pad or ncurred n
that year; or he may defer any amount up to 7 ,000 not deducted n the cur-
rent year, and deduct that amount rataby as the mneras dscovered or
e pored as the resut of the e pendture are sod. ny ta payer may treat
such e pendtures made n any years, up to 7 ,000 per year, as deductbe
n ether of these ways; after he has done ths for years, addtona e pend-
tures for e poraton must be captazed as under present aw. mounts
so deducted w be a substtute for cost depeton oascd on such e pendtures,
but the aowances for depeton based upon a percentage of gross proft w not
be affected.
The amendments made by ths secton of the b are to appy to ta abe years
endng after December 30, 19 0.
1,0. Pensons of fe nsurance agents secton S|S).
Under secton 16 of the Code, payments made from an empoyees retrement
fund are ta abe to the recpent as receved. Fu tme fe nsurance agents
have been dened the benefts of ths secton because of a rung that they are
not techncay empoyees for the purposes of the provson. s a resut the
entre ump-sum vaue of the penson n e cess of any amount contrbuted to
the fund by the empoyee s ta abe as ncome of the agent n the year he retres,
when hs rght to hs share of the company s contrbutons becomes nonforfe-
tabe. Secton 3 3 of the b amends secton 3707(a) of the Code to e tend the
benefts of secton 16 to fu tme fe nsurance agents who are empoyees for
soca securty purposes.
Ths amendment s effectve wth respect to ta abe years begnnng nfter
December 31. 193 .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
320
1. Nonbusness casuaty osses (secton 3 ).
Under e stng aw the net operatng oss whch an ndvdua may carrv
backward or forward to offset the ncome of another ta abe year Is mted
to a net oss from the operaton of hs trade or busness; net osses wth respect
to hs nonbusness propertes are not ncuded. Secton 3 of the b provdes
that a osses arsng from fres, foods, storms, and other casuates, or from
theft, may be consdered n computng the net operatng oss, whether or not
the property destroyed or damaged was used n the ndvdua s trade or busness.
The provsons appy to such osses sustaned after December 31, 19 0.
2. batement of ta on certan rrevocabe trusts (secton 3 ).
In the case of a member of the mtary or nava forces of the Unted States
or of one of the other Unted Natons who ded whe n actve servce after
December 6, 19 1, and before anuary 1, 19 , t was provded under pror aw
that any ncome ta for the year of hs death, or any ncome ta for any pror
year whch was unpad at the tme of hs death, shoud be abated. Secton
3 of the b deas wth cases where such ndvduas were not recevng certan
ncome drecty, and so were not abe for ncome ta on that ncome, but were
nevertheess benefcares of trusts whch were accumuatng ncome ntended
to be for ther utmate beneft, or for the beneft of ther estates or cose reatves.
The b provdes that n such a case the trust sha be aowed to deduct ncome
so accumuated f t was earned by the trust durng the tme the benefcary
was n actve servce. The effect s that any ta whch the trust has not yet pad,
or whch, f pad, may st be refunded, on ncome whch was accumuated for
the beneft of the deceased ndvdua durng the perod when he was n actve
servce, w be abated or refunded.
3. Nondstrbutabe ncome of persona hodng companes (secton 3 9).
Under subchapter ( ) of chapter 2 of the Code persona hodng companes
are sub|ect to a speca surta of percent of ther undstrbuted subchapter
( ) net ncome (7 percent on the frst 2,000). Secton 0 provdes for
certan deductons n computng the ncome sub|ect to ths speca persona
hodng company ta , among whch s a deducton for dvdends pad out. Ths
surta s appcabe under present aw even though certan other Federa aws
prevent the dstrbuton of dvdends by the hodng company.
Secton 3 9 of the b provdes, n effect, that a deducton sha be aowed In
computng the undstrbuted subchapter ( ) net ncome for amounts whch can-
not be dstrbuted wthout voatng the Tradng Wth the nemy ct of October
16, 1917, as amended, or the Frst War Powers ct of 19 1, or amounts sub|ect
to en n favor of the Unted States.
Ths amendment s effectve for ta abe years begnnng after December 31,
1939.
. ack ma pay of raroads (secton G).
fter an appcaton for ncreased ma pay made by the raroads n February
1917, the Interstate Commerce Commsson n December 19 7, ordered an Interm
ncrease of 2 percent n mo-pay rates effectve after February 19, 19 7, pendng
further nvestgaton. mounts represented by ths ncrease were reported for
ta purposes by the raroads n the years n whch the servces were rendered.
On December , 19 0, the ICC awarded the raroads 312 mon n back ma
pay for the perod from February 19, 19 7, through December 31, 19 0. Of ths
amount, about 160 mon represented the 2 percent Increase prevousy granted
on a temporary bass wth respect to the servces rendered In the perod 19 7- 0,
nnd about 1 mon represented an addtona ncrease wth respect to those
same servces.
Secton ( of the b provdes that the addtona payments authorzed by the
December , 19 0, order are to be ncuded n ncome for the years n whch the
raroads rendered the servces for whch the addtona payments were made.
It Is specfcay provded that no nterest sha be due wth respect to any
perod pror to uy 1, 19 1, for defcences resutng from the ncuson of the
addtona payments n the back years.
The same secton of the b aso provdes that, f any retroactve award of
ar ma pay to a ta payer s requred to be ncuded In the ta payer s ncome
for the year or years n whch the ma was carred, no nterest sha be due,
wth respect to ony perod pror to 30 days after the award Is granted, for ta
defcences resutng from the retroactve ncuson of the ma pay.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
321
Msc.
. Preferred stock of pubc uttes (secton 612).
Secton 012 of the b amends secton 1 (a) of the Code whch permts pubc
uttes furnshng teephone servce, eectrca energy, gas, or water to take
a parta credt aganst net ncome for dvdends pad on preferred stock
orgnay ssued before October 1, 10 2. The e stng credt s desgned to
gve these pubc uttes a ta savng equa to 1 percent of the amount of
the preferred stock dvdends. The b amends secton 1 (a) wth respect to
ta abe years begnnng before pr 1, 19 1, to make the ntercorporate dv-
dends-receved credt avaabe n the case of dvdends on preferred stock of
pubc uttes f the speca dvdends pad credt for pubc uttes provded
by secton 26(b) has not been receved by the utty.
6. Postponement of due date for returns of Chna Trade ct corporatons (sec-
ton 61 ).
Under present aw Chna Trade ct corporatons are aowed a credt aganst
ther ncome for the net ncome derved from sources wthn Chna wth respect
to the porton of the stock of the corporaton hed by Chnese or mercan share-
hoders. so, the corporaton must dstrbute to those sharehoders an amount
at east equa to the amount of the ncome ta reducton resutng from the credt
n order to receve the fu credt. s a resut of hosttes and unsetted con-
dtons generay n the Far ast, t s mpossbe n many cases for corporatons
dong busness n Chna to make a dstrbuton of any earnngs derved from
Chna or even to know the sze of such earnngs. Secton 61 of the b amends
present aw to provde that the Secretary of the Treasury may postpone up to
the end of 19 3 the due date for the payng of any ncome ta and the fng of
the return, wth respect to years begnnng and endng n the perod anuary 1,
19 9, to September 30, 19 3, f he deems such deferment reasonabe under the
crcumstances. Snce the requrement, that n order to receve the fu credt the
dstrbuton of earnngs derved from Chna must at east equa the ncome ta
whch otherwse woud have been pad, need not be met pror to the tme the
ta es are due and payabe, the postponement of the due date aso has the effect
of permttng the ta payer to postpone the dstrbuton of earnngs.
. Stbcctura Changes t|| te cess Profts Ta
In genera, the foowng e cess profts ta amendments are effectve retro-
actvey to the tme the e cess profts ta became effectve.
It s estmated that the e cess profts ta amendments dscussed beow w
decrease revenues by 107 mon n a fu year of operaton.
1. Speca ceng rate for nec corporatons (secton 01).
Secton 01 of the b provdes a seres of speca ceng rates nvaabe ony
to new corporatons. s ndcated n part II of ths summary, the b provdes
a new type of ceng rate of 1 percent wth respect to e cess profts ta abty
for a corporatons. For ordnary corporatons, ths rate s to appy wth respect
to years begnnng after March 31, 19 1. On a smar bass, but retro-
actve to ncude 19 0, the frst 3 ear the e cess profts ta was n effect, the b
provdes the foowng seres of ceng rates appcabe to e cess profts net
ncome whch are to be avaabe to certan new corporatons, wth respect to
the frst 300,000 of ther e cess profts ta net ncome:
Percent
In the frst year of a new corporaton s busness
In the second year of a new corporaton s busness
In the thrd year of a new corporaton s busness
In the fourth year of a new corporaton s busness 11
In the ffth year of a new corporaton s busness 1
For that part of the e cess profts net ncome n e cess of 300,000, new cor-
poratons ess than 6 years od are to be sub|ect to a ceng rate of 1 percent
wth respect to 19 0, 171 percent wth respect to the caendar year 19 1, and
1 percent wth respect to ta abe years begnnng after March 31, 19 1. Other
corporatons are aso sub|ect to the 17 1 percent rate n the caendar year 19 1
and the 1 percent rate wth respect to ta abe years begnnng after March 31,
19 1, but n ther cases these rates are apped to ther entre e cess profts net
ncome. In 19 0 these other corporatons n effect are sub|ect to a ceng rate
on ther entre e cess profts net ncome whch s at east as hgh as the 1
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
322
percent rate appcabe to new corporatons wth respect to ther e cess profts
ta net ncome n e cess of 300,000.
These speca ceng rates, together wth the effectve Income ta rates, w
have the effect of provdng for 19 2 the foowng ma mum effectve rates of
ncome and e cess profts ta es for the e cess profts net ncome eves shown:
Norma
ta and
surta
effectve
Ma mum effectve rate of Income and e cess profts ta es
Norma ta . surta and e -
cess profts net ncome
(before e cess profts credt
and unused credt carry-
over)
rates
under con-
ference b
(percent)
Frst and
second year,
6 percent
Thrd year,
percent
Fourth
year, 11
percent
Ffth year,
1 percent
S th and
subsequent
year . 1
percent
6 ,000
3. M
.
61.6
6 .
67.6
61.
76.000
.67
9.67
2.67
66.67
.67
62.67
6. 0
61. 0
. 0
7. 0
60. 0
6 . 0
200.000
9.29
6 .2
7.2
60.2
63.2
67.2
300,000
60.17
6 .17
6 .17
61.17
6 .17
ea 17
In determnng how many years a new corporaton has been engaged n bus-
ness, the b descrbes certan cases n whch a new corporaton s consdered
to be as od as the odest of ts predecessor corporatons, or as od as the odest
of the other corporatons wth whch t or ts sharehoders are reated. In
genera, these cases ncude the foowng:
1. Where assets are acqured by the new corporaton from another cor-
poraton n a ta -free e change;
2. Where a substanta amount of assets are acqured by the new corpora-
ton from another corporaton, f at east haf the stock n both corporatons
s owned by the same stockhoders;
3. Where a substanta part of the assets of another corporaton were ds-
trbuted by t and acqured by the new corporaton, f at east haf the stock
n both corporatons was owned by the same stockhoders;
. Where the same stockhoders contro both the new corporaton and
another corporaton whch was engaged n a smar busness; and
. Where the new corporaton purchased a busness of a seng corpora-
ton In a ta abe acquston of the type descrbed n the new part I of
the e cess profts ta subchapter.
Under the b a new corporaton s consdered to be as od as any corporaton
wth whch t s ndrecty reated, as we as drecty reated, as descrbed
above. Wth respect to assets acqured by the new corporaton pror to December
1, 19 0, numbers 1, 2, 3, and , above, appy ony If the assets acqured (or ther
repacements) amounted to 20 percent or more of the tota assets of the new
corporaton on December 1, 19 0.
The speca ceng rates for new corporatons are not avaabe to corporatons
whch receve more than 0 percent of ther gross ncome (not countng dv-
dends and capta gans) from contracts or subcontracts whch are of the types
sub|ect to renegotaton.
2. Management and technca servce fees (secton 02).
Secton 02 of the b provdes an e cuson from e cess profts ta for man-
agement and technca servce fees pad to domestc corporatons by certan
affated foregn corporatons n return for nformaton and other servces
furnshed n connecton wth the producton or mprovement of products of
the type manufactured by the domestc corporaton. The e empton s mted
to fees receved from foregn corporatons n whc the domestc corporaton
owns at east 10 percent of the stock and the e cuson appes ony If such re-
muneraton consttutes ncome derved from sources wthout the Unted States.
The b makes a conformng amendment n that t e cudes these earnngs of
domestc corporatons from ther base-perod earnngs. so any e penses at-
trbutabe to the producton of ths type of ncome are dsaowed as deductons
for e cess profts ta purposes.
S. ase perod of fsca-year corporatons (secton 03).
The present aw provdes certan varatons n the base perod wth respect
to corporatons on a fsca-year bass. Ta payers wth fsca years endng after
December 31, but before pr 1, use as ther base perod months endng wth
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
323
Msc.
ther ast ta abe year endng pror to pr 1, 19 0. For e ampe, a ta payer
wth a March 31 fsca year has as ts base perod the months from pr 1,
19 6, through March 31, 19 0. somewhat dfferent procedure s foowed n
the case of ta payers whose fsca years end after March 31 and before December
31. Such ta payers are requred to use the -mouth perod begnnng on anu-
ary 1, 19 6, and endng on December 31, 19 9.
Secton 03 of the b provdes that, n eu of ts reguar base perod, any
ta payer wth a fsca year begnnng before anuary 1, 19 0, and endng after
March 31, 19 0, may, for purposes of the genera average method of computng
the e cess profts credt, use the months endng wth March 31, 19, 0. ow-
ever, f ths atter perod s used, the e cess profts ta net ncome for anuary,
February, and March of 19 0 s to be computed by the use of the weghted e -
cess profts net ncome as defned n secton 3 (e) (2) ( ). Tha weghted e -
cess profts net ncome s 100 percent of the e cess profts net ncome for a ta -
abe year endng on or before une 30, 19 0, 90 percent for a ta abe year endng
n uy, ugust, or September 19 0, and SO percent for a year endng n October
or November 19 0.
tenson of grocth aternatve to new corporatons (secton 0 )-
New corporatons ars not entted to the growth aternatve under secton
3 (e) of present aw because ths reef s avaabe ony to corporatons whch
commenced busness before the begnnng of ther base perod (ordnary anu-
ary 1, 19 6, and n no case ater than pr 1, 19 0).
Secton 0 of the b permts corporatons whch commenced busness durng
the base perod to use the growth aternatve n computng ther e cess profts
credt based on ncome f they meet the other egbty requrements n secton
3 (e). The amendment w not appy to corporatons whch commenced bus-
ness after the end of the base perod snce the egbty tests under the growth
aternatve are wrtten n terms of base-perod e perence. owever, such cor-
poratons formed n the e cess profts ta perod w ordnary have the benefts
of the ower over-a ta cengs provded by secton 01 of the b for new
corporatons.
Corporatons formed after 2 years of the base perod had eapsed, and before
the end of the base perod, ordnary w automatcay become egbe for the
growth aternatve. Ths s because the egbty requrements of secton 3
(e) (1) ( ) (other than the tota asset mtaton) are based upon a comparson
of the ta payer s tota payro, or gross recepts, n 19 6 and 19 7 wth ts tota
payro, or gross recepts, n 19 S and 19 9. Therefore, corporatons formed n
the atter haf of tho base perod (e cept for corporatons whch were acqurng
corporatons pror to uy 1, 19 0, n ta -free e changes of the types descrbed
n part II of the e cess profts ta subchapter) must automatcay meet the
tests of growth n those respects because such corporatons had no payros and
no gross recepts n the frst haf of the base perod. For corporatons whch
commenced busness pror to the mdde of the base perod (ordnary anuary 1,
19 ), quafcaton for the growth formua w not be automatc as n the case
of the corporatons descrbed above, but shoud prove reatvey easy to meet
n most cases snce tota payro or gross recepts for two fu years of the bus-
ness n the second haf of the base perod w be compared wth payro or gross
recepts for somethng ess than two fu years of busness n the frst haf of
the base perod. Ths ease of quafcaton w dmnsh as the corporaton s
startng date approaches the begnnng of the base perod unt for a corporaton
commencng busness on the frst day of the base perod t w be on substantay
the same footng as those od corporatons now entted to the growth aternatve.
New corporatons formed before the end of the base perod whch meet the
egbty requrements of secton 3 (e) (1) ( ) w aso be entted to use the
speca growth aternatve provded n secton 3 (e)(2)(G). owever, n
order to quafy under that provson a corporaton w have to have been n
e stence for a of 19 9 and at east part of 19 n order to meet the entrance
requrement that ts e cess profts net ncome for the caendar year 19 9 must
have been not more than 2 percent of ts e cess profts net ncome for the
caendar year 19 S.
. Technca amendment of growth aternatve (secton 0 ).
Secton 3 (e) (2) (G) of the Code provdes a speca aternatve average base
perod net ncome for corporatons whose e cess profts net ncome for 19 9 s
not more than 2 percent of ther e cess profts net ncome for 19 . In effect,
such a ta payer s granted an aternatve average base perod net ncome equa
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
32
to the sum of one-haf ts e cess profts net ncome for 19 and 0 percent of ts
e cess profts net ncome for 19 0.
In order to quafy for the above aternatve, present aw requres that the
ta payer quafy- for the growth aternatve ony under the provsons of secton
3 (e)(1)( ). Corporatons can quafy under secton 3 (e)(1)( ) f they
meet certan tests of ncreased net saes of new products n the base perod.
owever, secton 3 (e) (1) ( ) has an aternatve egbty requrement whch
s based upon certan tests of ncreased payro and gross recepts.
Under present aw, the aternatve average base perod net ncome provded
by secton 3 (e) (2) (G) s dened to ta payers quafyng for the growth ater-
natve both under sectons 3 (e) (1) ( ) and 3 (e) (1) ( ).
Secton 0 of the b e tends the benefts of secton 3 (e)(2)(G) to ta -
payers quafyng under secton 3 (e) (1) ( ) whether or not they quafy trader
secton 3 (e) () ( ).
6. Inadmssbe assets of banks (secton 0G).
Under the present aw, both the ta payer usng the average earnngs credt
and the ta payer usng the nvested capta credt are aowed to ncrease ther
credts by specfed percentages of the net addtons to ther capta after 19 9.
owever, e cept In the case of ta payers wth ess than mon of capta who
use the nvested capta credt based on assets, and e cept n the case of ta payers
who use the credt based on the hstorca nvested capta, an ncrease n nvest-
ment n nadmssbe assets w offset doar for doar what woud otherwse be
a capta addton, even though the ncrease n tota assets avaabe for nvest-
ment s greater than the ncrease n capta. For e ampe, f a corporaton n-
creases ts capta by 1 mon on the frst day of an e cess profts ta year
and then on the same day nvests 00,000 of the new capta n nadmssbe
assets, t s ony aowed under the present aw to ncrease ts credt for that year
wth respect to 00,000, because the 00,000 ncrease n nadmssbes s sub-
tracted from the capta addton of 1 mon n arrvng at the net addton to
capta whch may be taken nto account.
n ncrease n the capta of a bank may be accompaned by an ncrease n
deposts of severa tmes that amount, tota assets beng ncreased by the new
capta and ncreased deposts. owever, snce a bank nvests addtona funds
deposted wth t as we as ts addtona capta, an nvestment of even a sma
part of ts addtona assets n nadmssbe muncpa bonds may competey
offset ts capta addtons. Thus, under present aw the bank may have no ad-
dtona credt based upon the new capta n such cases.
Secton 06 of the b provdes that whe a bank s ncrease n nadmssbes
n an e cess profts ta year w st serve to reduce ts ncrease n capta n the
same year, f ts tota assets ncrease more than ts capta ncreases the net
capta addton w be reduced ony by a percentage based on the rato of add-
tona nadmssbe assets to the addtona tota assets acqured snce the begn-
nng of ts frst e cess profts ta year. smar proporton s to be used where
there s a decrease n capta accompaned by a arger decrease n tota assets and
aso accompaned by a decrease n nadmssbe assets.
Ths secton of the b aso provdes an ad|ustment of the nadmssbe asset
factor n the computaton of base perod capta addtons for banks whch Is
based on a smar rato prncpe.
Under the present aw a corporaton computes base perod capta addtons
by comparng ts yeary base perod capta at the begnnng of Its frst e cess
profts ta year, at the begnnng of the precedng year, and at the begnnng of
the second precedng year. The b provdes that, n determnng Its yeary base
perod capta for each year, a bank s to subtract from the amount of ts equty
and borrowed capta a percentage of that amount whch s equa to the rato of
Its nadmssbe assets to ts tota assets, nstead of subtractng the entre amount
of ts nadmssbe assets as Is the case wth other corporatons. Ths provson
of the b, wth respect to the base perod capta addtons of banks, s optona
for ta abe years begnnng before the date of enactment of the b and manda-
tory thereafter.
Ths secton of the b aso provdes that, n the case of a corporatons
(whether or not they are banks), the yeary base perod capta, for purposes
of computng base perod capta addtons, s n no event to be ess than zero.
Thus, n any case where nadmssbe assets at the begnnng of a year e ceed
the tota equty and borrowed capta, the yeary base perod capta w
be zero.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
32
Msc.
7. Reductons n nadmssbe assets subsequent to the base perod (secton 07).
Under the 10 0 cess Profts Ta ct, changes n nadmssbe assets subse-
quent to the base perod do not consttute a capta addton or reducton
(athough reductons n nadmssbes are subtracted from capta reductons
and ncreases n nadmssbes are subtracted from capta addtons).
Secton 07 of the b provdes (e cept n the case of banks) that n com-
putng the average earnngs credt, a reducton n nadmssbes subsequent
to the base perod, to the e tent that the reducton e ceeds any net capta
reducton, s to be treated as f the amount of the reducton were a capta
addton, provded that the funds obtaned by seng nadmssbe assets are
nvested n operatng assets. Smar treatment s provded for banks, but
wth an ad|ustment for tota assets. Operatng assets are defned as tangbe
nventory tems and tangbe property used n the ta payer s trade or busness.
. Deaers n muncpa bonds (secton 0S).
In computng the nvested capta credt and n computng capta addtons,
certan ad|ustments are made to e cude from the nvested capta certan assets
known as nadmssbe assets. These ncude stock n other corporatons,
State and oca government obgatons and partay ta -e empt Federa ob-
gatons. The dvdends and nterest from these securtes are not sub|ect .to
the e cess profts ta .
owever, deaers n muncpa bonds are sub|ect to e cess profts ta on
ther profts from the sae of these bonds. Muncpa bonds are ther stock
n trade or nventory and the gan on the sae of the bonds s treated, therefore,
as ordnary ncome rather than as a capta gan.
Secton 0 of the b provdes, n effect, that where ta -e empt or partay
ta -e empt bonds are hed by a deaer prmary for sae to customers n the
ordnary course of hs trade or busness, the deaer may eect to treat such
bonds as admssbe assets, provded that he aso eects to ncude n hs e cess
profts net ncome the nterest on such bonds.
9. ase perod abnormates (secton 09).
Under present aw, f an abnormaty e sts n the ta payer s owest year of
earnngs durng the base perod, that year s automatcay emnated from
the average base perod net ncome computaton. owever, f an abnormaty
occurred n one of the remanng perods of 12 months or ess n the base perod,
secton 2 of the Code provdes that the ta payer may, f t was n busness at
the begnnng of ts base perod, substtute for ts actua e cess profts net
ncome for the perod of the abnormaty an amount determned by mutpyng
ts tota assets for the ast day of the year of the abnormaty by the rate of
return of ts ndustry for that perod.
The aternatve average base perod net ncome provded by secton 2 s
avaabe, f the ta payer can estabsh for any ta abe year wthn ts base
perod ether that ts norma producton, output, or Operaton was nterrupted
or dmnshed because of the occurrence, ether pror to, or durng the ta abe
year, of events unusua and pecuar n the e perence of the ta payer or that
the busness of the ta payer was depressed because of temporary economc
crcumstances unusua n ts case. Ths s known as an abnormaty.
The b provdes an addtona aternatve egbty requrement under secton
2. Secton 09 of the b provdes that where the earnngs of the ta payer s
thrd-best base perod year were ess than 3 percent of the average of the
earnngs of hs two best base perod years and where an abnormaty has oc-
curred n the pror year, the ta payer w automatcay be entted to use ts
ndustry rate of return for the thrd best year. Ths new provson s mted,
however, so that the substtuted earnngs may not n any case e ceed the
average of the ta payer s two best years.
The requrement of present aw that the substtute e cess profts net ncome
provded by secton 2 may be utzed for a snge abnorma year ony f t
e ceeds 110 percent of the ta payer s e cess profts net ncome for that year
computed wthout the substtuton does not appy to ta payers who are egbe
under ths provson.
10. Capta reducton for oans made by parent corporatons to subsdares (sec-
ton 10).
Secton 10 of the b provdes that where a subsdary corporaton computes
ts average earnngs credt on the bass of the ndustry rate of return apped
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
326
to ts tota assets and where such subsdary has borrowed funds from ts
parent corporaton on open account, the amount so borrowed s to be emnated
from ts tota assets.
11. Change n products commtted to pror to cose of base perod secton 11).
Secton 3 of present aw provdes that where a corporaton made a substan-
ta change n the products or servces t furnshed durng the ast 3 years of
ts base perod, and, wthn 3 years after the change, the new product accounted
for more than 0 percent of gross ncome or 33 percent of net ncome and net
ncome ncreased 2 percent, then the corporaton s entted to determne ts
average base perod net ncome by mutpyng ts ndustry rate of return by
ts tota assets.
s the above descrpton ndcates, present aw confnes ths type of reef
to corporatons whch actuay ntroduced a new product before the end of the
base perod.
Secton 11 of the b provdes that where a substanta change n the
products produced by a ta payer has been made after the end of the base
perod, such a change s to be deemed to have been made n the base perod,
for the purpose of quafyng for the aternatve average base perod net ncome
avaabe under secton 3 of the Code, f the ta payer, pror to uy 1, 19 0,
commenced the constructon of the factes necessary to the producton of
the new product, and f such constructon and the producton of the new product
were n furtherance of a course of acton to whch the ta payer (or a corpora-
ton wth whch the ta payer had the prvege of fng a consodated return
for ts frst e cess profts ta year) was commtted pror to the end of the
base perod. Ths commtment must be evdenced by a contract wth another
|erson and that contract must have granted a cense, franchse, or smar rghts
essenta for the producton of the new product.
IS. Technca amendment reatng to new corporatons (secton 12).
new corporaton computng ts ncome credt under secton of the
Code for any of ts frst 3 years whc are e cess profts ta years s, under
the present aw, entted to appy the ndustry rate of return ony to ts tota
assets at the begnnng of ts frst e cess profts ta year pus ts net capta
addton or ess ts net capta reducton after that date. Thus, the ndustry
rate can be apped ony to ncreases n ts equty capta and 7 percent of
ncreases n ts borrowed capta, to the e tent that ts assets are acqured after
the begnnng of ts frst e cess profts ta year. Ths treatment Is ess favorabe
than that provded for other new corporatons or that provded for corporatons
usng other reef sectons nvovng the ndustry rate of return because t
provdes for the ncuson of ony 7 percent of borrowed capta.
Secton 12 of the b provdes that a new corporaton computng ts ncome
credt under secton for any of ts frst 3 years whch are e cess profts ta
years s to be entted to ts ndustry rate of return apped to equty capta
pus 100 percent of borrowed capta, ess nterest on borrowed capta. so,
for purposes of computng a net capta reducton for any of these 3 years
under secton , decreases n borrowed capta and ncreases n oans to mem-
bers of a controed group are counted at 100 percent.
IS. Reguated pubc utty credt for ntrastate ppenes (secton 13).
The aternatve e cess profts ta credt for certan reguated pubc uttes
provded hy secton of the Code e tends, under present aw, to corporatons
engaged as common carrers n the furnshng or sae of gas, o, or other petro-
eum products (ncudng shae o) by ppene, f sub|ect to the |ursdcton of
the Interstate Commerce Commsson. The aternatve credt n these cases
s, n effect, equa to a return of ( percent upon tota equty and borrowed
capta after norma ta and surta . ,
Snce the ursdcton of the Interstate Commerce Commsson e tends ony
to nterstate ppenes, under present aw the speca credt provded by secton
S s dened those ppenes whose operatons are entrey ntrastate n
character.
Secton 13 of the b amends secton of the Code to provde that ppene
common carrers sub|ect, wth respect to rates, to the |ursdcton of the pubc
servce commssons of any State sha be egbe for the reguated pubc utty
credt. The same 0 percent credt s made appcabe as n the case of nterstate
ppenes.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
327
Msc.
. Lessor raroad corporatons (secton 1 ).
Secton of the Code provdes an aternatve e cess profts ta credt for
certan reguated pubc uttes. In te case of raroads ths aternatve credt
s equa to a return of G percent upon tota equty and borrowed capta after,
n effect, norma ta and surta . To estabsh egbty for ths aternatve
credt a raroad corporaton must be engaged as a common carrer n the
furnshng or sae of transportaton by raroad and must be sub|ect to the
|ursdcton of the Interstate Commerce Commsson. Furthermore, such a
raroad can quafy ony f 0 percent or more of ts gross ncome (computed
wthout regard to capta pans and osses) s derved from the furnshng or
sae of raroad transportaton.
Secton 1 1 of the Code permts the fng of consodated returns by affated
corporatons whch are reguated pubc uttes wthn the meanng of sec-
ton . Secton 1 of the b provdes that certan essor raroad corpora-
tons w be permtted to quafy for the reguated pubc utty credt where
they fe consodated returns wth ther essee raroad corporatons whch
quafy under secton 1 .
1 . empt e cess output of suphur, potash, metaurgca grade mestone and
chemca grade mestone (secton 1 ).
Secton 3 of the present aw provdes a parta e empton for coa and ron
mnes, tmber propertes, and natura gas and nuta mnng propertes not n
operaton durng the base perod. One-thrd of the net ncome n the current
ta abe year of these propertes s e empt from e cess profts ta .
Coa and ron mnes, tmber propertes and natura gas propertes whch were
n operaton durng the base perod are aso e tended speca reef under ths
provson of present aw whch e empts from e cess profts ta one-haf the
ncome from e cess output durng the ta abe year. The e cess output s the
producton n e cess of average annua producton from the property (whether
or not then owned by the ta payer) durng the perod 19 6- une 30, 19 0.
Nonmetac mneras are not provded the speca treatment descrbed above,
ether n the case of new or od propertes. Secton 1 of the b e tends the
speca treatment descrbed above to suphur, potash, and metaurgca or
chemca grade mestone deposts.
10. Transton from Word War II producton and ncrease n peacetme capacty
(secton 16).
Secton 10 of the b e tends to corporatons meetng certan requrements
the benefts of the speca growth aternatve descrbed n secton 3 (e) (2) (G)
of the Code. In genera, ths permts corporatons to compute an aternatve
average base perod net ncome on the bass of the sum of one-haf of ther
ncome n 19 S and 0 percent of ther ncome n 19 0.
To quafy under ths provson a corporaton must be a manufacturng
corporaton whch commenced busness before 19 0, and t must meet the
foowng requrements:
1. The ad|usted bass of the corporaton s rea property and deprecabe
tangbe property must not be n e cess of 10 mon as of the begnnng
of ts base perod.
2. The unad|usted bass of the corporaton s rea property and deprecabe
tangbe property at the cose of ts base perod must be 2 0 percent or more
of the bass of such factes at the begnnng of ts base perod.
3. Seventy percent of the corporaton s ncome for the years 1912 through
191 must be attrbutabe to contracts wth the Unted States or reated sub-
contracts, but ess than 20 percent of the corporaton s ncome durng the
base perod and n the caendar year 19 0 must be attrbutabe to contracts
wth the Unted States or reated subcontracts.
. oth the corporaton s profts n 19 and the average of ts profts n
39 and 19 9 must be at east 300 percent of the average of ts profts for
19 6 and 19 7.
17. Speca reef provson for corporatons sufferng catastrophes (secton
17).
Secton 17 of the b provdes that manufacturng corporatons sufferng
from a catastrophe n the ast 30 months of the base perod may: (1) subst-
tute ther average e cess profts net ncome n ther base perod, pror to the
year n whch the catastrophe occurred, for ther earnngs durng the year n
whch the catastrophe occurred; or (2) compute ther average base perod net
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
32
ncome under the growth aternatve provded n secton 3 (e)(2)(G) of the
Code. Ths growth aternatve, n genera, permts corporatons to compute
ther average base perod net ncome on the bass of one-haf of ther Income n
19 and 0 percent of ther ncome n 19 0.
catastrophe s defned as a fre, storm, e poson, or other casuaty whch
rendered noperatve a of the factes of a pant or pants accountng for at
east 1 percent of a corporaton s tota factes. s a resut of the catastrophe
the corporaton s norma operaton must have been substantay nterrupted
for more than 12 months, and the producton facty destroyed must have been
repaced before the end of the base perod by a producton facty wth at east
an equvaent ad|usted bass.
IS. Consodaton of newspapers (secton 1 ).
Secton 1 of the b provdes an aternatve average base perod net ncome
for any ta payer whch was engaged prmary n the newspaper pubshng
busness and whch, after the mdde of ts base perod and pror to une 30,
19 0, consodated substantay a of ts mechanca, crcuaton, advertsng,
and accountng operatons n connecton wth ts newspaper pubshng busness
wth the smar operatons of another corporaton engaged n the newspaper
pubshng busness n the same ocaty.
The aternatve average base perod net ncome provded s the actua average
base perod net ncome determned under secton 3 (d), pus the amount by
whch the average annua e penses attrbutabe to the operatons whch were
consodated, durng the two ta abe years precedng the ta abe year n whch
the consodaton Occurred, e ceeded the e penses attrbutabe to the same opera-
tons durng the ne t ta abe year begnnng after the consodaton, after
ad|ustng the actua e penses of the atter year for ncreases n abor costs and
newsprnt costs after the consodaton.
In order to be egbe for ths aternatve, the ta payer must estabsh to the
satsfacton of the Secretary that the consodaton resuted n substanta
reductons n the e penses whch woud have been Incurred had the consodaton
not taken pace. Furthermore, ether the deductons of the ta payer for the
ta abe year foowng that of the consodaton must not be more than SO
percent of the average of those deductons for the 2 years precedng the year
of the consodaton, or the ta payer s ncome n the year foowng the year
of the consodaton must be at east 12 percent of ts average base perod
ncome.
19. Speca reef provson for companes engaged n teevson broadcastng
durng the base perod (secton 19).
Secton 19 provdes corporatons whch engaged n the teevson broadcast-
ng busness before anuary 1, 19 1, wth an aternatve method of computng
ther average base perod net ncome. If these corporatons engaged In some
other busness durng the base perod they may compute an average base perod
net ncome for ther nonteevson busness (usng the genera average method)
and add to t a speca average base perod net ncome fsure for ther teevson
broadcastng busness. ta payer may compute ths atter fgure by mutpy-
ng ts tota teevson assets ether by the average base perod ndustry rate
of return for rado broadcastng, or (f the ta payer was n the rado broad-
castng busness durng the base perod) by ts own ndvdua base perod rate
of return on ts own rado broadcastng busness. If the ta payer was engaged
n the teevson broadcastng busness durng the base perod, the Industry
rate of return or ts ndvdua rado rate of return w be apped to ts tota
teevson assets at the cose of the base perod. If the ta payer acqured ts
teevson broadcastng busness after the cose of the base perod and before
anuary 1, 19 1, the Industry rate of return or ts ndvdua rado rate of
return w be apped to ts tota teevson assets at the end of the frst month
n whch t engaged n the teevson broadcastng busness.
pproprate ad|ustments are to be made where assets prevousy used n
nonteevson busness have been used to acqure the teevson broadcastng
busness, to prevent a doube countng of the ncome of these assets.
20. Constructon resutng n an ncrease n capacty competed after end of
base perod (secton 20).
Secton of present aw provdes that a corporaton whch commenced
busness before ts base perod and made substanta changes n ts factes
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
329
Msc.
durng the Inst 36 months of the base perod mny use a substtute average base
perod net ncome. Ths substtute s determned by appyng ts ndustry rate
of return to ts tota assets.
To quafy for reef under the change n capacty formua, the corporaton
must have added to ts factes n a manner whch
1. resuted n an ncrease of 100 percent or more n ts productve capac-
ty ; or
2. resuted n an ncrease of 0 percent or more n ts productve capacty
and resuted n an ncrease n the ad|usted bass of ts tota factes of
0 percent; or
3. resuted n an ncrease n the unad|usted bass of ts tota factes
of 100 percent or more.
Secton 20 of the b provdes that f a corporaton competed constructon
of a manufacturng estabshment durng ts frst ta abe year endng after
une 30, 1900, and meets certan condtons descrbed beow, ths addton or
repacement, for purposes of secton (b) of present aw, s to be treated as
f t had been added to ts tota factes on the ast day of ts base perod.
owever, n order to quafy, the corporaton must, pror to the end of ts base
perod, have competed 0 percent of the constructon, and the competon of
the estabshment must have been n pursuance of a pan to whch the corpora-
ton was commtted pror to the end of ts base perod.
21. Ta abe e changes (secton 21).
Tart II of the cess Profts Ta ct of 19 0 provdes rues under whch an
acqurng corporaton may utze the earnngs e perence of a predecessor cor-
poraton n computng ts own average earnngs base. owever, under the cess
Profts Ta ct of 19 0, the acqurng corporaton mny use ths earnngs e per-
ence ony where the assets of the predecessor corporaton were acqured n certan
ta -free e changes. In genera, these ta -free e changes occur where the assets
of a predecessor corporaton are acqured by the acqurng corporaton n e -
change for ts stock. Under the present aw the earnngs e perence of a pred-
ecessor corporaton may not be used by an acqurng corporaton where the
assets were acqured by purchase for cash or n some other ty e of ta abe
e change.
Secton 21 of the b provdes that n the case of ta abe e changes occurrng
pror to December 1, 19 0, where the predecessor corporaton has been qu-
dated and a purchasng corpornton has obtaned substantay a of the predeces-
sor corporaton s assets, the purchasng corporaton may use the predecessor
corporaton s base perod e perence n computng ts average base perod net
ncome under the genera average method. owever, t s to be permtted the
use of ths base ony to the e tent that new funds were used for the purchase
of these assets. These provsons are aso to appy where the predecessor was
a soe propretorshp or partnershp, n whch case the base perod ncome of
the predecessor s to be computed as f t were a corporaton.
Smary, where a predecessor corporaton had two or more separate bus-
nesses, a corporaton whch purchased one of these busnesses s entted to use
the earnngs e perence of the busness n computng ts average base perod net
ncome under the genera avernge method. owever, n such n ense the pred-
ecessor corpornton must have dsposed of n of ts busnesses n a snge pan
of compete qudaton. Where a purchasng corporaton purchased ony one of
severa busnesses of a seng corporaton, the porton of the base perod e per-
ence of the seer whch s made avaabe to the purchasng corporaton s to
be determned under reguatons on the bass of an aocaton based on vaue
or on the bass of the earnngs e perence of the assets purchased. These pro-
vsons aso appy where the predecessor was a partnershp.
The b aso permts a purchasng corporaton to use the earnngs e perence
of a busness of another corporaton f the other corporaton was qudated and
ts assets were dstrbuted to ts sharehoders who forthwth sod them to the
purchasng corporaton.
The b further provdes that In the case of ta abe e changes a purchasng
corporaton s not to be dened the use of the earnngs base of a predecessor
merey on the grounds that a franchse or cense, whch was an mportant
source of earnngs of the predecessor, cannot be transferred from the pred-
ecessor to the acqurng corporaton, but must be obtaned by the atter from
the same source. n e ampe of ths woud be an automobe deaer ageucy.
0 010 02 22
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
330
Ths amendment Is mted to ta abe e changes occurrng before December
1, 19 0.
22. empton for strategc mneras (secton 22).
Secton 0 of the Code e empts from e cess profts ta ncome attrbutabe to
the mnng of certan strategc mneras. Secton 22 of the b adds bau te
to the present st of e empt strategc mneras.
23. Consodated returns (secton CIS).
Secton 613 of the b amends the consodated return provsons of the Code to
permt a corporaton e empt from e cess profts ta under secton (f) of the
Code, whch has fed a consent to be ncuded n a consodated return for a
ta abe year endng after une 30. 19 0, the rght to amend ts eecton wthn
90 days after the date of enactment of ths ct.
I. Structura Changes n state and Gft Ta es
1. Foregn estate ta credt (secton G03).
Under present aw the Unted States asserts estate ta abty wth respect
to the entre estate, wherever stuated (e cept rea property outsde the Unted
States), of decedents who were ether domced n the Unted States or ctzens
of the Unted States. Snce many other countres, ke the Unted States, ta
property stuated wthn ther boundares, estates of ctzens of the Unted States
who were foregn resdents are qute key to be sub|ected to a doube ta . Wth
a consderabe number of foregn countres, the L nted States has entered nto
estate-ta conventons whch provde reef for ths probem and other treates
at present are under consderaton. owever, n other cases the possbty of
doube ta aton st e sts.
Secton 603 of the b removes ths doube ta aton by provdng a foregn
estate ta credt n the case of Unted States ctzens and resdents (sub|ect
to a mtaton ndcated beow) where the doube ta arses from the Unted
States mposng a ta on the entre estate, and a foregn country mposng an
estate ta on property stuated wthn that country. The foregn estate ta
credt s aowed both aganst the basc estate ta and the addtona estate ta .
s n the case of the ncome ta , a foregn ta credt s aowed n the case of
those who were resdents but not ctzens of the Unted States ony f the foregn
country n whch the decedent was a ctzen aows a smar foregn ta credt
n the case of ctzens of the Unted States who are resdents of that country.
s n the case of the foregn ta credt aowed for ncome ta purposes, the for-
egn estate ta credt s mted n a manner whch permts the offsettng of
ta es pad the foregn country wth respect to property stuated n that country
ony to the e tent that such property s ta ed by the Unted States. Thus, f a
foregn country mposes an estate ta at a hgher effectve rate than that pro-
vded by the Unted States, a credt s to be aowed ony to the e tent of the
effectve rate of ta mposed by the Unted States.
Ths provson s effectve wth respect to estates of decedents dyng after
the date of enactment of ths b. It does not affect any treaty obgatons of the
Unted States.
2. Unted States bonds hed by nonresdent aens (secton G0 ).
Secton 00 of the b deas wth the status under the estate and gft ta es
of obgatons of the Unted States Government owned by nonresdent aens
not engaged n trade or busness n the Unted States. It provdes that Unted
States Government bonds ssued on or after March 1, 19 1, are to be ncuded
n the gross estates of the nonresdent aens, and that gfts of Government
bonds ssued on or after March 1, 19 1, are to be sub|ect to gft ta .
The amendment w appy ony n the case of estates of decedents who de
after the date of enactment of ths b or to gfts made after such date.
S. Works of art oaned by nonresdent aens (secton 60 ).
Secton 00 of the b provdes that works of art owned by n nonresdent aen
whch are oaned to pubc gaeres or museums n the Unted States for e hb-
ton purposes are to be e empt from estate ta f the nonresdent aen des
whe the works of art are n ths country.
Present aw (sectgn 63(c) of the Code) mts the e empton to works of
art oaned to the Natona Gaery of rt.
Ths provson s effectve wth respect to estates of decedents dyng after
the date of enactment of ths b.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
331
Msc.
. state ta es of servcemen ked n orea (secton 606).
The b provdes the eame estate ta treatment for members of the rmed
Forces dyng n combat zones or from wounds receved n combat zones as
was prevousy provded for servcemen dyng darng Word War II.
Secton 606 provdes that the addtona estate ta s not to appy to the
estate of a decedent dyng whe n actve servce as a member of the mtary
or nava forces of the Unted States f the decedent was ether ked n acton
whe servng n a combat zone, or ded as a resut of wounds or other n|ures,
or a dsease, suffered whe n ne of duty by reason of a hazard to whch he
was sub|ected as an ncdent of such mtary or nava servce.
Ths provson s effectve wth respect to deaths occurrng after the com-
mencement of hosttes n orea (after une 2 , 10 0) and before anuary
I, 19 .
. Reversonary nterest of decedents dyng pror to Fbruary 10, 19S9
(secton 607).
The provsons of the Technca Changes ct of 19 9 appy ony wth respect
to the decedents dyng after February 10, 1939, the date of enactment of the
Interna Revenue Code. In the case of such decedents, property s ncuded
n the gross estate by reason of the retenton of a reversonary nterest n a
transfer made before October . 19 9, ony f the reversonary nterest s e press
and s worth more than percent mmedatey before the decedent s death.
On March 1 , 1937, Treasury Decson 729 was ssued by the Treasury
Department, provdng that property shoud not be ta ed by reason of the re-
tenton of a reversonary nterest. Secton 007 of the b provdes that prop-
erty transferred by a decedent dyng after March 1 , 1937, and before February
II, 1930, s not to be ncuded n the estate of the decedent because of a poss-
bty of reverter f the reguatons n effect at tbe tme of the death of the
decedent dd not provde for the ncuson of property so transferred.
6. Decedents dyng n 19 0 wth pre-1931 fe estates retaned (secton 60 ).
The Technca Changes ct of 19 9 provded that, n the case of fe estates
retaned n transfers made on or before March 3, 1931 (and n some cases before
une 7, 1932), the property woud not be ncuded n the decedent s gross estate
by reason of retenton of the fe estate f the decedent ded before anuary 1,
19 0. The 19 9 ct aso provded that these fe estates coud be reeased free
of estate and gft ta at any tme durng 19 9 or 19 0. The 19 9 ct con-
tanng ths ta -free reease provson became aw on October 2 , 19 9. There
have been severa cases n whch decedents ded n 19 0 before reeasng ther
pre-1931 fe estates, possby because they were not aware of the ta -free
reease provson or were not n condton to effect a reease.
In the case of fe estates retaned n transfers made on or before March 3,
1931, secton 60 of the b provdes that property w not be ncuded n the
decedent s gross estate by reason of retenton of the fe estate f the decedent
ded before anuary 1, 19 1 (nstead of anuary 1, 19 0, as provded by the
present aw).
7. Pre-1916 transfers cth reversonary nterests retaned (secton 609).
Under the present aw a transfer n trust pror to 1931 s not sub|ect to
estate ta by reason of the retenton of a fe estate provded that the decedent
ded pror to 19 0 (19 1 under secton 60 of ths b) and a transfer pror
to October , 19 9, s not sub|ect to estate ta by reason of the retenton of a
reversonary nterest uness the reversonary nterest s e press, rather than
arsng by operaton of aw, and e ceeds percent of the vaue of the property
mmedatey before the decedent s death. The present aw makes no dstnc-
ton between transfers made before the enactment of the estate ta , September
. 1916, and transfers made after that date. owever, from 1927 to 103 the
reguatons provded that transfers made before enactment of the estate ta
woud not be ta abe. so, pror to the decson of the Supreme Court n the
aoek case n 19 0 t was fet that property woud not be ta ed n a de-
cedent s estate by reason of hs retenton of a reversonary nterest.
Secton 609 of the b provdes, n effect, that property w not be ncuded
n the estate of a decedent by reason of the retenton of a reversonary nterest
n a transfer made pror to September , 1916, where the decedent ded after
February 10, 1939, the date of enactment of the Interna Revenue Code.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
332
. Reversonary nterest n fe nsurance Decedents dyng after October 21,
19 2 (secton 610).
The Revenue ct of 19 2 provded that, In determnng the proporton of
fe nsurance premums pad by the decedent, premums pad by a decedent on
or before anuary 10, 19 1, are ncuded f the decedent at any tme after that
date possessed an ncdent of ownershp n the pocy. Snce a reversonary
nterest was construed to be an ncdent of ownershp, the retenton of any
reversonary nterest, regardess of ts sze and regardess of whether t was
e press or by operaton of aw, had the effect of makng the premums pad
by the decedent ncudbe for purposes of the premum payment test. In order
to make the treatment of fe nsurance consstent wth the treatment of other
property under the Technca Changes ct of 19 9, the Revenue ct of 19 0
provded that a reversonary nterest shoud be consdered an ncdent of
ownershp ony f t were e press and, a some tme after anuary 10. 10 1.
e ceeded percent of the vaue of the pocy. The provson n the 19 0 ct
was an amendment of the Revenue ct of 19 2, so that t was effecve wth
respect to the estates of decedents dyng after October 21, 19 2. owever,
the 19 0 provson dd not provde for the reopenng of cosed cases. In ths
respect t was dfferent from the 19 9 amendment of secton 11(c), whch pro-
vded a 1-year perod durng whch cams for refund coud be fed for
cosed cases.
Secton 610 of the b amends secton 03 of the Revenue ct of 19 0 n
order to permt the reopenng of cosed cases f a cam was fed wthn 1 year
from the date o the enactment of the Technca Changes ct of 19 9, on
October 2 , 19 9.
II. cse Ta es
It s estmated that at the eves of producton antcpated n the fsca year
19 2 e cse ta changes made by the b, when fuy effectve, w rase revenues
by 1,20 mon. s shown n tabe 13, amost a of the e cse ta revenue
provded by the b s rased from the manufacturers e cses, the new ta es on
gambng and the ta es on acohoc beverages and tobacco. No rate ncreases
are provded n the case of the reta e cses, the e cses on transportaton and
communcaton, or the admsson ta es.
Tabe 13. cse ta revenue rased by the b by ma|or sources
t estmated fsca year 1032 eves of producton and consumpton but In a fu year of
operaton
ddtona
revenue
(n mons
Type of e cess ta of doars)
cohoc beverages S2 2
Tobacco products 1 6
Manufacturer 2S
Reta 7
Transportaton and communcaton N 1
musement and recreaton IS
Gambng 07
Tota , 1,20
The e cse ta changes made by the b become effectve on the frst day of
the frst month whch begns more than 10 days after the date of enactment of the
b. The b aso provdes that the e cse-rate ncreases are to e pre on pr
1, 19 . The ncreases n the occupatona ta es on deaers n quor am con-
operated gamng devces are an e cepton to ths rue. These ncreases nre
permanent. Wth November 1 ns the effectve date for these changes, t s est-
mated that the b w ncrease e cse ta revenues by 7 7 mon n the fsca
year 19 2 (ths ncudes the foor stock ta es), rasng tota recepts for 11) 2
from e cses to 0,. 7 mon.
. LCO OLIC R G S
1. Dsted sprts (sectons 1, 62).
Secton 1 of the b ncreases the ta on dsted sprts from 9 to 10. 0
per proof gaun. The ncrease of 1. 0 per proof gaon amounts to about 20
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
333
Msc.
cents a ffth on the ordnary type of whsky botted at about proof. Under
present aw the 9 per gaon ta on dsted sprts averages about 0 percent
of the reta prce per botte, ncudng ta . The ta mposed by the b w
rase ths fgure to about 3 percent. Ths assumes the addton n fu of the
ta to current prces, but no prce mark-up on the ta .
t the present tme, athough the genera ta rate on dsted sprts s 9 a
proof gaon, a draw-back of 6 per proof gaon s provded for dsted sprts
used for medcnes, medcna preparatons, food products, favors, or favorng
e tracts whch are unft for beverage purposes. Ths eaves a net ta of 3 per
proof gaon n such cases. The b ncreases these draw-backs so that a net
ta of . 1 per proof gaon s fnay pad. Wth the ta rate of 10. 0 per proof
gaon ths s accompshed n secton 62 of the b provdng n secton 32 0 (1)
of the Code a draw-back of 9. 0 per proof gaon. When the ta rate reverts to
per proof gaon, the draw-back s to be decreased to per proof gaon.
2. eer (secton 3).
Secton 3 of the b ncreases the ta mposed on fermented mat quor, or
beer, by 1 per barre, or from the per barre provded by present aw to 9
per barre. Ths s an ncrease n ta of 12 percent as contrasted to an ncrease
of 16 percent provded n the case of dsted sprts. Under present aw the
ta on beer represents about 1 percent of the average reta prce (ncudng
ta ) and under the b ths s ncreased to between 16 and 17 percent. In the
case of a 12-ounce botte of beer the ta ncrease represents an ncrease of about
one-thrd of 1 cent.
3. Wnes (secton 2).
Secton 2 of the b to provde for about the same ncrease n the ta on
wnes as n the case of beer, namey, an ncrease of appro matey 12 percent.
Thus, n the case of st wnes, ncudng vermouth, the ta per gaon s to be
(a) ncreased from 1 to 17 cents where the acohoc content of the wne
s not more than 1 percent,
(6) ncreased from GO to 67 cents where the acohoc content of the wne
s over 1 percent but not over 21 percent; and
(c) ncreased from 2 to 2.2 whee the acohoc content of the wne s
over 21 percent but not over 2 percent.
In the case of sparkng wnes, queurs, and cordas the ta per haf pnt s to be:
(a) ncreased from 1 to 17 cents n the case of champagne or sparkng
wnes; and
(6) ncreased from 10 to 12 cents n the case of queurs, cordas, and
artfcay carbonated wnes.
Most of the wne consumpton n the Unted States today s represented by the
frst two categores of st wnes. Natura, or tabe, wnes wth an acohoc
content not over 1 percent and ncudng such wnes as sauterne, caret, and
burgundy represent about one-quarter of the tota consumpton. Sweet or des-
sert wnes wth an acohoc content between 1 and 21 percent and ncudng
ench wnes as port, sherry, tokay, and muscate represent appro matey three-
fourths of the tota consumpton n the Unted States today. These wnes are
fortfed wth brandy or acoho before the natura fermentaton s competed.
Sparkng wnes account for most of the sma remanng consumpton n the
Unted States today and n arge part represent mports.
In terms of reta prce the ta under present aw represents about percent of
the reta nrce (ncudng ta ) n the case of tabe wnes, and s to be ncreased
by about one-af of 1 percent under the b. The ta on sweet wnes under
present aw represents about 1 percent of the reta prce and under the b ths
percentage s to be ncreased by sghty more than 1 percentage pont. The ta
on sparkng wnes represents about 2 percent of the reta prce under present
aw and under the b s to be ncreased to about 26 percent.
. Occupatona ta es on deaers n quor (secton 61).
Reta deaers n quor other than those deang e cusvey n wne and beer
are requred under secton 32 0 of the Code to pay a speca annua occupatona
ta of 27. 0. Secton 01 of the b rases ths occupatona ta to 0 a year.
Secton 61 of the b aso ncreases the occupatona ta es on whoesae
deaers n quors and whoesae deaers n mat quors. Secton 32 0(a) (1) of
the Code mposes a speca occupatona ta of 110 on whoesae deaers n
u Wnes wth acohoc content n e cess of 2 percent are sub|ect to the ta on dsted
sprts.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
33
quors. Ths ncudes whoesae deaers n wnes, as we as whoesae deaers
In dsted sprts. The b rases ths ta to 200. Secton 32 0(d) of the
Code provdes an occupatona ta of for whoesae deaers n mat quor.
Ths ta s rased to 100.
. Sprts ost n foods of 19 1 (secton 9 ).
Secton 9 of the b provdes for ta refunds or credts to dsters or rect-
fers for nterna revenue ta and customs dutes prevousy pad wth respect
to sprts whch hnve been ost or rendered unmarketabe as a resut of foods
durng the year 19 1. To be egbe for ths ta refund or credt the sprts
must st be n the possesson of
1. The person orgnay payng the ta ,
2. a rectfer, or
3. a whoesae or reta quor deaer.
It s aso provded that the refunds or credts may be made n the case of any
of the above persons e cept reta quor deaers who repaced for someone ese
dsted sprts destroyed or rendered unmarketabe by a food f the repacement
was made wthout compensaton. In order to be egbe for the refund or
credt a camant must furnsh proof that the ta or duty was fuy pad, that
the damage was sustaned as the resut of the food condtons, that he was not
nsured aganst oss of the ta , and n the case of repacements that he has
actuay repaced the fu equvaent of the dsted sprts destroyed.
. TO CCO PRODUCTS
1. Cgarettes (secton 21).
In the case of cgarettes, secton 21 of the b ncreases the ta provded by
secton 2000 of the Code from 3. 0 per thousand to per thousand. In effect,
ths rases the ta on the ordnary package of 20 cgarettes from 7 cents to
cents. The present ta on cgarettes represents about 3 percent of the reta
prce Incudng ta . The ncrease w rase ths to about 37 percent.
2. Snuff, chewng tobacco, and smokng tobacco (secton 23).
In the case of snuff, chewng tobacco, and smokng tobacco secton 23 of the
b reduces the ta from 1 cents per pound to 10 cents per pound.
C. M NUF CTUR RS CIS S
1. Gasone, and dese fue (sectons f/ 9, 1)-
Secton 9 of the b provdes for a one-haf cent ncrease n the gasone ta ,
rasng the Federa gasone ta , provded by secton 3 12 of the Code, from 1
to 2 cents per gaon. Snce the ta on gasone s a specfc and not an ad
vaorem ta , the percentage reatonshp of the ta to the reta prce w vary
wth the varaton n the prce of gasone. In 19 0 the ta was 0 percent of
the reta prce, ncudng ta , and n 19 0 t was percent of the reta prce.
The b w resut n a ta equa to about percent of the reta prce of gasone
ncudng ta .
Secton 1 of the b aso adds a new secton 2 0 to the Code mposng a
ta of 2 cents per gaon on dese fue for dese-powercd hghway vehces.
The ta s mposed on the retaer seng the dese fue for hghway use and
aso on persons usng the dese fue n hghway vehces f no ta was coected
from the retaer. Of ths 2 cents per gaon ta . | cents s permanent. The
remanng cent ta termnates as of pr 1,19 .
2. Passenger ears and motorcyces (secton S(b)).
Secton S(b) of the b ncreases the ta , provded by secton 3 03 of the
Code, on passenger cars and motorcyces from 7 to 10 percent of the manu-
facturer s prce. owever, the b removes the ta on house traers. The
present ta on passenger cars on the average represents percent of the reta
prce, ncudng ta . The ncrease provded by ths h w rase ths to some-
what over 7 percent.
S. utomobe trucks, busses, and truck traers (secton 1(a)).
Secton 1(a) of the b ncreases the ta on automobe trucks, busses, and
truck traers, provded by secton 3 03 of the Code, from to percent of the
manufacturer s prce.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
33
Mse.
. utomotve part and accessores (secton 1 (c), (d), (/)).
Secton 1(c) of the b Increases the ta on automotve parts and acces-
sores, provded by secton 3 03 of the Code, from to percent of the manu-
facturer s prce.
Wth respect to recondtoned or rebut parts, where such saes are sub|ect
to the parts and accessores ta under present aw, secton 1(d) of the b
provdes an amendment whch e cudes from the ta base the far market
vaue of any ke part traded n for a recondtoned or rebut part.
Secton 1(f) of the b amends secton 3 3 of the Code to provde for a
credt or refund of the ta on automotve parts and accessores where the parts
or accessores are used or resod for the repar or repacement of farm equp-
ment parts. owever, ths credtng or refundng devce s not made avaabe
n the case of spark pugs, storage batteres, eaf sprngs, cos, tmers, and tre
chans. n e empton s aready provded by e stng reguatons for auto-
motve parts and accessores sod to manufacturers for use on new farm equp-
ment wth the e cepton of the tems specfcay sted above. The provson
appes the same pocy to saes of repar or repacement parts, makng use,
n ths case, of a credtng or refundng procedure.
. Tres on toys, etc. (.secton 1(h)).
Secton 1(h) of the b makes a revson n the -cent-per-pound manufac-
turers ta on tres. Secton 3 00 of the Code s amended to e cude from ths
ta tres whch are not more than 20 nches n dameter and one and three-
fourths of an nch n cross secton If the tres are of a-rubber constructon.
The b aso e cudes tres wth nterna wre fasteners, rrespectve of sze.
Under present aw, the ta on tres s appcabe to a tres regardess of the
use for whch they are ntended. Ths provson has the effect of removng the
ta In the case of tres for baby bugges, awn mowers, chdren s trcyces,
scooters, coaster wagons, etc.
6. ectrc, gas, and o appances (secton ).
Secton of the b revses the base of the 10 percent manufacturers ta
on eectrc, gas, and o appances provded by secton 3 00 of the Code. cept
n the case of eectrc drect motor-drven fans and ar crcuators, the b
removes from ta a appances of a nonhousehod type. In the case of the
former, ony ndustra type eectrc drect motor-drven fans and ar crcuators
are removed from the base of the ta . In addton, the b e empts from ta
a eectrc heatng pads. It aso adds the foowng househod types of tems
to the base of ths ta :
1. ectrc e haust bowers. 10. ectrc ce cream freezers.
2. ectrc bet-drven fans. 11. ectrc manges.
3. ectrc or gas cothes drers. 12. ectrc moton or st pcture pro-
. ectrc door chmes. |ectors.
f . ectrc deumdfers. 13. ectrc pants pressers.
6. ectrc dshwashers. 1 . Power awn mowers.
7. ectrc foor poshers and wa ers. 1 . ectrc sheets and spreads.
. ectrc food choppers and grnders. 16. ectrc garbage dsposa unts.
9. ectrc hedge trmmers.
The tems ta ed under present aw whch w contnue to be sub|ect to ta
under the b are eectrc drect motor-drven fans and ar crcuators of the
nonndustra type and the foowng househod types of appances:
1. ectrc, gas, and o water heaters.
2. ectrc, gas, and o appances for cookng or warmng food or beverages
for consumpton on the premses.
3. ectrc fat rons.
. ectrc ar heaters (but not furnaces).
. ectrc mmerson heaters.
6. ectrc bankets.
7. ectrc m ers, whppers, and |ucers.
Of the tems added to the base of the ta , the most mportant In terms of
revenue are power awn mowers, eectrc dshwashers, and eectrc and gas
cothes drers. Ths 10 percent manufacturers ta , when e pressed as a per-
centage of the reta prce of the eectrc, gas, and o appances, ncudng ta ,
represents about a 0 percent ta .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
336
7. Navgaton recevers sod to the Unted States Government (secton - S2).
Secton 2 of the b makes a revson n the base of the 10 percent manu-
facturers e cse ta on rado recevng sets, teevson recevng sets, etc.. Im-
posed by secton C 0 of the Code. communcaton, detecton, or navgaton
recever of the type used n commerca, mtary, or marne nstaatons, s
e empted from ths ta f sod to the Unted States for ts e cusve use.
. Refrgeraton equpment (secton SS).
Under present aw, a 10 percent manufacturers ta s mposed on househod
type mechanca refrgerators, quck-freeze unts, and refrgeratng and freezng
apparatus. In the case of refrgeratng and freezng apparatus, present aw
provdes that the ta does not appy n the case of saes of refrgerator com-
ponents to whoesaers and retaers for resae to manufacturers of ta abe
refrgerators, quck-freeze unts or refrgeratng or coong apparatus. Where
refrgeratng apparatus s sod to a whoesaer or retaer for resae to a manu-
facturer of nonta abe refrgerators or refrgeraton equpment the ta does
appy. owever, f a manufacturer of refrgeraton equpment ses t drecty
to another manufacturer of refrgeraton equpment, no ta appes rrespectve
of whether or not the refrgeraton equpment sod by the second manufacturer
s ta abe.
Secton 3 of the b amends secton 3 0 (b) of the Code to provde that,
under reguatons prescrbed by the Secretary of the Treasury, the ta s not
to appy to refrgeraton components sod to whoesaers or retaers where the
components are hed for resae to manufacturers of refrgeraton and freezng
equpment (and fnay so sod) rrespectve of whether or not the equpment
sod by the atter manufacturers s ta abe equpment.
9. Sportng goods (secton |S ).
Secton of the b makes two changes n the 10 percent manufact urers
ta mposed cn sportng goods by secton 3 06 of the Code.
Under present aw ths ta covers vrtuay a types of sportng equpment
athough certan toy or chdren-szed tems are e empt. The frst change made
by the b wth respect to the sportng goods ta s to remove from ts appca-
ton specfc types of artces whch are used predomnanty for schoo sports
and by chdren. The tems removed from the appcaton of the ta are as
foows:
1. asebas and baseba equpment. 10. Push bas.
2. asketbas. 11. Skates.
3. o ng goves and other bo ng 12. Snow toboggans and seds not more
equpment. than 00 nches n ength.
. Fencng equpment. 13. Soccer bas.
. Footbas and other footba equp- 1 . Softbas and other Softba equp-
ment, ment.
C. Gymnasum equpment and appara- 1 . Track hurdes.
tus. 16. autng equpment.
7. ockey equpment. 17. oeybas and other voeyba
. Indoor basebas and other ndoor equpment.
baseba equpment. 1 . Water poo equpment.
9. Mass bas. 19. Wrestng head harness.
The tems whch w reman n the base of- the ta are as foows:
1. admnton equpment. 10. Lacrosse equpment.
2. ard and poo tabes, bas, and 11. Poo equpment.
cues. 12. Sks and sk poes.
3. owng bas and pns. 13. Snowshoes.
. Cay pgeons and traps for throwng 1 . Snow toboggans and seds more
cay pgeons. than 60 nches n ength.
. Crcket bas and bats. 1 . Squash equpment.
0. Croquet bas and maets. 16. Tabe-tenns equpment.
7. Curng stones. 17. Tenns equpment.
. Deck-tenns equpment. 1 . Fshng equpment.
9. Gof cubs and other gof equpment.
The second change made by the b s to rase the rate of ta from 10 percent
to 1 percent of the manufacturers prce wth respect to a of the tems
remanng n the ta base, e cept fshng equpment. In that case the b
eaves the rate at 10 percent. The ta recepts from that source are earmarked
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
337
Msc.
for conservaton and ths b makes no change n ths arrangement. Under
present aw the ta on sportng goods s about 6 percent of the reta prce
ncudng ta and under the b w be (e cept for fshng equpment) betwetn
10 percent and 11 percent of the reta prce.
10. Photographc apparatus and fm (secton 6).
Secton 3 06 of the Code mposes a 2 percent ta on saes at the manufac-
turers eve of photographc apparatus, whch s defned as ncudng cameras
weghng pounds or ess, enses, photographc apparatus and equpment, and
any apparatus or equpment desgned especay for photographc purposes.
1 percent manufacturers ta s aso mposed on photographc fms (e cept
-ray fms), photographc pates, and senstzed paper. Under present aw, the
ta on fm s about 0 percent, and ta on equpment s about 13 percent, of the
reta prce.
Secton 6 of the b decreases the 2. percent ta on photographc apparatus
to 20 percent and ncreases the 1 percent ta on fm to 20 percent. The b
aso revses the bases of these ta es so that they are mposed ony on fm,
cameras, and enses, and ony on those whch, nsofar as admnstratvey poss-
be, do not represent a cost of dong busness. Under the b, the ta on these
tems w represent a ta of between 11 and 12 percent of the reta prce.
In the case of photofash bubs, the b provdes foor stock refunds. That
Is, whoesaers, retaers and others havng nventores of photofash bubs n-
tended for sae on the date the emnaton of the-ta becomes effectve woud
be credted, or woud receve a refund, wth respect to the ta pad on ther
nventores of photofash bubs.
//. ectrca energy (secton / ).
Secton 3 11 of the Code mposes upon vendors of eectrca energy sod to
domestc or commerca consumers a ta equa to 3 percent of the prce
charged. Secton of the b repeas ths ta .
12. Fountan pens, oa-pont pens, and mechanca pencs (scc on 7).
Secton 7 of the b adds a new secton 3 0 to the Code mposng a 1
percent manufacturers ta on fountan pens, ba-pont pens, and mechanca
pencs. t the present tme some pens and pencs are sub|ect to the 20 percent
reta ta on |ewery and reated tems where they have nonessenta parts
whch are ornamented wth precous metas. These pens and pencs are not
Incuded n the base of the new manufacturers ta .
IS. Cgarette, cgar, and ppe ghters (secton - 7).
Secton 7 of the b mposes a manufacturers ta on a mechanca ghters
for cgarettes, cgars, and ppes whch are not now ta ed as |ewery. The
manufacturers ta on mechanca ghters s mposed at a 1 percent rate.
D. R T IL CIS S
1. Toet preparatons (secton S1).
Secton 31 of the b makes three changes n the 20 percent reta ta on
toet preparatons mposed by sectons 2 02 and 16 0 of the Code.
The frst of these changes e empts from ths ta baby os, powders, otons,
and other toet artces uness they are advertsed or sod as beng usabe by
aduts.
The second change e empts toet preparatons purchased by barber shops and
beauty parors for use n these estabshments. Under present aw these tems
are sub|ect to ta at the tme they are purchased by the barber shop or beauty
paror. owever, toet preparatons purchased by a barber shop or beauty
paror for resae to customers are not ta abe unt sod to the utmate user.
To dstngush the purchases for resae made by the barber shop or beauty paror
from the purchases for ther own use, the estabshment s requred to fe a
certfcate, f no ta Is pad at the tme of purchase, ndcatng that the tems
w not be used n the estabshment. Such certfcates are not presenty
requred In the case of ta -pad purchases for use n the estabshment. The
b emnates and repeas the ta on toet preparatons purchased by barber
shops, beauty parors, and smar estabshments If ntended for use n such es-
tabshments. Ths amendment aso has the effect of emnatng the requre-
ment of e empton certfcates In connecton wth saes of cosmetcs to barber
shops and beauty parors ether for professona use theren or for resae once
the busnesses have estabshed ther nonta abe status as barber shops or beauty
parors.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
33
Te thrd change e empts from the appcaton of ths ta mnature sampes
of toet preparatons sod by manufacturers or dstrbutors to house-to-house
saesmen If the sampes are for demonstraton purposes ony.
. TR NSPORT TION ND COMMUNIC TION CIS S
. Domestc teegraph, cabe, and rado messages (secton 91).
Sectons 16 0 and 3 0 of the Code mpose a 2 percent ta on amounts pad
for domestc teegraph, cabe, or rado dspatches or messages. Secton 91 of
the b reduces the ta on domestc teegraph, cabe, or rado messages to 1
percent.
2. Long-dstance teephone cas from members of the rmed Forces n combat
areas (secton 92).
Secton 92 of the b provdes that the 2 percent ta on ong-dstance tee-
phone cas s not to appy to cas from combat zones ntated by members of
the rmed Forces.
3. Transportaton of persons (sectons 93, 9 ).
The b makes two changes n the 1 percent ta on amounts pad for the
transportaton of persons provded by sectons 16 0 and 3 69 of the Code. One
of these e empts certan f-hng trps from the ta on the transportaton of
persons. Under present aw amounts pad for transportaton n boats where the
transportaton takes pace for the soe purpose of shng from the boat have been
hed to be ta abe under these sectons. Secton 93 of the b e empts from
the ta on the transportaton of persons amounts pad for transportaton by
boat for the purpose of fshng from such boat.
The second change made by the h n the ta on the transportaton of per-
sons e cudes from the appcaton of the ta amounts pad n the case of certan
types of transportaton by vesses. In 19 7 the ta on the transportaton of
persons was amended to e cude, from the appcaton of the ta , amounts pad
for transportaton outsde of the northern porton of the Western emsphere.
owever, amounts pad for transportaton partay wthn Unted States, Can-
ada, or Me co, and partay outsde of the nortnern porton of the Western
emsphere, were contnued under the ta wth respect to that part of the
transportaton whch s from any port or staton wthn the Unted States,
Canada, or Me co to any other port or staton wthn the Unted States, Canada,
or Me co. For e ampe, under present aw f a vesse eavng New York
for London stops at oston for servcng or refueng, a part of the tckets pur-
chased by ts passengers s sub|ect to the transportaton ta . Secton 9 of
the b provdes that n the ense of transportaton by vesses makng nter-
medate stops at ports n Unted States, Canada, or Me co on voyages between
Unted States and a port outsde of the northern porton of the Western em-
sphere, the charge for the transportaton between the ntermedate stop and
the port n the Unted States, where the transportaton begns or ends, s not
to be sub|ect to the transportaton ta , f the vesses are not authorzed both to
dscbarge and take on passengers at the ntermedate stops.
. Transportaton of e cavaton matera (secton 9 ).
Under present aw secton 3 7 of the Code mposes a 3 percent ta on amounts
pad for the transportaton of property (n the case of coa the ta s cents per
short ton). In the case of budng contractors payng for haung drt, rocks and
other e cavaton matera to some desgnated pace the ureau of Interna Reve-
nue has hed that a charge s beng made for the transportaton of property
and, therefore, that such haus are sub|ect to ta . (Where e cavaton matera
has been removed wthout desgnatng the pace t s to be taken, no ta has
been apped, snce the ureau has consdered ths to be merey the payment
for remova of waste rather than a charge for the transportaton of property.)
Snce March 13, 19 1, the ureau of Interna Revenue has foowed the rue
ad down by the Thrd Crcut Court of ppeas n d card . s f Sons,
Inc., v. Unted States that where e cavaton matera has been haued from one
pont on a constructon pro|ect to another pont on the same pro|ect, no trans-
portaton ta s due. owever, ta st s mposed where the e cavaton
matera s taken off the constructon pro|ect to some desgnated pace, even
though such pace s ad|acent to, or near the constructon pro|ect. Secton
9 of the b e empts from ths ta charges made for the use of motor vehces
for the movement of earth, rock, or other e cavated matera from a constructon
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
339
Msc.
pro|ect to an ad|acent area. The b aso provdes that no nferences are to
be drawn because of the enactment of ths provson wth respect to the ta
on the charge for transportng other e cavated matera.
F. CIS S ON MUS M NTS OR C TION
1. Genera admssons (sectons 01, 02).
Sectons 16 0 and 1700 of the Code mpose a ta of 1 cent for each cents
cr ma|or fracton thereof charged for admsson. The b makes two changes n
the appcaton of ths ta .
The frst change n the admssons ta , made by secton 01 of ths b, deas
wth the amount pad for admsson. Under present aw a person admtted
free or at reduced rates s requred to pay the snme amount of ta as a person
who s charged the reguar admsson prce, uuess he s an empoyee, a mu-
ncpa ofcer on offca busness, a chd under 12, a servceman, or (f adms-
son s free) a hosptazed veteran. Secton 01 of the b e empts free adms-
sons from ta n a cases and bases the ta ou amounts actuay pad where
persons are admtted at reduced rates.
The second change provdes e emptons from the admssons ta where the
proceeds nure to certan types of organzatons. Secton 02 of the b e empts
from ths ta admssons where a the proceeds nure to
1. Churches or conventons of churches.
2. ducatona organzatons f such organzatons normay mantan
reguar facutes and currcua and normay have reguary organzed
bodes of pups or students n attendance at the paces where ther educa-
tona actvtes are reguary carred on.
3. Chartabe organzatons f such organzatons are supported n whoe
or n part by funds contrbuted by the Unted States or any State or potca
subdvson thereof, or are prmary supported by contrbutons of the
genera pubc.
. Socetes or organzatons conducted for the soe purpose of mantan-
ng symphony orchestras or operas and recevng substanta support from
vountary contrbutons.
. Organzatons e empt under secton 101(6) and organzed pror to
October 1, 19 1, whch are operated for the purpose of conductng an annua
Chautauqua program of educatona, cutura, and regous actvtes at a
permanent ocaton.
6. Natona Guard organzatons.
7. Reserve offcers organzatons.
. eterans organzatons.
9. Poce or fre departments, penson or retrement funds set up for
the beneft of ther members and funds set up for the beneft of the hers
of members.
owever, In the case of any of the above types of organzatons, admssons
are not e empt f they are to
1. Moton-pcture e hbtons.
2. Wrestng and bo ng matches.
3. Carnvas, rodeos, or crcuses where professonas partcpate for
compensaton.
. thetc contests uness the proceeds nure e cusvey to the beneft
of eementary or secondary schoos (or, n the case of an athetc contest
between two eementary or secondary schoos, nure to the beneft of a hos-
pta for crpped chdren).
The b aso e empts genera admssons to nonproft agrcuture fars; ad-
mssons to concerts conducted by nonproft cvc assocatons; admssons to
swmmng poos and other paces provdng factes for physca e ercse f
operated by a governmenta unt; admssons to a home or garden whch s
temporary opened to the genera pubc as a part of a program conducted
by a socety or organzaton to permt the Inspecton of hstorca homes and
gardens f no part of the proceeds Inures to the beneft of any prvate person;
and admssons to hstorca stes, houses, and shrnes, and assocated museums
f operated by an organzaton for the preservaton of such pace and f no
proceeds nure to any prvate person.
2. Cabarets (secton 0 ).
Secton 0 of the b reates to the appcaton of the 20 percent ta on
cabarets to barooms and dance has. Some courts have construed the cabaret
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
3 0
ta to appy n the case of barooms and dance has where t was possbe to
purchase ncdenta refreshments, servces, or merchandse n such paces. The
b amends secton 1700(e) of the Code to provde that the cabaret ta sha
not appy n such cases.
G. CIS S ON G M LING
Secton 71 of the b adds a new chapter 27 to the Code whch mposes
a 10 percent e cse ta upon wagers of certan types, prncpay those paced
wth bookmakers and ottery operators, and a 0 per year occupatona ta
both upon persons engaged n acceptng such wagers and upon persons who
receve wagers for the persons so engaged. The b provdes that payment
of ether the ta on wagers or the occupatona ta does not serve to e empt
any person from any penates provded under ether State or Federa aw wth
respect to engagng n the ta ed actntes.
1. Ta on cagcrs (secton 71).
The wagerng ta s paced upon wagers, wthout regard to the outcome of
ndvdua bets. The ta s mted (1) to wagers on sports events or contents
paced wth a person engaged n the busness of acceptng such wagers, (2) to
wagers paced n a wagerng poo whch nvoves a sports event or contest, f
the poo s conducted for proft, and (3) to wagers paced n a ottery conducted
for proft.
The ta w e tend to wagers on any sport, such as horse racng, prze fghts,
basketba, baseba, or footba, ncudng sports e hbtons and tras. More-
over, the event wagered upon need not be a sports actvty but can be any type
of contest, such as an eecton or the outcome of prmares and nomnatng
conventons.
Wagers on sports events or contests, to be ta abe, must be paced wth a
person engaged n the busness of acceptng such wagers. Ths requrement
e cudes from ta the purey soca or frendy type of bet. person s
consdered to be n the busness of acceptng wagers f he t engaged as a
prncpa who, n acceptng wagers, does so on hs own account. The prncpas
n such transactons are commony referred to as bookmakers, athough no
technca denton of bookmaker, such as the mantenance of a handbook or
other devce for the recordng of wagers, s requred. wager s to be consdered
as paced wth a prncpa when t has been paced wth another person actng
for hm. To be engaged n the busness of acceptng such wagers a person
need not be ether so engaged to the e cuson of a other actvtes or even
prmary so engaged. Thus, for e ampe, an ndvdua may be prmary
engaged as a saesman, and aso, for the purposes of ths ta , be engaged n
the busness of acceptng wagers.
s prevousy stated, wagers paced n a wagerng poo wth respect to a
sports event or a contest are ta abe f the poo s conducted for proft.
poo w be consdered as beng operated for proft, f, for e ampe, a person
approprated to hmsef a percentage of the amount contrbuted to the poo
or requred a fee for the prvege of contrbutng to the poo.
s n the case of bookmakng transactons, n wager w be consdered as
paced n a poo or n a ottery whether paced drecty wth the person who
conducts the poo or ottery or wth another person actng for such a person.
contrbuton to a ottery w be consdered a ta abe wager ony f the
ottery s conducted for proft, as s the case wth respect to wagerng poos.
The term ottery, means any scheme for the dstrbuton of property by chance
among persons who have pad or have agreed to pay a vauabe consderaton
for the chance, whether caed a ottery, raffe, gft enterprse, or some other
name. The b specfcay provdes that the term ncudes pocy or the so-
caed numbers game and smar types of wagerng.
The b e cudes from the term ottery any game of a type n whch the
wagers are usuay paced, the wnner or wnners are usuay determned, and
the dstrbuton of przes or other property s usuay made, n the presence of
n persons pacng wagers n the game. mong those games whch are wthn
the scope of the e cuson are card games, rouette games, dce games, and
gambng whees. On the other hand, punchboards woud not normay be
e cuded under ths defnton.
The b provdes specfcay that the ta s not to appy wth respect to
wagers paced n par-mutue wagerng enterprses censed under State aw.
so e cuded from the ta are wagers paced n con-operated devces wth
respect to whch an occupatona ta s Imposed by secton 3207 of the Code.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 1
Msc.
The b provdes that, for te purposes of the ta , the term ottery does
not ncude any drawng conducted by organzatons e empt from ta under sec-
ton 101 of the Code where no part of the net proceeds derved from such drawng
nures to the beneft of any prvate sharehoder or ndvdua.
Labty for the wagerng ta s paced upon the person who s engaged n
the busness of acceptng wagers or who conducts the poo or ottery. Thus, the
ta s to be coected from the bookmaker proper or from the person who conducts
the poo or ottery as the prncpa. Monthy returns of ta are requred.
credt s provded n the case of so-caed ay-off money. In order to avod the
rsk nherent n acceptng dsproportonate amounts of wagers on certan horses
or numbers, the bookmaker or pocy operator ays off a porton of hs bets
wth another bookmaker or pocy operator. In such cases t s the person wth
whom the bet s ad off who bears the actua rsk of the wager even though t
s the person wth whom the bet was orgnay paced that the bettor ooks to for
hs wnnngs or to whom he pays hs osses. Wth respect to such ad-off
wagers the bookmaker or pocy operator who orgnay accepts the wager s to
be abe for the 10 percent ta upon t but may cam a credt or refund for the
amount of the ta f the bet s ad off wth another person who aso s abe to
the wagerng ta . The credt w be aowabe ony wth respect to amounts
ad off wth persons aso abe to the ta on wagers.
wager s the amount rsked by the person pacng the bet rather than the
amount whch he stands to wn. Thus, f a erson bets aganst a bookmaker s
7 wth respect to the outcome of a prze fght, the wager, for the purpose of the
ta , s . The amount sub|ect to ta w ncude not ony the wager proper
but aso any charge ncdent to the pacng of the wager. On the other hand, the
b specfcay provdes that the ta abe amount s not to ncude an amount
equa to the ta f t has been coected as a separate charge from the bettor.
Ths e cuson conforms to the pattern of the other e cses.
The b contans provsons desgned to prevent avodance of the ta through
transfer of wagerng actvtes to ponts outsde of the Unted States.
ny person who wfuy fas to pay the ta provded or to make a return
or to keep requred records (ncudng a day record of the gross amount of
wagers receved) s made abe to crmna penates (n addton to the cv
penates) of up to 1 year s mprsonment and a fne up to 10,000.
2. Occupatona ta (secton
In addton to the ta on wagers descrbed above, the b mposes an occu-
patona ta of 0 per year upon any person abe to the ta on wagers and
upon any person engaged n recevng wagers for hm.
The b provdes that a person who pays the occupatona ta must, as part
of hs regstraton, Identfy those persons who are engaged n recevng wagers
for or on hs behaf, and, n addton, dentfy the persons on whose behaf he s
engaged n recevng wagers.
In genera, the provsons of the occupatona ta foow the pattern of the
other occupatona ta es mposed under the Code and requre regstraton, post-
ng of speca ta stamp by the ta payers, the mantenance by the coector of a
st of ta payers for pubc nspecton, etc. Speca penates are mposed for
faure to pay the ta or to post or e hbt the stamp.
S. Con-operated gamng devces (secton ,G3).
Secton 3267(a) of the Code provdes an occupatona ta of 1 0 per year
n the case of con-operated gamng devces. Secton 03 of the b rases ths
to 2 0 per year.
. FLOOR STOC T S ND R FUNDS
oth foor stock ta es and foor stock refunds are mposed or granted one
tme ony: a ta when an ncrease n rates occurs and a refund when a decrease
n rates occurs. They are mposed or granted wth respect to nventores of
tems whch are beyond the pont at whch an e cse ta ordnary s mposed
at the tme the ncrease or decrease n rates occurs. They are used ony n the
case of ta es mposed at the manufacturers eve, snce ony n these cases are
there any nventores of tems hed by persons other than consumers whch
have not been affected by recent changes n the e cse rates.
Under the b foor stock ta es are mposed wth respect to the ncreases n
the ta on dsted sprts, beer, wne, and cgarettes (sectons 1(c), 3(b),
2(b), 22). In the case of gasone a foor stock ta s aso mposed (by
secton 9(b)), but ony wth respect to stocks of gasone hed by retaers
other than at ther reta estabshments and wth respect to whoesaers. The
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
Msc.
3 2
rates of ta under these foor stock ta es are the same as the ncreases n ta
provded for these tems.
The b aso provdes for certan foor stock refunds at the tme of the term-
naton, pr 1, 19 , of the e cse ncreases made by ths b. The refunds
are to be mted to the tems on whch foor stock ta es are mposed at the
effectve date of the ncrease; that s, they are mted to dsted sprts, beer,
wne, and cgarettes and to stocks of gasone hed by retaers at other than
ther reta estabshments (sectons , 22, S9(b)). The refunds are to be
granted ony wth respect to the ncreases mposed by ths b, and ony f
the owner of the nventores can show that for 3 months after the reducton
date the prces charged for the tems refect the ta decreases made.
III. Msceaneous
1. Cams under the Renegotaton ct (secton GIT).
Secton 201(c) of the Renegotaton ct of 19 1 f es the e praton date for
the fng of cams for net renegotaton rebates arsng under the Word War
II statute. mong other requrements t s provded that a net renegotaton
rebate s not to be repad uness a cam has been fed wth the dmnstrator
of Genera Servces on or before une 30, 19 1. Such cams coud not be fed
unt the Federa ta audt was competed for the affected years.
Secton 617 of the b e tends the tme for fng a cam for such net renego-
taton rebates to October 31, 19 1.
2. Prohbton upon dena of Soca Securty ct funds (.secton G1 ).
Ttes I, I , , or I of the Soca Securty ct reate to grants by the Fed-
era Government to States for ad to the needy n the case of the aged, dependent
chdren, bnd, or permanenty and totay dsabed. The Federa Government
and the States share the cost of these assstance programs. owever, a State s
not entted to payments from the Federa Government uness the State pan
has been approved by the Federa Securty dmnstrator. Under e stng aw
a State assstance pan n order to be approved must provde safeguards whch
restrct the use or dscosure of nformaton concernng ndvduas recevng
the ad to purposes drecty connected wth the admnstraton of the assstance
program.
Secton CIS of the b provdes that no State or any of ts agences or potca
subdvsons s to be deprved of any grant-n-ad to whch t otherwse s or
has become entted under tte I, I , , or I of the Soca Securty ct as
the resut of State egsaton permttng pubc access to records of the ds-
bursement of any of these payments. . owever, the State egsaton must pro-
hbt the use of any st or names obtaned from the records for commerca or
potca purposes.
Under ths provson the State of Indana, whch has a aw whch permts
pubc access to the records of dsbursements of pubc wefare funds but whch
contans a prohbton upon the use of any sts or names for commerca or
potca purposes of any nature, w be entted to receve ts payments under
the Socn Securty ct n the future and w aso be entted to receve any pay-
ments whch have been wthhed because of the Indana aw.
S. Remova of ta -e empt e pense aowances of the Presdent, ce Presdent,
Speaker of the ouse, and Members of Congress (secton 619).
Under present aw the Presdent receves a saary of 100,000 nnd an e pense
aowance of 0,000; the ce Presdent and the Speaker of the ouse receve a
saary of 30,000 and an e pense aowanc of 10,000; Members of Congress
other than the Speaker receve a saary of 12, 00 and an e pense aowance of
2, 00. In each of these cases the e pense aowance Is fuy ta -e empt. No
accountng by the recpent s requred n order to estabsh a rght to ths
e empton aone.
Secton 019 of the b amends tte 3 of the Unted States Code and secton
001 of the Legsatve Reorganzaton ct of 19 G to remove the ta e empton
of these severa e pense aowances. s a resut these ndvduas w contnue
to receve the same saary and the same e pense aowance as under present aw,
but the e pense aowance must e ncuded n gross ncome and w be ta ed
uness offset by aowabe deductons or credts.
Wth respect to the compensaton of the Presdent and the ce Presdent, ths
amendment w bo effectve at noon on anuary 20, 19 3. Wth respect to the
compensaton of the Speaker of the ouse and of Members of Congress, the
amendment s effectve as of anuary 3,19 3.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
L GISL TION
19 1-1 -1362
. . 20 . PU LIC L W . IG TY-S COND CONGR SS
C PT R 16 , FIRST S SSION
n ct Reatng to the treatment of powers of appontment for
estate and gft ta purposes.
e t enacted by the Senate and ome of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the Powers of ppontment ct of 19 1 .
S C. 2. ST T T -POW RS OF PPOINTM NT.
(a) Secton 11(f) of the Interna Revenue Code (reatng to
powers of appontment) s hereby amended to read as foows:
(f) Powers of ppontment.
(1) PrOP TY wth respect to whch decedent e ercses a genera
power of appontment created on or before october 21, 19 2. to the
e tent of any property wth respect to whc a genera power of appontment
created on or before October 21. 19 2, s e ercsed by the decedent (1)
by w or (2) by a dsposton whch s of such nature that f t were
a transfer of property owned by the decedent, such property woud be
ncudbe n the decedent s gross estate under subsecton (c) or (d) ;
but the faure to e ercse such a power or the compete reease of such
a power sha not be deemed an e ercse thereof.
If before November 1, 19 1. or wthn the tme mted by paragraph
(2) of secton 03(d) of the Revenue ct of 19 2. as amended, n cases
to whch such paragraph s appcabe, a genera power of appontment
created on or before October 21. 19 2, sha have been partay reeased
so that t Is no onger a genera power of appontment, the subsequent
e ercse of such power sha not be deemed to be the e ercse of a genera
power of appontment.
(2) Powers created after October z. 10 2. To the e tent of any prop-
erty wth respect to whch t e decedent has at the tme of hs death a gen-
era power of appontment created after October 21, 19 2, or wth respect
to whch the decedent has at any tme e ercsed or reeased such a power
of appontment by a dsposton whch s of such nature that f t were a
transfer of property owned by the decedent, such property woud be n-
cudbe n the decedent s gross estate under subsecton (c) or (d).
dscamer or renuncaton of such a power of appontment sha not be
deemed a reease of such power.
For the purposes of ths paragraph (2) the power of appontment sha
be consdered to e st on the date of the decedent s death even though the
e ercse of the power s sub|ect to a precedent gvng of notce or even
though the e ercse of the power takes effect ony on the e praton of a
stated perod after ts e ercse, whether or not on or before the date of the
decedent s death notce has been gven or the power has been e ercsed.
(3) Defnton of genera poweb of appontment. For the purposes
of ths subsecton the term genera power of appontment means a power
whch s e ercsabe n favor of the decedent, hs estate, hs credtors, or
the credtors of hs estate; e cept that
( ) power to consume, nvade, or approprate property for the
beneft of the decedent whch s mted by an ascertanabe standard
(3 3)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
reatng to the heath, educaton, support, or mantenance of the
decedent sha not be deemed a genera power of appontment.
( ) power of appontment created on or before October 21, 19 2,
whch s e ercsabe by the decedent ony n con|uncton wth another
person sha not be deemed a genera power of appontment.
(C) In the case of a power of appontment created after October 21,
19 2, whch s e ercsabe by the decedent ony n con|uncton wth
another person
() f the power s not e ercsabe by the decedent e cept n con-
|uncton wth the creator of the power such power sha not be
deemed a genera power of appontment.
() f the power s not e ercsabe by the decedent e cept n
con|uncton wth a person havng a substanta nterest n the
property, sub|ect to the power, whch s adverse to e ercse of the
power n favor of the decedent such power sha not be deemed a
genera power of appontment. For the purposes of ths cause a
person who, after the death of the decedent, may be possessed of
a power of appontment (wth respect to the property sub|ect to
the decedent s power) whch he may e ercse n hs own favor
sha be deemed as havng an nterest n the property and such
nterest sha be deemed adverse to such e ercse of the decedent s
power.
() f (after the appcaton cf causes () and ()) the
power s a genera power of appontment and s e ercsabe n
favor of such other person such power sha be deemed a genera
power of appontment ony n respect of a fractona part of the
property sub|ect to such power, such part to be determned by
dvdng the vaue of such property by the number of such persons
(ncudng the decedent) u favor of whom such power s
e ercsabe.
For the purposes of causes () and () a power sha be deemed to
be e ercsabe n favor of a person f t s e ercsabe n favor of such
person, hs estate, hs credtors, or the credtors of hs estate.
( ) CR TION OF NOT R POW R I C RT IN C S S. To the e tent of
any property wth respect to whch the decedent (1) by w or (2) by a
dsposton whch s of such nature that f t were a transfer of property
owned by the decedent, such property woud be ncudbe n the decedent s
gross estate under subsecton (c), e ercses a power of appontment created
after October 21, 19 2, by creatng another power of appontment whch
under the appcabe oca aw can be vady e ercsed so as to postpone the
vestng of any estate or nterest n such property, or suspend the absoute
ownershp or power of aenaton of such property, for a perod ascertanabe
wthout regard to the date of the creaton of the frst power.
( ) Lapse of power. The apse of a power of appontment created after
October 21, 19 2, durng the fe of the ndvdua possessng the power sha
be consdered a reease of such power. The rue of the precedng sentence
sha appy wth respect to the apse of powers durng any caendar year
ony to the e tent that the property whch coud have been apponted by
e ercse of such apsed powers e ceeded n vaue, at the tme of such apse,
the greater of the foowng amounts:
( ) ,000, or
( ) per centum of the aggregate vaue, at the tme of such apse,
of the assets out of whch, or the proceeds of whch, the e ercse of the
apsed powers coud have been satsfed.
(b) Date of Creaton of Power. For the purposes of ths secton
a power of appontment created by a w e ecuted on or before October
21, 19 2, sha be consdered a power created on or before such date
f the person e ecutng such w des before uy 1, 19 9, wthout
havng repubshed such w, by codc or otherwse, after October 21,
19 2.
(c) ffectve Date. The amendments made by ths secton sha
bo effectve as f made by secton 03 of the evenue ct of 19 2 on
the date of ts enactment (appcabe wth respect to estates of decedents
dyng after October 21,19 2),
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
S C 3. GIFT T POW RS OF PPOINTM NT.
(a) Secton 1000(c) of the Interna Revenue Code (reatng to
powers of appontment) s hereby amended to read as foows:
(c) Powers op ppontment.
(1) ercse of genera power of appontment created on or beforb
octodeh 21, 10 2. n e ercse of a genera power of appontment created on
or before October 21, 19 2, sha be deemed a transfer of property by the
ndvdua possessng such power: but the faure to e ercse such a power
or the compete reease of such a power sha not be deemed an e ercse
thereof.
If before November 1, 1031. or wthn the tme mted by paragraph (2)
of secton (b) of the Iteveuue ct of 1U 2, as amended, n cases to whch
such paragraph s appcabe: a genea power of appontment (rented on or
before October 21, 2. sha have been partay reeased so that t s no
onger a genera power of appontment, the subsequent e ercse of such
power sha not be deemed to be the e ercse of a genera power of appont-
ment.
(2) Powers created after October 21, 19 2. The e ercse of a genera
power of appontment created after October 21, 19 2, or the reease after
May 31, 19 1, of such a power, sha be deemed a transfer of property by
the ndvdua possessng such power. dscamer or renuncaton of such
a power of appontment sha not be deemed a reease of such power.
(3) Defnton of genera power of appontment. For the purposes of
ths subsecton the term genera power of appontment means a power
whch s e ercsabe n favor of the ndvdua possessng the power (here-
after n ths paragraph referred to as the possessor ), hs estate, hs
credtors, or the credtors of hs estate; e cept that
( ) power to consume, nvade, or approprate property for the
beneft of the possessor whch s mted by an ascertanabe standard
reatng to the heath, educaton, support, or mantenance of the pos-
sessor sha not be deemed a genera power of appontment.
( t power of appontment created on or before October 21, 19 2,
whch s e ercsabe by the possessor ony n con|uncton wth another
person sta not be deemed a genera power of appontment.
(C) In the case of a power of appontment created after October 21,
19 2, whch s e ercsabe by the possessor ony n con|uncton wth
another person
(I) f the power s not e ercsabe by the possessor e cept n con-
|uncton wth the creator of the power such power sha not be
deemed a genera power of appontment;
(II) If the power s not e ercsabe by the possessor e cept n con-
|uncton wth a person havng a substanta nterest, n the property
sub|ect to the power, whch s adverse to e ercse of the power n
favor of the possessor such power sha not be deemed a genera
power of appontment. For the purposes of ths cause a person who,
after the death of the possessor, may be possessed of a power of
appontment (wth respect to the property sub|ect to the possessor s
power) whch he may e ercse n hs own favor sha b deemed as
havng an nterest In the property and such Interest sha be deemed
adverse to such e ercse of the possessor s power;
() f (after the appcaton of causes () and ()) the power
s a genera power of appontment and s e ercsabe n fnvor of such
other person such power sha be deemed a genera power of ap-
pontment ony n respect of a fractona part of the property sub|ect
to such power, such part to be determned by dvdng the vaue of
such property by the number of such persons (ncudng the posses-
sor) n favor of whom such power s e ercsabe.
For the purposes of causes () and () a power sha be deemed to
be e ercsabe n favor of a person f t s e ercsabe n favor of such
person, hs estate, hs credtors, or the credtors of hs estate.
( ) Creaton of another power n certan cases. If a power of appont-
ment created after October 21, 19 2, Is e ercsed by creatng another power
of appontment whch under the appcabe oca aw can be vady e ercsed
so as to postpone the vestng of any estate or Interest n the property whch
01C 2 23
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 6
was sub|ect to the frst power, or suspend the absoute ownershp or power
of aenaton of such property, for r. perod ascertanabe wthout regard to
the date of the creaton of the frst power, such e ercse of the frst power
sha, to the e tent of the property sub|ect to the second power, be deemed
a transfer of property by the ndvdua possessng such power.
( ) Lapse of poweb. The apse of a power of appontment created after
October 21, 19 2, durng the fe of the ndvdua possessng the power sha
be consdered a reease of such power. The rue of the preeed ng sentence
sha appy wth respect to the apse of powers durng any caendar year
ony to the e tent that the property whch coud have been apponted by
e ercse of such apsed powers e ceeds n vaue the greater of the foowng
amounts:
( ) ,000. or
( ) per centum of the aggregate vaue of the assets out of whch,
or the proceeds of whch, the e ercse of the apsed powers coud be
satsfed.
(b) Date of Creaton of Power. For the purposes of tns secton
a power of appontment created by a w e ecuted on or before Octo-
ber 21,19 2. sha be consdered a power created on or before such date
f the person e ecutng such w des before uy 1, 19 9. wthout
havng repubshed such w, by codc or otherwse, after October
21,19 2.
(c) ffectve Date. The amendments made by ths secton sha
be effectve as f made by secton 2(a) of the Revenue ct of 19 2 on
the date of ts enactment (appcabe wth respect to gfts made n the
caendar year 19 3 and succeedng caendar years).
pproved une 2 , 19 1.
19 1-1 -13630
. R. 31 1. PU LIC L W 06. IG TY-S COND CONGR SS
C PT R 19 , F1 ST S SSION
n ct To contnue unt the cose of une 30, 19 2. the suspenson
of dutes and mport ta es on meta scrap, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed. That secton 2 of the
ct of September 30, 19 0 (Pubc Law G ), ghty-frst Congress,
ch. 1119, second sesson C. . 19 0-2, 2 3 ), s hereby amended by
strkng out une 30, 19 1 and nsertng n eu thereof u une 30,
19 2 .
pproved une 30,19 1.
19 1-16-13G3
. R. 17 0. PU LIC L W 71, IG TY-S COND CONGR SS
C PT R 20 , FIRST S SSION
n ct To nmend subdvsons d and e of secton of the ank-
ruptcy ct, approved uy 1, 1 9 , and cts amendatory thereof
and suppementary thereto.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That subdvsons d
and e of secton of an ct entted n ct to estabsh a unform
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 7
system of bankruptcy throughout the Unted States , approved uy
. 1 9 . as amended, s amended to read as foows:
d. Notces to credtors may be pubshed as the court sha drect.
e. The cerk sha ma to the Commssoner of Interna Uevenue and to the
Comptroer Genera of the Unted States r certfed copy of every order of ad-
|udcaton forthwth upon the entry thereof. The court sha, n every case n-
sttuted under any provsons of ths ct, ma, or cause to be maed, a copy of
the notce of the frst meetng of credtors to the Commssoner of Interna
evenue. to the coector of nterna revenue for the dstrct n whch the court
s ocated, and to the Comptroer Genera of the Unted States. Whenever the
schedues of the bankrupt, or the st of credtors of the bankrupt, or any other
papers fed n the ease dscose a debt to the Unted States actng through any
depnrtment. agency, or nstrumentaty thereof, a notce of the frst meetng
sha be maed as W3 to the head of such department, agency, or Instrumentaty.
pproved uy 3,19 1.
19 1-16-1363
. . 1613. PU LIC L W 72, IG TY-S COND CONGR SS
C PT R 20 , FIRST S SSION
n ct To amend secton 2 3(d) of the Interna Revenue Code
as amended by Pubc Law , ghty-frst Congress C. . 1930-1,
2S9 .
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed. That (a) secton
2S 3(d) of the Interna Revenue Code, as amended by the ct ap-
proved February 21, 19 0. Pubc Law . ghty-frst Congress
C. . 19 0-1,2 9 , s amended to read as foows:
(d) Transfer of Gn and odka. Gn and vodka of any proof may be trans-
ferred n bond by means of ppenes from recevng csterns In dsteres drect
to storage tanks n the nterna revenue bonded warehouse ocated on the bonded
premses where produced, or ocated contguous thereto, and be warehoused n
such storage tanks. Upon ta payment. gn and vodka of any proof may he trans-
ferred by ppene from recevng csterns n dsteres, or from storage tanks n
nterna revenue bonded warehouses ocated on or contguous to the bonded
premses of the producng dstery, to a contguous ta -pad bottng house or
rectfyng pant.
(b) The amendment effected by subsecton (a) hereof sha be ef-
fectve on the frst day of the frst month whch begns more than ten
days after the date of the enactment of ths ct.
pproved uy 3.19 1.
19 1-16-13G3G
. R. 27 0. PU LIC L W 73, TGIITY S COND CONGR SS
C PT R 209, FIRST S SSION
n ct To amend secton 2 s (b) of the Interna Revenue Code
as amended by Pubc Law , ghty-frst Congress C. . 11)30-1,
2S9 .
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed. That (a) secton
2 3(b) of the Interna Rever.uc Code, as amended by the ct ap-
Froved February 21, 19 0, Pubc Law 1 . ghty-frst Congress
C. . 19 0-1, 2 9 , s amended by deetng the comma after the word
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
produced and nsertng n en thereof a perod; by deetng there-
from the words or from such storage tanks to the fortfcaton rooms
of contguous wneres ; and by addng thereto the foowng new
sentence: Fortfyng sprts of one hundred and s ty degrees of
proof or more may aso be transferred by ppene from storage tanks
n any nterna revenue bonded warehouse to the fortfcaton rooms
of contguous wneres.
(b) The amendment made by subsecton (a) sha become effectve
on the thrteth day foowng the date of the enactment of ths ct
pproved uy , 19 1.
19 1-16-13G37
. . R S. 7.3. PU LIC L W 70. IG TY-S COND CONGR SS
C PT R 221, FIRST S SSION
ont Resouton mendng charter 20 of the Interna Revenue Code
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That chapter 2G of the Inter-
na Revenue Code s amended by addng at the end of subchapter a
new secton desgnated 31 3 to read as foows:
S C. 31 3. N TION L M RG NCY TR NSF RS OF DISTILL D
SPIRITS.
(a) Tran.sf: rs Permtted. Under reguatons prescrbed by the Secretary,
dsted sprts of any proof ncudng acoho (the term dsted sprts or
sprts as herenafter used n ths secton sha ncude acoho) may be removed
n bond n approved contaners and ppenes from any regstered dstery
ncudng a regstered frut dstery (such regstered dstery and regstered
frut dstery herenafter referred to as dstery ), nterna revenue bonded
warehouse, ndustra acoho pant or ndustra acoho bonded warehouse to
any dstery, nterna revenue bonded warehouse, ndustrr acoho pant or
ndustra acoho bonded warehouse for redstntb n. or storage, or any other
purpose deemed necessary to meet the requrements of the natona defers .
Provded, That any such dsted sprts may be stored n approved tanks n. or
consttutng a part of, any nterna revenue bonded warehouse or ndustra
acoho bonded warehouse: Provded further. That any such dsted sprts
removed to an ndustra acoho p ant or Industra acho bonded warehouse
may be wthdrawn therefrom f of a proof of one hundred and s ty degrees or
more for any ta -free purpose, or upon payment of ta for any purpose, author-
zed by part II of subchapter C; and any such dsted sprts removed to a
dstery or nterna revenue bonded warehouse may be wthdrawn therefrom
f of a proof of one hundred and s ty degrees or more fcr any ta -free purpose
authorzed by part II of subchapter C or for any purpose authorzed n the case
of ke sprts produced at a dstery : Provded fu tter. That any such dsted
sprts, upon remova from a dstery or nterr.n revenue bonded warehouse for
transfer to an ndustra acoho pant or ndustra acoho bonded warehouse
or for any ta -free purpose authorzed by part II of subchapter C. sha be sub|ect
to the provsons of part II of subchapter C : Provded further. That when any
dsted sprts are removed under the provsons of ths secton to a dstery,
ndustra acoho pant, or ndustra acoho bonded warehouse, the ta abty
of the propretor of the dstery, nterna revenue bonded warehouse, ndustra
acoho pant, or ndustra acoho bonded warehouse from whch the sprts are
removed, and the ens on such dstery, ndustra acoho pant, or ndustra
acoho bonded warehouse, sha cease; and at and from the tme the dsted
sprts eave the dstery, nterna revenue bonded warehouse, ndustra acoho
pant, or ndustra acoho bonded warehouse the ta sha be the abty of the
propretor of, and the ens sha be transferred to the premses of, the dstery,
ndustra acoho pant, or Industra acoho bonded warehouse to whch the
dsted sprts are transferred: Provded further, That when any dsted
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S9
sprts are removed tnder the provsons of ths secton to an nterna revenue
bonded warehouse the propretor of such warehouse sha be prmary abe for
the ta on the sprts at and from the tme the sprts eave the premses from
whch transferred: Provded further. That the provsons of secton 2901 of the
Interna Revenue Code sha appy n respect of osses of any dsted sprts
transferred, or removed fo_ transfer, under ths secton to a dstery or nterna
revenue bonded warehouse; and the provsons of secton 3113 of the Code sha
appy n respect of osses of any dsted sprts transferred, or removed for
transfer, under ths secton to an ndustra acoho pant or Industra acoho
bonded warehouse: |d provded further, That sectons 2 30 and 2 70 of the
Interna Revenue Code sha not appy to the producton or redstaton and
remova of any such sprts; nor sha sectons 2 00(a)( ) and 32 0 f) of the
Code appy to the redstaton or to the mngng at a dstery or an nterna
revenue bonded warehouse or n the course of remova, of any such sprts.
(b) empton Fbom Statctohy Requrements. The Secretary may tempo-
rary e empt propretors of dsteres, nterna revenue bonded warehouses,
ndustra acoho pants, or ndustra acoho bonded warehouses from any
provson of the nterna revenue aws reatng to dsted sprts, e cept those
requrng payment of the ta thereon, whenever n hs |udgment t may seem
e pedent to do so to meet the requrements of the natona defense. Whenever
the Secretary sha e ercse the authorty conferred by ths subsecton he may
prescrbe such reguatons as may be necessary to accompsh the purpose whch
caused hm to grant the e empton.
(c) Tebmnato of Secton. The authorty conferred upon the Secretary by
ths secton sha e pre fve years from the date of enactment of ths secton.
pproved uy 11, 19 1.
19 1-16-13G3
S. 9 . PU LIC L W 7 , IG TY-S COND CONGR SS
C PT R 223, FIRST S SSION
n ct To amend the grcutura ct of 19 9
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed. That the grcu-
tura ct of 19 9 s amended by addng at the end thereof a new
tte to read as foows:
TITL GRICULTUR L WOR RS
Sec. 01. For the purpose of ass stng n such producton of agrcutura
commodtes and products as the Secretary of grcuture deems necessary,
by suppyng agrcutura workers from the Repubc of Me co (pursuant to
arrangements between the Unted States and the Repubc of Me co), the
Secretary of Labor s authorzed
(1) to recrut such workers (ncudng any such workers who have re-
sded n the Unted States for the precedng fve years, or who are tem-
porary n the Unted States under ega entry) ;
(2) to estabsh and operate recepton centers at or near the paces of
actua entry of such workers nto the contnenta Unted States for the
purpose of recevng and housng such workers whe arrangements are
beng made for ther empoyment n, or departure from, the contnenta
Unted States;
(3) to provde transportaton for such workers from recrutment cen-
ters outsde the contnenta Unted States to such recepton centers and
transportaton from such recepton centers to such recrutment centers
after termnaton of empoyment;
( ) to provde such workers wth snch subsstence, emergency medca
care, and bura e penses (not e ceedng 1 0 bura e penses n any one
case) as may be or become necessary durng transportaton authorzed
by paragraph (3) and whe such workers are at recepton centers;
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
330
( ) to assst such workers and empoyers n negotatng contracts for
agrcutura empoyment (such workers beng free to accept or decne
agrcutura empoyment wth any egbe empoyer and to choose the type
of agrcutura empoyment they desre, and egbe empoyers beng free
to offer agrcutura empoyment to any workers of ther choce not under
contract to other empoyers) ;
(6) to guarantee the performance by empoyers of provsons of such
contracts reatng to the payment of wages or the furnshng of
transportaton.

Sec. 0 . fa) Secton 210(a) (1) of the Soca Securty ct, as amended.
Is amended by addng at the end thereof a new subparagraph as foows:
(C) Servce performed by foregn agrcutura workers under contracts
entered nto n accordance wth tte of the grcutura ct of 19 b, as
amended.
(b) Secton 1 2t b)() of the Interna Revenue Code, as amended, Is
amended by addng at the end thereof n new subparagraph as foows:
(C) Servce performed by foregn agrcutura workers under contracts
entered nto n accordance wth tte of the grcutura ct of 19 9,
as amended.
(c) Workers recruted under the prevsons of ths tte sha not be sub|ect
to the head ta eved under secton 2 of the Immgraton ct of 1917 (S U. S. C,
sec. 132).

Sec. 07. For the purposes of ths tt. e
(1) The term agrcutura empoyment ncudes servces or actvtes
ncuded wthn the provsons of secton 3(f) of the Far Labor Standards
ct of 193 . as amended, or secton 1 2G(h) of the Interna Revenue Code,
as amended, hortcutura empoyment, cotton gnnng, compressng and
storng, crushng of o seeds, and the packng, cannng, freezng, dryng,
or other processng of pershabe or seasonabe agrcutura products.
(2) The term empoyer sa ncude an assocaton, or other group,
of empoyers, but ony f ( ) those of ts members for whom workers are
beng obtaned are bound, n the event of Its defaut, to carry out the
obgatons undertaken by t pursuant to secton 02, or ( ) the Secretary
determnes that such ndvdua abty s not necessary to assure perform-
ance of such obgatons.

Sec. 09. No workers w be made avaabe under ths tte for empoyment
after December 31, 19 3.
pproved uy 12, 19 1.
19 1-16-136-10
. R. 3 0 . PU LIC L W S2. IG TY S COND CONGR SS
C PT R 2.3 , FIRST S SSION
n ct To mt the retroactve appcaton of the ncome ta
to empoyees of the Unted States workng n the possessons or n
the Cana Zone.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 220 of
the Revenue ct of 19 0 s amended by strkng out effectve wth
respect to ta abe years begnnng after December 31,19 9 and nsert-
ng n eu thereof effectve wth respect to ta abe years begnnng
after December 31,19 0 .
pproved uy 23, 19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 1
19 1-19-1366
. R. 601. PU LIC L W 12 . IG TY-S COND CONGR SS
C PT R 31 , FIRST S SSION
n ct To provde that the admssons ta sha not appy n re-
spect of admssons free of charge of unformed members of the
rmed Forces of the Unted States.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 1700
(a) (1) of the Interna Revenue Code s hereby amended by addng
at the end thereof the foowng new sentence: No ta sha be m-
posed n the case of admsson free of charge of a member of the
med Forces of the Unted States when n unform.
Sec. 2. The amendment made by ths ct sha be appcabe to
admssons on and after the frst day of the frst month whch begns
more than ten days after the date of the enactment of ths ct.
pproved ugust 2 , 19 1.
19 1-20-13673
. R. 21. PU LIC L W 0. IG TY-S COND CONGR SS
C PT R 3T9, FIRST S SSION
n ct To amend and e tend the Sugar ct of 19 , and for other
purposes.
e t enacted by the Senate and Iotse of Representatves of the
Unted States of merca n Congress assembed, That secton 202
of the Sugar ct of 19 3 s hereby amended to read as foows:

Sec. 6. Secton 3 0 of the Interna Revenue Code (reatng to
termnaton of ta es) s amended by strkng out une 30, 19 3
wherever appearng theren and nsertng n eu thereof une 30,
19 7 .
Sec. 7. The amendments heren sha become effectve anuary 1,
19 3, e cept that sectons 1 through hereof sha be effectve for
purposes of the determnatons and reguatons requred for the
caendar year 19 3.
pproved September 1, 19 1.
19 1-20-1367
. R. 01 . PU LIC L W 1 , TGnTY-S COND CONGR SS
C PT R 00, FIRST S SSION
n ct To amend secton 3121 of the Interna Revenue Code
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 3121 of
the Interna Revenue Code s hereby amended bv strkng out (d)
at the begnnng of subsecton (d) and nsertng y eu thereof (e) ,
and by nsertng after subsecton (c) the foowng:
(d) ppcamty op Other Laws. The provsons, ncudng penates, of
sectons 9 and 10 of the Federa Trade Commsson ct (U. S. C, tte 1 , sees.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 2
9, 0), as now or hereafter amended, sha be appcabe to the |ursdcton,
powers, and dutes under ths part of the Secretary, and to any person (whether
or not a corporaton) sub|ect to the provsons of ths part.
Sec. 2. Notwthstandng the s -month mtaton contaned n
secton 3(a) (2) of the Interna Revenue Code, e tensons of tme
may be granted under such secton, but not beyond November 1 , 19 1,
or the fng by any corporaton sub|ect to the e cess profts ta
mposed by chapter 1 of such Code of the return of the ta es mposed
by such chapter for any ta abe year endng after une 30, 19 0, and
before February 1, 19 1.
pproved September 1 , 19 1.
19 1-22-136
. . R S. 333. PU LIC L W 1 7. IG TY-S COND CONGR SS
C PT R 3, FIRST S SSION
ont Resouton To e tend the tme for use nf constructon reserve
funds estabshed under secton 11 of the Merchant Marne ct,
1036, as amended.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed. That secton of an ct
approved ugust .19 7 (Pubc Law 3 . ghteth Congress C. .
11) 7 2. 3 ), reatng to merchant-marne constructon reserve funds
estabshed under secton 11 of the Merchant Marne ct. 1936. as
amended, s hereby amended by strkng out March 31, 19 1 and
nsertng n eu thereof March 31,19 2 .
pproved October 1,19 1.
19 1-22-136 9
. R. 27 . PU LIC L W 161, IG TY-S COND CONGR SS
C PT R , FIRST S SSION
n ct To amend secton 2 01(c) (1) of the Interna Revenue Code
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That paragraph
(1), subsecton (c), secton 2 01, of the Interna Revenue Code s
amended by strkng out, wherever they appear, the words nnety
proof and substtutng n eu thereof the words eghty proof .
pproved October 10, 19 1.
19 1-22-13690
. R. 2 62. PU LIC L W rtf. IG TY-S COND CONGR SS
C PT R S0, FIRST S SSION
n ct mendng secton 37(c) of the Interna Revenue Code
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 37(c)
of the Interna Revenue Code s amended by strkng out (other than
mutua and other than fe or marne) and nsertng n eu thereof
ta abe under the provsons of secton 20 .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 3
Sec. 2. The amendment made by secton 1 sha have the same effect
as f t had been a part of the sad secton 37(c) on anuary 3,19 1.
pproved October 10, 19 1
19 1-2 -13710
. R. 3 90. PC LIC L W 2 1. IG TY-S COND CONGR SS
C PT R 661, FIRST S SSION
n ct Reatng to the Income-ta treatment of gan reazed on
an nvountary converson of property.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That (a) secton 112
(f) of the Interna Revenue Code (reatng to nvountary conver-
sons) s hereby amended to read as foows:
(f) Invountary Converson. If property (as a resut of ts destructon n
whoe or n part, theft, sezure, or requston or condemnaton or threat or Im-
mnence thereof) s compusory or nvountary converted
(1) Converson nto smar property. Into property smar or re-
ated n servce or use to the property so converted, no gan sha be recog-
nzed.
(2) Converson nto money wnn dsposton occurred pror to os.
Into money, and the dsposton of the converted property occurred before
anuary 1, 19 1, no gan sha be recognzed f such money s forthwth n
good fath, under reguatons prescrbed by the Secretary, e pended n the
acquston of other property smar or reated n servce or use to the
property so converted, or n the acquston of contro of a corporaton own-
ng such other property, or n the estabshment of a repacement fund. If
any part of the money s not so e pended, the gan sha be recognzed to
the e tent of the money whch s not so e pended (regardess of whether
such money s receved n one or more ta abe years and regardess of
whether or not the money whch s not so e pended consttutes gan). For
the purposes of ths pnragraph and paragraph (3), the term dsposton
of the converted property means the destructon, theft, sezure, requs-
ton, or condemnaton of the converted property, or the sae or e change
of such property under threat or mmnence of requston or condemnaton.
(3) Converson nto money- where dsposton occurred after 19 0.
Into money or nto property not smar or reated n servce or use to the
converted property, and the dsposton of the converted property (as de-
fned n pnragraph (2)) occurred after December 31,19 0, the gan (f any)
sha be recognzed e cept to the e tent herenafter provded n ths para-
graph :
( ) onrecognton of Gan. If the ta payer durng the perod
specfed n subparagraph ( ), for the purpose of repacng the prop-
erty so converted, purchases other property smar or reated n servce
or use to the property so converted, or purchases stock n the acquston
of contro of n corporaton ownng such other property, at the eecton of
the ta payer the gan sha be recognzed ony to the e tent that the
amount reazed upon such converson (regardess of whether such
amount s receved n one or more ta abe years) e ceeds the cost of
such other property or such stock. Such eecton sha be made at such
tme and n such manner as the Secretary may by reguatons prescrbe.
For the purposes of ths paragraph
(1) no property or stock acqured before the dsposton of the
converted property sha be consdered to have been acqured for
the purpose of repacng such converted property uness hed by the
ta payer on the date of such dsposton; and
() the ta payer sha be consdered to have purchased property
or stock ony f, but for the provsons of secton 113(a) (9), the
unnd|usted bass of such property or stock woud be ts cost wthn
the meanng of secton 113(a).
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
( ) Perod Wthn Whch Property Must e Repaced. The perod
referred to n subparagraph ( ) sha be the perod begnnng wth the
date of the dsposton of the converted property, or the earest date of
the threat or mmnence of requston or condemnaton of the converted
property, whchever s the earer, and endng
(1) one year after the cose of the frst ta abe year n whch
any part of the gan upon the converson s reazed, or
() sub|ect to such terms and condtons as may be specfed by
the Secretary, at the cose of such ater date as the Secretary may
desgnate upon appcaton by the ta payer. Such appcaton sha
be made at such tme and n such manner as the Secretary may by
reguatons prescrbe.
(C) Tme for ssessment of Defcency ttrbutabe to Gan Upon
Converson. If a ta payer has made the eecton provded n subpara-
graph ( ), then () the statutory perod for the assessment of any
defcency, for any ta abe year In whch any part of the gan upon
such converson s reazed, attrbutabe to such gan sha not e pre
pror to the e praton of three years from the date the Secretary s not-
fed by the ta payer (n such manner as the Secretary may by regua-
tons prescrbe) of the repacement of the converted property or of an
ntenton not to repace, and () such defcency may be assessed pror to
the e praton of such three-year perod notwthstandng the provsons
of secton 272(f) or the provsons of any other aw or rue of aw
whch woud otherwse prevent such assessment.
(D) Tme for ssessment of Other Defcences ttrbutabe to ec-
ton. If the eecton provded n subparagraph ( ) s made by the
ta payer and such other property or such stock was purchased pror to
the begnnng of the ast ta abe year n whch any part of the gan
upon such converson s reazed, any defcency, to the e tent resutng
from such eecton, for any ta abe year endng before such ast ta abe
year may be assessed (notwthstandng the provsons of secton 272(f)
or 27 or the provsons of any other aw or rue of aw whch woud
otherwse prevent such assessment) at any tme before the e praton
of the perod wthn whch a defcency for such ast ta abe year may
be assessed.
Ths subsecton sha not appy. In the case of property used by the ta payer
as hs prncpa resdence, f the destructon, theft, sezure, requston, or
condemnaton of resdence, or the sae or e change of such resdence under
threat or mmnence thereof, occurred after December 31, 19 0.
(b) Secton 27G of the Interna Revenue Code (reatng to perod of
mtaton upon assessment and coecton) s hereby amended by
addng at the end thereof the foowng:
(f) Invountary Converson. In the case of a defcency descrbed n secton
112(f) (3) (C) or (D), such defcency may be assessed at any tme pror to the
e praton of the tme theren provded.
Sec. 2. Paragraph (9) of secton 113(a) of the Interna Revenue
Code (reatng to unad|usted bass of property acqured as the resut
of an nvountary converson) s hereby amended by strkng out
secton 112(f) and nsertng n eu thereof secton 112(f) (1) or
(2) , and by addng at the end of such paragraph the foowng new
sentence: In the case of property purchased by the ta payer whch
resuted, under the provsons of secton 112(f)(3), the nonrecog-
nton of any part of the gan reazed as the resut of a compusory
or nvountary converson, the bass sha be the cost of such property
decreased n the amount of the gan not so recognzed; and f the
property purchased conssts of more than one pece of property, the
bass determned under ths sentence sha be aocated to the purchased
propertes n proporton to ther respectve costs.
Sec. 3. The amendments made by the frst two sectons of ths ct
sha be appcabe ony wth respect to ta abe years endng after
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
December 31, 19 0. e cept that the prevsons of secton 112(f) (3),
and the provsons of secton 113(a)(9), of the Interna Revenue
Code as amended by ths ct sha aso be appcabe to any ta abe
year endng pror to anuary 1,19 1, n whch (a) any gan was rea-
zed upon the converson of property and the dsposton of such
converted property occurred (wthn the meanng of such secton
112(f)(3)) after December 31, 19 0. or (b) the bass of property
s affected by an eecton made under the provsons of secton 112(f)
(3) of such Code.
Sec. . Notwthstandng the provsons of secton 90 of the Revenue
ct of 19 1. the effectve date of so much of the amendment made by
secton of such ct to secton 3 06(a) (3) of the Interna Revenue
Code as reates to eectrc heatng pads sha be pr 1, 19 2.
pproved October 31.19 1.
19 1-2 -13711
. R. 3 90. PU LIC L W 2 , IG TY-S COND CONGR SS
C PT R 006, FIRST S SSION
n ct To amend the pennty provsons appcabe to persons
convcted of voatng certan narcotc aws, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 2(c)
o the Narcotc Drugs Import and port ct, as amended (U. S. C,
tte 21, sec. 17 ), s amended to read as foows:
(c) Whoever frauduenty or knowngy mports or brngs any narcotc drug
nto the Unted States or any terrtory under ts contro or |ursdcton, contrary
to aw, or receves, conceas, buys, ses, or n any manner factates the trans-
portaton, conceament, or sae of any such narcotc drug nfter beng mported
or brought n, knowng the same to have been mported contrary to aw, or con-
spres to commt any of such acts n voaton of the aws of the Unted States,
sha be ned not mure than 2,000 and mprsoned not ess than two or more
than rve years. For a second offense, the offender sha be fned not more than
2,000 and mprsoned not ess than ve or more than ten years. For a thrd
or subsequent offense, te cffen .er sha be fned not more than 2,000 and m-
prsoned not ess than ten or more than twenty years. Upon convcton for
a second or subsequent offense, the Imposton or e ecuton of sentence sha
not be suspended and probaton sha not be granted. For the purpose of ths
subdvson, an.offender sha be consdered a second or subsequent offender,
ns the case may be, f he prevousy has been convcted of any offense the penaty
for whch Is provded n ths subdvson or n secton 2 7(b)(1) of the
Interna Revenue Code, or f he prevousy has been convcted of any offense
the penaty for whch was provded n secton 9, chapter 1, of the ct of Decem-
ber 17, 191 (3S Stat. 7 9), as amended; secton 1, chapter 202 of the ct of
Say 20, 1922 ( 2 Stat. 96), as amended; secton 12, chapter 3, of the ct
of ugust 2, 1937 (00 Stat. G), as amended; or sectons 2 7(b)(1) or 2 90
of the Interna Revenue Code enacted February 10, 1939 (eh. 2, 3 Stat. 27 , 2 2),
as amended. fter convcton, but pror to pronouncement of sentence, the
court sha be advsed by the Unted States attorney whether the convcton
s the offender s frst or a subsequent offense. If t s not a frst offense, the
Unted States attorney sha fe an nformaton settng forth the pror con-
vctons. The offender sha have the opportunty n open court to affrm or
deny that he s dentca wth the person prevousy convcted. If he denes
the dentty, sentence sha be postponed for such tme as to permt a tra
before a |ury on the soe ssue of the offender s dentty wth the person pre-
vousy convcted. If the offender s found by the |ury to be the person prevousy
convcted, or f he acknowedges that he s such person, he sha he sentenced
as prescrbed n ths subdvson.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 6
Whenever on tra for a voaton of ths subdvson the defendant s shown
to have or to have had possesson of the narcotc drug, such possesson sha
be deemed suffcent evdence to authorze convcton uness the defendant
e pans the possesson to the satsfacton of the |ury.
Sec. 2. Secton 2 7(b)(1) of the Interna Revenue Code s
amended to read as foows:
(1) Whoever commts an offense or conspres to commt an offense de-
scrbed n ths subchapter, subchapter C of ths chapter, or parts or I
of subchapter of chapter 27, for whch no specfc penaty s otherwse
provded, sha be fned not more than 2,000 and mprsoned not ess than
two or more than fve years. For a second offense, the offender sha be
fned not more than 2,000 and mprsoned not ess than fve or more than
ten years. For a thrd or subsequent offense, the offender sha be fne
not more than 2,000 and mprsoned not ess than ten or more than twenty
years. Upon convcton for a second or subsequent offense, the mposton
or e ecuton of sentence sha not be suspended and probaton sha not be
granted. For the purpose of ths paragraph, an offender sha be consdered
a second or subsequent offender, as the case may be, f he prevousy has
been convcted of any offense the penaty for whch s provded n ths
paragraph or n secton 2(c) of the Narcotc Drugs Import and port ct,
as amended (U. S. C, tte 21, sec. 17 ), or f he prevousy has been con-
vcted of any offense the penaty for whch was provded n secton 9,
chapter 1, of the ct of December 17, 191 (3 Stat. 7 0), as amended;
secton 1, chapter 202. of the ct of May 26,1922 ( 2 Stat. 96). as amended ;
secton 12, Chapter 3. of the ct of ugust 2, 1937 ( 0 Stnt. 6), as
amended: or sectons 2 .r 7(b)() or 2 96 of the Interna Revenue Code
enacted February 10. 1939 (ch. 2, 3 Stat. 27 , 2 2), as amended. fter
convcton, but pror to pronouncement of sentence, the court sha be advsed
by the Unted States attorney whether the convcton s the offender s
frst or a subsequent offense. If t s not a frsf offense, the Unted States
attorney sha fe an Informaton settng forth the pror convctons. The
offender sha have the opportunty n open court to affrm or deny that he
s dentca wth the person prevousy convcted. If he denes the dentty,
sentence sha be postponed for such tme as to permt a tra before a ury
on the soe ssue of the offender s dentty wth the person prevousy
convcted. If the offender s found by the |ury to be the person prevousy
convcted, or f e acknowedges that he s such person, he sha be sentenced
as prescrbed n ths paragraph.
Sec. 3. Secton 2 96 of the Interna Revenue Code s amended to
read as foows:
S C. 2 96. P N LTI S.
For penates for voatng or fang to compy wth any of the provsons of
ths subchapter, see secton 2 7(b) (1).
Sec. . Secton 323 of the Interna Revenue Code s amended to
read as foows:
S C. 323 . P N LTI S.
For penates for voatng or fang to compy wth any of the provsons
of ths part, see secton 2 7(b) (1).
Sec. . There are hereby repeaed
(1) secton 2(f) of the Narcotc Drugs Import and port
ct, as amended (U. S. C, tte 21, sec. 17 );
(2) the ct of ugust 12,1037, as amended (U. S. C, tte 21,
sees. 200-200(b));
(3) sectons 2 7(b) ( ), (6), and (7) of the Interna Revenue
Code.
Sec. G. ny rghts or abtes now e stng under the aws or parts
thereof repeaed by ths ct sha not be affected by such repea.
pproved November 2, 19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
COMMITT R PORTS
19 1-23-13700
R NU CT OF 10 1
ouse of Representatves Report No. 6. ghty-second Congress, Frst Sesson
une 1 , 19 1
Mr. Doughton, from the Commttee on Ways and Means, submtted tbe foow-
ng report to accompany . R. 73 :
The Commttee on Ways and Means, to whom was referred the b ( . .
73) to provde revenue, and for other purposes, havng consdered the same,
report favoraby thereon wthout amendment and recommend that the b do
pass.
I. Gkkeba Statement
The mtary acton n orea, couped wth the genera threat to word peace,
has made t necessary to provde e traordnary ncreases n revenues to meet
essenta natona defense e pendtures. Snce the outbreak of hosttes, the
Commttee on Ways and Means has been amost contnuousy engaged n the
deveopment of a baanced ta program to meet ths ob|ectve. Ths b repre-
sents the thrd step n ths program. The frst step was the Revenue ct of
19 0 enacted September 23, 19 0. The second step was the cess Profts Ta
ct of 19 0 enacted anuary 3,19 1.
The resut of these three steps w be to add to the Federa .revenues . 17
bon at caendar year 19 1 eves and n a fu year of operaton. Of ths
amount 6.1 bon was obtaned under the Revenue ct of 19 0; 3.9 bon
under the cess Profts Ta ct of 19 0; and an addtona 7.2 bon s
estmated to be provded under ths b.
The foowng s a breakdown of the ncreases mposed under the varous
acts:
The Revenue ct of 19 0 In mnons
Indvduas 3, 3
Corporatons 2, .90
73
Other 300
Tota 6,101
The cess Profts Ta ct of 19 0 Corporate ncome and e cess-profts
ta es 3, 0
The commttee b
Indvduas 2, 7
Corporatons 2,
cses 1, 2 2
Other 2
Tota 7,199
The effect of these three steps Is to ncrease the over-a ta revenue from
Indvduas by 31. percent over the amount whch woud have been due under
the aw n effect pror ro hosttes n orea. Corporaton ta es have been
ncreased under these three steps by 7.9 percent. cses have been ncreased
by 1 .6 percent.
(3 7)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3o3
The commttee opened pubc hearngs on ths b on February and the
hearngs were not cosed unt pr 2. The commttee has been n contnuous
e ecutve sesson snce that tme.
Ths b s estmated to ncrease ta abtes by 7.2 bon n a fu year s
operaton. Ths s the argest amount of addtona money coected from a
ta b n the hstory of ths country. It s antcpated that ths b, wth the
revenues aready provded under e stng aw, w resut n coectons n the
fsca year 19 2, of 66.3 bon.
Changes are provded by your commttee s b n n of the ma|or ta areas.
Indvdua ncome ta es are rased by 12 percent effectve September 1, 19 1,
and heads of househods are gven haf the benefts of ncome spttng for
future years. The ncome ta rate on corporatons s rased by percentage
ponts, the e cess profts credt s owered to ncude ony 7 percent of 19 6 9
earnngs, and the over-a ceng s ncreased to 70 percent. The ma|or changes
n the e cse ta es provde ncreases n the ta es on acohoc beverages, tobacco,
gasone, and automobes, and mpose a new tu on wagerng. mong the
structura changes the most mportant are those provdng for the wthhodng
on dvdends and certan nterest and royaty payments.
II. Revenue stmates
Tabe 1 shows the estmated ncrease n ta abtes under the commttee
b n a fu year of operaton and aso the ff-.-ct of the b on coectons n the
fsca year 19 2. oth the ncrease n abtes and the ncrease n coectons
n the fsca year 19 2 are shown by na.or revenue sources.
though t s estmated that the b w ncrease ta abtes by appro -
matey 7,200 mon, coectons n the fsca year 19 2 are e pected to be
ncreased by , 29 mon both because the changes w not be fuy effectve
n the fsca year 19 2 and because coectons tend to ag behnd the ncurrng
of abtes.
The ncrease n e cse tu coectons n the fsca year 19 2 assumes that the
changes n these ta es become effectve as of September 1, 19 1, the same date
as Is provded n the b for Increased wthhodng from ndvduas.
Tabe. 12 appearng on page 02 summarzes the ma|or provsons of ths b
and ndcates ther effect on ta abtes.
Tabe 1. stmated ncrease n ta abtes under the commttee b n a fu
year of operaton and tc effect of the b on coectons n the fsca year U
Tn mons
Increase In a fu
year of operaton
Increase n coec-
tons n the fsca
year 19 2
7
1,9 7
1,7 0
1,037
70
Structura changes .
12.M
1,2 2
2
Tota -
7, t 1 , 29
1 Net ncrease nter aowng for reducton n Indvdua ncome ta es due to ower dvdends.
1 ssume;- that e cse ta chunk s v. become I Tccvc Sept. 1, 19 1.
Ths arper mount s uue prmary to the acceeraton of coectons on wthhodng on dvdends.
Ir. Changes n the Indvdua Income Ta
The commttee b provdes for a speca defense ta , a 12 percent Increase
n the e stng ta . Ths ta appes not ony to tne ta on ordnary ncome, but
aso to the ta ou cnpta gans. Ths change, n effect, s made as of September
1. 19 1, the date when the ncreased wthhodng becomes effectve. eads of
househods are gven appro matey one-haf the benefts of ncome spttng now
en|oyed by ma tred persons. For caendar year ta payers ths atter change f
effectve begnnng wth 19 2.
It s estmated that In a fu year of operaton these changes w ncrease co-
ectons by 2, 7 mon. It s antcpated that the rate change aone woud
ncrease revenues by 2,903 mon, of whch 9 mon s attrbutabe to the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 9
12 percent ncrease n the aternatve rate on capta gans. owever. 6
mon w be ost by e tendng one-haf of the beuets of ncome spttng to
heads of househods.
Snce n effect the defense ta does not go nto operaton unt September 1
and the head-of-househo.d prevson for most ta payers w not be operatve
unt anuary 1,19 2, coectons n the fsca year 19 2, endng une 30, 11) 2. w
not fuy refect the changes made n ths b. Therefore, fsca year 19 2 coec-
tons are e pected to be ncreased by ony about 6 percent of the 2, 7 mon
or by 1,9 7 mon.
. D F NS T
1. Descrpton.
For ta abe years begnnng after ugust 31, 19 1, the b ncreases the tota
norma ta and surta by 12 /. percent. The aternatve capta-gans ta of
2. percent Is aso ncreased by 12 percent. In addton the effectve rate m-
taton, or the ma mum combned norma ta , surta and defense ta on tota
net ncome, s rased from 7 to 90 percent.
For the caendar year 19 1 a percent defense ta Is provded for norma ta ,
surta , and the aternatve ta on net ong-term capta gans, whch appro -
mates one-thrd of the 12 percent defense-ta ncrease provded for future
years. Ths s roughy the equvaent of makng the fu 12 percent ncrease
effectve September 1, 19 1. The b aso rases the ma mum effectve rate
mtaton for 19 1 from 7 percent to S percent, or by one-thrd of the ucrease
provded for future years.
To prevent the appcaton of unusuay hgh bracket rates for ta abe years
begnnng after ugust 31, 19 1, whe the defense ta s n effect, the top surta
bracket rate s to be 1 percent on surta net ncomes 1 of 0,000 and over.
Combnng ths surta wt the 3 percent norma ta and the defense ta means
a top-brn ket rate of 9 . percent on surta net ncomes n e cess of S0.00O as
contrasted to the 91 percent rate on surta net ncomes n e cess of 200,000
under present aw. owever, the present aw surta rates, appyng to surta
net ncome above S0. 0, reman n the Code snce they may be used agan after
the defense ta s removed.
ecause, for 19 2 and subsequent years, the surta rate schedue n present
aw s n effect cut off at the toa rate of 9 . percent, reached at an ncome
eve of 0,000. t s necessary to provde a speca surta tabe for the upper part
of the rate schedue for the caendar year 19 1 n order to gve ndvduas wth
ncomes n ths area about out-thrd of the ta ncrease they w receve for
future years.
For ndvduas wth fsca years begnnng before and endng after September
1, 19 1, the ta s to be prorated between the computatons based on the present
aw rates and on rates ncudng the 12 percent ncrease, accordng to the
number of months before and after September 1, 19 1.
New wthhodng tabes are provded to refect the ncreased ta es and pro-
vde for wthhodng at appro matey 20 percent as contrasted to the 1 percent
provded by present aw. Smar ad|ustments are made for the percentage
method of wthhodng. wthhodng rate of appro matey 20 percent coects
the fu amount ordnary due on the begnnng rate of 22. percent after aow-
ance for the standard deducton.
2. ffect on the rate structure.
The margna rates, or the rate of ta appyng to the top doar of ncome,
ncudng the defense ta provded by ths b for 19 2 and subsequent years, are
shown n tabe 2, whch compares these rates wt those under present aw.
Under the defense ta the rates w range from 22. percent n the bottom
bracket to 9 . percent at the top. The 22. percent represents a 2. percentage-
pont ncrease over present aw.
For marred coupes the top margna rate of 9 . percent under the defense
ta appes to surta net ncomes n e cess of 100,000. The margna rates ap-
pyng to ncome n e cess of 160,000 for marred coupes under present aw
range from 9 percent to 91 percent. For snge ndvduas the top margna
rate under the defense ta s the same as that for marred coupes, 9 . percent,
but t appes at the surta net Income eve of 0,000. The present aw, n the
case of snge ndvduas, appes margna raes of S percent to 91 percent
1 Income after deductons am e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
360
on ncomes at, an n e cess of, ths eve. The ncome spttng provson of
the Revenue ct of 19 accounts for the fact that the 0 . percent rate s reached
at a surta net ncome eve of 0,000 n the case of snge ndvduas, but not
unt 100,000 n the case of marred coupes.
Tabe 2. Margna ndvdua ncome ta rates tnder present ar, and the
commttee b for caendar year 19 2, by seected surta net ncome eves
Snce persons
Marred persons
Seected surta not ncome eves (n thousands)1
P resent
aw
Commttee
bd
Present
Commttee
b
km
Percen
20
Percent
22. 0
Percent
Percent
to to 2 -
22
2 .7
(
22. 0
2to
to 0
29.2
22
2 .7
6to
30
33.7
to 10 - -
3
3 .2
/ 26
no
10 to 12
3
2.7
29.
1 to SS --
7
2.
30
3S.7
20 to 22
6
63.00
3
2.7
26 to S2
62
69.7
3
.3
32 to 36
6
7;. 13
0
6.2
0 to
69
77.63
6
63.00
0 to 2
.3
9
-
7
7.7
62
69.7
70to 76
1
91.13
6
73.13

f 09
77.6
7
9
72
L00
100 to 120
9 . 0
7
.3
11 0 to 160
90
1
9L13
200 to 300
9
9 . 0
Over 00
91
Income ater busness and persona deductons and e emptons.
The 12 percent ncrease when added to the 23 percent aternatve ta on
net ong-term capta gans of ndvduas ncreases the tota ta on such gans
to 2 .12 percent.
Tabe 3 shows the effectve, or average, raes of ta for seected net ncome
eves under the new defense ta for caendar year 19. 2 and subsequent years
and compares these rates wth those under present aw. Ths effectve rate
tabe dffers n two mportant respects from the margna rates prevousy
shown: (1) The effectve rates show the cumuatve rate on a ncome up to
any specfc ncome eve and therefore represent the average rates at whch
the entre ncome s ta ed, and (2) they are based on net ncome before e emp-
tons and therefore show the effect of e emptons on the actua ta rate pad.
On the same bass as the effectve rates, tabe shows the amount of ta pad
at seected net ncome eves under the new defense ta for caendar year 19 2
and subsequent years, and compares these ta es wth those under present aw.
Tabe 3. Comparson of effectve ndvdua ncome ta rate under the commttee
b and present aw
. SINGL P RSON, NO D P ND NTS
Seected net ncome eves 1
Present
aw
Commt-
tee b
Seected net Income eves 1
Present
aw
Commt-
tee b
00
Percen
.0
.0
12.0
1 .0
16.3
1 .9
22.3
Percent
6.6
9.0
13.
1 .
1 .3
21.2
2 .0
27.
1 000
Percent
29.7
3 .7
39.2
2.
66.
.9
7.0
Percent
33.
39.1
.1
9.
7 . S
90.0
9O.0
1,000
1, 00
26,000
2,000.
0,000
3,000
100,000...
,000
00 000...
,000
1,000,000
10,000
1 Income after deductons but before e emptons.
Ma mum effectve rate mtaton 90 percent.
3 Ma mum effectve rate mtaton 7 percent.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3G1
Tabe 3. Comparson of efectre ndvdua ncome ta rate under the commttee
b and present aw Contnued
I). M RRI D COUPL , NO D P ND NTS
f eected net Income eves
Present
aw
Commt-
tee b
Seected net ncome eves1
Present
aw
Commt-
tee b
SI 0O
trctn
.0
.0
12.0
1 .2
17.7
1 .9
21.7
I ntn
.
9.0
13.
17.1
10.9
21.2
2 .
20.000
Ptrant
2 .
26.9
39.2
Ftrcrn
27.
30.3
.1
69.
tLI
90.0
z 000
126,000
000
100,000
2.
0. 7
.9
00.000
no.ono
1,000,000
.1 ,000 -
M RRI D COUPL , 2 D P ND NT.
3,000..
,000..
10,00(1.
1 ,000.
f20,0CO.
.0
.
12 ,000
2 .1
2 .2
10.
11.7
0,00,1
37.
2.
1 .
n. 2
100,000
1.0
m.
1 .9
17.9
00.000
0.
6.
19.3
21.
1,000,000
.7
90.0
22.3
2 .1
1 IncMnn a ter dc u t but be ore e c natons. Ma mu-n effectve rate mtaton CO per.ent.
Tabe . Comparson of ndvdua ncome ta burdens under the commttee s
b wth those under present aw
INOI. P RSON, NO D P ND NTS
Seected net ncome eve;;1
mount of ta
Present Commttee
aw b
Increase n ta abty
of commttee b
over praeat aw
mount
Percent
1.000..
1, 00..
2,000..
3.000..
,000.-
fe,ono.-
sc, -
1 .00/1.
20.000-
0.000
100.000..
00,000...
1,000,000..
( 0


SO
90
10
ISO
203
23
2 0
31
3
s.
St
61
9
1.062
11
1. 7 0
2,003
22
2, 6
2,7 1
30
.
.00
IM
6,9 2
7,610
6
9,796
11,021
1,226
26.3
29. 7
3,299
66,;
7 . 31
,033
20, 27
0.000
20.726
70,000
900,000
30,000
12.
12.
12.
12
12.
12.
12.
12.
12.
12.
12
12
12.0
.
3.
. M RRI D COUPL , NO D P ND NTS
2 000
s)000
.000
10.000
1 ,000
20.000..
2 .000
0.000
100.000
00.000
1.000,(100. --
60
6

12
ICO
1 0
20
12.
360
0

12.
760

0
.2.
1. 10
1, 93
177
12
1,
2, 12
236
12.
3,260
3,66
0
12
, 72
6, 1
609
12
6,72
7. 6
1
126
19. 92
22,0 1
2, 9
126
2. 776
9,373
6, 97
12
03, .
33,161
29. 013
7.3
,
WW, 000
1, 2
.
C M RRI D COUPL , 2 D P ND NTS
120
13
s.-,
12
20

6
12.
1,1 2
1,296
1
12
1, 92
1, 791
199
12
2,900
3,203
363
12
, 6
,022

12 6
6,26
7,0 2
7
12.
1 ,
21. 2
2,361
12
1,912
, 01
6, 9
12.
02, 6
32,027
29, 71
7.
7, 6
900,000
2,
.0
.000...
10,000..
0,000.
100,000.
00,000.
1 Income after deductons but before e emptons.
1 Ma mum effectve rate mtaton of 90 percent.
Ma mum effectve rate mtaton o 7 percent.
9S 016 -
-2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
362
though the peak margna ta rate of 9 . percent s reached at a surta
net ncome eve of 0,000 for a snge person, and , 100,000 fcr a marred person
under the defense ta , the penk effectve rate of 90 percent s not reached unt
the net ncome eve of 37,100 for a snge person wth no dependents, or unt
7 ,200 for a marred coupe.
S. Reasons for the rate ncreases seected.
The 12 percent fat across-the-board ncrease was seected as the form of
Increase, snce t s not ntended that ths ncrease w be permanent, and there-
fore, It was desred to provde an ncrease whch woud not become an ntegra
part of the rate structure. Snce the defense ta computaton s entrey sep-
arate from the ordnary ta computaton and represents a smpe percentage
ncrease n the ta otherwse payabe, t s beeved that t best meets these re-
qurements of a temporary ta ncrease.
The 12 percent ncrease s n so e tended by the b to ong-term capta gans
computed under he aternatve ta . Ths was deemed approprate snce nd-
vduas n the ower ncome brackets ncude net ong-term capta gans n the
reguar ndvdua ncome ta base so that the ta on ther net ong-term capta
gans s automatcay ncreased by the 12 percent Increase n norma ta and
surta . Your commttee beeved that not to make a smar ad|ustment u the
aternatve rate woud be dscrmnatory.
. D-OF- OUS OLD PRO ISION
1. Descrpton.
The b provdes a new surta tabe appcabe, for ta abe years begnnng
after ugust 31, 19 1, to persons who quafy as a head of househod. Thus
for a caendar-year ta payer the provson w not become effectve unt vt. 2.
The new surta tabe s constructed to gve heads of househods appro matey
one-haf of the benefts of ncome spttng. The brackets and rates are ad-
|usted so that t s unnecessary for persons usng ths tabe to dvde ther ncome
by two and then mutpy the ta by two as s presenty requred of marred
persons fng |ont returns, who receve the fu beneft of ncome spttng.
head of househod, for purposes of obtanng the benefts of ths speca
provson, s defned as an ndvdua who s not marred and who mantans
a househod n whch ves
(1) One of hs chdren (ncudng a stepchd or adopted chd) or one
of ther descendants (who f marred must st be a dependent of the ta -
payer and not fe a |ont return), or
(2) ny person (not fng a |ont return wth a spouse), who has a gross
ncome2 of ess than r ()0, more than haf of whose support s supped by
1 e ta payer and who bears one of the foowng reatonshps to the ta -
payer :
(a) brother or sster or stepbrother or stepsster,
(6) parent or one of ther ancestors,
(c) stepparent,
(d) nephew or nece,
(c) n unce or nu::t, or
(/) son-n-aw, daughter-n-aw, father-n-aw, mother-n-aw, ss-
ter-n-aw, or brother-n-aw.
ta payer s consdered ns mantanng a househod ony If durng the year
he furnshes more than haf the mantenance costs of such househod. More-
over, the ndvdua who makes t possbe for the ta payer to gan the benefts
of the head-of-househod status must actuay ve u the ta payer s househod
uness he s temporary absent, for e ampe, attendng schoo or for reasons of
heath. Under ths defnton t Is mmatera how much gross ncome an un-
marred chd or grandchd vng wth the ta payer may have.
2. ffect on the rate structure.
The margna rates, or the rate of ta appyng to the top doar of ncome,
provded by ths b for heads of househods n 19 2 and subsequent years are
shown n (abe , whch compares these rates wth those under the b for a
snge person and a marred coupe fng a |ont return.
Tabe 0 shows the effectve, or average, rate of ta for seected ncome eves
under the rates mposed by ths b for heads of househods wth one dependent,
Income before busness deductons, persona deductons, and e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
363
Tabuc . Comparson of ndvdua ncome ta margna rates for a head of
househod under the b cth those under the b for a snge person and a
marred coupe, for 19 2 and subsequent years
Surta net Income (fn thousands)
Marred
coupe fng
returns
o t
( to t . .
no to 12
S12IO 1
(1 o 10
CtoM
tstoso..
0to 22..
(2. to 2 ...
12 to t
rs6 to v
restosa ...
s 2 to 3f
(36 to 3S
bs to
M0to t
W to )
( 0 to S2

(00 to 6
m to 70
170 to 70
(70 to 0
ISO to
(90 to 100
(100 to 120
(120 to 1 0
(1 0 to 160
t ) and over
1 cept n a few cases the margna rates for heads of househods are whn about a haf of 1 percentage
oont of beng e acty hafway 1 etween those appyng to snge persons and marred coupes. Ths mnor
araton f due to roundng. The e ceptons re-erred to occur n the surta net ncome brackets of 3f 000
:o 0,000, 0,000 o 2,000, 60,000 o 0 ,000, 70,000 to |sf.ooo, and f . -.oao to 90,100. In these brackets
he margna rates of heads of househods vary by as much as about 1 percentage pont from the mdponts
between those for snge persons and those for marred coupes. These varatons, however, are not s|t-
fcant snce n arge measure they offset each other. They are due to combnatons of ncome brackets
nade to smpfy the rate schedue for heads of househods.
Tabe (. Comparson of the effectve ndvdua ncome ta rates for heads of
househods under the b cth those for snge persons wth 1 dependent and for
marred coupes under the b, for 19 2 and subsequent years
Seected net ncome eves 1
ead of
househod
wth 1
dependent
Snge
ndvdua
wth 1
dependent
Marred
coupe
fng a |ont
10.000
:20,00O.
2 ,000.
0,000
:00,000...
300,000...
a ,m,aoo..
Percent
.
9.0
13.
17.
21.2
23.2
27.
32 3
36.
1.2
06.
.
90.0
Percent
.
9.0
13.
17.9
22.
2 .1
31.3
37.3
2
.
7 .3
90.0
90.0
Percent
.
9.0
13.
17.1
19.9
21.2
2 .
27.
30.3
.1
9.
6.6
0.0
1 Income after deductons but before e emptons.
Ma mum e ectve rate mtaton of 90 percent.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
SG
for snge ndvduas wth one dependent, and for marred coupes. Tabe 7
shows the amount of ta pad at seected ncome eves for these three casses of
ta payers under the rates provded by the b and the dfferences n the ta
benefts provded for marred coupes and heads of househods. The ast coumn
n ts tabe ndcates that heads of househods are provded about 0 percent of
the benefts of ncome spttng.
Tabe 7. Comparson of ndvdua ncome ta burdens for heads of houschodt
under the b th those for snge persons wth 1 dependent and for marred
coupes under the b, for 10 2 and subsequent years
Seected net ncome eves 1
mount of ta
ead of
oucehotd
wth 1 de-
pendent
Stape
ndvdua
wth 1 e -
empton
Marred
coupe f-
nR a |ont
return
mount of ta dffer-
ence between snge
person wth 1 de-
ead of arred
househod coupe
1. 00
2.000
3.000...
.000....
.000...
10,000...
1 ,000...
20.000...
2 .000...
0.000...
100.000..
00.000..
1,000,000
ST
ISO
I
7
1.097
2,31
,172
0, 62
0,092
2 , 00
66. 30
2. 72
900, U
C
n
0
90
1, 00
2. 11
.09
7, 2
10,022
29,201
7 ,20
0,000
900,000
tea
1 0
0

1, 93
2,12
3.60
. 1
7. 6
22,0 1
9.373
33. n
900,000
21
1
103
207
193
3 7
2
1,02
990
1.971
1, 30
3.0 7
3, 96
7.160
7. 3
1 . 91
7,276
10, 39
1 Income after deducton. but before e emptons.
1 Ma mum effectve rate mtaton of 90 percent.
S. Reasons for adoptng the head-of-househod provson.
It Is beeved that ta payers, not havng spouses but nevertheess requred to
mantan a househod for the beneft of other ndvduas, are n a somewhat
smar poston to marred coupes who, because they may share ther ncome,
are treated under present aw substantay as f they were two snge ndvduas
each wth haf of the tota ncome of the coupe. The ncome of a head of
househod who must mantan a home for a chd, for e ampe, s key to be
shared wth the chd to the e tent necessary to mantan the home, and rase
and educate the chd. Ths, t s beeved, |ustfes the e tenson of some of
the benefts of ncome spttng. The hardshp appears partcuary severe n
the case of the ndvdua wth chdren to rase who, upon the death of hs
spouse, fnds hmsef n the poston not ony of beng dened the spcuse s ad n
rasng the chdren, but under present aw aso may fnd hs ta oad heaver.
owever, t was not deemed approprate to gve a head of househod the fu
benefts of ncome spttng because t appears unkey that there s as much
sharng of ncome n these cases as between spouses. In the case of savngs, for
e ampe, t appears unkey that ths ncome w be shared by a wdow or
wdower wth hs chd to the same e tent as n the case of spouses. s a resut
ony one-haf of the benefts of ncome spttng are granted to heads of
househods.
In defnng the reatonshp to the ta payer of an ndvdua who enabes the
ta payer to cam the head-of-househod status, the reatonshps provded n
secton 2 (b) (3) of the Code for camng a dependency credt have been
foowed. In a cases e cept those n whch unmarred chdren, stepchdren,
and ther descendants share the househod the ta payer must suppy over ha
of the support of the ndvdua and the Indvdua must have gross ncome of
ess than 00. These mtatons are deemed desrabe to prevent abuse of the
head-of-househod status. owever, they are not beeved necessary n the cose
reatonshps e stng n the case of chdren, stepchdren, or ther descendants,
n vew of the requrement that such ndvduas must ve n the same househod
as the ta payer, e cept for the temporary absences prevousy descrbed, and the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
36
requrement that the ta payer must suppy over haf the cost of mantanng the
househod. owever, these mtatons are apped where the chdren or grand-
chdren are marred. Ths w prevent e tendng the benefts of a head of
househod to a parent whe the chd s hmsef obtanng the benefts of ncome
spttng wth hs spouse.
C. DISTRI UTION- OF T URD N
Tabe shows the doar and percentage dstrbuton of the ndvdua ncome
t under present aw and your commttee s b and the dstrbuton of the ta
ncrease provded n the b by ad|usted gross ncome casses. It aso ds-
tr utes by these fame casses the number of ta abe returns, the ad|usted gross
ncome, the vaue of e emptons, and the norma ta and surta net ncome.
Tabe . stmated dstrbuton of ndvdua ncome ta returns, ncome, e -
emptons, and ta abty under present rates and under the commttee b
when fuy effectve
Money amounts n mons o do ars
d|usted cro ncomc
Tota
number of
ta abe
returns
dusted
ta ot
e emp-
tons
Surta
net
Tota ta ,
r. , n
aw
Tota ta
Ta n-
crease, com-
mttee b
over pres-
ent aw
t o e
ncome
neonc
under
commt-
tee bun
Under 1,000
:,m. ore
1, 6
10. 7
1.121
272
.CC9
11.226
1 .31
13. 2 7

61
7
. 91.07
d. roe. 11
. 3
2
2,2
2, 71
9 7
7, 26
3.229
3.002
10
2 1
S
330
u,m
. 0O to .000
, k3 . 7 |7
1 . I T-
11. 9
1 ,000 to ,000
6. 2T2. 777
27. CM
2.672
Tota under ,ooo ..
3 . t0.7 7 101.073 0,230
3. a
.6
0,76
1.0 1
3.000 to 10.000
,6 ,f79
L 3 2. -
I 7. I
70.
2. 0
19. 170
, TOD
.07
12. 2
2, -37
06
13S
3
3
1
2 ,916
1 . 7 2
6.970
3.966
1,906
3S
1
17
.0 0
3,
2,-. P
1. 62
1.276
37
192
206
.707
3,90
2. 60
2.0PW
1. 29
1
209
219
62
20
271
22
1 3
0
17
13
10,000 to 2 .000
2 ,000 to 60,000
0,000 to 100.000
1110.000 to 2 0.000
2, 9
S2 O.OO0 to sson.oor
L9r7
70
r 7
s:oo.ono to .oop.rou
316
310
11,000,000 and over
n
p
Tota over tS.OOO
.336. 711
7 . 027 1 . 33
63.363 1 .771 16. 37 1.766
Tota
, 1 7, t 1 0,100 62,063 96, (31 23, 26,302
2, 7
P RC NT G DISTRI UTIONS
Under 1,000
.23
If. 2
2 .1
0. 6
6.0
1 .1
IS.
1 . 9
.
0.2
.36
11.62
1 . 1
13.71
0.23
3. 9
9.37
12. 2
11.39
023
3.60
.60
12. 2
11. 1
a2S
3.69
9. 7
12. 7
11. 9
1.000 to 2,000
.70
20. v
2 .97
1 .1
(2,000 to 3,000
t.1,000 to .000
M.OOO to ,000
1 .17
Tota under 16,000....
1.1 S . 12 7 . 9 .7 37.02 37.13 37.97
.000 to 10.000 _
1. .0
3.0
.CO
.16
.0
23.79
10. 1
. 6
20.1
.2
. 0
.22
.06
2 . 7
1 .26
7.21
. 10
2.03
. 6
.19
.1
21.66
1 . 7
9.76
7.9
.
1.61
. 2
.
21.70
1 . 6
9.73
7.93
. 3
1. 9
.79
. 3
22.06
1 .7
9. 2
7. 7
.37
1. 0
.60
. 6
:IO.OOO to 3 ,000
2 .000 to 0,000
W0.000 to 100,000
2.ro
(1110.000 to 260.000
1. 2
.36
.1
.17
:. ,M.foo to 0o,ooo
m

C)
m
o
m
1 1.000 to 1,000.000
1,000,000 and over
Tota over ,000
1 . 1 3.
2 . 1
.22
62.9
62 7
62 03
T0U 1
100.00 oaoo
100.00
100.00
100.00
100.00
100.00
NOT - Fgures nre rounded nod may not add to totas.
1 Incudes norma ta , surta , and aternatve ta on net ong-term capta (rans.
Lass than 00,000.
Less than 0.00 percent.
Incon after busness deductons but before persona deductons and e emptons.
Iueomc after busness aud persona deductons and e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
36G
The tabe ndcates that 6 percent of the ad|usted gross Income Is earned by
those wth ncomes of ,000 or ess. Persona deductons and e emptons de-
crease the proporton of ta abe ncome hed by such ndvduas, however, (o
percent of the tota surta net ncome. Due to the professon n the rate
structure ths percentage s further reduced to 37 percent when consderng the
dstrbuton of ta es under present aw. Moreover, snce the fat 12 percent
across-the-board ncrease accounts for the buk of the ndvdua ncome-ta
changes made n your commttee s b, ths dstrbuton of the ta burden re-
mans vrtuay unchanged under the b.
I . G N R L CORPOR T T C NC S
Ths b makes the foowng changes n the corporate ncome ta es:
(1) The corporate norma ta s ncreased from o to 30 percent. The surta
rate remans at 22 percent. Snce corporatons wth ncomes of S2 ,000 or
ess are not sub|ect to the surta , ther rate s ncreased frcn 2 to 30 percent.
The combned norma ta and surta on ncome n e cess of 2 ,000 s ncreased
from 7 to 2 percent. Changes are aso made n the credts aowed to
Western emsphere trade corporatons and the credts hased on the dvdends
pad and receved on the preferred stock of pubc uttes, so as not to enarge
the ta dfferenta provded them under e stng aw.
(2) The percentage of the average base perod net ncome whch may be u ed
n computng the credt based on ncome for the purposes of the e cess profts
ta s reduced from So to 7 , as orgnay proposed by the Treasury.
(3) The ceng rate whch mts the percentage of a ta payer s e cess profts
net ncome that can be taken by the corporate norma ta , surta , and e cess
profts ta combned s ncreased from 02 to 70 percent.
( ) The ta on the capta gans of corporatons s ncreased by the 12 ;
percent defense ta to match the change made n the rate apped to the capta
gans of ndvduas. s a resut of ths acton the capta gans of corporatons
w be sub|ect to a rate of 2 .12 percent as compared wth 2 percent under
e stng aw.
Tabe 9 on page 07 compares, for corporatons wth seected net ncomes,
the combned corporate norma ta and surta abtes and effectve rates
under ths b wth those under e stng aw and under the aw pror to the
enactment of the Revenue ct of 0. The tabe shows that n each case the
combned rates w be percentage ponts arger under the b than under
e stng aw. The resutng ncrease n ta abtes range from 20 percent
of the ta due under present aw to 10.6 percent n the cases shown, the
percentage decreasng as the ncome grows arger. fat percentage-pont n-
crease n the ta rate necessary produces an addtona ta abty whch s
a greater percentage of a sma ta than of a arge one when the ncrease s
apped to a progressve ta .
Tabe 10 on page 30 shows the combned corpornte ncome and e cess profts
ta abtes of corporatons n varous ncome casses under e stng aw and
under ths b. The tabe ndcates that of the 1 ,1 2 corporatons wth ta -
abe net ncome. 292, 1)1, or about 70 percent of the tota, have ncomes ess
than 2 ,000. These corporatons as a group w bear ony 3. percent of
the ncrease n ta abtes resutng from the ncrease n the norma ta
rate, the reducton n the percentage used n computng the credt based on
ncome under the e cess profts ta and the ncrease n the ceng rate. The
,022 corporatons wth ncomes of 100,000 and over, whch consttute abont
11 percent of the tota number of corporatons wth ta abe net ncome, w bear
more than S9 percent of the ncrease.
For corporatons wth fsca years begnnng pror to uy 1, 19 0, and endn;
after December 31, 19 0, the b provdes a formua for proratng the ta due
under the aw pror to the Revenue ct of 19 0, under e stng aw, and under
ths b. For corporatons wth fsca years begnnng after une 30, 19 0, and
endng after December 31, 19 0, the b prorates the ta as computed uudf
e stng aw and under ths b.
The ncrease n the aternatve ta apped to the capta gans of corporatons
s fuy effectve wth respect to ta abe years begnnng after ugust 31, 1031-
For caendar-year corporatons the ncrease for 19 1 w be percent as n the
case of the addtona ta on the capta gans of ndvduas. F.r corporatons
wth fsca years whch begn pror to September 1,19 1, and eud after that date,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3G7
Increase In ta a-
bty over pre- ISO
1
mount
s, g
f
1
-- - - ss g g
I

M
m
S 7 3
S
w - ; - |
s
I
S t y SgSS3

|
I
Commttee
b
pssgg
1
3
h
1
|

. 3g
r.
G
a

g g s 2 _ s s_ , z- r- S | g -
W /# . W/ v / | yv v | yv -vv /.. /
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
36
a proporton of the 12 percent Increase w appy to the capta gans de-
termned by the number of months n the fsca year whch begn after ugust
31, 19 1.
In a fu year s operaton the -pont ncrease n the corporate norma ta
rate and the correspondng -pont ncrease n the ceng rate are e pected to
ncrease the revenues by about 2,0 mon. The 10-pont reducton n the
percentage of the average base perod net ncome used n cacuatng the ncome
credt under the e cess profts ta pus the addtona 3-pont ncrease n the
ceng rate are estmated to yed about 732 mon n a fu year s operaton.
The ncrease n the rate of the aternatve ta apped to the capta gans of
corporatons s e pected to produce an addtona revenue of 3S mon a year
when fuy effectve. The combned effect of these four changes s to ncrease
corporate ta abtes by about 3,07 mon annuay, and, after takng nto
account the effect on ndvdua ncome ta es of a reducton n the dvdends
dstrbuted, the net ncrease w be 2,S 3 mon. It s estmated that n the
fsca year 19 2, coectons w be ncreased by 1,7 0 mon.
Whe these ncreases are substanta, t must be borne n mnd that corporate
profts are aso very arge. In the frst quarter 0f the caendar year 19 1 cor-
porate profts before ta es wore runnng at the rate of 1 bon annuay.
Ths s sghty above the very huh rate reached n the fourth quarter of the
caendar year 19 0 and more than haf agan as arge as the profts of the ca-
endar year 19 , whch were the argest pror to 19 0. Moreover, corporate
profts after ta es n the caendar year 19 1, after fu aowance for ths b,
are e pected to be about 20 bon as contrasted to corporate profts after ta es
durng Word War II rangng from . bon to 10. bon. Thus, even
after consderng the ncreases made n corporate ta es by ths b, n 19 1
these profts w be from about ISO to 230 percent of corporate profts after
ta es durng the ast war.
In addton, the adverse effect on ncentves of the addtona corporate ta es
provded n ths h w be reduced substantay by the fact that the addtona
coectons w be made n a perod of mobzaton. The arge voume of defense
orders and the e panded fow of consumer ncome, whch resuts drecty and n-
drecty from the unusua voume of Government e pendtures requred by the
emergency, w assure arge and predctabe markets for producers n neary
every fed of busness actvty throughout the mobzaton perod.
Tabe 10. stmated corporate ncome and e cess-profts ta ahtcs under
present aw and under commttee h, caendar year 19 11
Number
o. corno
ratons
Ta abe
Income and e ecs proCts ta
abtes
Tnmbo net ncome casses
net
ncome
Present
raes
Commt-
tee b
Increase
0 to 2 ,000
292. 91
7, 192
30. 77
. 022
Mon
2.161
1. 66
2.01S
39. 311
M ton 9
0
20
99
21. 26
Mons
6
C0
1.027
2 . 1 2
10

12s
1671
2 ,000 10 0.000
0,000 to 100.000.
100,000 and over
Tota, e eudnp capta gans
1 .1 2
. 0
1.200
23,3
300
26. 2
3, M0
3
Cantn pfn,,
33
Tota, Incudng capta gan 1 .1 2 1 6,2 6 1 23,6 26,763 1 3.07S
P RC NT DISTRI UTION
o to ;.r-,ooo
70.
11.37
7.3
10.
. 0
3. 7
.
7.2
2.31
2.22
3.
91.62
2.
2.30
3. 9
91.36
S.
290
.M
.3
2 ,000 to 0.000
0,000 to 100.000
10O,OO(; and over
Tota, e cudng capta gans
100.00 1 100.00
100.00
100. CO
100.00
ased upon a eve o profts before ta (Commerce bass) of bon.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
369
. Structura Changes n the Income Ta es
. WIT IIOLMNa ON DI ID NDS, INT R ST, ND ROY LTI S
1. Genera statement.
Part I of tte II of ths b provdes for wthhodng at the rate of 20 percent
n the cafe of dvdends, certan nterest (prncpay corporate bond nterest),
and royates. It s estmated that ths acton w ncrease the revenues by
323 mon annuay under the rates proposed n ths M.
There s to be no wthhodng on nterest on Unted States savngs bonds,
posta savngs certfcates of depost, bank deposts, mutua savngs bank de-
posts, or on amounts pad by savngs .nd oan assocatons, budng and oan
assocatons, cooperatve banks, homestead assocatons, credt unons or any
smar organzaton wth respect to wthdrawabe or repurchasabe shares,
nvestment ccrtcates or deposts, whether or not the payments are desgnated
as nterest or dvdends.
Under e stng aw recpents of such ncomes are requred to report the tota
amount receved as ncome on ther annua Income ta returns. Wthhodng
s requred of the payor ony n the case of nonresdent aens, but a proposed
reguaton woud requre that nformaton returns be fed by the payor showng
a dvdend payments, regardess of ther sze, and nterest and royaty pay-
ments to any one recpent n an amount n e cess of 000 a year. Pror to 10 1
dvdend payments were so reported ony when the amount pad to a snge
recpent was In e cess of 100 a year, but ths mtaton s beng emnated.
so, recpents of dvdends and nterest are now requred to temze such re-
cepts on ther ncome ta returns.
though broadened reportng requrements mprove compance, they cannot
be as effectve or economca as a wthhodng system. It s mpossbe to match
a the nformaton documents whch are receved by the ureau of Interna
Revenue wth te correspondng ncome ta returns, prncpay because the
names and addresses on the former often do not agree wth the names and
addresses on the atter. Substanta admnstratve costs are nvoved n deter-
mnng the amounts of unreported ncome, n preparng defcency notces, and
n actuay coectng the ta . Wthn the mts of reasonabe admnstratve
cost, the nformaton system cannot recover for the Government more than a
sma proporton of the underreported ta on nterest and dvdends and roya-
tes. Moreover, the emnaton of the 100 mt on the reportng of dvdends
pad woud mean a arge ncrease n the amount of work requred of the payor.
Therefore, ths commttee has ncuded n the present b provson for an
e tenson of the wthhodng system. Ths provson dffers from the one con-
taned In the ouse verson of the 19 0 ta b n that wthhodng s apped
to certan nterest payments and royates as we as dvdends. The rate s
to be 20 percent nstead of 10 percent, and the mechansm whch s to be used
n the case of dvdends and nterest s very much smper than that whch woud
have been apped to dvdends under the 19 0 proposa.
It s estmated that for the caendar year 19 1 underreportng may amount to
as much as 1.1 bon n the case of dvdends, 1.9 bon n the case of nterest,
and 0 mon n the case of royates. though some of ths underreportng
represents deberate evason, much of t appears to be the resut of forgetfu-
ness, careessness and a faure to keep records, partcuary on the part of ta -
payers who receve such payments rreguary and In reatvey sma amounts.
Wthhodng w go far to correct the unfar dsadvantage whch s present
under e stng aw for those recpents of dvdends, nterest, and royates who
report ther recepts accuratey, as we as for wage and saary earners whose
ncomes are aready sub|ect to wthhodng.
Under ths b the 20 percent wthhodng rate w be apped to the enumer-
ated types of dvdends, nterest, and royaty payments wthout aowance for
persona e emptons. The payor w remt to the ureau of Interna Revenue
the amounts so wthhed and submt a return showng the tota amount of
dvdends, nterest, and royates wth respect to whch ta s requred to be
wthhed. The return and payment w be made at such tme, for such perod,
and n such manner as the Secretary may prescrbe by reguatons. Presumaby
these arrangements w be smar to those now used n wthhodng on wages
e cept that n the case of dvdends and nterest the payor w not be requred
to report to the ureau of Interna Revenue the amount wthhed for each n-
dvdua or to furnsh wthhodng recepts to such ndvduas.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
370
Usuay te wthhodng agent w1 compute the amount due by mutpyng
hs tota payments of ntsrest and dvdends by 20 percent.
s n the case of wages and saares, the recpent of dvdends and nterest
w report as ncome the gross amount pror to wthhodng. e w do ths
by enterng on hs return (1) the net amount of dvdends and nterest receved
after wthhodng, (2) the nmount requred to be wthhed whch, at a 20 percent
wthhodng rate, woud be e acty one-quarter of the net amount receved, and
(3) the sum of the amount actuay receved and the amount requred to be wth-
hed. The atter s the gross nmount sub|ect to ta . credt aganst the ta
due w then be aowed equa to the amount requred to be wthhed.
The operaton of ths system may be ustrated wth the case of an ndvdua
stockhoder to whom a corporaton pad 1.000 of dvdends durng the ta abe
year. t a 20 percent wthhodng rate, the corporaton w wthhod 200 from
the dvdend payments to ths ndvdua, remttng the wthhed ta es to the
coector of nterna revenue. On hs rrone ta return, the ndvdua w
enter the S00 of dvdends he receved. e w then add to the 00 the S2O0
wthhed. Ths w not requre any records or recepts but w be accompshed
by smpy computng one-fourth of the amount receved and addng the two to-
gether. The tota cf 1,000 w be ncuded n hs gross ncome. fter com-
putng hs tota ta abty he w deduct the amount aready pad or wthhed,
ncudng the 200 wthhed at source on dvdends, and ether pay the baance
due or appy for a refund.
Ths system does not nvove the use of the type of wthhodng recept e -
empfed by the F( rm -2 used n the case of wthhodng on wages and
saares. The pan s, therefore, not open to the ob|ecton rased aganst the
19 0 proposa, namey, that t woud ncrease unduy the work of the wthhod-
ng agents. s a matter of fact, wth ths system n operaton t woud, be pos-
sbe to rentroduce mtaton on the reportng of dvdends pad.
In the ense of nterest not sub|ect to wthhodng, sue as nterest on savngs
accounts, the commttee deemed t necessary for enforcement purposes to permt
the Secretary of the Treasury to requr-| nformaton returns for any amount
whch he may, by reguaton, specfy. In no event, w the Secretary be per-
mtted to e er.pt from ths requrement nterest payments (not sub|ect to wth-
hodng) of 100 or more. In the case of dvdends sub|ect to wthhodng, the
b provdes that an nformaton return w not be requred uness the annua
payment to the ndvdua s . 00 or more.
The procedure and computaton n the ease of nterest wthhed on, w be the
same as for dvdends.
owever, t s not possbe to avod the use of a wthhodng recept n the
case of royates because the dffcutes of the recpent n determnng whch
payments he receves are wthhed upon, requres that some notce pass from
the wthhodng agent to the ta payer, nformng hm of the fact and nmount
of wthhodng. For ths purpose a system of wthhodng recepts smar to
the Form Y -2 w be used. copy of the recept w be sent to the ureau for
matchng purposes and two copes w go to the ta payer, one of whch w
accompany hs ncome ta return.
In the case of coupon bonds the owner w, on turnng n hs nterest coupon
at a bank, receve SO percent of the face amount of the coupon. The bank w
aso be pad 0 perce nt of the face nmount by the payor corporaton. The reman-
ng 20 percent w be remtted by the atter to the coector of nterna revenue.
The 20 percent wthhodng rate s the equvaent of a 22 percent frst-bracket
rate after takng nto account the 10 percent standard deducton. The frst
bracket rate under ths b ncudng the defense ta w be 22. percent.
It s beeved that the proposed system of wthhodng w secure a hgh eve
of compance throughout the ncome scae. For ta payers sub|ect to the frst-
bracket rate, appro matey the fu ta abty w be wthhed and no ncentve
for underreportng w reman. For proper enforcement n the mdde and upper
brackets reance w have to be contnued on nformaton returns but the
amount of potenta underreportng w be substantay reduced.
To protect recpents of sma amounts of nterest, dvdends, or royates from
the oss of the credt based on wthhodng due to an oversght or negect of sma
recepts of these types, the b e tends the statute of mtatons for the
purpose of camng such credt to 7 years n such cases but mts the amount to
be refunded, after the runnng of the 3-year statute of mtatons, to an amount
not n e cess of 2 per year.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
The rues governng the use of the Form 10 O- under whch the ta Is com-
puted by the coector are amended. Under e stng aw ths form may be used
f the ta payer s gross ncome s ess than o,0U0, s made up entrey of wages,
saares, dvdends, and nterest an ncudes not more than 100 of ncome not
wthhed upon. Under the b. Form 10 0- s avaabe f the gross ncome s
e- s than So 000 and conssts entrey of wages, nterest, and dvdends to whch
wthhodng appes.
2. Defnton of dvdends for wthhodng purposes.
For wthhodng purmses dvdends are defned so as to Incude any dstrbu-
ton by a corporaton whch s a dvdend as defned In secton 11 (a) of the
Interna Revenue Code as we as payments n eu of dvdends whch arse out
of transactons nvovng short saes. There are. however, n consderabe num-
ber of pases n whch ta s upon payments n the nature of dvdends w not
ot- wthhed.
Patronage dvdends of cooperatves w not be wthhed on uness they are
dvdends wthn the meanng of secton o(a).
There w be no wthhodng wth respect to stock dvdends or the dstrbuton
of rghts, snce such transfers frequenty do not produce ta abe ncome.
Dstrbutons to sharehoders n connecton wth corporate reorganzatons
and the redempton of outstandng stock are not wthhed on. Such dstrbu-
tons are frequenty not ta ab .e; n many other cases they are ta ed as capta
ans. Generay, the compe tes whch woud resut make t undesrabe to
appy wthhodng to these dstrbutons.
Dvdends pad by Federa Reserve banks, Federa and banks. Federa ome
Loan banks, the Centra Rank for Cooeratves or a Rank for Cooperatves are
e empt because such dvdends are receved entrey by corpora ons.
For smar reasons wthhodng w not appy to dvdends pad by a corpora-
ton whch s a member of nn affated group of corporatons to another member
of the group. owever, ths e empton s effectve ony when the affated group
ted a consodated return for the precedng ta abe year.
Dvdends pad by a foregn corporaton are e empt from wthhodng. In
ts case t woud be napproprate or mpractcabe to requre the payor to
act as a wthhodng agent, and the procedure for determnaton by the ta -
payer of the gross amount of the dvdend woud, n some cases, be compcated
by the addtona ta wthhodng by foregn governments.
Dvdends pad to governments, potca subdvsons, nternatona organza-
tons, or whoy owned nstrumentates or agences of the foregong w not
be sub|ect to wthhodng provded the entre cass of stock wth respect to whch
such dvdend s pad s owned by one or more such agency. ere wthhodng
woud serve no usefu purpose.
For the same reason dvdends pad to foregn governments and nternatona
organzatons w not be wthhed upon.
Dvdends pad to an owner of record who s a foregn corporaton not engaged
n trade or busness wthn the Unted States, to nonresdent aen ndvduas,
or to a partnershp not engaged In trade or busness wthn the Unted States
and composed n whoe or n part of nonresdent aens are not affected by the
new wthhodng provsons. In these cases wthhodng s provded under other
sectons of the Interna Revenue Code.
Wthhodng w not appy to dvdends pad pursuant to the terms of a
ease under whch the sharehoders of the essor corporaton are entted to
dvdends wthout the deducton of any ta . owever, n order to prevent the
deberate es..bshment of such enses for the purpose of avodng wthhodng,
ths e empton appes ony when the ease was entered nto pror to anuary 1,
19 1.
3. Defnton of nterest for wthhodng purposes.
Wthhodng w appy to nterest on a bonds, debentures, notes, certfcates,
or other evdences of ndebtedness, ssutd by any corporaton, wth nterest
coupons or n regstered form, nterest on deposts wth stockbrokers, amounts
hed by an nsurance company under an agreement to pay nterest thereon and
nterest on refunds of the overpayment of any Interna revenue ta , e cept ncome
and e cess profts ta es mposed on corporatons.
There s to be no wthhodng on nterest on Unted States savngs bonds,
posta savngs certfcates of depost, bank deposts, mutua savngs bank deposts,
or on amounts pad by savngs and oan assocatons, budng and oan assoca-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
372
tons, cooperatve banks, homestead assocatons, credt unons or any smar
organzaton wth respect to wthdrawabe or repurchasabe shares, nvestment
certfcates or deposts, whether or not the payments are desgnated as nterest
or dvdends.
In order to avod a arge amount of addtona admnstratve work and to
avod mposng the dutes of a wthhodng agent on a payor who makes ony
occasona dsbursements, the b provdes that the payment of nterest by
ndvduas w not be sub|ect to wthhodng and that the ony payments by
partnershps or Indvduas whch w be wthhed on are those pad by prvate
banks or brokerage frms.
There w be no wthhodng on Interest pad on whoy ta -e enpt securtes
snce such wthhodng woud serve no usefu purpose.
Interest pad on equpment trust certfcates Is aso e empt snce securtes of
ths type are ordnary hed by corporatons.
Interest pad on corporate obgatons ssued before anuary 1, 19 1, w aso
be e empt from wthhodng f the obgor s requred by the terms of the contract
to absorb the ta .
|. Defnton of royates for wthhodng purposes.
For wthhodng purposes the term royaty Incudes not ony rents and
royates pad wth respect to mnes, o or gas wes, and other natura deposts,
but aso royates of the type pad for the u e of patents, copyrghts, secret proc-
esses or formuas, trade marks, and trade brands f pad by a corporaton
When copyrghts are turned over to an organzaton whch censes ther use,
the payments made by such organzatons to ts members w be wthhed on
but there w be no wthhodng on the payments to the organzaton.
In the case of a mne, o or gas we, or other natura depost, wthhodng
w appy to deay renta, and any bonus, prepad or mnmum royaty, and
any payment refectng a share of the gross or net ncome derved frcm the
e tracton and sae of any natura depost but ony If the recpent s not per-
sonay obgated to pay a proportonate share of deveopment or operatng
e penses. Wthhodng w not depend on whether the payment s measured
by producton or by a share of gross or net Income from the property.
Royates pad n knd w not be wthhed on mnera, o, gas, or other
natura deposts uness sod by or on behaf of the producer cr under a dvson
order n whch case the purchaser w be consdered as makng payment of the
royaty In an amount equa to the purchase prce.
royates pad to a corporaton or to a government or potca subdvson
are specfcay e empt from wthhodng. In ether respects the rues govern-
ng the appcaton of wthhodng to royaty payments are smar to those
descrbed In connecton wth dvdends and nterest.
. Speca rues appyng to partnershps, estates, and trusts.
Under ths b a partnershp or a common trust fund does not ord nary
receve credt for the ta wthhed on dvdends, nterest, or royates recever)
by t. The credt s aowed nstead to the members of the partnershp or the
partcpants n the common trust fund n proporton to ther nterests. It s
antcpated that the returns showng the dstrbutve share cf the partners w
ncude the aocated amounts of ta wthhed at tte source for each partner,
thus provdng the ureau wth the nformaton necessary to check the credts
camed on the partnershp s ta return. It s antcpated aso that the part-
nershp w suppy the partner wth the nformaton on dvdends, nterest,
and royates receved and the ta wthhed necessary for fng hs ta return
at the same tme that t nforms hm of hs share u the ncome derved from
the organzaton.
If the entre ncome of an estate or trust s dstrbuted to the benefcares,
the credt w be handed n the same way as In the case of n partnershp or
common trust fund. If. however, a porton of the ncome of the estate or trust
Is retaned by t, the credt w be dvded between the benefcares and the trust
or cstnte In proportons whch refect the aocaton of the Income of the trust
or estate.
6. Speca rues governng reguated nvestment companes and persona hodng
companes.
Speca provson must be made for the treatment of amounts wthhed on
dvdends, Interest, and royates pad to reguated nvestment companes and
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
373
persona hodng companes because the e stng aw mposes substanta pena-
tes upon such corporatons uness they dstrbute ther ncome currenty. If
do speca provson were made, such corporatons woud be requred to make
dstrbutons out of capta n order to prevent the appcaton of these penates,
snce there woud not be enough ncome eft after the wthhodng on ther
ncome to fnance the dsbursements necessary to prevent the appcaton of
these penates pus the wthhodng on the company s dsbursements to ts own
stockhoders. Therefore, t s provded that reguated nvestment companes
and persona hodng companes may count the amounts wthhed on dvdends,
nterest, and royates receved by them as credts aganst the amounts whch
they themseves are requred to wthhod from ther dsbursements to ther own
sharehoders.
7. Speca provson or ta -ercmpt organsatons.
Ta -e empt organzatons aso pose a speca probem snce they frequenty
rey heavy upon the ncome whch they receve as nterest, dvdends, and
royates to fnance ther current operatng costs. n outrght e empton of
payments to such organzatons woud greaty compcate the work of the wth-
hodng agent. It s provded, therefore, that n eu of such an e empton these
organzatons w be permtted to use the amr.nnt wthhed wth respect to
dvdends, nterest, and royates receved by them as a credt aganst the amount
due from such organzaton under the ncome and payro ta es. cam for
ths credt w he made under reguatons at the tme of the fng of the returns
for the purpose of these ta es. In addton, ta -e empt organzatons may cam
refunds quartery for the e cess of the amount wthhed on dvdends, nterest,
and royates receved over the amount of the ncome and payro ta es due.
Such cams may be fed on a quartery bass after the cose of the caendar
quarter or before March 1 of the year after the cose of the fourth quarter.
No nterest w be aowed on refunds for any perod pror to the date on whch
the cam for refund s fed or before March 16 of the caendar year succeedng
the cose of the caendar quarter n respect of whch the refund s camed,
whchever date s the ater. These arrangements w reduce to a mnmum the
e tent to whch ta -e empt organzatons w be cut of pocket on account of
the wthhodng system apped to nterest, dvdends, and royates under ths
b.
These arrangements aso appy n the case of State and oca governments
and ther agences.
. ffectve date.
The provsons reatng to wthhodng on dvdends, royates, and nterest
w appy to amounts pad n 19 2 and subsequent years.
. LIF INSU C COMP NI S
In secton 01 of the Revenue ct of 19 0 the formua used for computng
the net ncome of fe nsurance companes was amended, the acton beng
effectve ony for 19 9 and 19 0. Ths acton was necesstated by the fact
that the formua set up n the Revenue ct of 19 2 resuted n no ta beng
due from any company on ts fe-nsurance nvestment ncome for the years
19 7 and 19 . The substtute formua provded for 19 9 and 19 0 was ntended
to be a stopgap whch woud termnate the ta -e empt status of ths type of
ncome and permt the competon of the study needed for the deveopment of
a permanent souton to the probem of the ta aton of fe-nsurance companes.
Consderabe progress has been made n ths study but t has not yet produced
a defntve souton. though changes n the yed obtaned on fe nsurance
nvestments and n the average rate of nterest pad on pocyhoders reserves
have emnated the ta -free status of the ndustry under the 19 2 formua, the
atter s generay recognzed to be defectve. If no noton were taken at ths
tme, ths formua woud appy n 19 1 and subsequent years. To foresta ths
eventuaty and to provde addtona tme for the competon of the study upon
whch ths commttee s now engaged, secton 311 of ths b appes the stopgap
formua to fe nsurance nvestment ncome n 19 1.
It s estmated that n 19 1 the revenue under the stopgap formua w e ceed
that whch woud be obtaned une er the 19 2 formua by about mon,
resutng n a tota ta abty of 111 mon.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
37
C. SURT MPTION S ND MINIMUM C SS PROFITS T CR DIT OF
R L T D CORPOR TION S
Under e stng aw the 2 ,000 corporate surta e empton and the 2 ,000
mnmum credt under the e cess profts ta are avaabe to each member of
a group or chan of reated corporatons even though the degree of ther asso-
caton s suffcenty great so that they are vrtuay a snge busness enterprse.
Ths treatment confers an unwarranted ta advantage on busnesses carred
out by means of a seres of corporatons, rather than a snge corporaton, and
sets up nn ncentve for the artfca spttng up of corporatons. Ths effect
of the e stng aw s dffcut to reconce wth the fact that the surta e emp-
ton and the mnmum credt were ntended to confer ta advantages on sma
busness. Therefore, secton 23 of ths b reduces to one the number of surta
e emptons whch may be camed by a group of reated corporatons and
mts the mnmum e cess profts ta credt to a snge credt of 2 ,000 for
the entre group.
Under the b the 2 ,000 surta e empton and the 2 ,000 mnmum credt
w be dvded equay among the reated corporatons uness the atter eect
another method of apportonment. Such an eecton may be made by fne
wth the Secretary of the Treasury a consent ndcatng the porton of the
2 ,000 whch w be taken by each of the reated corporatons as ts surta
e empton for the ta abe year. Ths eecton w permt the reated corpora-
tons to absorb the fu e empton and the fu mnmum credt so ony as
the group has a combned surta net ncome of 2 ,000.
reated group of corporatons s defned so as to ncude one or more
chans of corporatons connected through ownershp wth a common parent
corporaton when at east 9 percent of the votng power of a casses of stock
of each of the corporatons (e cept the common parent corporaton) s owned
drecty by one or more of the other corporatons, and the common parent owns
drecty stock possessng at east 9 percent of the votng power of a casses
of stock of at east one of the other corporatons, e cudng, n computng such
votng power, stock hed by such other corporatons. reated group w
aso e st f at east 9 percent of the votng power of a casses of stock of
each of the corporatons s owned, drecty or ndrecty, by or for one ndvdua,
or f at east 9 percent Is owned, drecty or ndrecty, by or for not more than
fve ndvduas each of whom owns substantay the same proporton of the
votng power n each of the corporatons.
In determnng the e tent of an ndvdua s hodngs of the stock of a cor-
poraton for ths purpose, he w be deemed to own stock hed drecty or n-
drecty by or for hs spouse, and aso that porton of the stock owned by a
corporaton, partnershp, estate, or trust n whch he hods an nterest, wch
refects the e tent of hs nterest n such corporaton, partnershp, estate, or
trust. If he and hs spouse own drecty or ndrecty more than 0 percent
of the votng power of a corporaton he w be consdered to own aso the
stock n that corporaton hed drecty or ndrecty by hs ancestors and nea
descendants.
The amendment does not appy to educatona, chartabe, and smar organ-
zatons whch are ta abe on ther unreated busness Income under suppement
U of the Interna Revenue Code.
Whe these amendments to the surta e empton and the mnmum e cess
profts ta credt woud be desrabe n any event, they are partcuary necessary
at the present tme. The substanta revenue oss under e stng aw s dffcut
to reconce wth the current budgetary strngency, and ths revenue oss mght
he ncreased by the deberate spttng up of corporatons for the purpose of
reazng the unusua ta advantages whch present aw permts n a perod of
hgh corporate ta rates. vdence has been presented to ths commttse whch
ndcates that a substantay smaer ncentve ed n some cases to the art-
fca spttng up of busness enterprses nto a arge number of ndvdua
corporatons durng Word War II.
It s estmated that when fuy effectve secton 123 of ths b w ncrease
the revenues by about mon annuay.
Secton 123 w appy ony to ta abe years begnnng after December 31, 19 0.
D. OFFS T OF S ORT- ND LONG-T RM C PIT L G IN S ND LOSS S
Secton 30 of ths b amends the treatment of the gans nnd osses of In-
dvduas so as to emnate a defect n e stng aw. Tbe atter e cudes 0
percent of a ong-term capta gan or oss from the computaton of net capta
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
gan, net capta oss and net ncome, nut ncudes 100 percent of. a short-term
capta oss n such computatons. s a resut a 1 short-term oss can wpe
out a 2 ong-term gan.
Under secton 30 of ths b ong-term gans are ncuded In cross ncome at
OO percent and a deducton from gross ncome s aowed equa to 0 percent
of the amount by whch the ta payer s net ong-term gan e ceeds hs net
short-term oss. Thus, f a ta payer has a net ong-term gan of 1,000 and a
net short-term oss of ke amount, no deducton w be aowabe. If the net
ong-term gan s 2,000 and the net short-term oss s S1.000, the deducton
aganst gross ncome w be 0 percent of the e cess of 2,000 ever S1.000, or
00. ence the amount actuay ta ed as a ong-term capta gan w be 00.
Under e stng aw the short-term oss offsets the porton of the ong-term gan
ncuded n the cacuaton of net ncome and no ta abty e sts.
Long-term osses, ke ong-term gans, w be taken nto account n fu.
Uong-term osses w therefore offset short-term gans on a doar- -doar
bass, |ust as short-term osses w offset ong-term gans. If ong-term osses
e ceed short-term gans, the unreduced e cess w be offset aganst other ncome
up to 1,000. The net oss whch s not absorbed n ths manner w be carred
forward as a short-term capta oss, whether arsng out of short- or ong-term
operatons.
Secton 30 appes ony to ta abe years begnnng on or after the date of
enactment of ths ct.
It s estmated that when fuy effectve ths amendment w ncrease The
revenues by 2 mon annuay.
. COLI- rSI L CORPOR TIONS
Ths b amends secton 117(m) of the Interna Revenue Code whch denes
capta-gans treatment to the sae, e change or retrement of stock n a coap-
sbe corporaton so as to e tend the appcaton of ths secton to cases where
the corporaton s used as a devce for convertng nventory profts nto capta
gans. Secton 117(m) was added to the Interna Revenue Code by the Revenue
ct of 19 0 to foresta the use of the coapsbe corporaton as a devce for
convertng ordnary ncome nto ong-term capta gan. t that tme t was be-
eved that the coapsbe corporaton was used prncpay n the moton pcture
and budng constructon ndustres. The reports on the b whch became the
Revenue ct of 19 0 ustrated the devce by the rase of a corporaton organzed
for the producton of a snge moton pcture. Upon the competon of the fm,
but pror to the reazaton by the corporaton of any ncome therefrom, the cor-
poraton woud be qudated and Its assets dstrbuted. No ta woud be pad
by the corporaton because t had reazed no ncome. The former sharehoders
woud pay a ta upon the dfference between ther cost and the far market
vaue of ther shares n the vaue of the product so dstrbuted, ror to the
Revenue ct of 10 0 ths gan mght have been ta ed as a ong-term capta gan
wth a ma mum effectve rate of 2 percent. The coapsbe corporaton was
aso ustrated wth cases n whch a corporaton set up to construct a bud-
ng was qudated and the rghts n the budng were Sod by the former stock-
hoders actng as ndvduas.
ecause the devce of the coapsbe corporaton was beeved to be used
argey n these two cases, secton 117(n) was drafted so as to appy when the
corporaton was formed or avaed of prncpay for the manufacture, con-
structon or producton of property.
It s now understood that the coapsbe-corporaton devce was aso used n an
attempt to convert profts on nventory and stock n trade nto capta gans. The
procedure used was to transfer a commodty to a new or dormant corporaton,
the stock of whch woud then be sod to the prospectve purchaser of the com-
modty who woud thereupon qudate the corporaton. In ths manner the
accreton n the vaue of the commodty, whch n most of the actua cases was
whsky, woud be converted nto a gan reazed on the sae of stock n a corpora-
ton, thus openng the possbty that t woud be ta ed as a ong-term capta
gan.
To prevent the use of the coapsbe corporaton n cases of ths sort, secton
117(n) s e tended to corporatons formed or avaed of prncpay for the pur-
chase of property whch s nventory or stock n trade n the hands of the
corporaton.
Ths amendment appes to ta abe years begnnng after December 31, 19 0.
The determnaton of the ta treatment of gans reazed n ta abe years begn-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
376
nng pror to anuary 1. 19 1, w be made as If ths secton had not been en-
acted and wthout nterferences Lsfc drawn from the fact that the amendment
made n ths b s not specfcay retroactve and wthout nferences drawn from
the mtatons contaned n secton 117(m) as amended by secton 30 of ths b-
It s estmated that n a fu year s operatons ths provson w ncrease th
revenues by mon.
F. S L OF PROP RTY TO CONTROLL D CORPOR TIONS
Secton 310 of ths b s ntended to foresta the practce of seng depre-
cabe assets to controed corporatons n order to obtan the substanta ta
benefts avaabe under e stng aw. Ths practce, whch s reported by the
ureau of Interna Revenue to be of growng mportance, may be ustrated as
foows: ssume that a husband and wfe own and operate a corporaton en-
gaged n reta trade, that they aso cwn as ndvduas the budng used by ths
corporaton and that the current vaue of the budng s we n e cess of ts
ad|usted bass. If the budng s sod to the corporaton, a capta-gans ta
w ordnary be pad, but the budng then has, n the hands of the corporaton,
an ad|usted bass whch s greater than the bass n the hands of the ndvdua
sharehoders by the amount of the gan reazed on the sae to the corporaton.
The property beng deprecabe the corporaton w then be abe to wrte off
the ncrease n the ad|usted bass over the remanng fe of the budng. The
resutng addtona deprecaton charges are, of course, an offset to ordnary n-
come. Thus, n effect, the mmedate payment of a capta-gans ta has been
substtuted for the emnaton, over a perod of years, of the corporate ncome
ta es on an equvaent amount. The substanta dfferenta between the cap-
ta-gans rate and the ordnary rates makes such a substtuton hghy advan-
tageous when the sae may be carred out wthout os3 of contro over the asset
because the corporaton to whch the asset s sod s controed by the ndvduas
who make the sae.
Secton 310 of ths b emnates the ta advantage from such transactons by
denyng capta-gans treatment to the transferor wth respect to saes or e -
changes of deprecabe property between a husband and a wfe, or between an
ndvdua and a corporaton, more than haf of the outstandng stock of whch
s owned by or for hm drecty or ndrecty. For the purpose of determnng
ownershp of stock an ndvdua w be consdered as ownng a porton of the
stock hed by a corporaton, partnershp, estate or trust whch refects hs nter-
est as a sharehoder, partner or benefcary. e w aso be consdered as own-
ng stock owned drecty or ndrecty by or for hs spouse and f he and hs spouse
own more than 10 percent of the outstandng stock of a company he w aso be
consdered as ownng stock hed drecty or ndrecty, by or for hs brothers and
ssters, ancestors and nea descendants.
Secton 310 w appy ony to saes or e changes made nfter Say 3, 19 1, the
date on whch ths commttee s tentatve decson on ths secton was announced.
G. D L RS IN S CURITI S
Under e stng aw, deaers n securtes are permtted to hod some securtes
as a persona nvestment. Gans or osses on those securtes whch are hed
by the ta payer n hs capacty as a deaer are treated as ordnary ncome.
Capta gan or oss treatment s accorded the resuts of the transfer of securtes
whch the ta payer hods as an nvestor. stng aw aso permts the transfer
of securtes from such a ta payer s nvestment account to hs nventory account
and vce versa wth correspondng changes n ta abtes. These transfers
ncrease the dffcuty of determnng n whch portfoo specfc securtes were
nctuay hed, and factate the manpuaton of the ta payer s accounts so as
to obtan ordnary oss treatment on securtes sod at a oss and capta-gans
treatment on those sod at a gan.
To foresta ths practce, secton 309 of ths b provdes that n the case of
a deaer n securtes capta-gans treatment w be avaabe ony under certan
specfc condtons. The securty n queston must have been ceary dentfed
n the deaer s records as a securty hed for nvestment wthn a perod of 30
days after the date of ts acquston or after the date of enactment of the
Revenue ct of 19 1, whchever s ater, and must not at any tme thereafter
have been hed by the ta payer prmary for sae to customers n the ordnary
course of hs trade or busness. Uness these terms are comped wth, the
gan on the sae of the securty w be ta ed as ordnary ncome.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
377
Ordnary oss treatment w not appy where the securty sod was at any
tme after ths secton becomes appcabe ceary dentfed n the deaer s records
as a securty hed for nvestment
Secton 309 appes to saes or e changes made more than 30 days after the
date of enactment of ths ct.
. G IN FROM S L OR C NG OF T T P Y R S R SID NC
Secton 303 of ths b amends the present provsons reatng to a gan on
the sne of a ta payer s prncpa resdence so as to emnate a hardshp under
e stng aw whch provdes that when a persona resdence s sod at n gan the
dfference between ts ad|usted bass and the sae prce s ta ed as a capta gan.
The hardshp s accentuated when the transactons are necesstated by such facts
an an ncrease n the sze of the famy or a change n the pace of the ta payer s
empoyment. In these stuatcns the transacton partakes of the nature of an
nvountary converson. Cases of ths type are partcuary numerous n perods
of rapd change such as mobzaton or reconverson. For ths reason the need
for remeda acton at the present tme s urgent.
Secton 303 of ths b provdes that when the sae of the ta payer s prncpa
resdence s foowed wth. a perod of 1 year by the purchase of a substtute,
or when the substtute s purchased wthn a year pror to the sae of the ta -
payer s prncpa resdence, gan sha be recognzed ony to the e tent that the
seng prce of the od resdence e ceeds the cost of the new one. Thus, f a
dweng purchased n 19 0 for 10,000 s sod n 19 1 for 1 ,000, there woud
ordnary be a ta abe gan of ,000 under e stng aw. Under ths b no
porton of the gan woud be ta abe provded a substtute prncpa resdence
s purchased by the ta payer wthn the stated perod of tme for a prce of
1 ,000 or more. If the repacement cost s ess than 1 ,000, say 1 ,000, the
amount ta abe as gan w be 1,000.
Ths speca treatment s not mted to the nvountary converson type of
case, where the ta payer s forced to se hs home because the pace of hs
empoyment s changed. Whe the need for reef s especay cear n such
cases, an attempt to confne the provson to them woud ncrease the task of
admnstraton very much.
The ad|usted bass of the new resdence w be reduced by the amount of gan
not recognzed upon the sae of the od resdence. Thus, f the repacement s
purchased for 19,000, the od resdence cost 10,000 and was sod for S1 ,000. the
ad|usted bass of the new resdence w be 19,000 mnus ,000, or 1 ,000. Ths
s equa to the cost of the od resdence pus the addtona funds nvested at the
tme the new resdence s purchased. If the second resdence had been pur-
chased for 1 ,000, so that 1,000 of gan on the sae of the od resdence woud
be recognzed, ts bass woud be 1 ,000 mnus ,000, or 10,000.
For the purpose of quafyng a gan as a ong-term capta gan the hodng
perod of the resdence acqured as a repacement n a set of transactons whch
quafy under the terms of ths secton of the b w be the combned perod
of ownershp of the successve prncpa resdences of the ta payer.
Secton 303 e tends to cases n whch smar treatment s avaabe under
e stng aw under the nvountary converson provsons of secton 112(f).
Such cases arse when a home s destroyed by fre or s ost by sezure or by the
e ercse of the powers of requston or condemnaton and the proceeds are n-
vested n a repacement. In such cases the new provson, and not secton
112(f), w appy. Generay ths w resut n more favorabe treatment for
the ta payer than that avaabe under the nvountary converson provsons.
The atter requre the tracng of the e pendture of the funds obtaned as a
resut of the oss of the prevous resdence, and substanta ta consequences
resut from such techncates as a decson to use the money so receved to repay
a mortgage on the prevous resdence and to use other funds for the purchase
of a repacement. Moreover, no reef s avaabe under the nvountary con-
verson sectons n cases where the repacement s acqured before the actua
condemnaton or requston of the prevous resdence.
The ta payer s not requred to have actuay been occupyng hs od resdence
on the date of ts sae. Reef w be avaabe even though the ta payer moved
Into hs new resdence and rented the od one temporary before ts sae. Sm-
ary, he may obtan reef even though he rents out hs new resdence tem-
porary before occupyng It.
9 016 2 2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

6

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
37
The speca treatment provded under ths secton of the b can be avaed
of ony wth respect to one sae or e change per year, e cept when the ta payer s
new resdence s nvountary converted, n whch case he w be treated as
though a year had eapsed snce the tme of the prevous sae of an od resdence.
Secton 303 of ths b appes to cases where one resdence s e changed for
another, where a repacement resdence s constructed by the ta payer rather
than purchased, and where the repacement s a resdence whch had to be
reconstructed n order to permt ts occupancy by the ta payer. owever, n
cases where te repacement s but or reconstructed, ony so much of the cost
s counted as an offset aganst the seng prce of hs od resdence as s propery
chargeabe aganst capta account wthn a perod begnnng 1 year pror to date
of the sae of the od resdence and endng 1 year after such date.
The ownershp of stock n a cooperatve apartment corporaton w be treated
as the equvaent of ownershp of a resdence, provded the purchaser or seer of
such stock uses the apartment whch t enttes hm to occupy as hs prncpa
resdence.
Reguatons w be ssued under whch the ta payer and hs spouse actng
sngy or |onty may obtan the benefts of secton 303 even though the spouse
who sod the od resdence was not the same as the one who purchased the
new one, or the rghts of the spouses n the new resdence are not dstrbuted
n the same manner as ther rghts n the od resdence. These reguatons w
appy ony If the spouses consent to ther appcaton and both od and new
resdence are used by the ta payer and hs spouse as ther prncpa resdence.
Where the ta payer s resdence s part of a property aso used for busness
purposes, as n the case of an apartment over a store budng or a home on a
farm, and the entre property s sod, the provsons of secton 303 w appy ony
to that part of the property used as a resdence, ncudng the envrons and out-
budngs reatng to the dweng but not to those reatng to the busness
operatons.
These provsons appy to a traer or houseboat f t Is actuay used as the
ta payer s prncpa resdence
In order to protect the Government n cases where there s an unreported
ta abe gan on the sae of the ta payer s resdence, ether because he dd not
carry out hs ntenton to buy a new resdence or because some of the technca
requrements were not met, the perod for the assessment of a defcency s e -
tended to 3 years after the ta payer has notfed the Commssoner ether that
he has purchased a new resdence, or that he has not acqured or does not ntend
to acqure a new resdence wthn the prescrbed perod of tme.
The benefts of secton 303 of ths b w be apped to the sae of ta payer s
prncpa resdence made after December 31. 19 0.
The revenue oss w be about 112 mon annuay.
I. P RC NT G D PL TION
Under e stng aw depeton based on cost s avaabe to a mnng ndustres
and n addton percentage depeton s avaabe to o, gas, sufur, meta mnes,
and certan nonmetac mneras. The aowabe rate of percentage depeton
s percent n the case of coa, and 1 percent n the case of the other non-
uetac mneras e cept sufur whch s aowed 23 percent.
The testmony receved by ths commttee both n connecton wth ths b
and the b whch became the Revenue ct of 19 0 reveaed that n a number
of cases nonmetac mneras whch are not n the enumerated group under
e stng aw are compettve wth those recevng percentage depeton, or have
|ust as good a cam for such treatment as the enumerated mneras. The test-
mony aso ndcated that the percent rate aowed coa s of tte practca
vaue, and that the coa mnng ndustry s pecuary n need of more favorabe
ta treatment because of the nroads whch aternatve sources of energy, par-
tcuary o and gns, have made on the potenta markets of coa.
Secton 30 of ths b adds to the st of nonmetac mneras to whch per-
centage depeton s avaabe at a 1 percent rate, bora , fuer s earth, trpo,
refractory and fre cay, quartzte, perte. datomaceous earth, and metaurgca
and chemca grade mestones. The amendment aso makes t cear that the
1 percent rate appes to thenardte, whether or not obtaned from brnes, or
m tures of brne.
The b ncreases the percentage aowed n the case of coa from to 10
percent, and sets up a new group of mneras to whch percentage depeton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
379
Is avaabe at the rate of percent. Ths group conssts of sand, grave, stone,
ncudng pumce, scora, and sate, brck and te cay, shae, oyster she, cam
she, grante, marbe, and asbestos.
Most of these changes woud have been made under the ouse verson of the
b whch became the Revenue ct of 19 0 but they were emnated from the
fna egsaton argey because of the revenue oss nvoved. It s apparent,
however, that the need for equazaton s substantay greater now because
of the addtona ta es mposed under the egsaton of 19 0 and under ths b.
Therefore, the commttee beeves that the proposed e tenson of the percentage
depeton system s necessary n spte of the revenue oss nvoved. The atter
s estmated to be about 07 mon n a fu year s operaton.
The amendments made by ths secton of the b appy to ta abe years be-
gnnng after December 31, 19 0.
. P NDITUR S I T D LOPM NT OF MIN S
Secton 302 of ths b changes the treatment of deveopment e pendtures In
the case of mnes and other natura deposts e cept o and gas wes. Under
e stng aw and reguatons a such e pendtures n e cess of net recepts from
mneras sod are charged to capta account so ong as the mne s n the de-
veopment stage. When the mne has passed nto the producton stage such
e pendtures are deductbe n the year n whch the ore or mnera benefttng
from such e pendtures s sod. The transton from the deveopment to the
producton stage occurs
When the ma|or porton of the mnera producton s obtaned from workngs
other than those opened for the purpose of deveopment, or when the prncpa
nctvty of the mne becomes the producton of deveoped ore rather than the
deveopment of addtona ores for mnng.
It s possbe for a mne to move back and forth between deveopment and
producton wth changes n the nature of ts operatons. The resut n such
n case woud be that the same type of e pendtures woud be chargeabe to
capta account at one tme and deductbe as descrbed above at another.
When a deveopment cost s charged to capta outay t w be recaptured
through cost depeton. owever, f the mne uses percentage depeton there
w be no addtona deducton specfcay attrbutabe to the captazed de-
veopment costs. Ths means that n such cases the capta outays for deveop-
ment durng the deveopment stage are, n effect, never deductbe for ta pur-
poses, e cept where the deduetou avaabe under cost depeton e ceeds that
whch may be made under percentage depeton.
Wtnesses appearng at the commttee s pubc hearngs on ths b emphaszed
the serous ta consequences whch resut from the requrement that deveop-
ment costs must be captazed f ncurred whe the mne s n the deveopment
stage. It was emphaszed that ths rue rases a serous obstace to e panson
n the mnng Industry. The probem s partcuary acute at the present tme
because of the shortage of many essenta mneras and the desrabty of
ma|or deveopments n the case of certan mneras such as ron.
Secton 302 provdes that e pendtures pad or ncurred after December 31,
19 0, n the deveopment of a mne or other natura depost w be deductbe
rataby over the perod durng whch the ores or mneras benefted by such
e pendtures are sod. Ths provson w appy even though the ore or mneras
were produced n a year other than the year of the sae. Ths rue appes
ony when the e pendtures are made after the e stence of ores or mneras n
commercay marketabe quanttes has been determned and the deveopment
stage hns begun. It s not apped to o or gas wes, where the probem at
ssue has been deat wth through the optona deducton of ntangbe drng
and deveopment costs n the year they are ncurred.
pendtures made for the purchase of deprecabe property w not be
counted as deveopment e pendtures for ths purpose but the deprecaton
charges whch appear as the resut of the use of such property for deveopment
purposes may quafy for such treatment as deveopment costs.
pendtures made for deveopment w contnue to ncrease the nd|usted
bass of the mne for computng gan or oss as under e stng aw. owever,
ths bass w then be reduced as the deductons aowabe under secton 302
occur.
In order to prevent dupcaton of ta benefts, secton 302 provdes that such
deveopment e pendtures w not be taken nto account n determnng the
ad|usted bass of the property for the purpose of computng depeton.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 0
It s estmated that n a fu year s operaton ths provson w nvove a
revenue oss of about 20 mon annuay.
. CO L ROY LTI S
Secton 307 of ths b provdes ta reef for the recpents of coa royates.
Most eases on coa propertes are ong-term and ca for royaty payments
e pressed n cents per ton. Therefore, the essor does not receve the automatc
ad|ustment for prce changes whch occurs when a royaty s e pressed as a
percentage of the vaue of the mnera e tracted from the property. Many of
the e stng coa eases are od and the royaty payment caed for under
them s sma.
It s reported aso that as a practca matter the essor of a coa property s
not key to beneft from percentage depeton even under the new 10 percent
rate provded n ths b, athough t s antcpated that ths rate w be of
matera beneft to the coa operators.
Secton 307 e tends to the recpents of coa royates the capta-gans treat-
ment now avaabe to tmber under secton 117(k) (2) of the Interna Revenue
Code. It s ntended by ths provson that coa royates receve the same
treatment as tmber royates. In the ease of tmber comng under ths secton,
percentage depeton s not aowed, and t aso w not be avaabe n the case of
these coa royates.
Secton 307 appes to ta abe years endng after December 31, 10 0, but
ony wth respect to amounts receved or accrued after such date.
The revenue oss nvoved s estmated to be about 10 mon annuay.
L. S L S OF LI STOC US D FOR R DING, D IRY OR DR FT PURPOS S
Secton 306 of the b adds a new sentence at the end of secton 117(|)()
whch defnes property used n the trade or busness as ncudng vestock
hed by the ta payer for draft, breedng, or dary purposes for 12 months
or more.
Your commttee beeves that the term vestock n ths new sentence shoud
be gven a broad, rather than a narrow, nterpretaton; and that the gans
from saes of vestock shoud be computed n accordance wth the method of
vestock accountng used by the ta payer and presenty recognzed by the
ureau of Interna Revenue.
The revenue oss under ths provson s e pected to be 1 mon n a
fu year of operaton.
M. F MILY P RTN RS IPS
Secton 312 of your commttee s b s ntended to harmonze the rues govern-
ng nterests n the so-caed famy partnershp wth those generay appcabe
to other forms of property or busness. Two prncpes governng attrbuton
of ncome have ong been accepted as basc: (1) ncome from property s at-
trbutabe to the owner of the property; (2) ncome from persona servces s
attrbutabe to the person renderng the servces. There s no reason for appy-
ng dfferent prncpes to partnershp ncome. If an ndvdua makes a bona
fde gft of rea estate, or of a share of corporate stock, the rent or dvdend
ncome s ta abe to the donee. Your commttee s amendment makes t cear
that, however the owner of a partnershp Interest may have acqured such
nterest, the ncome s ta abe to the owner, f he s the rea owner. If the
ownershp s rea, It does not matter what motvated the transfer to hm or
whether the busness benefted from the entrance of the new partner.
though there s no bass under e stng statutes for any dfferent treatment
of partnershp nterests, some decsons n ths fed have gnored the prncpe
that Income from property s to be ta ed to the owner of the property. Many court
decsons snce the decson of the Supreme Court n Commssoner v. Cubertnon
(337 U. S. 733) have hed nvad for ta purposes famy partnershps whch
arose by vrtue of a gft of a partnershp nterest from one member of a famy
to another, where the donee performed no vta servces for the partnershp.
Some of these cases apparenty proceed upon the theory that a partnershp can-
not be vad for ta purposes uness the ntrafnmy gft of capta s motvated
by a desre to beneft the partnershp busness. Others seem to assume that a
gft of a partnershp Interest s not compete because the donor contempates the
contnued partcpaton n the busness of the donated capta. owever, the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3S1
frequency wth whch the Ta Court, snce the Cuhertson decson, has hed
nvad famy partnershps based upon donatons of capta, woud seem to nd-
cate that, athough the opnons often refer to ntenton, busness purpose,
reaty, and contro, they have In practca effect reached resuts whch sug-
gest that an ntrafamy gft of a partnershp nterest, where the donee performs
no substanta servces, w not usuay be the bass of a vad partnershp for
ta purposes. We are nformed that the settement of many cases n the fed
s beng hed up by the reance of the fed offces of the ureau of Interna Reve-
nue upon some such theory. Whether or not the opnon of the Supreme Court
n Commssoner v. Tower (327 U. S. 2 0) and the opnon of the Supreme Court
n Commssoner v. Cuhertson (337 U. S. 733), whch attempted to e pan the
Tower decson, afford any |ustfcaton for the confuson s not matera the
confuson e sts.
The amendment eaves the Commssoner and the courts free to nqure n
any case whether the donee or purchaser actuay owns the nterest n the
partnershp whch the transferor purports to have gven or sod hm. Cnses w
arse where the gft or sae s a mere sham. Other cases w arse where the
transferor retans so many of the ncdents of ownershp that he w contnue
to be recognzed as a substanta owner of the nterest whch he purports to
nave gven away, as was hed by the Supreme Court n an anaogous trust stua-
ton nvoved n the case of fcvcrng v. Cfford (309 U. S. 3 1). The same
standards appy n determnng the bona fdes of aeged famy partnershps
as n determnng the bona fdes of other transactons between famy members.
Transactons between persons n a cose famy group, whether or not nvovng
partnershp nterests, afford much opportunty for decepton and shoud be
sub|ect to cose scrutny. the facts and crcumstances at the tme of the
purported gft and durng the perods precedng and foowng t .nay be taken
Into consderaton n determnng the bona fdes or ack of buna fdes of a pur-
ported gft or sae.
Not every restrcton upon the compete and unfettered contro by the donee
of the property donated w be ndcatve of sham n the transacton. Contrac-
tua restrctons may be of the character ncdent to the norma reatonshps
among partners. Substanta powers may be retaned by the transferor as a
managng partner or n any other fducary capacty whch, when consdered n
the ght of a the crcumstances, w not ndcate any ack of true ownershp
n the transferee. In weghng the effect of a retenton of any power upon the
bona fdes of a purported gft or sae, a power e ercsabe for the beneft of others
must be dstngushed from a power vested n the transferor for hs cwn beneft.
Snce egsaton s now necessary to make cear the fuudanpnta prncpe
that, where there s a rea transfer of ownershp, a gft of a famy 7 artnershp
nterest s to be respected for ta purposes wthout regard to the motves whch
actuated the transfer, t s consdered approprate at the same tme to provde
specfc safeguards whether or not such safeguards may be nherent n the
genera rue aganst the use of the partnershp devce to accompsh the defec-
ton of ncome from the rea owner.
Therefore the b provdes that n the case of any partnershp nterest created
by gft the aocaton of ncome accordng to the terms of the partnershp agree-
ment sha be controng for ncome ta purposes e cept when the shares are
aocated wthout proper aowance of reasonabe compensaton for servces
rendered to the partnershp by the donor, and e cept to the e tent that the
aocaton to the donated capta s proportonatey greater than that attrbutabe
to the donor s capta. In such cases a reasonabe aowance w be made for
the servces rendered by the partners, and the baance of the ncome w be ao-
cated accordng to the amount of capta whch the severa partners have nvested.
owever, the dstrbutve share of a partner n the earnngs of the partnershp
w not be dmnshed because of absence due to mtary servce.
When more than one member of a famy s a member of a partnershp a
nterests purchased by one member of the famy from another w be treated as
though the transfer were made by gft. For ths purpose the famy of an
ndvdua ncudes hs spouse, ancestors, nea descendants, and any trust for
the prmary beneft of such persons.
Secton 313 appes to ta abe years begnnng after Dwember 31, 19 0. No
nferences are to be drawn from ts enactment wth respect to ta abe years
begnnng pror to anuary 1, 1901.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 2
N. NTUR C PIT L COMP NI S
Secton 312 of ths b w permt certan so-caed venture capta companes to
quafy as reguated nvestment companes. Under Suppement of the Inter-
na Revenue Code reguated nvestment companes whch dstrbute currenty at
east 90 percent of ther ncome, and meet certan other tests set out n secton
361(b) of the Code are not ta ed upon amounts dstrbuted to sharehoders.
One of these tests s that the company must not nvest more than 0 percent
of ts assets n companes n whch t hods more than 10 percent of the vaue of
the votng securtes. Ths rue has the effect of denyng speca treatment to com-
panes whch undertake to contro the enterprses n whch the buk of ther funds
are paced. It ceary e cudes a hodng company n the ordnary sense of the
word.
In the pubc hearngs on ths b t was brought to the attenton of ths com-
mttee that the 10 percent stock-ownershp mtaton consttuted a serous m-
pedment to the deveopment of so-caed venture capta companes. These are
nvestment companes whch are used prncpay to provde capta for other
companes engaged n the deveopment or e potaton of nventons, technoog-
ca mprovements, new processes and products whch were not prevousy gen-
eray avaabe. In such cases the nvestment company must provde most of
the capta needed to fnance the venture and w frequenty hod more than
0 percent of ts assets n stock representng more than 10 percent of the votng
stock of the operatng companes. s a resut t cannot quafy under Suppe-
ment f t nvests more than 0 percent of ts assets n such companes. Uness
ths rue s amended, t w not be possbe for nn nvestment company to devote
tsef prncpay to the deveopment of such ventures and obtan the benefts of
Suppement .
The venture capta company promses to serve as an nstrument for drectng
an ncreasng porton of the current savngs of the country nto the sma, n-
novatng ventures whch are so mportant for ong-run economc progress.
Therefore, secton 312 of ths b nmends secton 361 of the Code so as to permt
venture capta companes to quafy as reguated nvestment companes. Ths
s accompshed by wavng under certan condtons, the 10 percent mtaton
as to certan types of hodngs. To quafy for ths e cepton the nvestment
company must obtan a certfcaton from the Securtes and change Com-
msson whch states that the nvestment company s a regstered management
nvestment company as defned n the Investment Company ct of 19 0 and
that ts prncpa busness s the furnshng of capta to companes prncpay
engaged n the deveopment or e potaton of nventons, technoogca mprove-
ments, new processes or products not prevousy generay avaabe. Ths cer-
tfcaton w be made under reguatons to be ssued by the Securtes and
change Commsson. For the purposes of certfcaton a company n whch
the nvestment company has paced funds w he deemed to be prncpay en-
gaged n one of the specfed types of actvty for a perod of at east 10 years
after the date on whch the nvestment company frst acqured the securtes of
the operatng company, provded the operatng company was prncpay engaged
n the specfed actvtes on the date of such acquston.
To foresta the possbty that ths amendment w permt hodng companes
to obtan the benefts of Suppement . secton 312 of ths b aso provdes that
the 10 percent rue sha not be waved n the case of an nvestment company
whch, at the cose of the ta abe year, has more than 2 percent of ts funds
nvested n companes, the securtes of whch t has hed for more than 10 years.
the other mtatons on reguated nvestment companes now mposed
under Suppement are retaned.
Secton 312 s effectve wth respect to ta abe years begnnng after December
31, 19 0. The revenue effect of ths provson s sma.
O. MPTION OF DUC TION L F D R CORPOR TIONS FOR PRIOR T RS
The Revenue ct of 19 0 ncuded a seres of provsons whch, under specfed
condtons, resuted n the mposton of ta es on educatona, chartabe, and
certan other ta -e empt organzatons, foundatons, and trusts. mong these
provsons was one whch for 19 1 and subsequent years specfcay dened
e empton to feeder corporatons, that s, corporatons carryng on a trade or
busness for proft whose profts nure e cusvey to organzatons e empt under
secton 101 of the Code. Wth respect to pror years the ta status of such
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 3
corporatons was then n tgaton. Wth respect to these years the Revenue
ct of 19 0 provded that no ta woud be asserted for years pror to 19 7 uness
a defcency had aready been asserted, or ta es had aready been assessed or
pad. In ths connecton the ouse conferees on the Revenue ct of 19 0 stated
that they beeved undue hardshp woud arse f any of these educatona
feeder corporatons were requred to pay ta es on ncome whch had aready
been spent to carry on educatona programs, and e pressed the hope that ths
matter woud be consdered In subsequent egsaton, snce the queston was not
n conference.
In conformance wth the vews e pressed by the ouse conferees on the
Revenue ct of 19 0. secton 01 of your commttee s b amends secton 302 of
the Revenue ct of 19 0 to provde that for years pror to 19 1 e empton s not
to be dened feeder corporatons f ther prots nure to a reguary estabshed
schoo, coege, or unversty.
Ths provson s e pected to have no permanent effect on revenues.
P. DDITION L WIT OLDING UPON GR M NT Y MPLOY R ND
MPLOY
Frequenty concern s e pressed by ta payers wth ncome above the frst sur-
ta bracket because the entre amount of ta due s not wthhed on ther wages
or saary. They dske the necessty of makng a payment wth ther decara-
ton of estmated ta n March, or the necessty of makng quartery payments.
owever, t s not feasbe to estabsh a system of genera appcaton whch w
wthhod the tota ta due n a cases, because, as a resut of such factors as
varatons n deductons and ncome not sub|ect to wthhodng, the addtona
ta due dffers wdey from case to case.
In ndvdua nstances, however, where the ta payer can estmate qute
accuratey the amount of the addtona ta due and the empoyer fnds the
addtona wthhodng s not burdensome, a vountary system s feasbe and
woud be a convenence to the ta payer. For these reasons secton 223 of the
b amends secton 1C22 of the Code to provde that addtona wthhodng may
be authorzed by reguaton where the empoyer and empoyee agree to t. No
addtona revenue s e pected to be provded by ths provson.
. UNIT D ST T S ONDS LD Y NONR SID NT LI NS
Secton 03 of ths b deas wth the status under the estate and gft ta es
of obgatons of the Unted States Government owned by nonresdent aens not
engaged n trade or busness n the Unted States. Pror to March 1, 19 1, the
transfers of such obgatons were e empt by reguaton even though the transfer
of smar securtes ssued by domestc corporatons was ta abe when the ev-
dence of the obgaton was n the Unted States. Ths e empton was based
on the theory that an e empton from a ta aton of such bonds when hed by
foregn nvestors ncuded e empton under the estate and gft ta es.
On March 1, 19 1, a new reguaton was ssued whch made the ta abty
of transfers of such securtes under the estate and gft ta es depend on the
same consderatons whch woud appy n the case of bonds of domestc corpora-
tons. The new rung was bnsed on the theory that the e empton of such
Government securtes from a ta aton meant e empton from drect ta es
ony and dd not ncude e empton from the transfer ta es. The new regua-
ton apped ony to securtes ssued after March 1, 19 1.
Ths revsed reguaton was hed to be nvad n andorf s state v. Comm.
(171 Fed. (2d) G ), a decson of the Court of ppeas, Second Crcut, dated
December 21, 19 , and n The Pennsyvana Co. v. Unted States, a decson of
the Court of ppeas, Thrd Crcut, n November 19 0.
Secton 03 of ths b gves statutory sancton to the pocy of the March 1,
19 1, reguaton. The resut w be that for estate and gft ta purposes
Unted States Government securtes w receve the same treatment as other
types of domestc bonds. Ths treatment w aso conform wth the pocy of
ta ng the nterest on such Government bonds under the ncome ta when re-
ceved by nonresdent aens.
Secton 03 w appy ony to obgatons ssued by the Unted States on or
nfter March 1, 19 1, whch are transferred n the estates of decedents who de
after the date of enactment of the Revenue ct of 19 1 or by gts made after
such date.
The revenue effects of ths provson are mnor.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
I. cse Ta Changes
It Is estmated that at eves of producton antcpated n the fsca year 1002
the e cse ta changes made by your commttee s b when fuy effectve w
rase revenues by 1,2 2 mon. owever, these e cse ta changes w not
be effectve unt the frst day of the frst month whch begns more than 10 days
after the date of enactment of the b. ssumng that September 1 s the effec-
tve date, t s estmated that ths b w ncrease e cse ta revenues by 1,037
mon n the fsca year 19 2 (ths ncudes the foor stock ta es and the foor
stock refund) rasng tota recepts for 19 2 from e cses to 9, 97 mon.
s shown n tabe 11 amost a of the e cse ta revenue provded by ths h
g rased from the manufacturers e cses, the new ta es on gambng, aud the
ta es on acohoc beverages and tobacco. No rate ncreases are provded n
the case of the reta e cses, the e cses on transportaton and communcaton
or the admssons ta es, because the rates of these ta es generay are aready
qute hgh. Not ony are most of these ta es mposed at rates around 20 percent,
hut aso they are based on the reta prce or the amount charged the consumer,
whch may range up to twce the manufacturer s prce. s a resut, these rates
now are generay 3 to tmes as hgh as most of the manufacturers e cses,
usuay eved at a 10 percent rate on the manufacturers prces.
Tabe 11. cte ta revenue rased by the b by ma|or sources
I t estmated ftscn year 1D. 2 eve of producton nnd consumpton but In a fu year of
operaton
ddtona revenue
Type of e cse ta (n Mons)
cohoc beverages 2 2
Tobacco products 177
Manufacturer 7
Iteta
Transportaton and communcaton
musement and recreaton 21
Gambng 07
Tota 1,2 2
. LCO OLIC R G S
The addtona revenue t s estmated w be derved from the ta es on a-
cohoc beverages n a fu year of operaton s dstrbuted among the varous
e cses as foows:
In mons
Dsted sprts (Incudng Increased draw-back) 1
eer 6S
Wnes
Occupatona ta es on deaers n quor
Tota 2 2
1. Dsted sprts.
Secton - of the b ncreases the ta on dsted sprts Imposed by sectons
16 0 and 2 00 of the Interna Revenue Code from 9 to 10. 0 per proof gaon.
The Increase of 1. 0 per proof gaon am u.ts to about 26 cents a ffth on the
ordnnry type of whsky botted at about proof. Under present aw the 9
per gaon ta on dsted sprts averages about 0 percent of the reta prce
per botte, ncudng ta . The ta mposed by the b woud rase ths fgure
to a mt 3 percent. Ts assumes the addton n fu of the ta to current
prces, but no prce mark-up on the ta .
Durng Word War II and the mmedate postwar years consumpton of ds-
ted sprts cmbed amost contnuousy n spte of hgher quor ta es and
prces, reachng a peak consumpton n 19 6 when consumers purchased more
than 230 mon wne gaons of dsted sprts for whch they spent bon,
or 3 percent of ther tota dsposabe ncome. gh ncome eves and the n-
abty of consumers to purchase scarce durabe goods probaby were the most
mportant factors n accountng for ths hgh consumpton eve. though con-
sumpton of quor decned durng the postwar years, snce the outbreak of
hosttes n orea t has agan been ncreasng, and the 19 0 consumpton of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
OO mon wne gaons was hgher than n any pror years e cept 19 and
19 0. The acceeraton of the defense program presents the kehood that n-
come eves agan w rse and that consumers agan w have to cut down ther
purchases of durabe goods. Under these condtons your commttee beeves
that a 1. 0 per gaon ncrease n the ta on dsted sprts w not serousy
affect the consumpton eve of quor.
From the standpont of the consumer t s not beeved that ths ta ncrease
w prove to be partcuary burdensome, snce the mted data avaabe sug-
gest that up to ncome eves of ,01)0 ths ta bears about equay on the varous
ncome eves.
Your commttee carefuy revewed the ncrease n the ta on dsted sprts
wth reference to the probem of booteggng. It found that even under present
ta rates there s a substanta fnanca ncentve to engage n ct operatons
of ths type, whch bad been hed at a reatvey ow eve ony as a resut of
enforcement measures. owever, any ncreased fnanca ncentve for ct
operatons resutng from the ta ncrease provded by your commttee s b s
key to be more than offset by a tghtenng of the abor suppy avaabe for
these operatons and by hgher ncomes on the part of consumers, whch w
decrease the mportance of the prce dfferenta between ta -pad and non-ta -
pad quor. owever, t was recognzed that too arge an ncrease n the ta
on dsted sprts mght we resut n a szeabe ncrease n ct operatons.
t the present tme, athough the genera ta rate on dsted sprts s 9
a proof gaon, a draw-back of 0 per proof gaon s provded for dsted sprts
used for medcnes, medcna preparatons, food products, favors, or favorng
e tracts whch are unft for beverage purposes, eavng a net ta of 3 per proof
gaon n such eases. Draw-backs are used rather than reducng the rate of ta ,
because a ower rate mght resut n dsted sprts beng dverted to beverage
purposes on whch the hgher rate of ta shoud be pad. Usng these medcnes
and nonbevernge food products as a source of revenue, however, appears to be
n contradcton to the pocy generay foowed of not mposng e cse ta es
on medcnes or food. In part ths prncpe s recognzed under the present aw
by provdng a draw back of a but 3 of the ta per proof gaon. Your com-
mttee s b recognzes ths prncpe n fu by ncreasng these draw-backs so
that a net ta of ony 1 per proof gaon, suffcent to cover admnstratve costs,
s fnay pad. Wth the ta rate of 10. 0 per proof gaon ths s accompshed
n secton 02 of the b by provdng n secton 32 0 of the Code a draw-back
of 9. 0 per proof gaon.
It s estmated that n a fu year of operaton the changes made n the ta
on dsted sprts by your commttee s b w ncrease revenues by 10 mon.
2. eer.
Secton 3 of the b ncreases the ta Imposed on fermented mat quor, or
beer, by sectons 31 0 and 16 0 of the Code by 1 p r barre, or from the per
barre provded by present aw to 9 per barre. Ths s an ncrease n ta of
12 | percent as contrasted to an ncrease of 16 percent provded n the case
of dsted sprts. Under present aw the ta on beer represents about 1
percent of the average reta prce and under your commttee s b ths s In-
creased to between 16 and IT percent. In the case of a 12-ounce botte of beer
the ta ncrease provded by the b represents an ncrease of about one-thrd
of 1 cent.
The ncrease provded by the b for beer s smaer than that provded for
dsted sprts because your commttee beeves that beer to a greater e tent
s consumed by the ower ncome groups and, therefore, that an ncrease n ths
ta generay s more burdensome than the ta on dsted sprts.
Wth the present hgh ncome and consumpton eves t nppears probabe that
much, f not a, of the ta ncrease provded for beer can be shfted by the
ndustry to the consumer wthout serousy nffectng the current eve of con-
sumpton. Thus, t s not antcpated that ths ta ncrease w have any m-
portant effect on the ndustry.
In a fu year of operatons t s estmated that the 1 per barre ncrease n
the ta on beer provded by your commttee s b w rase revenues by about
0 mon.
S. Wnct.
Secton 2 of the b amends sectons 3030 and 16 0 of the Code to provde
for the same ncrease n the ta on wnes as n the case of beer, namey, an
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 6
Increase of appro matey 12 percent. Thus, n the case of st wnes, ncud-
ng vermouth, the ta per gaon woud be
(a) ncreased from 1 cents to 17 cents where the acohoc content of
the wne s not more than 1 percent;
(6) ncreased from 60 cents to 67 cents where the acohoc content of
the wne s over 1 percent but not over 21 percent; and
(c) ncreased from 2 to 2.2 where the acohoc content of the wne
s over 21 percent but not over 2 percent.1
In the case of sparkng wnes, queurs, and cordas the ta per haf pnt woud
be:
(a) ncreased from 1 cents to 17 cents n the case of champagne or
sparkng wnes; and
(6) ncreased from 10 cents to 12 cents n the case of queurs, cordas,
and artfcay carbonated wnes.
Most of the wne consumpton In the Unted States today s represented by
the frst two categores of st wnes. Natura, or tabe, wnes wth an acohoc
content not over 1 percent and ncudng such wnes as sauterne, caret, and
burgundy represent about one-quarter of the tota consumpton. Sweet or
dessert wnes wth an acohoc content between 1 and 21 percent and ncudng
such wnes as port, sherry, tokay, and muscate represent appro matey three-
fourths of the tota consumpton n the Unted States today. These wnes are
fortfed wth brandy or acoho before the natura fermentaton s competed.
Sparkng wnes account for most of the sma remanng consumpton n the
Unted States today and n arge part represent mports.
In terms of reta prce the ta under present aw represents about percent
of the reta prce ncudng ta , n the case of tabe wnes, and woud be ncreased
by about one-haf of 1 percent under your commttee s b. The ta on sweet
wnes under present aw represents about 1 percent of the reta prce and
under the b ths percentage woud be ncreased by sghty more than 1 per-
centage pont. The ta on sparkng wnes represents about 2 percent of the
reta prce under present aw and under the b ths woud be ncreased to
about 2CM percent. Thus the rate of ta under the b w contnue to be
graduated n accordance wth acohoc content.
Your commttee deemed t approprate to make ony a moderate ncrease n
the case of the ta es on wnes because of the mportance of wnes to the grape-
growng ndustry. etween one-thrd and one-haf of the tota grape crop s
customary absorbed by wne. The demand for wne, therefore, aso has au
mportant effect on the prces whch can be obtaned by prod-cers for rasns
and fresh grapes, the two other mportant uses of grapes. Moreover, n vew of
the fact that t has been necessary for the Department of grcuture at tmes
snce the end of Word War II to support the prce of rasns, t woud appear
napproprate for your commttee o make a substanta ncrease n the ta on
wne whch mght have the effect of requrng further prce supports. In add-
ton t shoud be ponted out that wne consumpton n the Unted States reatve
to consumpton of other forms of acohoc beverages s reatvey ow when
compared to reatonshps generay estabshed abroad. Moreover, the wne
ndustry s one of the few ndustres whch has been cassfed under the e cess
profts ta as a depressed ndustry.
The effect of your commttee s b n the case of the ta es on wnes s to rase
revenues by an estmated mon n a year n whch the ncrease s fuy
effectve.
. Occupatona ta es on deaers n quor.
Reta deaers n quor other than those deang e cusvey n wne and beer
are requred under secton 32 0 of the Code to pay a speca annua occupatona
ta of 27. 0. Secton 01 of the b rases ths occupatona ta to 0 a year.
Under present aw the ow ta has made t mpractca from an admnstratve
standpont for the ureau of Interna Itevenue to verfy the names and addresses
of persons payng ths speca occupatona ta . The atteuton of your commttee
has been caed to many cases where ncorrect names and addresses have been
gven wth the probabe ntenton of avodng detecton by State and oca quor
authortes. Your commttee beeves t feasbe for the ureau of Interna
Itevenue to estabsh a verfcaton system for a payees of ths ta and t s
1 Wnes wth cohoc content In e cess of 2 percent are sub|ect to the ta on dsted
sprts.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3 7
the ntenton of your commttee that te ureau of Interna Revenue do so.
Severe penates for frauduent returns are aready provded under e stng aw.
It s estmated that ths provson of your commttee s b w ncrease co-
ectons by 7 mon n a fu year of operaton.
Secton 61 of your commttee s b aso ncreases the occupatona ta es on
whoesae deaers n quors and whoesae deaers n mat quors. Secton
32 0(a) (1) of the Code mposes a specu occupatona ta of 110 on whoesae
deaers n quors. Ths ncudes whoesae deaers n wnes, as we as whoe-
sae deaers n dsted sprts. The b . rases ths ta to 200. Secton
32 0(d) of the Code provdes an occupatona ta of for whoesae deaers
In mat quor. Ths ta s rased to 100. It s estmated that n a fu year
of operaton the ncrease n these occupatona ta es en whoesae deaers n
quors and mat quors w rase revenues by 1 mon annuay.
. TO CCO PRODUCTS
In the case of tobacco products secton 21 of ths b ncreases present ta es
ony n the case of sma ( standard and kns szed) cgarettes. No ncreases
are provded ether n the case of manufactured tobacco or cgars, snce both of
these ndustres appear to be facng a decnng demand for ther product. The
producton of cgars, for e ampe, has decreased from bon n 1020 to about
616 bon n 1 0.
In the case of sma cgarettes, the b Increases the ta from the 3. 0 per
thousand provded by secton 20DO of the Code to -1 per thousand. In effect ths
rases the ta on the ordnary package of 20 cgarettes from 7 cents to S cents.
The present ta on cgarettes represents about 3 percent of the reta prce
ncudng ta . The b woud rase ths to about 37 percent.
The ncrease provded by ths b s as arge as the combned ncreases made
In ths ta durng and |ust before Word War II. In vew of the mportance
of the saes of tobacco to a arge number of farmers n the country, ths s as
arge an ncrease n ths ta as your commttee beeves t Is approprate to make.
It s estmated that n a fu year of operaton ths acton by your commttee
w ncrease revenues by 177 mon a year.
C M NUF CTUR RS CIS S
The addtona revenue It s estmated w be derved from manufacturers
e cses s dstrbuted among the varous e cses as foows:
In mons
Gasone, and dese fue used by hghway vehces 220
Passenger cars and motorcyces | 106
utomobe trucks, busses, and truck traers 61
utomotve parts and accessores 0
Tres on toys, etc 1
ectrc, gas, and o appances IS
Navgaton recevers sod to the U. S. Government None
Sportng goods Neggbe
Photographc apparatus and fm 23
ectrca energy 10
Fountan pens, ba-pont pens, and mechanca pencs 2
Tota 7
1. Gasone and dcsc fue.
Secton S of the b provdes for a one-haf cent Increase n the gasone
ta , rasng the Federa gasone ta , provded by secton 3 12 of the Code,
from 1 cents to 2 cents per gaon. Snce the ta on gasone s a specfc
and not an ad vaorem ta , the percentage reatonshp of the ta to the reta
prce w vary wth the varaton n the prce of gasone. Thus, athough In
10 0 the ta was 6 percent of the reta prce, ncudng ta , n 19 0 t was
percent of the reta prce. Ths s accounted for by the rse n the average
prce of gasone n the past 10 years. The average prce n 1939, for e ampe,
was 13.3 cents per gnou before the State ta , whe n 19 0 the average prce
was 20 cents per gaon. The acton by your commttee, whch woud resut n
a ta equa to about percent of the reta prce of gasone Incudng ta , does,
not qute restore the reatonshp e stng n 19 0.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
The consumpton of gasone has shown one of the most consstent patterns
of ncrease over the ast few decades. The producton of gasone n 19 0, for
e ampe, amounted to CIS mon barres and n 19 0 ths had ncreased to 1,02
mon barres. The domestc demand for gasone has grown at an average
annua rate of 7 percent snce the end of Word War II and appears to be n-
creasng somewhat more rapdy now. The 19 0 demand for gasone was 9
percent n e cess of the demand for 19 9 and the ureau of Mnes has estmated
that the demand n 19 1 w be S percent n e cess of the demand n 19 0.
Ths substanta ncrease can, of course, n arge part be accounted for by the
ncreased numbers of passenger automobes and trucks on the road. For e -
ampe, regstraton of automobes and trucks n the perod 19 to 19 0 n-
creased over 0 percent. Under these condtons t appears probabe that an
ncrease n the gasone ta of the sze provded by ths b can ready be
passed on to the consumers of gasone. Ths nppears especay key n vew
of the fact that, n the case of gasone, demand does not change much wth
varatons n prce.
Despte ths strong demand the ncrease n the gasone ta under your com-
mttee s b s mted to a haf cent per gaon. Payments for gasone repre-
sent costs of dong busness n the case of gasone consumed by trucks and n
te case of an mportant segment of the gasone used n passenger cars. In
addton to ths, your commttee recognzed that the gasone ta represents an
mportant source of revenue to the States. The usua State ta ranges from
to cents per gaon but eght States have a 7 cents per gaon ta and one
has a ta of 9 cents per gaon. Too substanta an ncrease n the gasone ta
by the Federa Government mght affect the use of ths revenue source by the
States.
Secton 1 of the b adds a new secton 2 0 to the Code mposng a ta of 2
cents per gaon on dese fue for dese-powered hghway vehces. The ta s
mposed on the retaer seng the dese fue for hghway use and aso on per-
sons usng the dese fue n hghway vehces f no ta was coected from the
retaer.
Your commttee beeves that the ta aton of dese fue used on hghways
on the same bass as gasone s necessary n order to prevent dscrmnaton
aganst vehces powered by gasone. The ta s mposed at the reta eve n
ths ease, however, because substantay the same type of fue s aso e tensvey
used for heatng n fue-o furnaces. Thus, t s mpossbe for the manufac-
turer to determne the utmate use of the fue at the tme he ses t. The sys-
tem of requrng both the retaer and the user of the dese fue for hghway
purposes to coect the ta Is nsttuted as a means of better controng the
coecton of the ta .
It s estmated that n a fu year of operaton the ncrease of one-haf cent
per gaon n the ta on gasone and the mposton of a ta of 2 cents per gaon
ta on dese fue used by hghway vehces w rase revenues by 220 mon.
2. Passenger cars and motorcyces.
Secton 1 of the b ncreases the ta provded by secton 3 03 of the Code
on passenger cars and motorcyces from 7 to 10 percent of the manufacturers
prce. Ths ncrease, however, does not appy to house traers. For these
traers the ta remans at 7 percent. The present ta on passenger cars on the
average represents percent of the reta prce, ncudng ta . The ncrease
provded by ths b w rase ths to somewhat over 7 percent.
The demand for new passenger cars has contnued at a very hgh eve snce
the end of Ward War II not ony because of the backog of demand from the
war perod when new cars were not avaabe, but aso because hgh ncome eves
have made the purchase of cars possbe to many persons not formery abe to
buy them. The unt output n 19 0, for e ampe, represented 232 percent of
the output n 1939. Moreover, the vaue of the 19 0 output was . bon, or
about fve tmes the vaue of the output n 1939.
though t appears key that the demand for passenger cars w reman
at a very hgh eve, t s probabe that the suppy of automobes avaabe w be
cut because of ther substanta use of crtca materas. Twenty percent of the
tota stee output, for e ampe, has been gong to the producton of automobes.
For the second quarter of 19 1 the stee aocated to automobes was reduced
20 percent beow the 19 0 average, and n the thrd quarter ths percentage cut
has been further ncreased to about 2 M percent. ased on the percentage cut
n stee n the thrd quarter t s estmated that producton n ths quarter w
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3S9
be at an annua rate of . mon passenger cars, whch st woud be above
the mon cars produced n 19 9, and substantay above the annua pro-
ducton n the 10 years pror to Word War II.
Under these condtons t appears probabe that an ncrease n ta of the sze
proposed by your commttee can ready be passed forward to the consumer wth-
out any cut n the effectve demand for new passenger cars. Snce the ta s
not mposed on second-hand cars, whch n arge measure represent the pur-
chases made by the ower-ncome groups, t appears probnbe that the ta ncrease
made by the b w not bear heavy on these groups.
owever, your commttee recognzes that cars represent a necessty to a arge
segment of the popuaton under present condtons and, therefore, deemed t
napproprate to ncrease the rate above 10 percent on the manufacturer s prce,
the rate appyng n the case of most mmufneturers e cses. Moreover, the
purchase of a car represents a arger outay on the part of the consumer than s
true n the case of most other durabe consumpton tems, wth the resut that
the amount of the ta payment n these cases s arger than n the purchase of
other durabe goods and, therefore, key to be consdered more burdensome.
Tonr commttee s b does not make an ncrease n the ta on house traers
because t s recognzed that durng perods of emergency, such as the present,
the buk of these house traers s used for housng by defense workers and
others rather than as a means of transportaton.
It s estmated that n a fu year of operaton ths provson of your commt-
tee s b woud ncrease revenues by 19G mon.
3. utomobe trucks, busses, and truck traers.
Secton 1 of the b aso ncreases the ta on automobe trucks, busses,
and truck traers, provded by secton 3 03 of the Code, from D to percent of
the manufacturer s prce.
Snce, as prevousy noted, the ta on passenger cars s ncreased to 10 percent,
ths mantans the tradtonay ower ta for the types of automotve transporta-
ton especay desgned for busness. Your commttee beeves that t s desr-
abe to retan a ower ta on trucks and reated types of automotve
transportaton because t s recognzed that these represent amost e cusvey
operatng costs to busnesses. hgh rate of ta n such cases woud be key
to be passed on n the prce of commodtes generay. owever, t s beeved
that the moderate ncrease provded by your commttee s b s desrabe on much
the same grounds as the ncrease provded n the case of passenger automobes,
namey, the antcpated hgh demand for ths type of automotve transportaton
couped wth the kehood of a curtament n the suppy avaabe.
It s estmated that n a fu year of operaton ths provson of your com-
mttee s b w ncrease revenues by 01 mon.
1). utomotve parts and accessores.
Secton 1 of the b aso ncreases the ta on automotve parts and acces-
sores, provded by secton 3 03 of the Code, from to percent of the manufac-
turers prce. Snce the ta on automotve trucks, busses, and truck traers
kewse s rased to percent, ths w retan a unform rate of ta for these
two types of tems, as s provded by present aw. ven though new cars are
ta ed at 10 percent, the parts and accessores for them, when not purchased
wth the car, are ncuded n the base of ths percent ta , because n many
cases the parts for passenger cars and trucks are nterchangeabe. Moreover,
t s aso beeved desrabe to mpose a ower rate of ta on parts and accessores
for passenger cars than on the new cars themseves, because the buk of the parts
and accessores are purchased by owners of od or second-hand cars who are
argey n the ower-ncome groups.
Wth respect to recouto.ed or rebut parts, where such saes are sub|ect
to the parts and accessores ta under present aw, secton 1 of the b pro-
vdes an amendment whch e cudes from the ta base the far market vaue
of any ke part trnded n for a recondtoned or rebut part. Where an auto-
motve part s not performng satsfactory and the car owner cannot afford a
new one, he has the choce of ether havng the od one recondtoned, usuay n
a oca shop, or of tradng In the od part on a smar one whch aready has
been recondtoned. The frst of these aternatves, havng the od part recon-
dtoned. Is not sub|ect to the ta on automotve parts and accessores snce
there s no transfer of tte. owever, ths aternatve s not wdey avaed
of because the car owner s not abe to use hs car durng the recondtonng
perod. Under the second aternatve, tradng n the od part on a smar one
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
390
whch aready has been recondtoned, there s a transfer of ttTe and therefore
snch saes are sub|ect to ta . The amount sub|ect to ta n these cases s the
chnrge to the car owner, pus the far market vaue of the part be trades n.
Ths not ony presents the dffcut admnstratve probem of determnng the
far market vaue of the od part, but aso s nequtabe snce tradng n the od
part s a substtute for reparng the car owner s od part. Ony the vaue
added n ths case coud be consdered as new manufacturng, snce n effect
the car owner aready owned the porton of the recondtoned part representng
the vaue of the od part. To ta hm on the far market vaue of the part be
turns n s to ta hm on somethng he aready owns. The e cuson of the
vaue of the trade-n, as provded by your commttee s amendment, removes
ths nequty. Ths aso removes the dffcut admnstratve probem of deter-
mnng the far market vaue of the od part, snce the ta base w be mted
to the cash payment requred.
Secton 1 of the b aso amends secton 3 3 of the Code to provde for a
credt or refund of the ta on automotve parts and accessores where the parts
or accessores are used or resod for the repar or repacement of farm equp-
ment parts. owever, ths credtng or refundng devce s not made avaabe
n the case of spark pugs, storage batteres, eaf sprngs, cos, tmers, and tre
chans.
n e empton s aready provded by e stng reguatons for automotve parts
and accessores sod to manufacturers for use on new farm equpment wth the
e cepton of the tems specfcay sted above. The provson therefore merey
appes the same pocy to saes of repar or repacement parts, makng use n
ths case of a credtng or refundng procedure. Ths appears desrabe because
t s not beeved that Congress ever ntended to sub|ect farm tractors and
equpment generay to ths ta . Wth the e cepton of the specfc tems noted
above on whch the ta w st appy, t s beeved that these credts or refunds
w present no serous admnstratve probems.
It s estmated that the rate ncrease n the ta on automotve parts and
accessores, taken together wth the changes n the base of the ta , w ncrease
revenues n a fu year of operaton by 6 mon.
. Tres on toys, etc.
Secton 1 of the b aso makes a mnor revson n the -cent-per-pound
manufacturers ta on tres. Secton 3 O0 of the Code s amended to e cude
from ths ta tres whch are not more than 20 nches n dameter and one and
three-fourths of an nch n cross secton f the tres are of a-rubber construc-
ton. The b aso e cudes tres wth nterna wre fasteners rrespectve of
sze.
Under present aw the ta on tres s appcabe to a tres regardess of the
use for whch they are ntended. Consequenty t appes n the case of tres
for baby bugges, awn mowers, chdren s trcyces, scooters, coaster wagons,
etc. Snce the manufacturer s prce on tres of these types s generay ow, the
-cent-per-ponnd tre ta may account for as much as 2 to 0 percent of the
prce of the tres. Thus, the ta on the tres of these toys, etc., appears unrea-
sonaby hgh n terms of ad vaorem rates. Moreover, t s not beeved that
t s n prmary purpose of the ta on tres to coect revenue wth respect to
artces of these types.
It Is estmated that n a fu year of operaton ths change w resut In a
revenue oss of appro matey 1 mon a year.
6. ectrc, gas, and o appances.
Secton of the b e pands the base of the 10 percent manufacturers ta
on eectrc, gas, and o appances provded by secton 3 06 of the Code to
ncude the foowng househod types of tems not sub|ect to ta under preseat
aw:
1. ectrc bet-drven fans. 9. ectrc Ice cream freezers.
2. ectrc or gas cothes drers. 10. ectrc manges.
3. ectrc door chmes. 11. ectrc moton- or st-pcture pro-
. ectrc dehumdfers. |ectors.
. ectrc dshwashers. 12. ectrc pants pressers.
6. ectrc foor poshers and wa ers. 13. ectrc shavers.
7. ectrc food choppers and grnders. 1 . Power awn mowers.
. ectrc hedge trmmers. 1 . ectrc sheets and spreads.
It aso deetes eectrc heatng pads from the Items presenty sub|ect to ta .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
391
Of the Items added to the base of the ta the most mportnnt In terras of
revenue are the power awn mowers, the eectrc dshwashers, the eectrc and
gas cothes drers, and the eectrc shavers.
The ta under present aw appes to
1. ectrc, gas, and o water heaters.
2. ectrc, gas, and o appances for cookng or warmng food or bever-
ages for consumpton on the premses.
3. ectrc drect motor-drven fans and ar crcuators.
. ectrc tnt rons.
. ectrc ar heaters (but not furnaces).
6. ectrc mmerson heaters.
7. ectrc heatng pnds and bankets.
. ectrc m ers, whppers, and ucers.
The tems added to the base of ths ta by your commttee are drecty or
Indrecty compettve wth many of the tems now n the base of the t: . n
e ampe of drect competton e sts n the case of the drect motor-drven fans
sub|ect to ta under present aw and the bet-drven fans whch are presenty
free of ta . Moreover, n aw measure the partcuar tems added by your
commttee are not consdered to be necesstes and thus a ta on these tems s
not key to e burdensome. owever, your commttee dd not deem t appro-
prate to rase the rate of ths ta n vew of the fact that a number of tems
aready n the bnse under present aw are generay consdered to be necesstes.
s n the case of passenger cars. It s antcpated that wth the current hnh-
ncome eves the demand for eertrc appances w reman strong, whe
the suppy avaabe s key to decne somewhat as a resut of the shft of
crtca materas from cvan products to products needed for the defense
effort. The stee used n eectrc appances, for e ampe, has been cut back
by 30 percent for the thrd quarter of 19 1. In vew of these factors t appears
unkey that e pandng the base of ths ta to ncude the new tems sted above
w have any effect upon the saes of the eectrc appances ndustry.
From the standpont of the consumer aso ths ta appears to be reatvey
ess burdensome. The data avaabe ndcate that ths ta tends to bear ess
heavy on the ower-ncome groups than most other e cse ta es now mposed.
In vew of the fact that the tems added by |our commttee are not generay
consdered to be necesstes, the change made In ths ta by your commttee s
key to make t st more progressve. Moreover, ths 10 percent manufac-
turers ta , when e pressed as a percentage of the reta prce of the eectrc,
gas, and o appances e cusve of ta represents ony about a 6 percent ta .
ectrc heatng pads were removed from the bnse of the ta on eectrc, gas,
and o appances because these pnds are e tensvey used for medca purposes
and your commttee does not beeve that such tems are proper sub|ects for
e cse ta es.
It s estmated that n a fu year of operaton the new Items added to the
base of the eectrc, gas, and o appances ta w ncrease revenues by about
19 mon a yenr, whe the e cuson of eectrc heatng pads w reduce
revenues by 1 mon annuay.
7. Navgaton recevers sod to the Unted States Government.
Secton S2 of the b makes a mnor revson n the base of the 10 percent
manufacturers e cse ta on rado recevng sets, teevson recevng sets, etc.,
Imposed by secton 3 03 of the Code. communcaton, detecton, or nav-
gaton recever of the type used n commerca, mtary, or marne nstaa-
tons, s e empted from ths tn under your commttee s b f sod to the
Unted States for ts e cusve use. Ths e empton s granted to remove com-
pance probems. No revenue s. of course, nvoved, snce the ta n these
cases today s utmatey pad by the Unted States Government
. Sportng goods.
Secton 3 of the b makes two changes In the 10 percent manufacturers
ta mposed on sportng goods by secton 3 06 of the Code.
Under present aw ths ta covers vrtuay a types of sportng equpment
athough toy or chdren-szed tems are e empted from ths ta n the case
of certan types of sportng equpment. aseba bats, for e ampe, are not
ta ed f they are ess than 2 nches n ength. owever, other types of sport-
ng goods such as seds and roer skates, whch are argey used by chdren,
are ta ed regardess of ther sze. so, a number of artces sub|ect to the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
392
sportng goods ta are used argey as a part of schoo and coege athetc pro-
grams. Sae for use n the pubc schoos are e empt (as purchases by sub-
dvsons of State governments) so that the net revenue from ta ng these
artces s qute sma, athough the admnstraton of the e empton mposes a
consderabe burden on the sportng goods deaers. Moreover, the none empt
saes of many of the ta ed artces are made argey to prvate schoos, whch
has been ob|ected to on the grounds that t s dscrmnatory treatment. For
these reasons the frst acton of your commttee wth respect to the sportng
goods ta s to remove from the appcaton of the ta specfc types of artces
whch are used predomnanty for schoo sports and by chdren. The second
acton of the commttee s to rase the rate of ta from 10 percent to 1 percent
of the manufacturer s prce wth respect to the tems remanng n the ta base.
Under present aw the t s about 6 percent of the reta prce ncudng ta and
under the b w be between 10 percent and 11 percent of the reta prce.
It s estmated that these two actons taken together w not have any effect
on revenue coectons, snce t s eeved that the addtona revenue whch
w be derved from the hgher rate of ta on the tems remanng n the base
w be appro matey equa to the revenue ost wth respect to the tems whch
are e cuded from the base.
9. Photographc apparatus and fm.
Secton 3 06 of the Code mposes a 26 percent ta on saes at the manufac-
turers eve of photographc apparatus, whch s defned as ncudng cameras
weghng pounds or ess, enses, photographc apparatus and equpment and
any apparatus or equpment desgned especay for photographc purposes.
1 percent manufacturers ta s aso mposed on photographc fms (e cept
-ray fms), photographc pates, and senstzed paper. Under present aw the
ta on fm s about 9 percent, and ta on equpment s about 13 percent, of
the reta prce.
Secton of your commttee s b makes two changes n these ta es.
unform 20 ereent rate s substtuted for the 2 percent ta on photographc
apparatus and the 1 percent ta on fm. Ths w resut n a ta of between
11 percent and 12 percent of the reta prce n the case of both fm and equp-
ment. Second, the bases of these ta es are revsed so that the ta s mposed
ony on fm, cameras and enses whc), nsofar as s admnstratvey possbe,
do not represent a cost of dong busness.
Your commttee e cuded from the base of ths ta the busness cost tems
because t beeves that a ta on busness cost tems s key to be shfted
forward as an operatng e pense and thus appear n the prce of commodtes
generay. In addton, dffcuty has arsen n the case of the ta on photo-
graphc equpment, because apparatus made by photographc manufacturers fre-
quenty has been hed to be desgned especay for photographc use, even when
sod for nonphotographc purposes. Smar equpment sod by nonphotographc
manufacturers has been hed not to be sub|ect to the photographc ta because
t was not desgned especay for photographc use. s a resut manufacturers
of photographc equpment have frequenty been paced at a compettve
dsadvantage.
It Is estmated that the combned effect of your commttee s acton wth
respect to these ta es s to reduce revenues n a fu year of operaton by 23
mon.
Photofash bubs are one of the tems removed from the base of the ta on
photographc equpment by the commttee s acton n e cudng from ths ta
a apparatus e cept certan types and szes of cameras nnd enses. Wth
respect to these bubs the b provdes a foor stock refund. That s, whoe-
saers, retaers, and others havng nventores of photofash bubs ntended for
sae, on the date the revson n the ta becomes effectve, w be credted, or
w receve a refund, wth respect to the ta pad on ther nventory of photo-
fash bubs. The actua payment of the refund or the credtng w be handed
through the manufacturer from whom the whoesaer or retaer purchased the
photofash bubs. Your commttee beeves that a foor stock refund s neces-
sary n the case of photofash bubs, but not In the case of other manufacturers
e cse ta es whch have been emnated or reduced, because of a speca probem
e stng n ths case. arge porton of the manufacturers se photofash bubs
on a consgnment bass. In such cases there has not been a sae by the manufac-
turer unt the consumer buys the product and the manufacturers ta s not
eved unt that tme. Thus, they w have no ta -pad nventory at the tme
the remova of the ta on photofash bubs becomes effectve. owever, compet-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
393
ng manufacturers not seng on a consgnment bass, and ther whoesaers and
retaers, w have ta -pad nventores on whch competton mght force them
to take osses eqna to the amount of the ta reducton f no foor stock refund
were provded. It s beeved that foor stock refunds under ths provson w
be neggbe. No oss from ths foor stock refund w occur n subsequent
years, snce ths s not a recurrng tem.
10. ectrca energy.
Secton 3 11 of the Code mposes upon vendors of eectrca energy sod to
domestc or commerca consumers a ta equa to 3 percent of the prce
charged. Secton 7 of the b repeas ths ta .
ta on eectrca energy s not beeved to be a desrabe part of the e cse
ta revenue system for severa reasons. Frst, the ta s beeved to be one
of the most burdensome of the e cse ta es wth respect to the ower-ncome
groups, snce amounts pad by consnmers for eectrca energy tend to vary
reatvey tte wth varatons n ncome. Thus, the eectrca energy ta pad
by the hgher ncome groups does not generay represent as arge a percentage
of ther ncome as s true of the ower-Income groups. Second, power com-
panes have found It dffcut and burdensome to determne whch customers
are domestc or commerca consumers, and therefore ta abe, and whch are
ndustra consumers, and therefore e empt. Ths has presented a partcuary
dffcut probem n the case of busnesses engaged n both commerca and n-
dustra actvtes. Thrd, the ta under e stng aw does not appy to pubcy
owned eectrc and power pants or to systems owned and opernted by coopera-
tve or nonproft corporatons engaged n rura eectrfcaton. Thus, snce
there s genera agreement that ths ta s passed on to the consumers, the
present ta treatment has the effect of Imposng a ta on persons purchasng
eectrca energy from prvate uttes, whe mposng no ta on persons pur-
chasng eectrca energy from muncpates, the Federa Government, or R
cooperatves. To mpose the ta on some consumers and not on others s be-
eved dscrmnatory, and snce your commttee beeved that t was not
desrabe to e tend ths ta to muncpates, the Federa Government, or R
cooperatves, the b repeas ths ta .
It Is estmated that n a fu year of operaton the repea of ths 3 percent
eectrca energy ta w reduce revenues by 10 mon annuay.
11. Fountan pens, ba-pont pent, and mechanca pencs.
Secton 0 of your commttee s b adds a new secton 3 0 to the Code m-
posng a 20 percent manufacturers ta on fountan pens, ba-pont pens, and
mechanca pencs. t the present tme some pens and pencs are sub|ect to
the 20 percent reta ta on |ewery and reated tems where they have nonessen-
ta parts whch are ornamented wth precous metas. To prevent doube ta a-
ton these pens and pencs are not Incuded n the base of the new manufac-
turers ta .
Consderaton was gven to e tendng the ta on |ewery and reated tems to
a fountan pens, ba-pont pens, and mechanca pencs, but ths was dscarded
because the ne ensve types of such tems are frequenty sod n stores whch
are not accustomed to the coecton of the |ewery ta .
It s estmated hat n a fu year of o eraton ths acton by your commttee
w ncrease revenues by 2 mon annuay.
The revenue effect of the b n a fu year of operaton wth respect to reta
ta es Is as foows:
1. Cgarette, cgar, and ppe ghters.
The 20 percent reta ta on |ewery mposed by sectons 16 0 and 2 00 of the
Code Incudes some mechanca ghters n the category artces made of, or
ornamented, mounted or ftted wth, precous metas or mtatons thereof.
Ths cassfcaton of ta abe and nonta abe ghters has not proved to be sats-
factory. Many of the more e pensve types of ghters escape ta aton under
D. R T IL CIS S
Cgnrette, cgar, and ppe ghters.
Toet preparatons
In mons
2
7
Tota

9 016
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
39
present aw, whe some of the reatvey ess e pensve ones are sub|ect to ta .
For ths reason secton 31 of the b e tends the 20 percent reta ta on
ewery and reated tems to a mechanca ghters for cgarettes, cgars, or
ppes.
It s estmated that In a fu year of operaton ths acton by your commttee
w ncrease revenues by 2 mon a year.
2. Toet preparatons.
Secton 32 of your commttee s b makes two changes n the 20 percent reta
ta on toet preparatons mposed by secton 2 02 of the Code.
The frst of these chnnges e empts from ths ta baby os, powders, otons,
and other toet artces uness they are ndvertsed or sod as beng usabe by
aduts. Your commttee beeves that these tems fa wthn the category of
necesstes and shoud not be sub|ect to ta .
The second change e empts toet preparatons purchased by barber shops
and beauty parors for use n these estabshments. Under present aw these
tems are sub|ect to ta at the tme they are purchased by the barber shop or
beauty paror. owever, toet preparatons purchased by a barber shop or
beauty paror for resae to customers are not ta abe unt sod to the utmate
user. To dstngush the purchases for resae made by the barber shop or
beauty paror from the purchases for ther own use, the estabshment s re-
qured to te a certfcate f no ta s pad at the tme of purchase ndcatng
that the tems w not be used n the estabshment. Such certfcates are not
presenty requred n the case of ta -pad purchases for use n the estabshment
Ths dfference n treatment has resuted n consderabe confuson among the
barber shop and beauty paror operators. Moreover, the ta ng of the tems
used n the estabshment tsef represents the ta ng of busness cost tems.
The b emnates these probems by repeang the ta on toet preparatons
purchased by barber shops, beauty parors, and smar estabshments f In-
tended for use n such estabshments.
It s estmated that n a fu year of operaton the e cusons from the base
of the ta on toet preparatons made by ths b w reduce revenues by 7 m-
on annuay.
. TR NSPORT TION ND COMMUNIC TION CIS S
The revenue effect of your commttee s acton n a fu year of operaton on
the transportaton and communcaton e cses s dstrbuted among the varous
ta es as foows:
In mons
Domestc teegraph, cabe, and rado messages
Transportaton of persons Neggbe
Transportaton of property 3
Tota
1. Domestc teer/raph, cabe, and rado messages.
Sectons 1( 0 and 3 0 of the Code mpose a 2 percent rate of ta on amounts
pad for domestc teegraph, cabe, or rado dspatches or messages. Ths s
the same rate of ta mposed on charges for ong-dstance teephone servce.
Secton 91 of ths b reduces the ta on domestc teegraph, cabe, or rado
messages to 20 percent, but retans the 2 percent rate n the case of ong-dstance
teephone charges. Ths appro matey restores the reatonshp whch e sted
between these two ta es pror to the Revenue ct of 19 3 when the ta on ons-
dstance teephone charges was 20 percent and the ta on teegraph messages
1 percent. Snce Word War II teegraph servce n the Unted States generay
has been carred on at a defct. So far ths year the servce has been operated
at a proft but wage negotatons now under consderaton may agan pace tee-
graph servce n a defct poston. y reducng ths ta on teegraph servce
your commttee antcpates that t w be possbe to decrease the amount pad
for teegraph messages, and that as a resut the voume of busness done w be
ncreased and the proft poston of the ndustry mproved. Teegraph servce
not ony s essenta to the cvan economy but aso s essenta to natona
securty.
In a fu year of operaton t Is antcpated that reducng the ta on domestc
teegraph, cabe, and rado messages from 2 percent to 20 percent of the charge
w reduce revenues by . mon. In the ong run, however, t Is beeved that
much of ths oss may be offset by an ncreased voume of teegraph busness.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29
2. Transportaton of persons.
Sectons 16 0 and 3 69 of the Code mpose a 1 percent ta on amounts pad
for the transportaton of persona. mounts pad for transportaton n boats
where the transportaton takes pace for the soe purpose of fshng from the
boat have been hed to be ta abe under these sectons. In the case of fshng-
boat actvtes, t s customary for the operators of such boats to make a ump-
sum charge for a fshng trp, ncudng not ony the charge for the transporta-
ton, hut aso charges for such servces as the use of fshng tacke, a suppy of
bat, fow served on the boat, etc. The necessty of breakng down ths ump-
sum charge to determne the proporton of the tota whch represents the ta abe
charge for transportaton has been a dffcut probem both for the fshng-boat
operators and the ureau of Interna Revenue. Moreover, athough fshng trps
are techncay defned ns transportaton, they are not generay consdered so
by Inynen. s a resut the ta on fshng trps has brought numerous com-
pants from sportsmen and has aso created troubesome coecton and com-
pance probems for the Government. Secton 92 of the b e empts from the
ta on the transportaton of persons amounts pad for transportaton by boat
for the purpose of fshng from suc boat.
It s t eered that the revenue oss from ths e cuson from the ta on the
transportaton of persons w be neggbe,
3. Transportaton of property.
Secton 3 7 of the Code mposes a 3 percent ta on amounts pad for transpor-
taton of property (n the case of coa the ta rate s cents per short ton).
owever, ths ta ony appes to amounts pad to a person engaged n the bus-
ness of transportng property for hre. It does not appy, for e ampe, to a pro-
ducer transportng hs own property. In the case of o t has been found that
some producers transport ther own o by water whe others hre ndependent
shppers. Ths has created compettve dscrmnaton snce the atter are sub-
|ect to the transportaton ta , whe the former are not. Ths dscrmnaton has
been recognzed n the case of the transportaton of o by ppene, snce secton
3 G0 of the Code mposes the ta on ether the amount pad for the transportaton
of o by ppene, or on the far charge for such transportaton f no charge
s made. Secton 93 of your commttee s b appes ths same prncpe wth
respect to o transported by water by mposng n secton 3 76 of the Code the
3 percent ta on the transportaton of property to the far charge where the
shppers are transportng ther own o, and n other cases where the amount
pad for the transportaton of o s ess than a far charge. In estabshng
the far charge for ths transportaton the Treasury Department, nsofar as
possbe, s to ook to amounts charged n smar cases where the transportaton
s offered for hre. If no smar cases are avaabe then a reasonabe charge
w be constructed.
It Is estmated that ths e tenson of the ta on the transportaton of property
w ncrease revenues by 3 bon annuay when the provson s fuy effec-
tve.
P. CIS S ON MUS M NTS OR R CR TION
It s estmated that the changes made n the e cses on amusements and recre-
aton w resut n a net oss n revenue n a fu year of operaton as foows:
In mons
Genera admssons 22
Cabaret Neggbe
Occupatona ta on bowng aeys and bard and poo tabes 1
Tota 21
1. Genera admssons.
Sectons 16 0 and 1700 of the Code mpose a ta of 1 cent for each Cents or
ma|or fracton thereof charged for admsson. Ths b makes two changes In
the appcaton of ths ta .
Secton 02 of ths b e empts from ths ta admssons where a the proceeds
nure to regous, educatona, and chartabe nsttutons ; communty-supported
symphony orchestras; nonproft cooperatve or communty-center moton-pcture
theaters; Natona Guard organzatons; Reserve offcers organzatons; and
veterans organzatons; and poce or fre departments, and funds set up for the
beneft of ther members and ther dependents. s was provded by reguaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
39G
pror to the Revenue ct of 19 1, your commttee Intends that the term educa-
tona organzatons be construed to ncude opera companes where such organ-
zatons are not run for the purpose of makng a proft. owever, the b does
not e empt ndmssons to wrestng and bo ng matches, carnvas, rodeos or
crcuses where professonas partcpate for compensaton; or admssons to
athetc contests uness the proceeds nure e cusvey to the beneft of eemen-
tary or secondary schoos. The b aso e empts admssons to nonproft agrcu-
tura fars, to concerts conducted by nonproft cvc assocatons and o swmr.g
poos and other paces provdng factes for physca e ercse operated by a
governmenta unt.
The e empton as descrbed above represent a restoraton of the e emptons n
the ndmssons ta pror o the Revenue ct of 19 1. owever, the e emptons
are made somewhat more restrctve than the e emptons n the aw pror to tn-
Revenue ct of 19 1 n order to remove admnstratve probems whch were
e perenced under the od aw, and aso In an attempt to mt the bent ft of the
e empton to actvtes whch t appears approprate for the Government to
encourage. Most of the actvtes to whch these e emptons are appcabe
are a p:rt of the egtmate functons of organzatons or nsttutons whch
frequenty are Government-supported or have been accorded ta e empton on
ther own ncome. ecause t appears Inconsstent to ta ndnssons to actvtes
whch are drecty reated to the egtmate functons of these organzatons or
Insttutons, your commttee renstates these e emptons, mted as provded
above. It s estmated that these e emptons w resut n a revenue oss of
appro matey 10 mon n a fu year of operaton.
The second change n the admssons ta . made by secton 01 of ths h, deas
wth the amount ad for admsson. Under present aw a person admtted free
or at reduced rates s requred to pay the same amount of ta as a person who
s charged the reguar admsson prce, uness he s an empoyee, a muncpa
offcer on offca busness, a chd under 12. or (f admsson Is fres) a hosptazed
servceman or veteran. Your commttee beeves that requrng n person to pay
a ta based on a arger admsson prce than the amount actuay charged hm
Is contrary to the genera prncpe of an ad vaorem ta . Moreover, U does not
appear that the admnstraton of the ta s factated by ta ng free admssons
at the estabshed prce, and t represents a source of rrtaton to the pubc.
Secton (11 of your commttee s b e empts free admssons from ta and bases
the ta on amounts actuay pad where persons are admtted at reduced rates.
It s estmated that the revenue oss from ths change n the base on whch
the admssons ta s pad w amount to 0 mon In a fu year of operaton.
2. Cabarets.
Secton 0 of your commttee s b reates to the appcaton of the 20 percent
ta on cabarets to barooms and dancng has. Some courts have construed the
cabaret tu to appy n the case of barooms and dancng has merey because
t was possbe to purchase ncdenta refreshments, servces, or merchandse n
such pnces. The b amends secton 1700(e) of the Code to provde that the
cabaret ta sha not appy n such cases. It s estmated that the revenue effect
of ths provson w be neggbe.
S. cnrng a(ys and bard and poo taes.
Secton 320 of the Interna Revenue Code mposes a speca occupatona ta
on bowng aeys, bard or poo tabes of 20 per year per aey or tabe.
Secton 0 of tbs b rases ths ta from 20 to 23.
It s estmated that n a fu year of operaton ths change w Increase reve-
nu s by 1 mon annuay.
The addtona revenue t s estmated w e derved from the ta es on gam-
bng n a fu year of operaton s dstrbuted among the varous e cses as
G. CIS S ON G M LING
foows:
Occupatona ta on con-operated gamng devces
Ta on wagers
Occupatona a on the busness of acceptng wagers.
In mon
7
) 00
Tota
07
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
397
Wth respect to the estmate of 00 mon from the two wagerng ta es, snce
ths s a fed of ta aton wth whch the Federa Government has had no prevous
e perence and because there s uncertanty as to the actua amount of the ta
base, the commttee recognzes that t s dffcut to estmate too cosey the actua
revenue whch these new ta es w yed.
Secton 71 of the b adds a new chapter 27 to the Code whch mposes a
10 percent e cse ta upon wagers of certan typos, prncpay those paced wth
bookmakers and ottery operators, and a . 0 per year occupatona ta both upon
persons engaged n acceptng such wagers and upon persons who receve wagers
for the persons so engaged.
Commercazed gambng hods the unque poston of beng a mut-bon-
doar. Naton-wde busness that has remaned comparatvey free from ta aton
by ether State or Federa Governments. Ths reatve mmunty from ta aton
has perssted n spte of the fact that wagerng has many characterstcs whch
make t partcuary sutabe as a sub|ect for ta aton. Your commttee s con-
vnced that the contnuance of ths mmunty s nconsstent wth the present need
for ncreased revenue, especay at a tme when many consumer tems of a sem-
necessty nature are beng caed upon to bear new or addtona ta burdens.
The commttee recognzes that, whe Federa aw mposes no genera prohb-
ton upon gambng, varous forms of wagerng are ega under the aws of most
States. s a resut, proposas for a Federa ta on wagerng are sometmes crt-
czed as n effect sanctonng the carryng on of gambng actvtes n voaton
of such aws. The commttee does not share ths vew. Snce ts ncepton, the
Federa ncome ta has apped wthout dstncton to ncome from ega as
we as ega sources, and t as never been generay supposed that such app-
caton carred wth t any mped authorzaton to carry on ega actvtes.
Moreover, n the fed of e cse ta es the ta on con-operated gambng devces
has been apped wthout regard to whether or not the operaton of a partcuar
machne s n voaton of State or oca aw. The present b conforms to
ths pattern and mposes ta wthout regard to the egaty or egaty of the
partcuar wager.
The b specfcay provdes that payment of ether the ta on wagers or the
occupatona ta sha not serve to e empt any person from any penates pro-
vded under ether State or Federa aw wth respect to engagng n the ta ed
actvtes.
1. Ta on tcaacrs.
The wagerng ta whch the b mposes s paced upon wagers, wthout regard
to the outcome of ndvdua bets. Ths method of ta aton Is comparabe to
State ta aton of par-mutue poos and s partcuary approprate wth respect
to wagerng wth bookmakers and n otteres, especay of the type commony
known as the numbers game. The ta s mted (1) to wagers on sports events
or contests paced wth a person engaged n the busness of acceptng such wa-
gers, (2) to wagers paced n a wagerng poo whch nvoves a sports event or
contest, f the poo s conducted for proft, and (3) to wagers paced n a ottery
conducted for proft. It s beeved that wagerng transactons of these types
make up by far the argest proporton of the tota gambng busness.
Whe bettng on horse races probaby represents the argest snge category
of gambng actvty, other than n otteres, the ta w e tend to wagers on
any other sport, such as przefghts, basketba, baseba, or footba, Incudng
sports e hbtons and tras. Moreover, the event wagered upon need not be a
sports actvty but can be any type of contest, such as an eecton or the outcome
of prmares and nomnatng conventons.
Wagers on sports events or contests, to be ta abe, must be paced wth a
person engaged n the busness of acceptng such wagers. The purpose of ths
requrement s to e cude from ta the purey soca or frendy type of
bet. person s consdered to be In the busness of acceptng wagers f he s
encaged as a prncpa who, In acceptng wagers, does so on hs own account.
The prncpas n such transactons are commony referred to as bookmakers,
athough t s not ntended that any technca defnton of bookmaker, such as
the mantenance of a handbook or other devce for the recordng of wagers,
be requred. It Is ntended that a wager be consdered as paced wth a prn-
cpa when t has been paced wth another person actng for hm. Persons who
receve bets for prncpas are sometmes known as bookmakers agents or as
runners. It s not ntended that to be engaged n the busness of acceptng
such wagers a person must be ether so engaged to the e cuson of a other
actvtes or even prmary so engaged. Thus, for e ampe, an ndvdua may
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
39
be prmary engaged as a saesman, and aso, for the purposes of ths ta , be
engaged n the busness of acceptng wagers.
s prevousy stated, wagers paced n a wagerng poo wth respect to a sports
event or a contest are ta abe f the poo s conducted for proft. The requre-
ment that the poo be operated for proft s desgned to emnate from the ta
base those poos whch are occasonay organzed among frends or other as-
socates, a of the contrbutons beng dstrbuted to the wnner or wnners.
poo woud be consdered as beng operated for proft, f, for e ampe, a person
approprated to hmsef n percentage of the amount contrbuted to the poo or
requred a foe for thr prv ge of contrbutng to the poo.
s n the case of bookmakng transactons, a wager w be consdered as
paced In a poo or n a ottery whether paced drecty wth the person who
conducts the poo or ottery or wth another person actng for such a person.
contrbuton to a ottery w be consdered a ta abe wager ony f the
ottery s conducted for proft, as Is the case wth respect to wagerng poos.
though the b does net contan an a-ncusve defnton of the term ot-
tery, n genera the term s Intended to mean nny scheme for the dstrbuton
of property by chance among persons who have pad or have agreed to pay a
vauabe consderaton for the chance, whether cned a ottery, raffe, gft
enterprse, or some other name. The b specfcay provdes that the term
ncudes pocy or the so-caed numbers game and smar types of wagerng.
Pocy, or ts varous dervatves, s usuay a scheme wheren a payer seects
a number, severa numb rs, or a seres of numbers and pays or agrees to pay
a certan amount n consderaton of whch the person to whom the money s
pad engages to pay a prze f the number or numbers seected by the payer
appear or are pubshed n combnatons whch consttute a wnnng combnaton.
(Concevaby the use of etters or other symbos coud be substtuted for num-
bers, but ths woud not ater the fundamenta nature of the game as a ottery.)
The wnnng numbers In pocy are usuay based upon some reguary pubshed
seres of numbers such as weeky saes reports of a stock e change or com-
modty e change, t nted States Treasury baance reports, or the wnnng horses
of a seres of prevousy numbered horse races. The above descrpton s not
ntended to be restrctve as your commttee s we aware of the possbty that
e stng methods of pay may be changed n an effort to escape the ta whch
the b mposes.
ecause the term ottery s ntended to be broady construed n order to
mt the opportuntes for avodance, your commttee has specfcay e cuded
from the term certnn types of gambng games whch mght otherwse come
wthn ts technca meanng athough perhaps not commony so consdered.
Thus, the b e cudes from the term ottery any game of a type n whch
the wagers are usuay paced, the wnner or wnners are usuay determned,
and the dstrbuton of przes or other property s usuay made, n the presence
of n persons pacng wagers n the game. mong those games whch are wthn
the scope of the e cuson woud be card games such as draw poker, stud poker,
and back|ack, rouette games, dce games such as craps, bngo games, and the
gambng whees frequenty encountered at country fars and charty bazaars.
On the other hand, punchboards woud not normay be e cuded under ths
defnton.
Your commttee hns not e cuded the above types of gambng because of any
beef that they are not sutabe sub|ects for ta aton. owever, the method of
ta aton whch the b proposes, whe partcuary approprate to bookmakng
and to pocy operaton, does not appear ready adaptabe to these other forms
of gambng. For e ampe, there are obvous practca dffcutes n ascertan-
ng the gross amount of wagers made n the course of a dce game and other
games n whch there s drect and contnuous payer partcpaton. Moreover,
wth respect to card games t s frequenty dffcut to ascertan who, f anybody,
s the person operatng the game and what hs ta abty shoud be. In some
cases, a person may operate the bank drecty. In other cases, he may take a
percentage of, or mpose a nt charge on. each pot or may smpy evy a charge
for the use of factes such as a room. Moreover, many of these types of games
are frequenty engaged n on a frendy or soca bass rather than professonay.
dfferentaton for ta purposes between frendy and professona games
wodd create serous statutory and admnstratve probems. It s not e pected
that ths probem w e st to any serous e tent n the areas wthn whch the
b does mpose ta . For e ampe, nonprofessona bettng on horse races s
probaby nsgnfcant n amount. Furthermore, whe wagerng games of the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
399
tvpe e cuded from the ta may represent mportant aspects of commercazed
gambng n certan ocates, they consttute a reatvey sma proporton of the
tota waterng transactons n the Unted States. Moreover, ony a porton of
such professona games are n fact carred on n gambng casnos or other per-
manent estabshments whch mght concevaby be dentfabe for ta purposes.
It appears that a substanta and perhaps predomnant part of such actvtes
are n the nature of foatng games. That s, the operators of a game w
estabsh themseves n a ocaty, often In a hote room, for a perod of tme as
short as 1 or 2 days, and then move on to another ocaty. The transency of
such actvtes s not characterstc of the wagerng operatons upon whch the
b does mpose ta . ookmakers and pocy operators both depend upon an
estabshed centee, whch requres a certan permanency of ocaton. In any
event, your commttee beeves that the ta t proposes w cover at east 90
percent of tota commerca wagerng.
The b provdes specfcay that the ta sha not appy wth respect to wa-
gers paced n pnr-mutue wagerng enterprses censed under State aw. Such
wagerng s presenty sub|ect to substanta State and, n some nstances, oca
ta aton, and to supermpose a Federa ta upon these transactons woud ony
serve to mantan the e stng advantage whch bookmakers en|oy over par-
nmtue bettng by reason of ther mmunty from pnr-mutue ta es.
so e cuded from the ta are wagers paced n con-operated devces wth
respect to whch an occupatona ta s mposed by secton 32 37 of the Code.
Your commttee beeves that, for admnstratve reasons, the method of ta a-
ton whch s presenty apped wth respect to such machnes s preferabe to
an e tenson of the wagerng ta nto ths area.
The b provdes that, for the purposes of the ta , the term ottery does not
ncude any drawng conducted by organzatons e empt from ta under secton
101 of the Code where no part of the net proceeds derved from such drawng
nures to the beneft of any prvate sharehoder or ndvdua. It s, of course,
contempated that the reguatons w requre the e penses of such a drawng,
such as saares pad to the actua operators, to be reasonabe n amount f
the e empton s to be aowed. Furthermore, any agreement to pay as compen-
saton a percentage of the amounts contrbuted woud be a cear ndcaton that
the drawng s not wthn the e empt category.
Labty for the wagerng ta Is paced upon the person who s engaged n the
busness of acceptng wagers or who conducts the poo or ottery. Thus, the ta
s to be coected from the bookmaker proper or from the person who conducts
the poo or ottery as the prncpa. Monthy returns of ta are requred.
credt s provded n the case of so-caed ay-off money. ookmakers and
pocy operators generay attempt to baance one bet aganst another. per-
fect mathematca bookng of any race woud nsure a proft regardess of the
utmate outcome. owever, horse-race bookmakers today sedom set ther own
odds but pay off wnnng bets upon the bass of the actua par-mutne pay-off
at the track concerned. Furthermore, pocy operators normay pay off on the
bass of f ed odds, such as 700 to 1, whch reman constant from day to day,
athough ower odds may be mantaned wth respect to certan heavy payed
numbers. ecause they are unabe to vary the odds n accordance wth amounts
wagered, bookmakers and pocy operators sometmes fnd that they have ac-
cepted a greater amount of wagers upon a certan horse or number than they are
wng to carry on ther own account. In order to avod the rsk nherent n
acceptng such dsproportonate amounts of wagers, the bookmaker or pocy
operator ays off a porton of hs bets wth another bookmaker or pocy opera-
tor. In such cases t s the person wth whom the bet Is ad off who bears the
actua rsk of the wager even though It Is the person wth whom the bet was
orgnay paced that the bettor ooks to for hs wnnngs or to whom he pays
hs osses. The b provdes wth respect to such ad-off wagers that the book-
maker or pocy operator who orgnay accepts the wager sha be abe for
the 10 percent ta upon t but may cam a credt or refund for the amount of the
ta f the bet s ad off wth another person who aso s abe to the wagerng
ta . Thus, f a bookmaker accepts a 100 wager and ays off 60 of the wager
wth another bookmaker, he s ta abe upon the 100 wager but may cam a
credt or refund of ta wth respect to the 60 ad off. In ths manner, mut-
pe ta aton of the same wager s avoded. Whe certan tracng dffcutes
may be antcpated as a resut of ths provson, t s beeved that the credt pro-
cedure w factate ta enforcement by makng avaabe to the coecton
agences nformaton of arge bookmakng operatons whch mght not otherwse
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
00
be ready obtanabe. It Is contempated that the reguatons w requre
the mantenance of records whch w nsure that the person wth whom the
wager s ad off s dentfabe as a person aso sub|ect to the wagerng ta .
The credt w be aowabe ony wth respect to amounts ad off wth persons
aso abe to the ta on wagers. s a resut of ths mtaton, no credt w
be aowabe wth respect to amounts known n bettng parance as come-back
money. Come-back money s essentay a wager whch a bookmaker ays off at a
track rather than wth another bookmaker, and, as prevousy noted, wagers
paced n State-censed par-mutue enterprses w not be ta abe. Come-beck
money serves the same purpose as a ay-off proper (that s, t provdes the book-
maker wth a hedge ) and, f made n arge amounts, may have the addtona
effect of depressng the odds on the partcuar horse or horses wagered upon.
The ta consequences of a combned ay-off and come-back transacton are -
ustrated by the foowng e ampe: a bettor paces a 1,000 wager wth book-
maker on horse ; hods 100 of the wager and ays off 000 wth bookmaker
; hods 200 of the 1)00 and bets the remanng 700 at the track on the horse
. ookmaker s ta abe wth respect to the entre 1,000 wager but s a-
owed a credt wth respect to the ta on the 900 ad off; s ta abe on the
entre 00 and s aowed no credt fur the 700 he bets at the track. Thus,
cumuatve ta abtes arse of 190 (10 percent of 1,900, the aggregate
amount of wagers and ay-offs) but a credt Is aowabe n the amount of M)
(10 percent of ; )0, the amount ad off), eavng a net ta of 100, or 10 percent
of the orgna 1,000 wager.
wager s ntended, of course, to be the amount rsked by the person pacng
the bet rather than the amount whch he stands to wn. Thus, f a person bets
aganst a bookmaker s 7 wth respect to the outcome of a prze fght, the
wager, for the purpose of the ta , s .
The b provdes that the amount sub|ect to ta w ncude not ony the
wager proper but aso any charge ncdent to the pacng of the wager. n
e ampe of such an addtona charge whch s to be ncuded n the ta abe
amount woud be so-caed Insurance money pad bookmakers. orse-race
bookmakers normay pace an arbtrary ceng on the odds upon whch they
are wng to base ther pay-offs, such as, for e ampe, 20 to 1 for wn bets. S to 1
for pace bets, and to 1 for show bets. These cengs are mantaned rre-
spectve of the actua par-mutue odds. ookmakers are frequenty wng to
guarantee the bettor a payoff based on the actua track odds, no matter how
great, n consderaton of a sma addtona charge pad by the bettor, usuay
10 percent of the bet. Ths addtona charge s known as nsurance. nother
e ampe of an amount whch woud be ncuded as part of a ta abe wager woud
be a charge made by a ottery operator for the prvege of contrbutng to the
poo or bank. On the other hand, the b specfcay provdes that the ta abe
amount sha not ncude an amount equa to the ta f t has been coected as
a separate charge from the bettor. Ths e cuson conforms to the pattern of
the other e cses nnd w avod the dffcut admnstratve probems nvoved
n coectng a ta on a ta .
The b contans provsons desgned to prevent avodance of the ta through
transfer of wagerng actvtes to ponts outsde of the Unted States.
ny person who wfuy fas to pay the ta provded by the b or to make
a return or to keep requred records (ncudng a day record of the gross
amount of wagers receved) Is made abe to crmna penntes (n addton
to the cv penates) of up to 1 year s mprsonment nnd a fne up to 10,000.
Furthermore, a wfu attempt to evade or defeat the ta w be a feony
punshabe by up to years mprsonment and up to 10,000 fne.
S. Occupatona ta .
In nddtm to the ta on wagers descrbed above, the b mposes an occupa-
tona ta of . 0 per year upon any person abe to the ta on wagers and upon
any person engaged n recevng wagers for or on behaf of such a person.
The commttee conceves of the occupatona ta as an ntegra part of any
pan for the ta aton of wagers and as essenta to the coecton and enforce-
ment of such a ta . nforcement of a ta on wagers frequenty w necesstate
the tracng of transactons through compe busness reatonshps, thus requr-
ng the dentfcaton of the varous steps nvoved. For ths reason, the b
provdes that a person who pays the occupatona ta must, as part of hs regs-
traton, dentfy those persons who are engaged n recevng wagers for or on
hs behaf, and, n addton, dentfy the person on whose behaf he s engaged
n recevng wagers.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
01
In genera, the provsons of the occupatona ta foow the pattern of the
otter occnpatonn ta es mposed under the Code and requre regstraton, postng
of speca ta stamp by the ta payers, the mantenance by the coector of a st
of ta payers for pubc nspecton, etc.
Speca penates are mposed for faure to pay the ta or to post or e hbt
the stamp. Furthermore, the penates aready descrbed wth respect to the .
ta on wagers w aso appy to wfu faures to pay the occupatona ta .
It shoud aso be ponted out that, under the genera provsons oC secton 1001
of Tte 1 of the Unted States Code, any fase or fcttous statement made
knowngy wth respect to the payment of the occupatona ta , such as the
|vng of a fase name or address, s sub|ect to a fne of not more than 10,000
or mprsonment of not more than years, or both.
3. Con-operated gamng devces.
Secton 3267(a) of the Code provdes an occupatona ta of 1 0 per year
In the case of con-operated gamng devces. Secton 03 of the b rases ths
to 2 0 per year. It s beeved that the mposton of a ta on wagerng
generay, from whch con-operated gamng devces are specfcay e empted,
requres an ncrease n ths ta to provde equaty of treatment. It s estmated
that n a fu year of operaton ths w ncrease revenues by 7 mon annuay.
. FLOOR STOC T S
foor stock ta Is a ta mposed one tme ony on nventores of tems on
whch an e cse has been pad but whch tems are aready beyond the stage
where the ta s ordnary mposed at the tme the ncreased or new ta be-
comes effectve. Foor stock ta es are used ony n the case of ta es mposed
at the manufacturers eve, snce ony n these cases are there any nventores
of tems hed by persons other than consumers whch have not been sub|ected
to any ncreased e cse ta mposed. Foor stock ta es have tradtonay been
mposed n the case of acohoc beverages and tobacco. Twenty-three foor
stock ta es reatng to acohoc beverages have been mposed snce 1913 and
nne foor stock ta es have been mposed on tobacco snce that date. In the case
of other manufacturers e cses, foor stock ta es have been used reatvey
nfrequenty.
Foor stock ta es have been mposed for three prmary reasons: (1) To pre-
vent whoesaers and retaers from avodng a ta ncrease by stockng up on
tems before a ta ncrease or new ta becomes effectve, (2) to make the n-
crease or new ta effectve on tems produced at an earer date and thus ncrease
revenues n the nta year of mposton, and (3) to prevent compettve ds-
crmnaton n cases where some whoesaers and retaers have arge stocks
of tems where the new or addtona ta has not been mposed and others do
not. owever, n mposng foor stock ta es t Is aso necessary to consder
the arge amount of work whch these ta es enta both for the ta payer and
the Government. The processng of foor stock ta returns s an e tensve task
and the appcaton of foor stock ta es at both the whoesae and the reta
eves affects hundreds of thousands of deaers. ecause of these admnstratve
consderatons your commttee s b mts foor stock ta es to those cases
where there appears to be a strong need for such ta es.
Under the b foor stock ta es are Imposed wth respect to the ncreases
In the ta on dsted sprts, beer, wne, and cgarettes. In the case of gasone
a foor stock ta Is aso mposed but ony wth respect to stocks of gasone
hed by retaers other than at ther reta estabshments. The rates of ta
under these foor stock ta es are the same as the ncreases n ta provded for
these tems. It s antcpated that n the fsca year 19 2 these foor stock ta es
w ncrease coectons n that year, but ony that year, by 120 mon. Of
ths tota, 9 mon s accounted for by the foor stock ta es on acohoc
beverages, and the buk of ths s e pected to be coected from dsted sprts
snce nventores are argest n ths case. bout 22 mon s e pected to be
coected from the foor stock ta on cgarettes, but ony a nomna amount
from the foor stock ta on gasone. In the atter case the foor stock ta s
m osed, not wth the e pectaton of recevng arge revenues from t, but to
gve assurance that substanta revenues w not be ost by an unusuay arge
transfer of tte to gasone pror to the effectve date of the ta ncrease.
Consderaton was aso gven to the mposton of foor stock ta es n the case
of other manufacturers e cses. owever, no acton was taken wth respect
to them argey because the tems are key to be n reatvey short suppy when
the e cse ta es become effectve, makng t dffcut for deaers to avod ta by
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
02
Increasng ther Inventores pror to the effectve date of the ta Increase.
so, the arge number of retaers and tems nvoved n many cases make the
mposton of the ta mpractca n vew of the sze of the rate Increases or
the rates of the new ta es.
Tabe 12. Summary of effect of your commttee s b on revenues n a fu year
of operaton
stmated
ncrease n
revenue n s
I. Structura Changes
1. Wthhodng on dvdends, certan Interest and royates.
2. Cosng of oophoes concerned wth
(a) Deaers n securtes
fu year of
operaton
n mons)
323
(6)
Corporate spt-ups to obtan mutpe e emptons and
credts
Reducton of ta from the sae of nventory tems through
the use of coapsbe corporatons
(d) Sae of property to controed corporatons
(e) Under the estate and gft ta es. Unted States bonds hed
by a nonresdent aen not engaged n busness n the
Unted States
3. Provdng for the offset of net short-term or net ong-term capta
osses nganst net ong-term or net short-term capta gans before
reducng the ong-term capta gans or osses by 0 percent
. tendng of the depeton tems to provde
(a) Depeton at a 1 percent rate for bora , fuer s earth, re-
fractory and fre cay, quartzte, perte, datomaceous
earth, metaurgca and chemca grade mestone
and trpo
2S
(6) Depeton for coa at 10 percent nstead of percent
(c) Depeton at percent for sand, grave, marbe, grante,
stone, brck and te cay, shae, she, pumce, scora,
sate, and asbestos
(d) Depeton for thenardte at 1 percent rrespectve of
whether t s obtaned from brnes or m tures of
brne
. Postponng of the reazaton of capta gan where a persona
resdence s sod and another purchased wthn 1 year
6. Permttng the deveopment costs of mnng to be deducted over
the perod durng whch the mnera benefted s sod
7. Provdng capta gans ta , nstead of ordnary ncome ta , treat-
ment for coa royates
. Provdng sec. 117(|) treatment for vestock hed by the ta payer
for draft, breedng or dary purposes for 12 months or more
0. Provdng speca tu treatment for famy partnershps
10. Permttng venture capta companes to quafy as reguated n-
vestment companes
11. emptng educatona feeder corporatons wth respect to
-ears pror to 10 1 ( )
12. Permttng addtona wthhodng on wages and saares by agree-
ment of empoyees and empoyers None
-67
-112
20
-10
-1
Tota, net revenue effect of structura changes 1 7
II. Indvdua Income Ta Changes
1. Increasng the ndvdua ncome ta by 12 percent but mtng
the top margna rate to 9 percent and rasng the over-a
effectve rate ceng from 7 to 00 percent 2, 3
2. Provdng 0 percent of the beneft of ncome spttng for heads
of househods 6
3. Increasng the aternatve capta gans rate for Indvduas by 12
percent 9
. Tota, net revenue effect of ndvdua ncome ta changes 2, S 7
1 No permanent oss.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

7

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
03
Tabe 12. Summary of effect of your commttee s b on revenues n a fu year
of operaton Contnued
III. Corporate Income and cess Profts Ta Changes
stmated
ncrease n
revenues n a
fu year of
operaton
( mons)
1. Increasng the corporate norma ta rate by percentage ponts
(ncreasng the tota rate from 7 to 2 percent) and rasng the
ceng rate from 02 to 67 percent 2, 0S
2. Decreasng the average earnngs credt under the e cess profts
ta from to 7 percent of average base perod earnngs and
further rasng the ceng rate to 70 percent 732
3. Increasng the ta on net capta gans of corporatons by 12
percent 3
Tota, net revenue effect of corporate ncome and e cess
profts ta changes 2,
I . Ta Treatment of Lfe-nsurance Companes
1. tendng for 1 year (19 1) the temporary ta treatment provded
for fe-nsurance companes n the Revenue ct of 19 0 (revenue
s shown for ncrease over pre-19 0 formua)
. cse Ta Changes
( ) LCO OLIC R G S
1. Increasng the ta on dsted sprts from . 9 to 10. 0 a gaon
and ncreasng the draw-backs for acoho used for nonheverage
purposes from 6 to 9. 0 decreasng the net ta from 3 to 1) 10
2. Increasng the ta on beer from to 9 a barre 0
3. Increasng the ta per gaon on st wnes as foows
(a) Wth acohoc content not over 1 percent the ta s n-
creased from 1 to 17 cents
(6) Wth acohoc content over 1 percent hut not over 21
percent the ta s ncreased from 60 to 67 cents, and
(c) Wth acohoc content over 21 percent but not over 2
percent the ta s ncreased from 2 to 2.2 , o
. Increasng the ta per haf pnt on sparkng wnes, etc., as
foows
(a) For sparkng wnes and champagne the ta s ncreased
from 1 to 17 cents, and
(6) For artfcay carbonated wnes, queurs, cordas, etc.,
the ta s ncreased from 10 to 12 cents
. Increasng the annua fee for occupatona censes for reta quor
deaers from 27. 0 to 0, and requrng the appcants to gve
correct names and addresses. so, ncreasng the occupatona
ta on whoesaers n quor from 110 to 200 and the occupa-
tona ta on whoesaers n mat quor from to 100
Tota, net revenue effect of acohoc beverage e cse ta
changes 2 2
(b) tobacco ta es
L Increasng the ta on a sma cgarettes from 7 to cents a pack__ 177
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
Tabe 12. Summary of effect of your cotnmttee t b on revenues n a fu year
of operaton Contnued
stmated
. cse Ta Changes Contnued ncrease n
revenues n 3
(O) M NUF CTUR RS T S opera on
(n mons)
1. Increasng te tn on gasone from 1 2 cents to 2 cents and appy-
ng a smar ta to dese fue used on the hghways 220
2. Increasng the ta on passenger cars and motorcyces from 7 to 10
percent, but retanng the present 7 percent ta on house traers- 196
3. Increasng the ta on automobe trucks, busses, and truck traers
from to S percent 61
. Increasng the ta on automotve parts and accessores from to
pereent 6
. cudng from the base of the ta on automotve parts and acces-
sores the far market vaue of trade-ns n computng the base
for the ta on recondtoned or rebut parts
6. cudng from the ta on automotve parts and accessores cer-
tan parts used In the case of farm machnery
7. cudng from the cents per pound ta on tres, tres of ess than
20 nches n dameter and tres wth nterna wre fasteners 1
. tendng the 10 percent ta on eectrc, gas, and o appances to
ncude the foowng home-type appances: eectrc manges,
eectrc dshwashers, eectrc and gas cothes drers, eectrc foor
poshers and wa ers, eectrc razors, eectrc and power-drven
awn mowers, eectrc hedge cppers, eectrc bet-drven funs,
eectrc dehumdfers, eectrc door-be chmes, eectrc food
choppers or meat grnders, eectrc ce-cream freezers, eectrc
moton-pcture and sde pro|ectors, eectrc pants pressers, and
eectrc sheets nnd spreads 19
9. cudng eectrc heatng pads from the 10 percent ta on eectrc,
gas, nnd o appances 1
10. cudng from the base of the 10 percent ta on rado recevng
sets, communcaton, detecton or navgaton recevers of the
type used n commerca, mtary, or marne nstaatons f sod
to the Unted States Government None
11. Revsng the base of the ta on sportng goods to e cude tems
predomnanty used by chdren or n schoos and ncreasng
the rate from 10 to 1 percent ( )
12. Reducng the ta on cameras and photographc apparatus from
23 to 20 percent, ncreasng the ta on fm from 1 to 20 per-
cent, and e emptng busness cost tems 23
13. Repeang the 3y3 percent ta on saes by prvate uttes of eec-
trca energy 10
1 . Imposng a 20 percent manufacturers ta on fountan pens, ba-
pont pens, and mechanca pencs 2
Tota, net revenue effect of manufacturers e cse tn
changes 7
(D) R T IL T S
1. tendng the 20 percent tn on |ewery to ncude a cgarette,
cgar, and ppe mechanca ghters 2
2. cudng from the 20 percent ta on toet preparatons, baby os,
powders nnd otcns and toet preparatons purchased by barber
shops and beauty parors for use n ther shops T
Tota, net revenue effect of reta e cse ta changes
Ths w resut n a gan of e s than 00,000.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
Tabe 12. Summary of effect of your commttee s b on revenues n a fu year
of operaton Contnued
stmated
. cse Ta Changes Contnued nereaten
revenues n a
( ) G M LING T S operaton
(n mons)
1. Imposng a 10 percent ta on most wagerng other than wagerng 1
through par-mutues I
2. Imposng a 0 annua ta on the occupaton of acceptng wagers I
(e cudng par-mutues)
3. Increasng the annua occupatona ta on con-operated gamng
devces from 1 0 to 2 0
Tota, net revenue effect of other e stng e cse ta
changes
Tota, net revenue effect of e cse ta changes to date
100
Tota, net revenue effect of gambng ta es 07
(F) OTII I C1S S
1. tendng the 3 percent ta on amounts pad for transportaton of
property to ncude the transportaton of o by water where
shppers are transportng ther own o or where ess than a far
charge s made 3
2. cudng from the 1 percent ta on amounts pad or transporta-
ton of persons, amounts pad for transportaton by boat where
pad for fshng from such boat
3. Increasng the annua ta on bowng aeys and bard and poo
tabes from 20 to 2 per tabe or aey 1
. Decreasng the ta on domestc teegraph, cabe, and rado mes-
sages from 2 to 20 percent of the charge
. cudng from the base of the 20 percent ta on cabarets, refresh-
ments, etc., served at barooms and dance has where these are
of an ncdenta character
C. emptons from the 20 percent admssons ta
(a) Proceeds nurng to nonproft regous, educatona (n-
eudng opera companes), and chartabe nsttutons; com-
munty-supported symphony orchestras; nonproft coopera-
tve or communty-center moton-pcture theaters; natona
guard organzatons, Reserve offcers organzatons and
veterans organzatons; and poce and fre departments
and funds set up for the use of ther members and ther
dependents. owever, these e emptons do not ncude ad-
mssons to wrestng and bo ng matches; to carnvas,
rodeos or crcuses where professonas partcpate for com- I
pensaton ; or to athetc contests uness the proceeds nure
e cusvey to the beneft of eementary or secondary
schoos
(6) dmssons to nonproft agrcutura fars and nonproft
cvc assocatons
(c) dmssons to swmmng poos and other paces provdng
factes for physca e ercse f operated by a govern-
menta unt
7. ppyng the 20 percent admssons ta to the actua amount pad
nstead of to the estabshed prce C
-10
Grand tota, net revenue effect of changes provded by the
commttee to date 7,109
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
06
D T IL D DISCUSSION OF T T C NIC L PRO ISIONS OF T ILL
TITL I INCR S IN INCOM T R T S
Pabt I Indvdua Income Ta es
S CTION 101. D F NS T
Subsecton (a) of secton 101 of the b adds to the Interna Revenue Code a
new secton 10 whch provdes for a percentage ncrease (desgnated a defense
ta ) n the amount of the combned norma ta and surta whch woud other-
wse be payabe by an ndvdua or other noncorporate ta payer under the pro-
vsons of sectons 11 and 12 or of secton 21(a) (2) of the Code. The new sec-
ton 16 effects aso an ncrease n the amount of the aternatve ta computed
under the provsons of secton 117(c) of the Code by any ta payer (ncudng
a corporaton) wth a net ong-term capta gan n e cess of the net short-term
capta oss for the ta abe year. The defense ta ncreases w, n genera,
appy ony to ta abe years whch end after ugust 31, 10 1. n e cepton to
ths s the case covered by secton 103 of the b of a |ont return of husband
and wfe wth dfferent ta abe years because of the death of ether durng the
ta abe year when the ta abe year of the survvng spouse fng the |ont return
began before September 1, 1931, and ended after ugust 31, 10 1.
Subsecton (a) of the new secton 16 appes to the ta abe caendar year
10 1, and provdes for an ncrease of percent n the amount of the combned
norma ta and surta computed under sectons 11 and 12, or 21(a)(2) of the
Code, but wthout regard to the provsons of secton 16. Secton 10 (h) of the
Code (as added by sec. 131 of the b) provdes rues for proratng the ncrease
n ta for other ta abe years begnnng before September 1, 10 1, and endng
after ugust 31. 10 1.
In appyng the provsons of subsecton (a) of secton 10, the amount of the
combned norma ta and surta s frst determned under the provsons of sec-
tons 11 and 12, or 21(a)(2), appcabe to ta abe years begnnng after Sep-
tember 30. 19 0, and the ta Is then determned by ncreasng such amount by
percent. The amount of the combned norma and surta , t shoud be noted, s
ncreased by the amount of the defense ta before the appcaton of the credts
aganst ta provded by sectons 31, 32. and 3 of the Code, n accordance wth the
provsons of secton 12(e) of the Code.
Subsecton (b) of the new secton 1G s appcabe to ta abe years begnnng
after ugust 31, 10 1. Its provsons are otherwse dentca to those of sub-
secton (a) of such secton e cept that the percentage ncrease provded s 12
percent.
Subsecton (c) of new secton 16 provdes for an ncrease In the amount to be
added to the parta ta when an ndvdua, or a corporaton, wh net ong-term
capta gan n e cess of net short-term capta oss computes an aternatve ta
under paragraph (1) or (2) of secton 117(c) of the Code. In the case of the
caendar year 10 1, paragraph (1) of subsecton (c) provdes that the ncrease
n such amount sha be percent. Paragraph (2) of subsecton (c) appes
to ta abe years begnnng after ugust 31. 10 1, and provdes that the amount
to be added to the parta ta sha be ncreased by 12 percent. Paragraph (31
of subsecton (c) s appcabe to ta abe years begnnng before September 1,
19 1, and endng after ugust 31, 10 1 (other than the caendar year 10 1), and
provdes that the amount to be added to the parta ta sha be Increased by a
percentage whch bears the same rato to 12 percent as the number of months
n such ta abe year after ugust 31, 19 1, bears to the tota number of months
n such ta abe year. ssume, for the purpose of Iustratng the appcaton
of paragraph (3), that an aternatve ta s beng computed for a ta abe year
begnnng une 1, 19 1, and endng May 31, 10 2, and that the amount to be
added to the parta ta (determned under sec. 117(c) (1) or sec. 117(c) (2)) Is
10,000. The amount to be added to the parta ta woud be 10,000 pus
037. 0 (nne-twefths of 12 percent of 10,000), or 10,937. 0. For the pur-
pose of paragraph (3) a caendar month ony part of whch fas wthn the
ta abe year s dsregarded If ess than 1 days of such month are ncuded n
such ta abe year, and s ncuded as a caendar month wthn the ta abe year
If more than 1 days of such month fa wthn the ta abe year.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
07
Subsecton (b) of secton 101 amends secton 12(b) (1) and (2) of the Code
and adds new paragraph (3) to secton 12(b). The amendment to secton
12(b) (1) provdes that the surta rates specfed n secton 12(b) (1) sha not
appy n the case of any ta payer whose surta net ncome s over 90,000 for
any ta abe year f the defense ta provded In secton 16 s appcabe to such
ta abe year. For the use of such a ta payer n computng ncome ta abty,
n the case of the ta abe caendar year 19 1, new paragraph (2) provdes a
speca surta tabe. The amount computed under ths tabe must be ncreased
by percent to determne the surta abty. Paragraph (3), as added to sec-
ton 12(b), specfes that, n the case of an ndvdua wth surta net Income
n e cess of 90,000 for any ta abe year begnnng after ugust 31, 19 1, the
surta sha be an amount equa to ,920 pus 1 percent of the e cess over
90,000. The 12 percent defense ta ncrease provded by secton 16 s not
ncuded n ths computaton, and the amount computed thereunder must, there-
fore, be ncreased by 12 percent to obtan the surta abty. It shoud be
noted that the amended paragraph (1) further provdes that n the case of a
ta payer who s the head of a househod, the ta mposed by subsecton (b)
of secton 12 sha not appy to any ta abe year begnnng after ugust 31,
19 1. Such an ndvdua w pay a ta for any such ta abe year as provded
by secton 12(c) of the Code as amended by tte III of ths b.
Subsecton (c) of secton 101 amends secton 12(f) of the Code reatng to
mtaton on ta . Under paragraph (1) of subsecton (f), as amended, t s
provded that n the case of a ta abe year begnnng after September 30, 19 0
(other than the caendar year 19 1 or a ta abe year begnnng after ugust 31,
19 1, to whch the defense ta provded n secton 16 appes), the combned
norma ta and surta sha n no event e ceed 7 percent of the net ncome.
Paragraph (2) of subsecton (f) reates to the ta abe caendar year 19 1 and
mts the combned norma ta and surta for such year, ncreased as provded n
secton 16, to percent of net ncome. Undsr paragraph (3), appcabe to
ta abe years begnnng after ugust 31, 19 1, the correspondng mtaton s 90
percent of net ncome. In the case of a ta abe year (other than the caendar
year 19 1) begnnng before September 1, 19 1, and endng after ugust 31, 19 1,
n computng the ta for such year under secton 10 (h) of the Code, the 7
percent mtaton s apped to the computaton of the tentatve ta under secton
10 (h) (1) (rates appcabe to years begnnng on October 1, 10 0) and the 90
percent mtaton s apped to the computaton of the tentatve ta under secton
10 (h) (2) (rates appcabe to years begnnng on September 1, 19 1). For the
purposes of paragraphs (1), (2), and (3), the combned norma and surta s
computed wthout regard to the credts aganst ta provded by sectons 31, 32,
and 3 of the Code, as provded n secton 12(e).
Subsecton (d) of secton 101 provdes technca amendments to sectons 11(a)
and 12(g) of the Code. Subsecton (d) (1) adds to sectou 11 (a) a cross-reference
to secton 16. Subsecton (d) (2) amends secton 12(g) of the Code by addng a
cross-reference to new secton 16, and to secton 10S(h), reatng to certan
sca-year ta payers.
S CTION 102. INDI IDU LS WIT D UST D GROSS INCOM OF L SS T N
,000
Secton 102 of the b amends secton 00 of the Code to provde two new ta
tabes for the use of ta payers wth ad|usted gross ncome of ess than ,000.
ta payer usng such tabes w not ncrease the ta found theren by the per-
centages specfed n secton 16, snce the percentage ncreases have been ncor-
porated nto the tabes. Tabe I s appcabe to the ta abe caendar year 19 1,
and s for the use of snge persons, marred persons fng separate returns, and
marred persons rng |ont returns. Snce the provsons of tte III of the b
reatng to ta treatment n the case of a head of a househod do not appy to the
caendar year 19 1 a snge person wth ad|usted gross ncome of ess than ,000
who mght for subsequent ta abe years quafy for such treatment may use ths
tabe n computng ncome ta abty for the caendar year 19 1. Tabe II s
appcabe to ta abe years begnnng after ugust 31, 19 1, and s for the use of
snge persons, marred persons fng separate returns, marred persons fng
|ont returns, and any snge person who quafes as the head of a househod
under the provsons of tte III of ths bL
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
S CTION 103. COMPUT TION OF T IN C S OF C RT IN OINT R TURNS
Secton 103 appes to the stuaton where a |ont return of a husband and wfe
s fed under the provsons of secton 1(b) (3) of the Interna evenue Code,
tne husband and the wfe havng dfferent ta abe years because of the death of
ether, and the ta abe year of the survvng spouse covered by such |ont return
began before September 1, 19 1, and ended after ugust 31, 19 1. In respect of
such a case, secton 103 provdes that the amendments made by part I of tte I
of ths b, reatng to ncome ta rates, sha be appcabe to the |ont return
as f the ta abe years of both spouses covered by the |ont return ended on the
uate of the cosng of the survvng spouse s ta abe year.
Secton 1 (b) (3) and ( 1 of the Code permt the fng of a |ont return by a
survvng spouse f the ta abe years of each spouse began on the same day but
ended on dfferent days because of the death of ether spouse, or both. Under the
provsons of secton 103, f one spouse des durng 19 1 and the survvng spouse
eects to fe a |ont return under secton 1 (b) (3) of the Code coverng both hs
cnemar year 19 1 and the ta abe year of the deceased spouse, the ta abty
on the |ont return w be computed at the rates appcabe under ths b to a
return for the caendar year 19 1. It s mmatera, n such a case, wLether the
ta abe year of the deceased spouse ended before or after September 1, 19 1. If
the ta abe year of the survvng spouse whch began before September 1. 19 1,
md ended after ugust 31, 19 1. s not a caendar year, the ta abty on a
|ont return by the survvng spouse w be computed under the provsons of
secton 10 (h) of the Code (as added by sec. 131 of ths b), and the computa-
tons requred theren wth respect to caendor months n the ta abe year w be
made by reference to the caendar months of the ta abe year of the survvng
spouse.
S CTION 10 . FF CTI D T OF P RT I
Ths secton provdes that the amendments made by part I of the h are
appcabe ony wth respect to ta abe years endng after ugust 31, 19 1, e cept
as provded n secton 103, and provdes a cross-reference to secton 131 of the
b for treatment of ta abe years (other than the caendar year 19 1) begnnng
before S ptember 1,19 1, and endng after ugust 31,19 1.
Part II Corporaton Income Ta es
S CTION 121. INCR S IN R T OF CORPOR TION NORM L T
Subsecton (a) of secton 121 amends subsectons (a) and (b) of secton 13
of the Code, reatng to the norma ta on corporatons. The amendment to
subsecton (a) s a technca amendment, and emnates from the Code prov-
sons whch are appcabe ony to pror ta abe years. The subsecton as
amended retans the defntons of ad|usted net ncome and norma ta net
ncome added by the evenue ct of 19 0. The amendment to subsecton (b)
of secton 13 ncreases the norma ta rate from the present rate of 2 percent
to the rate of 30 percent. The 30 percent rate s appcabe wth respect to
ta abe years begnnng after December 31, 19 0.
Subsecton (b) of secton 121 amends secton 30(a) of the Code, as added
by secton 101 of the cess Profts Ta ct of 19 0. Secton 30(a) of the
Code presenty mposes nn e cess profts ta of whchever s the esser of:
(1) 30 percent of ad|usted e cess profts net ncome (as defned by sec. 31).
or (2) an amount equa to the e cess of 02 percent of the e cess profts net
ncome (as defned by sec. 33) over the ta whch wcud be mposed for such
ta abe year f the norma to rate and the surta rate appcabe for the
ta abe year were apped to the corporaton s e cess profts net ncome for
the ta abe year. The amendment mode by ths subsecton of secton 121
changes the percentage mtaton fgure n the formua provded by secton
30 (a) of the Code from G2 percent to 70 percent.
Secton 207(a)(1) of the Code, reatng to norma ta and surta on mutua
Insurance companes other than fre or marne, and secton 207(a)(3) reatng
to the norma ta and surta on nternsurers and recproca underwrters, are
amended by subsecton (c) of ths secton to refect the ncrease of the norma
ta rate on corporatons from 2 to 30 percent of nerma ta net ncome. The
22 percent surta rate on corporaton surta net ncome n e cess of 2 ,000
provded by such amendment Is the present rate, as provded by tte 11 of the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
09
cess Profts Ta ct of 19 0, appcabe wth respect to ta abe years begn-
nng after une 30,19 0.
Subsecton (d) amends secton 302(b) (3) and ( ) of the Code to provde
a 30 percent norma ta rate n eu of the 2 percent rate provded by e stng
aw n the case of a reguated nvestment company. The amendment to sec-
ton 3 2(b)( ) s a technca amendment repeang provsons appcabe to
pror ta abe years.
s amended, both sectons 207 and 3G2 retan the present e empton from
surtn of the frst 2 ,000 of corporaton surta net ncome wthout reference
to the provsons of new subsecton (|) of secton 20 of the Code, whch s added
under secton 123 of ths b (reatng to surta e emptons and certan credts
of reated corporatons).
Subsecton (e) amends secton 21(a)(1) of the Code (reatng to ta aton
of busness ncome of certan ta -e empt organzatons) to ncrease the norma
ta mposed thereunder from 2 to 30 percent of norma ta net ncome.
Subsecton (f) (1) s a technca amendment whch emnates from the Code,
by repea of secton 1 . the provsons reatng to norma ta on speca casses
of corporatons wth norma ta net ncome of ess than 2 ,000. The varous
aternatve rates provded n such secton were appcabe ony n the cnse of
ta abe years begnnng before uy 1, 19 0.
Subsecton (f) (2) s a technca amendment to secton 1 and emnates from
the Code provsons appcabe ony to pror ta abe years. The amendment
nso refects the shft of the 2 ,000 surta e empton from secton 1 (b)(3)
to new secton 2C(|) whch s accompshed by secton 123 of ths b.
S CTION 122. CR DITS OF CORPOR TIONS
Subsecton (a) of secton 122 amends subsecton (b) (1) and (2) of secton
26 reatng to the credt for dvdends receved. The ony change made n para-
graph (1) of such subsecton (reatng to the credt for dvdends receved on
stock of a domestc corporaton, other than on preferred stock of a pubc
utty) s a technca change. Paragraph (2) of secton 20(b) presenty
provdes for a credt of 9 percent of the amount receved as dvdends on the
preferred stock of a pubc utty sub|ect to ncome ta , n the case of ta abe
years begnnng after une 30, 10 0, and for a credt of 7 percent of such
amount n the cnse of the caendar year 19 0. Ths paragraph s amended to
provde a credt of 02 percent of the amount of such dvdends receved whch
w be appcabe to ta abe years begnnng after December 31. 19 0. The
provsons reatng to other ta abe years are emnated by the amendment.
Subsecton (b) of secton 122 amends the frst sentence of paragraph (1) of
secton 26(h) of the Code, reatng to the credt for dvdends pad on the pre-
ferred stock of a pubc utty. In ts present form paragraph (1) makes
separate provsons for such credt n the case of the caendar year 19 0 and n
the case of ta abe years begnnng after une 30, 19 0. In the former case
the credt s 33 percent and n the atter case 30 percent of whchever s the
ower of (1) the entre dvdends pad on preferred stock of the pubc utty
or (2) the e cess of the pubc utty company s ad|usted net ncome over ts
dvdends receved credt under secton 20(b). s amended by ths h, the
percentage fgure appcabe to ta abe years begnnng after December 31, 19 0,
becomes 27 percent and the provsons for other years are emnated.
Subsecton (c) of ths secton amends secton 26() of the Code to provde
for a credt of 27 percent of the norma ta ncome aowabe aganst both
norma ta net Income and surta net ncome n the case of a western hemsphere
trade corporaton, as defned by secton 109 of the Code. Under the present
secton 26(1) such credt was 30 percent of norma ta net ncome In the case
of ta abe yenru begnnng after une 30, 19 0, and 33 percent n the case of
the caendar year 19 0. The provsons wth respect to such ta abe years are
emnated by ths amendment. The new percentage w be appcabe wth
respect to ta abe years begnnng after December 31, 19 0.
S CTION 123. SURT MPTIONS ND C RT IN CR DITS OF R L T D
CORPOR TIONS
The present e empton of the frst 2 ,000 of corporaton surta net ncome
In the case of an ndvdua corporaton, whch formery appeared n secton
1 (b) (1), Is preserved n paragraph (1) of a new subsecton (|), added to sec-
9 016 62 27
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
10
ton 26 of the Code by ths secton of the b. Under paragraph (2) of sw
new subsecton, provson s made for a speca surta e empton (n eu of tbe
2 ,000 e empton provded by par. (1)) n the case of a corporaton whch, at
the cose of December 31 of any ta abe year of such corporaton whch ncudes
such date, s a member of a controed group of corporatons, such term beng
defned n paragraph (3) of such subsecton. In genera, the surta e empton
provded s n an amount equa to 2 ,000 dvded by the number of corpora-
tons n the controed group at the cose of December 31 n the ta abe year,
wth the further provson that, n eu of equa dvson of such 2 ,000 e emp-
ton, the varous members of the group may dvde such e empton for the ta -
abe year among themseves n any manner they desre f they fe wth the Sec-
retary, pursuant to prescrbed reguatons, a consent whch sets forth the
agreed manner of dvson. If such a consent s not fed the surta e empton
w n a cases be dvded equay among the members of the group. n e cep-
ton s made to the provson affordng the prvege of a consent dvson of the
2 ,000 e empton n tbe case of a member of a controed group whch has a
ta abe year tat does not ncude December 31, for e ampe, a short ta abe
year endng before December 31 due to a change n accountng perod. The
e empton of such member for such year sha be an amount equa to 2 ,000
dvded by the number of corporatons n the group as of the cose of such mem-
ber s ta abe year.
Under paragraph (3) of the new subsecton ( ) the term controed group
s defned and rues are provded for determnng whether there e sts the con-
tro through sock ownershp whch s necessary to brng the reated corpora-
tons wthn the defnton of a controed group. Two genera cassfcatons of
reated corporatons are deat wth under paragraph (3). The frst s that of a
group of corporatons connected by stock ownershp wth a common parent
through one or more chans of corporatons. Under subparagraph ( )(1) of
paragraph (3) a corporaton s decared to be a member of a controed group f
9 percent of the votng power of a casses of ts stock s hed by another
corporaton n the chan whch s connected through stock ownershp wth the
common parent corporaton. Ths s e cusve of the common parent corpora-
ton whch must, however, under the provsons of subparagraph ( ) () of para-
graph (3) be a corporaton whch owns drecty at east 9 percent of the votng
power of at east one of the other corporatons, e cudng for the purpose of
computng such votng power any ntercompany hodngs of stock among the
other corporatons. Thus, assume P owns 9 percent of the votng stock of S
whch n turn owns the foowng: percent of the votng stock cf S-, 73
percent of the votng stock of S-2, and 0 percent of the votng stock of S-3. s-
sume further that S-3 owns 2 percent of the votng stock of S-2 and S-2
owns 10 percent of the votng stock of S-, and that P owns aso 20 percent of
the votng stock of S-3. Such corporatons do not consttute a controed group
snce P does not own drecty 9 percent of the stock of any of the other corpora-
tons even though P owns more than 9 percent of the votng stock of S-3 drecty
and ndrecty.
owever, assume that P owns 100 percent of the votng stock of , that
n turn owns 100 percent of the votng stock of -. and that P then ses 2
percent of te votng stock of to -. The group s st a controed group
snce P owns 100 percent of the votng stock of (e cudng stock hed by -.
another member of tbe group). so, f P owns 7 percent of the votng stock of
each of and - and owns 2 percent of the votng stock of -, and -
owns 2 percent of the votng stock of , the three corporatons consttute a con-
troed group snce s hodngs n - and - s hodngs n are e cuded,
makng P the drect owner of 100 percent of the votng stock n both and -.
The provsons of subparagraph ( ) of paragraph (3) are n many ways
smar to those whch descrbe an affated group of corporatons for the pur-
pose of fng consodated returns under the provsons of secton 1 1 of the Code.
Subparagraph (I ) of paragraph (3) of new subsecton ( ) deas wth a second
cassfcaton of controed groups. Such a controed group conssts of two or
more corporatons 9 percent of the votng stock of each of whch s owned,
drecty or ndrecty, by or for one ndvdua, or by or for not more than fve
ndvduas each of whom owns substantay the same proporton of tbe votng
power n any one of the corporatons In the group as he owns n each of the
other corporatons. number of rues are provded under paragraph (3) (D)
for the purpose of determnng whether ownershp of votng power n any one
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
11
of the severa corporatons makng up the group s substantay proportonate
to the ownershp n each of the other corporatons n the group. The frst of
those, provded by paragraph (3) (I ) () of subsecton ( ), s that an ndvdua
as one of fve or ess Indvduas w be sad to own the same proporton of the
stock n any two corporatons f by addng not more than 10 percent of the stock
whch he hods In one corporaton to hs present ownershp theren and by
decreasng hs present stock ownershp n the other corporaton by not more than
10 percent he woud hod e acty the same proporton of the stock n each. Thus,
f owns 0 percent of the votng stock n corporaton and percent of
the votng stock n Y corporaton hs ownershp n the one woud be hed to be
substantay proportonate to hs ownershp n the other snce Increasng
s hodng n the corporaton by 10 percent and decreasng hs hodng n the
Y corporaton by percent woud resut n s havng percent of the votng
stock In each.
Under paragraph (. ) (1 ) () of subsecton (|) t s provded that stock owr.ed
drecty or ndrecty by or for a corporaton, partnershp, estate, or trust, sha be
consdered as beng owned proportonatey by or for ts sharehoders, partners, or
benefcares. In paragraph (3)( )() of such subsecton t s provded that
an Indvdua sha be deemed to own any stock n the corporaton under scru-
tny whch s owned, drecty or ndrecty, by or for hs spouse.
Paragraph (3)( )(v) of subsecton (|) provdes the rue that f an ndvd-
ua owns more than 0 percent of the stock n any corporaton, ncudng owner-
shp of stock mputed to hm as a sharehoder, partner, or benefcary oC a cor-
poraton, partnershp, trust, or estate, and ncudng ownershp of stock owned by
hs wfe, such ndvdua, for the purpose of determnng ownershp, sha be
deemed to own not ony the stock whch he hods hmsef and that of hs wfe
but aso the stock owned n such corporaton by any of hs ancestors or nea
descendants.
Under paragraph (3) ( ) (v) of subsecton (|) t s provded that an ndvdua s
constructve ownershp of stock by reason of the ownershp of such stock by a
corporaton, partnershp, estate, or trust, of whch he s a sharehoder, partner,
or benefcary, sha be treated as actua ownershp for the purpose of appyng
te rues of paragraph (3)( ) (), ().or (v). Thus, for e ampe, n deter-
mnng under cause () the amount of stock owr.ed, drecty or ndrecty, by or
for the spouse of an ndvdua, there s to be ncuded the amount of stock con-
sdered as owned by her by reason of the ownershp of such stock by a corporaton
n whch she actuay owns stock. owever, t s further provded under such
cause (v) that stock whc s deemed to be constructvey owned by an ndvdua
by reason of ts beng owned by bs wfe or hs ancestors or nea descendants
sha not be treated as actuay owned by hm for the purpose of mputng the
ownershp of such stock to a thrd person. In other words, mputaton of owner-
shp of stock may not (e cept n the case of stock owned by or for a corporaton,
partnershp, estate, or trust) be carred beyond the frst person to whom t s
mputed n the e amnaton of a gven set of facts wth a vew to determnng
ownershp.
Fnay, t Is provded under paragraph (3)( )(v) of subsecton (|) that f
stock may be treated as constructvey owned by two or more ndvduas then, n
any computaton to determne the proportonate-votng power of those ndvd-
uas, such stock s to be treated as constructvey owned by the ndvdua whose
constructve ownershp resuts n the corporaton beng a member of a controed
group. If, for e ampe, a father ( ) actuay owns CO percent of the stock of
and CO percent of the stock of Y, hs son (S) actuay owns 0 percent of , and
hs son s wfe (S ) actuay owns 0 percent of Y, then upon appcaton of
cause (v) and Y are members of a controed group owned n the same pro-
portons by (CO percent) and SW ( 0 percent). Wthout the appcaton of
cause (v) the ownershp of and SW woud not be proportonate snce S s
stock n woud (under causes () and (v)) be constructvey owned by both
and SW wth the resut that woud be consdered as ownng 100 percent of
the stock of and 00 percent of the stock of Y and SW woud be consdered as
ownng 0 percent of the stock of and 0 percent of the stock of Y.
The appcaton of the rues contaned n subparagraph (3) may be ustrated
by the foowng e ampes :
ampe So. 1. ssume that the hodngs of votng stock n and Y corpora-
tons of a husband ( ), hs wfe ( W), hs son (S), hs son s wfe (SW), a
ffth ndvdua (O) who s not reated to auy of the other ndvduas, and the
pubc (P), are, respectvey, as foows:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
12

Y
n
0
0
sw
1
-
W
12
10
0.
IS
.
s
10
0
p
6
1
ppyng the rues of paragraph (3) (II), and T are members of a controed
group on the bass that at east 9 percent of the votng stock of each Is owned
by three ndvduas each of whom owns substantay the same proporton of the
votng power n as he owns n Y:

2
9
SW
2
o
1
1
The husband, , s consdered as actuay ownng 2 percent of the votnsr
stock of , ncudng the stock owned by hs wfe, whch s mputed to hm upon
the appcaton of cause () of paragraph (3)( ). Uporr the appcaton of
cause (v) of paragraph (3)( ) he woud (wthout the appcaton of cause
(v) ) be consdered as ownng the stock of hs son, S. owever, snce SW (the
wfe of s son) w own substantay the same proporton of the votng power
of and Y upon the appcaton of cause (v), such cause s appcabe and
S s stock s mputed to SW and not to II as ths w resut n Corporatons
and Y beng members of a controed group. s 2 percent of the stock of
and 9 percent of the stock of Y are under cause () consdered to be n sub-
stantay the same proporton. O, who as 1 percent of the stock of and
1 percent of the stock of Y, s aso consdered upon the appcaton of canse
() as ownng substantay the same proporton of the votng power of the
corporatons.
It w be noted that W, n eu of her husband, , coud be consdered as
ownng 2 percent of the stock of and 9 percent of the stock of Y; but, hav-
ng mputed ownershp of her stock to , W s necessary emnated. so,
SW s stock n Y coud be mputed to S. Thus, and Y coud be consdered to
be members of a controed group by reason of the proportonate hodngs of
W, S, and O.
ampe No. 2. ssume that the hodngs of votng stock n and Y corpo-
ratons of a husband, ( ), hs wfe, ( W), a thrd unreated ndvdua, (I), and
the pubc, (P), are, respectvey, as foows:

Y
h :
16

16
0
11 w

0
0
0

p
and Y are not members of a controed group even though and I together
actuay own 96 percent of the stock n each corporaton and each and I own
equa proportonate nterests n and Y. Upon appcaton of cause (),
s consdered as ownng W s stock n . Thus s consdered as ownng 20
percent of the votng power n and 16 percent of the votng power n Y. Upon
appcaton of cause () coud be consdered as ownng 1 percent of the
votng power n and 17.6 percent of the votng power n Y, but snce the
appcaton of cause () cannot produce dentca ownershp may not be
consdered as ownng substantay the same proporton of votng power n
as he owns n Y.
The ne t to the Inst sentence of paragraph (3) of the new secton 26(|)
appes to the case where a common parent corporaton and ts subsdares
are members of one controed group by reason of subparagraph ( ) and the
common parent corporaton s a member of another controed group by reason
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
13
of subparagraph ( ). In such a case the subsdares as we as the parent
are to be members of the second controed group. Thus, If ndvduas and D
each own percent of the votng stock of two corporatons O and P, and cor-
poraton P owns 9 percent of the votng stock of corporaton S whch n turn
owns 9 percent of the votng stock of S-, then each of the corporatons
O, P. S, and S- are deemed to be members of the same controed group.
Subsecton (b) of ths secton amends secton 201(g) of the Code (reatng
to credts aowed to fe nsurance companes under sec. 2t) and secton
20 (f) (reatng to credts aowed nsurance companes other than fe, or
mutua) to provde that the surta e empton provded n secton 26(|) sha
be aowed n computng the surta on corporaton surta net ncome of any
such nsurance company. Thus, an nsurance company covered by ether sec-
ton 20 (g) or 20 (f) w contnue to receve the 2 ,000 e empton from
surta uness t s a member of a controed group wthn the meanng of
paragraph (3) of secton 2G(|) n whch event t may receve ony ts porton
of a 2 ,000 e empton whch has been equay dvded among the members
of the controed group or such porton of 2 ,000 as may be assgned to t n
a consent dvson of such amount.
Subsecton (c) of secton 123 amends secton 31 of the Code (reatng to
the defnton of ad|usted e cess profts net ncome) to provde that f the
e cess profts credt of the corporaton otherwse computed s ess than the
amount of the surta e empton provded n secton 2G(|) for the ta abe
year an e cess profts credt equa to such e empton sha be aowed. ach
ndvdua corporaton whch s not a member of a controed group w thus
contnue to receve a mnmum e cess profts credt of 2 ,000 and, n the
case of a controed group of corporatons wthn the meanng of paragraph
(3) of secton 26(|), the group as an entty w receve a 2 ,000 mnmum
whch may be used to ncrease to 2 ,000 the credt of any member of the group
whch has an actua credt of ess than 2 ,000, or may be apportoned among
two or mere members whch have ess than 2 ,000 actua e cess profts credt.
Thus, f corporatons , Y, and Z consttute a controed group of corporatons
nnd and Y have actua e cess profts credts of 3 ,000 and 70,000, respec-
tvey, and Z has an actua credt of ony ,000, Y s credt w be ncreased to
the mnmum of 2 ,000 f a consent has been fed under secton 2G(|) whch
gves to Y the entre surta e empton of the controed group for the ta abe
year. If a consent s not fed under secton 26( ) for the ta abe year, Y s
mnmum credt woud be one-thrd of 2 ,000.
S CTION 12 . COMPUT TION OF LT RN TI C rT L G INS T
Ths secton amends secton 117(c) (1) of the Code (reatng to computa-
ton of aternatve ta n the case of capta gans of a corporaton). The pur-
pose of the amendment s to provde that the amount ascertaned by appcaton
of the aternatve rate to capta gans sha be ncreased as specfed n secton
10(c) n the case of ta abe years to whch the defense ta provded theren
s appcabe. The amendment made by ths secton s appcabe ony wth
respect to ta abe years endng after ugust 31, 19 1.
S CTION 123. FF CTI D T
Ths secton provdes that the amendments made by part II of tte I of the
h, e cept as provded n secton 12 , sha be appcabe ony wth respect to
ta abe years begnnng after December 31, 19 0, and refers to part III of tte
I of the b, for provsons wth respect to ta abe years begnnng n 19 0
and endng n 19 1.
Part III Fsca Year Ta payers
S CTION 131. FISC L Y R T P Y RS
Ths secton of the b amends secton 10 of the Code, reatng to fsca year
ta payers, both corporate and ndvdua.
Secton 10 (f), under e stng aw and as amended by the b, provdes rues
for the computaton of the ncome ta of corporatons n the case of fsca years
begnnng before uy 1, 19 0, and endng after une 30, 19 0. In the case of
such a fsca year whch ends pror to anuary 1, 19 1, the amendment made by
the b does not change the computaton of the ta provded under e stng aw
for such a year. If the fsca year (begnnng before uy 1, 19 0) ends after
December 31, 19 0, the amendment does effect a change n the e stng aw wth
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
regard to the computaton of the ta for stch year under secton 10 (f). The
amendment provdes, n such a case, for the computaton and proraton of three
tentatve ta es.
In computng the tentatve ta es under paragraphs (1), (2), and (3) of
secton 10 (f), the net ncome, and the ad|usted net ncome, of the corporaton
are not recomputed. owever, n the case of a Western emsphere tra e
corporaton, or a pubc utty whch has pad dvdends on ts preferred stock,
or any corporaton whch has receved dvdends on the preferred stock of a
pubc utty, tbe amount of the norma ta net ncome, and the amount of the
corporaton surta net ncome, w be dfferent for each of the three computa-
tons. Western emsphere trade corporaton, for e ampe, w compute ts
tentatve ta under paragraph (1) of secton 10 (f) wthout computng a surta ,
and ts norma ta net ncome w be computed wthout regard to the credt
provded n secton 26(1) of the Code; ts tentatve norma ta and tentatve
surta under paragraph (2) of secton 10 (f) w be computed on a norma ta
net ncome and a corporaton surta net ncome determned wth the aowance
of the 31 percent credt provded n secton 26() appcabe to ta abe years
begnnng on uy 1, 19.00 (determned wthout regard to the amendment of
sec. 26() made by the cess Profts Ta ct of 19 0) ; and ts tentatve norma
ta and tentatve surta under paragraph (3) of secton 10 (f) w be com-
puted on a norma ta net ncome and a corporaton surta net ncome deter-
mned wth the aowance of the 27 percent credt provded In secton 26()
appcabe to ta abe years begnnng on anuary 1, 19 1.
The foowng e ampe ustrates the computaton and proraton of the
tentatve ta es under paragraphs (1), (2). and (3) of secton 10 (f). The
corporaton (whch s nether a Western emsphere trade corporaton nor a
pubc utty, and whch receved no dvdends on preferred stock of a pubc
utty) has a norma ta net ncome of 60,000, and corporaton surta net
ncome n the same amount, for ts fsca year begnnng pr 1, 19 0, and
endng March 31, 19 1. The frst tentatve ta , computed under paragraph (1)
of secton 10 (f), woud be 3 percent of 60,000, or 22, 00, consstng of a
tentatve norma ta of 2 percent of norma ta net ncome and a tentatve sur-
ta of 1 percent of corporaton surta net ncome. The second tentatve ta .
computed under paragraph (2) of secton 10 (f), woud be 22,000, consstng of
a tentatve norma ta of 2 percent of 00,000 (the norma ta net ncome) pus
a tentatve surta of 20 percent of .3 ,000 (the corporaton surta net ncome
n e cess of 2 ,000). The thrd tentatve ta . computed under the provsons
of paragraph (3) of secton 10 (f), woud be 2 ,000. consstng of a tentatve
norma ta of 30 percent of 00,000 (the norma ta net ncome) pus a tentatve
surta of 20 percent of 3 ,000 (the corporaton surta net ncome n e cess of
2 ,000).
The dvson of such fsca year by days n respect of the effectve dates of
the changes made n ta ratrs n such perod woud be as foows:
fter une SO, 1 0. and before
efore uy 1. 19 0 an. 1, 19S1 fter Dec. 31, 1 0
pr 30 uy 31 anuary 31
May 31 ugust 31 February 2
une 30 September 30 March 31
October 31
November 30
December 31
Tota 91 Tota 1 Tota 90
The fna ta abty of the corporaton woud be determned by ap-
portonment of the tentatve ta es and addng the resuts obtaned, n the
foowng manner:
, 22,S00 ,6S .3S
I 22,000 11,090. 1
36
2 .000 6.16 .3S
36
Tota ta abty 22,939. IT
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
Secton 10 (g) of the Code, as amended by ths secton of the b, provdes
for the computaton of the ta of a corporaton for a ta abe year begnnng after
une 30, 19 0, and before anuary 1, 19 1, and endng after December I, 19 0.
In the case of such a fsca year the ta mposed by sectons 13 and 1 sha be
an amount equa to the sum of
(1) that porton of a tentatve ta , computed under the ta rates, and
the credts provded n secton 26, appcabe to ta abe years begnnng on
uy 1, 19 0, whch the number of days n the fsca year pror to anuary
1, 10 1, bears to the tota number of days n the ta abe year, pus
(2) that porton of a tentatve ta , computed under the ta rates, and
the credts provded In secton 26, appcabe to ta abe years begnnng
on anuary 1, 19 1, whch the number of days n the ta abe year after
December 31, 10 0, bears t the tota number of days n the ta abe year.
The tentatve ta under cause (1) w consst of a tentatve norma ta at
the rate of 2 percent of the norma ta net ncome, and a tentatve surta of
22 percent of the corporaton surta net ncome In e cess of 2 ,000. The ten-
tatve fa under cause (2) w consst of a tentatve norma ta nt to rate
of 30 percent of the norma ta net Income and a tentatve surta of 22 per-
cent of the corporaton surta net ncome n e cess of 2 ,000. For the purposes
of the subsecton, the corporaton s entted to a surta e empton of 2 ,000,
whether or not t s a member of a controed group as defned In secton 2( (|).
The net ncome of the corporaton for the ta abe year s not recomputed n
determnng the tentatve ta under ether cause (1) or (2). If the ta payer
pad or receved dvdends on preferred stock descrbed n secton 20() of the
Code, or f the ta payer s a Western emsphere trade corporaton, the amount
of the norma ta net ncome, and the amount of corporaton surta net ncome,
appcabe n the compuaton under cause (1), w dffer from the amount used
for the purpose of cause (2).
new subsecton (h) s aso added to secton 10S by ths secton of the b.
Tbe new subsecton provdes for the computaton of the ta of a ta payer, other
than a corporaton, for a fsca year begnnng before September 1, 19 1, and
endng after ugust 31, 19 1. In the case of such a fsca year, the ta mposed
by sectons 11 and 12, secton 00, or secton 21(a)(2), sha be an amount
equa to the sum of
(1) that porton of a tentatve ta , computed under the provsons of sec-
tons 11 and 12, or secton 00. appcabe to ta abe years begnnng on
October 1, 19 0. whch the number of months n such ta abe year pror to
September 1, 10 1, bears to the tota number of caendar months n such
ta abe year, pus
(2) that porton of a tentatve ta . computed under the provsons of sec-
tons 11 and 12. or secton 00. appcabe to years begnnng on September
1. 19 1, as f such provsons (other than the provsons reatng to the bead
of a househod) were appcabe to such ta abe year, whch the number of
caendar months n such ta abe year after ugust 10 1 bears to the tota
number of caendar months n such ta abe year.
In computng the tentatve ta under cause (2), the ta mposed by sectons
11 and 12 s determned by appyng the percentage ncrease of 12percent
specfed n secton 16, added to the Code by the b. The net ncome of the ta -
payer for the fsca year s not recomputed n determnng the tentatve ta
under ether cause (1) or (2).
Subsecton (b) of ths secton of the b amends secton 30(b) of the Code,
reatng to computaton of the e cess profts ta for ta abe years begnnng
before uy 1, 10 0. and endng after une 30. 10 0. The amendment docs not
change the computaton under e stng aw of the e cess profts ta for a ta abe
year whch ends before anuary 1, 10 1. In the case of a ta abe year begn-
nng n 19 0 (whether begnnng before, on, or after uy 1, 19 0) and endng n
19 1 the amendment w not affect the amount of the e cess profts ta for the
fsca year f the e cess profts ta s the ta computed under secton 30(a) (1),
that s, f the e cess profts ta s 30 percent of the ad|usted e cess profts net
ncome. owever, f the ta payer s e cess profts ta for such fsca year s the
e cess profts ta computed wth reference to the ceng rate of 02 percent pro-
vded n secton 30(a)(2), the amendment w resut n an ncrease n the
e cess profts ta for the ta abe year by refectng the effect of the amendment
made by secton 121(b) of the b rasng the 02 percent ceng fgure to 70
percent.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
16
Under the amendment, n the ease of a ta abe year begnnng n 19 0 and
endng n 19 1, a tentatve e cess profts ta w frst be computed (as provded
n sec .30(b) (2) ( ) ) nnder the provsons of secton 30(a) of the Code app-
cabe to ta abe years endng on December 31, 19 0; that Is, a ceng rate of 62
percent s to be apped n the computaton. In determnng under secton
30(a) (2) the e cess of 62 percent of the e cess profts net ncome over the
ncome ta whch woud be mposed under sectons 13, 1 , and 1 of the Code
upon a norma ta net ncome ard corporaton surta net ncome n an amount
equa to the e cess profts net ncome for the ta abe year, such ta must be com-
puted under the provsons of secton 10 (f) or (g). whchever s appcabe.
Such e cess w be the tentatve tu referred to In secton 30(b) (2) ( ) uness
30 percent of the ad|usted e cess profts net ncome resuts n a smaer tenta-
tve ta , n whch case t w be su( h smaer tentatve ta . In computng 30
percent of the ad|usted e cess pn fts net Income n the case of a corporaton
usng the e cess profts credt provded n secton 3 , the credt woud be deter-
mned under paragraph ( ) of secton 3 (a), ns amended by secton 02 of the
b, whch s appcabe to ta abe years endng after December 1, 19 0.
The computaton of a tentatve ta under secton 30(b) (2) ( ) w be made
n the same manner as e paned n the precedng paragraph, e cept that a ce-
ng rate of 70 percent w be used n eu of 02 percent. In each case, n com-
putng the ncome ta under secton 10S (f or (g) upon on amount equa to the
e cess profts net ncome, a surta e empton of 2 ,000 s aowabe, whether
or not the corporaton s n member of a controed group as defned n secton
26(|), added to the Code by secton 123 of the b. Smary In computng 30
percent of the ad|usted e cess profts net ncome, the ta payer s entted to a
mnmum e cess profts credt of 2 ,000 snce the amendment of secton 31
of the Code by secton 123 of the b s appcabe ony to ta abe years begn-
nng after December 31, 19 0.
The tentatve ta es computed under subparagraphs ( ) and ( ) of secton
30(b)(2) w then be prorated as provded n such secton, and the e cess
profts ta for the ta abe year w be the sum of such prorated ta es.
Subsecton (c) of secton 131 provdes a necessary technca amendment to
paragraph (2) of secton 10 (e) of the Code and changes the desgnaton of the
present subsecton (g) of secton 10 to subsecton ().
TITL II WIT OLDING OF T T SOURC
Part I Wthhodng of Ta at Source on Dvdends, Interest, and Royates
S CTION 201. COLL CTION OF INCOM T T SOUUC ON DI ID NDS.
INT R ST, ND ROY LTI S
Secton 201 of the h amends subtte of the Interna Revenue Code by n
sertng before chapter 7 a new chapter 6, entted Coecton of Income Ta at
Source on Dvdends, Interest, and Royates. The od chapter 6, whch formery
conssted of sectons 1200 to 1207 (reatng to the capta stock ta ), was repeaed
by secton 201 of the Revenue ct of 19 (Pubc Law 21 , 79th Cong., 1st sess.).
The new chapter provdes a system for wthhodng of ta at the source on dv-
dends, nterest, and royates. Chapter 6 conssts of subchapters , , and C.
Subchapter , whch s entted Dvdends and Interest, conssts of sectons
1200 to 120 , ncusve, and provdes that upon the payment of certan dvdend
and nterest after December 31, 19 1, a ta of 20 percent of the amount thereof
sha be wthhed at the source. Persons makng payment of a dvdend or nter-
est upon whch ta s requred to be wthhed under subchapter are not re-
qured to furnsh to the recpent of such dvdend or nterest any statement or
recept showng the amount of such payment or the tu wthhed. ta payer s
entted to appy the amount of ta requred to be wthhed upon the payment of
a dvdend or Interest to hm as a credt aganst hs ncome ta abty.
Subchapter , whch s entted Royates and conssts of sectons 1220 to
122 , ncusve, provdes that upon the payment of certan royates after Decem-
ber 31, 19 1, a ta of 20 percent of the amount thereof sha be wthhed at te
source. Unke subchapter , the provsons of subchapter requre persons
makng payments of royates sub|ect to wthhodng to furnsh to the recpent
of such royates, on or before anuary 31 foowng the cose of the caendar
year n whch such payments were made, statements or recepts showng the
amount of royates pad to each recpent and the amount of ta wthhed.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
17
Ony the amount actuay wthhed as ta under subchapter s aowed as a
credt aganst the ncome ta abty of the recpent of a royaty.
Subchapter C, whch s entted Genera Provsons and conssts of sectons
1230 to 123 , ncusve, contans certan genera provsons whch are appcabe
to any ta requred to be deducted and wthhed under chapter 6.
Chapter 6 Coecton of Income Ta at Souece on Dvdends, Interest, and
Royates
SU C PT R DI ID NDS ND INT R ST
S CTION 1200. D FINITIONS
Secton 1200 contans defntons of the foowng terms used n chapter 6:
(a) Dvdend.
The term dvdend as used n chapter 6 s defned n subsecton (a) to mean
(1) any dstrbuton by a corporaton whch s a dvdend as defned n secton
11 (a) ; and (2) a payment made by a stockbroker to any person as a substtute
for a dvdend (as defned n sec. 11 (a)) upon whch a ta Is requred to be
deducted and wthhed under chapter 6. Thu3, any dstrbuton made by a cor-
poraton to ts sharehoders, whether n cash or n knd (ncudng a dstrbuton
n stock of any corporaton other than the dstrbutng corporaton), out of (1) ts
earnngs or profts accumuated after February 23, 1913, or (2) 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), wth-
out regard to the amount of the earnngs and profts at the tme the dstrbuton
was made, s a dvdend for the purposes of chapter 6. The term dvdend as
used n chapter 6 aso means any dstrbuton made by a persona hodng com-
pany to ts .sharehoders whch s a dvdend under the provsons of secton
11 (a), whether or not such dstrbuton s a dvdend as defned n the precedng
sentence. dvdend pad by an nsurance company to a pocyhoder, other
tban a dvdend upon the stock of such nsurance company, s not a dvdend wth-
n the meanng of subsecton (a). Certan dstrbutons whch are dvdends
under the foregong defnton are e empt from the requrement of wthhodng
under chapter 6. These e emptons are dscussed beow. (See sec. 1202,
emptons from Wthhodng.)
ny payment made by a stockbroker to any person n connecton wth a short
sae as a substtute for a dvdend as defned n secton 11 (a) s treated as a
dvdend for purposes of chapter 6, but ony f a ta was requred to be deducted
and wthLed by the corporaton payng the dvdend on the borrowed stock.
(6) Interest.
Subsecton (b) defnes the term nterest as used n chapter 6 to mean:
(1) Interest on a bonds, debentues, notes, certfcates, or other evdences of
Indebtedness, ssued by any corporaton, wth nterest coupons or n regstered
form. The term nterest ncudes nterest pad by a corporaton on any ob-
gaton whch at the tme of such payment has nterest coupons attached or s n
regstered form, even though the obgaton may not have been orgnay ssued
wth nterest coupons or n regstered form. The term corporaton as used n
subsecton (b)(1) ncudes an assocaton ta abe as a corporaton under chap-
ter 1 of the Interna Revenue Code. The term may aso ncude a corporaton
owned n whoe or n part by the Unted States Government.
(2) Interest on deposts wth stockbrokers.
(3) Interest on amounts hed by an nsurance company under an agreement
to pay nterest thereon. Ths paragraph ncudes nterest on dvdends hed by
an nsurance company sub|ect to wthdrawa on demand, and nterest on the pro-
ceeds of an nsurance pocy hed by an nsurer under an agreement to pay nter-
est thereon. The paragraph does not appy to amounts whch represent the so-
caed nterest eement n the case of annuty or nstament payments under a
fe nsurance or endowment contract.
( ) Interest on the overpayment of any nterna revenue ta , e cept ncome or
e cess profts ta es mposed upon corporatons. Thus, any nterest upon an over-
payment of ndvdua ncome ta s sub|ect to wthhodng under chapter C,
even though a or a part of such overpayment s credted aganst a defcency
In any ta abty, whether ncome ta or otherwse, owed by the ta payer.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
S CTION 1201. INCOM T COLL CT D T SOtF C
Secton 1201(a) provdes that every person makng payment after December
SI, 19 1, of a dvdend or nterest sha deduct and wthhod upon such dvdend
or nterest a ta equa to 20 percent of the amount thereof. For e ampe, the
M corporaton on une 1, 10 2, pays a dvdend of 7 cents per share to ts stock-
hoders. , an ndvdua, owns 10 shares of M stock. The tota amount of the
dvdend payabe to s .70. The M corporaton s requred to deduct and
wthhod the sum of 1.1 , and t remts to the sum of . 6. s a matter of
convenence, the M corporaton coud effect the 20 percent wthhodng by ad|ust-
ng the amount remtted per share to refect the requred wthhodng. Thus, n
the e ampe gven the corporaton coud remt to each stockhoder .6 cents
per share ( 0 percent of the 7 cent dvdend per share). The amount remtted
to on hs 10 shares after wthhodng accordngy woud be . 6. If owned
ony 6 shares of the M stock, the corporaton woud be requred to deduct and
wthhod 69 cents n order to effect the 20 percent wthhodng.
Smary, f the nsurance company s payng nterest at the rate of 3
percent of an amount hed by t under an agreement to pay nterest thereon,
the company coud effect the 20 percent wthhodng by appyng a rate of 2.
percent n determnng the amount to be remtted to the recpent.
The ta must be wthhed at the tme payment of a dvdend or Interest s
made. The term payment ncudes constructve payment. Dvdends or n-
terest are constructvey pad when they are credted to the account of or set
apart for a ta payer, so that they may be drawn upon by hm at any tme athough
nob then actuay reduced to possesson. To consttute payment n such a case,
a dvdend or nterest must be credted to the ta payer wthout any substanta
mtaton or restrcton as to the tme or manner of payment or condton upon
whch payment s to be made, and must be made avaabe to hm so that t may
be drawn upon at any tme, and ts payment brought wthn hs contro and ds-
poston.
For e ampe, the M corporaton has outstandng an ssue of bonds wth coupons
attached. Interest on such bonds s due on pr 1 and October 1 of each year.
On pr 1, 19 2, M corporaton s requred to deduct and wthhod an amount
equa to 20 percent of such nterest, e cept n cases for whch an e empton s
provded by secton 1202. Thus, f owns one of the bonds and presents on pr
the coupon due on pr 1,19 2, M corporaton s requred to deduct and wth-
hod the ta on pr 1, not at the tme the nterest s actuay pad to .
Secton 1201(a) further provdes that, f the wthhodng agent s unabe to
determne the person to whom a dvdend or nterest Is payabe, the ta sha be
deducted and wthhed at the tme payment thereof woud be made f such person
were known. Thus, f a wthhodng agent s unabe to ascertan the dentty of
the owner of certan stock n respect of whch a dvdend s payabe, or s unabe
to determne the true owner of stock due to the-e stence of confctng cams
to such stock asserted by two or more persons, the wthhodng agent s never-
theess requred to deduct and wthhod the ta on the amount of the dvdend
payabe n respect of such stock.
Under secton 1201(b), n any case where the wthhodng agent s unabe to
determne the porton of a dstrbuton whch s a dvdend wthn the meanng
of secton 11 (a), the ta requred to be deducted and wthhed sha be computed
upon the entre amount of the dstrbuton. Thus, f the corporaton makng a
dstrbuton s unabe to determne the porton of such dstrbuton whch s out
of depeton reserves, the amount to be wthhed from the dstrbuton sha be
computed on the entre amount thereof.
Secton 1201(e) provdes that a wthhodng agent sha not be abe, e cept as
provded n secton 1203 (reatng to returns and payment of ta ), to any person
for the amount of any ta requred to be deducted and wthhed under subchapter
of chapter 6.
6 CTI0N 1202. MPTIONS F OM WIT OLDING
The provsons of chapter 6 do not appy to
(a) dvdend pad n the stock or rghts to acqure the stock of the dstrbutng
corporaton. Such a dvdend s not sub|ect to wthhodng, whether or not the
recpent of such stock or rghts had an opton to be pad n money or other
property n eu of such stock or rghts. Subsecton (a) appes, whether or not
the dstrbuton of such stock or rghts to acqure stock of the corporaton s a
ta abe dvdend under secton 11 (f). owever, f a stockhoder, pursuant to
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
19
n opton, eects to receve money or other property n eu of such stock or rghts
to acqure stock, the dstrbuton n money or other property (assumng t s a
dvdend as defned n secton 11 (a)) s sub|ect to wthhodng.
6) Dstrbutons to sharehoders whch are treated for ncome ta purposes
as amounts receved upon the sae or e change of property, or dstrbutons wth
respect to whch gan or oss s not recognzed to the sharehoders. Capta gan
dvdends dstrbuted by reguated nvestment companes are not wthn ths
e empton and ta must be wthhed upon the payment of such dvdends. The
purpose of subsecton (b) s to e empt from the requrement of wthhodng
any dstrbuton whch s treated for ta purposes as an amount receved upon
the sae or e change of the stock upon whch the dstrbuton s made. Thus, ta
s not requred to be wthhed upon dstrbutons sub|ect to secton 11 (c) of
the Interna Revenue Code, reatng to amounts dstrbuted n compete or parta
qudaton of a corporaton. Lkewse, any dstrbuton wth respect to whch
no n or oss s recognzed under chapter 1 to the stockhoders s not sub|ect
to the provsons of chapter 6. Thus, a dstrbuton whch s made n pursuance
of n pan of reorganzaton, wthout the recognton of gan or oss under the
provsons of secton 112(b) (3), s not sub|ect to wthhodng.
( c) ny amount whch s ncudbe n gross ncome as a ta abe dvdend under
the provsons of secton 112(c) (2) (reatng to certan dstrbutons made n
pursuance of a pan of reorganzaton), secton 11 (g) (reatng to redemptons
of stock), or secton 371(e) (2) (reatng to certan dstrbutons pursuant to the
order of the Securtes and change Commsson). Ssctons 112(c)(2) and
371 (e) (2), commony referred to as boot provsons, provde that, n the case of
certan e changes not soey n knd, gan reazed by the ta payer may be ta ed
as a dvdend. In such cases the amount ta abe as a dvdend s dependent upon
the amount of gan reazed upon the e change. Snce the corporaton s unabe
to ascertan the gan whch may be reazed by a partcuar stockhoder, and,
consequenty, the e tent to whch the dstrbuton represents a dvdend, wth-
hodng n such cases woud be mpractcabe. Lkewse, n the case of stock
redemptons, dffcuty may be encountered n determnng whether they are
essentay equvaent to the dstrbuton of a ta abe dvdend under secton
11 (g).
(d) dvdend pad by a Federa Reserve bank, Federa and bank, Federa
home-oan bank, centra bank for cooperatves, or bank for cooperatves.
(e) ny nterest whch, rrespectve of the person .to whom payabe, s whoy
e empt from the ta mposed by chapter 1 of the Interna Revenue Code. Thus,
nterest pad by a State or muncpa corporaton on ts bonds w not be sub-
|ect to wthhodng.
(/) Dvdends or nterest pad by a corporaton to another corporaton f both
corporatons are members of the same affated group whch fed a consodated
ncome ta return for the precedng ta abe year of the payor corporaton. In
determnng whether both corporatons are members of the same affated
group, the rue provded n the appcabe reguatons of the Treasury Depart-
ment reatng to consodated returns of ncome ta w govern.
(17) Dvdends or nterest pad by a corporaton to one or more (1) govern-
ments, (2) potca subdvsons thereof, (3) nternatona organzatons, or
( ) whoy owned Instrumentates or agences of the foregong, f the entre
cass of stock n respect of whch such dvdend s pad, or the entre cass of
obgatons n respect of whch such nterest s pad, s owned by one or more
of such governments, subdvsons, organzatons, nstrumentates, or agences.
Thus, f the Reconstructon Fnance Corporaton owns an entre cass of pre-
ferred stock of a corporaton, any dvdend pad on such stock s e empt from
wthhodng.
( ) Interest on equpment trust certfcates. Ths provson woud e empt
the usua type of equpment trust certfcates secured by raroad rong stock.
() Dvdends or nterest pad by a foregn corporaton, a nonresdent aen
ndvdua, any partnershp not engaged n trade or busness wthn the Unted
States and composed n whoe or n part of nonresdent aens, or by an nter-
natona organzaton. The term nternatona organzaton has the same
meanng as used n secton 3797(a) (1 ) of the Interna Revenue Code. Thus,
Interest on the bonds of the Internatona ank for Reconstructon and Deveop-
ment s not sub|ect to the requrement of wthhodng.
(|) ny payment of a dvdend or nterest (e cept coupon bond nterest) to
a foregn corporaton not engaged n trade or busness wthn the Unted States,
a nonresdent aen ndvdua, any partnershp not engaged n trade or busness
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
20
wthn the Unted States and composed n whoe or n part of nonresdent aens,
or any foregn government or nternatona organzaton. If the record owner
of the dvdend or nterest s not a person descrbed n the precedng sentence,
the e empton provded by subsecton (|) s not appcabe. In such case a ta
s requred to be wthhed, even though the benefca owner may be such a per-
son. In the case of coupon bond nterest pad to a person descrbed n the pre-
cedng sentence, such nterest s e empt from the provsons of chapter 6 ony
f a certfcate fed (n such form and manner, and at such tme, as the Secre-
tary may by reguatons prescrbe) wth the wthhodng agent dscoses that
the recpent of such payment s such a person descrbed n subsecton ( ) (1).
If the certfcate s fed after the e praton of the perod n whch t must be
fed under such reguatons, coupon bond nterest w not be e empt from
wthhodng under chapter 6. owever, the absence of an e empton n any
case where the recpent of a dvdend or nterest s a person descrbed n sub-
secton (|) (1) does not precude the aowance of a credt or refund, f the ta
requred to be deducted and wthhed under chapter 6 s n e cess of the ta
(f any) mposed upon such recpent.
(fc) ny payment upon whch the wthhodng agent s requred to deduct
and wthhod a ta under secton 1 .3(a; (reatng to ta -free covenant
bonds, etc.) determned wthout regard to the provsons of paragraph (2)
thereof. Thus, the payment of Interest on a ta -free covenant bond ssued be-
fore anuary 1, 193 , s not sub|ect to wthhodng under chapter 6. The fact
that the person entted to receve such nterest fes wth the wthhodng agent
a sgned notce n wrtng, as provded n secton 1 3(a) (2) of the Interna
Revenue Code, camng the beneft of the e emptons provded n secton 2 (b)
of the Code, thereby reevng the wthhodng agent of any duty to wthhod
a ta under secton 1 3(a) (1), does not abrogate the e empton provded n
subsecton (k).
(I) Interest on an obgaton of a corporaton, ssued on or after anuary 1,
193 , and before anuary 1, 19 1, contanng a contract or provson by whch
the obgor agrees to pay the nterest wthout deducton for any ta whch the
obgor may be requred to pay thereon or to retan therefrom under any aw
of the Unted States. Ths e empton s smar to that provded n subsecton
(k) above.
(m) Dvdends pad pursuant to the terms of a ease of property entered
nto pror to anuary 1, 19 1, f under such ease the sharehoders of the essor
corporaton are entted to such dvdends wthout deducton for any ta whch
any aw of the Unted States mght requre to be deducted and wthhed upon
the payment of dvdends. Ths e empton s appcabe n any case where
the essee corporaton has agreed to remburse the sharehoders of the essor
corporaton for any ta requred to be deducted and wthhed upon the pay-
ment of dvdends to them.
(n) mounts (whether or not desgnated as dvdends) pad by a mutua
savngs bank, savngs and oan assocaton, budng and oan assocaton, co-
operatve bank, homestead assocaton, credt unon, or any smar organza-
ton, n respect of wthdrawabe or repurchasabe shares, nvestment certfcates,
or deposts.
S CTION 1203. R TURNS ND P YM NT
Secton 1203(a) provdes that every person requred under subchapter to
deduct and wthhod any ta sha make a return of such ta and sha pay
such ta , at such tme, for such perod, and n such manner as the Secretary
may by reguatons prescrbe, by makng a return of the tota amount of dv-
dends and nterest, wth respect to whch ta s requred to be deducted and
wthhed by such person under subchapter for such perod and payng a ta ,
for whch such person sha be abe, n an amount equa to 20 percent of such
tota. The wthhodng agent may compute hs ta under ths secton by com-
putng 20 percent of the tota amount of dvdends and nterest pad wthn the
perod covered by the return, and the abty of the wthhodng agent for the
ta requred to be deducted and wthhed under secton 1201(a) w be sats-
fed by the payment of such amount. It s understood that the reguatons w
aso provde that the wthhodng agent may, f he so desres, compute the ta
payabe under ths secton by computng one quarter of the aggregate amount
of dvdends and nterest actuay pad or credted to recpents durng the
perod covered by the return.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
21
Under the provsons of subsecton (b), f more or ess than the correct amount
of ta due for any perod under subsecton (a) s pad wth respect to such
perod, proper ad|ustments wth respect to the ta sha be made, wthout n-
terest, n such manner and at such tmes as may be prescrbed by reguatons
made under chapter 0.
S CTION 120 . C DIT FO R OITL T D IN STM NT COMP NI S ND P SO L
OLDING COMP NI S
Secton 120 provdes that n the case of any wthhodng agent whch s a
reguated nvestment company as denned n secton 361 or a persona hodng
company as defned n secton 01, the amount requred to be deducted and
wthhed as ta under chapter 6 wth respect to dvdends and nterest receved
by t durng a ta abe year sha be aowed, under reguatons prescrbed by the
Secretary, as a credt aganst (but not n e cess of) the ta for whch such wth-
hodng agent s abe under secton 1203(a) n respect of dvdends and nterest
pad by t durng such year. Thus, f a persona hodng company as defned n
secton 01 receves n 19 2 dvdends of 1,000 upon whch ta was requred to
be wthhed by the payor corporaton under secton 1201(a), the amount of the
ta requred to be wthhed, or 200, may be apped by the persona hodng
company as a credt aganst ts abty for the ta whch t s requred to deduct
and wthhod upon any dvdends pad by t durng the same ta abe year. Under
secton 362(b)( ) of the Interna Revenue Code any dvdend decared by a
reguated nvestment company after the cose of Its ta abe year and pror to
the tme prescrbed by aw for the fng of ts return for such year may, f the
company so eects n ts return, be treated as havng been pad by the company
durng such ta abe year, provded the dstrbuton of the dvdend s actuay
made to sharehoders n the 12-month perod foowng the cose of such ta abe
year and not ater than the date of the frst reguar dvdend payment made after
such decaraton. Secton 120 provdes that f a dvdend s treated as pad
(urng the ta abe year of the. reguated nvestment company under secton
302(b)( ), such dvdend sha be consdered for the purposes of secton 120
as havng been pad wthn the ta abe year. Thus, the amount of ta requred
to be wthhed under subchapter wth respect to dvdends and nterest re-
ceved by a reguated nvestment company durng a ta abe year may be aowed,
under reguatons prescrbed by the Secretary, as a credt aganst the ta whch
the company s requred to deduct and wthhod upon the payment of any dv-
dend decared and pad by t after the cose of ts ta abe year, f such dvdend
s treated as havng been pad durng such ta abe year under the provsons of
secton 362(b)( ). Lkewse, n the case of a persona hodng company, the
credt provded by secton 120 wth respect to dvdends pad by It durng the
ta abe year may be aowed, under reguatons prescrbed by the Secretary, as
a credt aganst any dvdend pad after the cose of ts ta abe year and before
the ath day of the thrd month foowng the cose of the ta abe year, f such
dvdend s propery camed and aowabe under the provsons of secton 0 e
for the purpose of computng the undstrbuted subchapter net ncome for such
ta abe year.
SU C PT R ROY LTI S
S CTION 1220. D FINITION OF OT LTT
Secton 1220 defnes the term royaty as used n chapter 6. Secton 1220(a)
covers payments treated as royates n respect of mnes, o and gas wes, and
other natura deposts. Subsecton (b) defnes payments made wth respect to
the use of patents, copyrghts, secret processes or formuas, trade-marks, or trade
brands whch are treated as royates for the purposes of chapter 0. Subsecton
(c) defnes as royates payments made by an assocaton to ts members wth
respect to the use by other persons of copyrghts of such members.
Mnera, o, and gas royates.
Secton 1220(a) defnes as a royaty (1) any rent or royaty n respect of
mnes, o and gas wes, and other natura deposts, ncudng any deay renta
and any mnmum royaty, whether or not measured by producton or by a share
of gross or net ncome therefrom, and (2) any payment representng a share of
the gross or net ncome derved from the e tracton and sae of any natura de-
post, but ony f the recpent of such rent, royaty, or payment s not personay
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
22
obgated to pay a proportonate share of deveopment or operatng e penses. If
a royaty as defned n ths subsecton s pad n knd, snch payment s not treated
as a payment of a royaty for purposes of chapter 6. owever, n the case of a
royaty pad n knd, f t s sod by or on behaf of the recpent to the producer
or under a dvson order, the purchaser s consdered as makng payment of the
royaty n an amount equa to the purchase prce. For e ampe, f , an nd-
vdua, makes an o and gas ease to corporaton and reserves a royaty of one-
eghth of the o produced, and actuay receves hs share of the o n knd,
suc o s not treated as a royaty for the purposes of chapter 6. owever, f
ses the o to corporaton, the producer, the proceeds pad to hm consttute
a royaty upon whch a ta of 20 percent s requred to be deducted and wthhed
by corporaton. Lkewse, f n eu of recevng hs share of the o n knd
receves the proceeds of one-eghth of the o from a ppene company, pursuant
to a dvson order fed wth such company, the amount pad to by the ppene
company consttutes a royaty upon whch a ta of 20 percent s requred to be
deducted and wthhed by the ppene company.
The term any rent or royaty used n subsecton (a) ncudes an overrdng
royaty. For e ampe, f s the essee o an o and gas ease and assgns hs
nterest n the easehod to corporaton, reservng an overrdng royaty of
one-eghth of seven-eghths of the o, the royaty s wthn the defnton con-
taned n subsecton (a), uness t s pad n knd to . Lkewse, n any case
where a share of the producton throughout the fe of a ease s reserved, the
transacton s essentay a easng transacton, and a consderaton receved,
ncudng any cash bonus, s a royaty wthn the defnton contaned n sub-
secton (a).
The term producer as used n secton 1220(a) means the person or persons
hodng the essee sc or workng nterest and operatng the property.
The foowng e ampes w ustrate the appcaton of the defnton contaned
n secton 1220(a) :
(1) , an ndvdua, e ecutes an o and gas ease to , aso an ndvdua.
receves a cash bonus of 0,000 and retans a one-eghth royaty n the o pro-
duced. oth the cash bonus pad to and the. share of the o retaned by are
wthn the term royaty as defned n subsecton (a).
(2) , an ndvdua, e ecutes an o and gas ease to a partnershp composed of
, C, and D, a ndvduas. Under the terms of the ease, s entted to receve
30 percent of the net proceeds from the operaton of the ease. The amount pad
to s a royaty wthn the defnton. If under the terms of the ease s aso
entted to receve 00,000 payabe out of one-eghth of the o f, as, and when
produced, the amount pad to wth respect to the o payment s kewse a
rent or royaty n respect of o and gas wes.
(3) , an ndvdua ownng an o and gas ease, assgns three-fourths of the
workng nterest to corporaton. y agreement between the partes. cor-
poraton becomes the operator of the property. s personay obgated to pay
cce-fourth of the operatng and deveopment e penses ncurred by corporaton.
and the corporaton share the net proceeds from the operaton of the ease,
as |ont operators. Therefore, s share s not a royaty.
( ) , an ndvdua, owns an o and gas ease. pays 100,000 In consd-
eraton of an o payment of 1 0,000 payabe out of one-fourth of the o f. as,
and when produced. mounts pad to n respect of the o payment acqured by
hm s a payment representng a share of the gross or net ncome derved from
t.e e tracton and sae of the o and a royaty upon whch woud be requred
to deduct and wthod a ta under subchapter .
n amount pad n respect of mnes, o and gas wes, or other natura deposts
s not a payment representng a share of the gross or net ncome derved from
the e tracton and sae of any natura depost n any case where such amount
represents merey a method chosen by the partes to dscharge an obgaton to the
payee whch s payabe n any event or whch s payabe from sources other than
producton ncome.
Royates pad wth respect to patents, copyrghts, on other property.
Secton 1220(b) defnes as a royaty for the purposes of chapter 6 any pay-
ment, however desgnated, made by a corporaton for the prvege of usng any
patent, pendng appcaton for a patent, copyrght, secret process or formua,
trade-mark, or trade brand, or made by a corporaton whch s an assgnee or an
e cusve censee of any of such property rghts. Such a payment s not a
royaty, however, uness t s ether (1) measured by the use of a patent, pendng
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
23
appcaton for a patent, copyrght, secret process or formua, trade-mark, or
trade brand, or (2) payabe over a perod substantay cotermnous wth the
perod of the payor s rght to use such property. For e ampe, , an ndvdua,
ownng a patent usefu n the manufacture of prefabrcated houses, ses and
assgns the patent to a corporaton n consderaton of the annua payment of 2
percent of the aggregate net saes prce of a such houses produced and sod by
the corporaton. The payment to by the corporaton s a royaty for the pur-
poses of chapter 6. Lkewse, f grants to the corporaton an e cusve cense
to make, use, and vend the patented devce throughout the entre terrtory of the
Unted States n consderaton of an annua payment of 00,000 for a perod of 1
years, and the patent has ts fu 17 years fe to run, the payments made to by
the corporaton consttute royates for the purposes of chapter 0.
Other amounts treated as royates n respect of copyrghts.
Under secton 1220(c) any payment made by an organzaton to ts members n
respect of the use of ther copyrghts, f such organzaton s authorzed to cense
the use of such copyrghts and has contro of the recept, aocaton, and dstrbu-
ton of the payments made for such use, s aso a royaty for the purposes of
chapter 6. n amount pad to such an organzaton by any person n respect of
the use of copyrghts of a member of the organzaton s not a royaty as that term
n denned ether n secton 1220 (b) or (c). Thus, f a group of composers,
authors, and pubshers are members of an organzaton to whch such members
grant the e cusve rght to cense the use of copyrghts owned by such members
and the organzaton censes thrd partes to use copyrghts owned by any of such
members, the amount pad to the organzaton by the censee s not a royaty for
the purposes of chapter 6. owever, any payment aocated by the organzaton
to a member s a royaty upon whch a ta of 20 percent s requred to be deducted
and wthhed by the organzaton. The foowng e ampe w ustrate the
appcaton of subsecton (c) :
, , and C, each the author of musca compostons, are members of the M
assocaton, to whch they have granted the e cusve rght to cense the use of
ther compostons, e cept for dramatc purposes. The M assocaton e ecutes an
agreement wth a hote under the terms of whch any musc composed by any
member of the assocaton may be payed n the gr room of the hote, and the
hote pays to the assocaton 2 0 annuay for the duraton of the agreement for
the prvege of usng such musc. M assocaton n accordance wth ts rues
and ts agreement wth members aocates a porton of each annua payment to ,
1 , C, and other members. The amount pad to each member by the assocaton s
a royaty for purposes of chapter 6, upon whch a ta s requred to be deducted
and wthhed.
S CTION 1221. INCOM T COLL CT D T SOURC
Under ths secton every person makng payment after December 31, 1031, of a
royaty s requred to wthhod from such payment a ta of 20 percent of the
amount pad. The ta must be wthhed at the tme payment of a royaty s
made. The term payment ncudes constructve payment.
Secton 1221(a) further provdes that f the wthhodng agent s unabe to
determne the person to whom a royaty s payabe, the ta sha be wthhed at
the tme payment thereof woud be made f such person were known.
Under secton 1221(b), f the wthhodng agent fas to deduct and wthhod
a ta under ths subchapter and thereafter the ta aganst whch such a may
be credted Is pad, the ta under secton 1221 sha not thereafter be coected
from the wthhodng agent. Such payment by the recpent of the ncome does
not, however, operate to reeve the wthhodng agent from abty for penates
or addtons to the ta for faure to deduct and wthhod wthn the tme pre-
scrbed by aw. The wthhodng agent w not be reeved of hs abty for
payment of the ta requred to be wthhed uness he can show that the ta aganst
whch the ta under secton 1221 may be credted has been pad. Nothng con-
taned n ths subsecton shoud be construed to reeve the wthhodng agent of
the duty mposed by aw to wthhod and pay the ta .
Secton 1221(c) provdes that the wthhodng agent sha be abe for payment
of the ta requred to be deducted and wthhed under subchapter and sha not
be abe to any other person for the amount of any such payment.
Secton 1221(d) provdes that refund or credt of ta overpad under sub-
chapter sha be made to the wthhodng agent ony to the e tent that the ta
was not actuay wthhed. To ths e tent refund or credt Is to be made to the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
wthhodng agent sub|ect to the provsons of secton 3313 of the Interna Reve-
nue Code. The credt aganst the ncome ta of the recpent of a royaty upon
whch an amount has actuay been wthhed as ta under subchapter s pro-
vded n secton 3 of the Interna Revenue Code, as amended by secton 2G2 of
the b.
S CTION 1222. MPTIONS FROM WIT OLDING
Under ths secton wthhodng Is not requred n the case of (a) royates pad
to a corporaton or to a government or potca subdvson thereof; (b) roya-
tes pad by a foregn corporaton, a nonresdent aen ndvdua, a partnershp
not engaged In trade or busness wthn the Unted States and composed In
whoe or n part of nonresdent aens, or an nternatona organzaton; or (c)
royates pad to a nonresdent aen ndvdua, a partnershp not engaged n
trade or busness wthn the Unted States and composed In whoe or n part of
nonresdent aens, or an nternatona organzaton.
S CTION 1223. R TURNS ND P YM NT
Under ths secton every person requred under subchapter to wthhod any
ta sha make a return of the ta and sha pay the ta , at the tme, for the pe-
rod, and n the manner as tho Secretary ma by reguatons prescrbe. If more
or ess than the correct amount of ta s pad by the wthhodng agent, proper
ad|ustments, wth respect to both the ta and the amount to be deducted, arc
to be made, wthout nterest, n such manner and at such tmes as may be pre-
scrbed by reguatons made under subchapter .
S CTION 122 . R C IPTS
Ths secton mposes upon every person requred to wthhod a ta on a royaty
the responsbty of furnshng to the payee of the royaty not ater than nnu-
ary 31 of the year succeedng the caendar year n whch the royaty s pad, a
wrtten statement showng the amount of the royates pad to such payee durng
such caendar year, and the amount of ta wthhed n respect of such royates.
Under subsecton (b) reguatons may requre statements to be furnshed at
other tmes, to contan other nformaton, and to be n the form prescrbed by
such reguatons. If a dupcate of the statement to be furnshed to the payee
of the royaty under ths secton s made and fed n accordance wth reguatons,
such statement sha consttute the return of nformaton requred wth respect
to such royates under secton 1 7 of the Interna Revenue Code. Subsecton,
(c) authorzes the Secretary under reguatons to grant to any person a reason-
abe e tenson of tme, not n e cess of 30 days, for furnshng statements re-
qured under ths secton.
S CTION 122 . P N LTI S
Under ths secton any person requred by secton 122 to furnsh a statement
who wfuy furnshes a fase or frauduent statement or who wfuy fas to
furnsh a statement n the manner, at the tme, and showng the nformaton
requred under secton 122 , or the reguatons to be prescrbed thereunder, sha
for each such offense, upon convcton thereof, be fned not more than 1,000, or
mprsoned for not more than 1 year, or both. The penaty provded by subsec-
ton (n) Is n eu of any other penaty provded by aw, e cept the cv penaty
provded by subsecton (b). Under the atter provson n addton to the crm-
na penaty any person who wfuy furnshes a fase or frauduent statement,
or who wfuy fas to furnsh a statement n the manner, at the tme, and
showng the nformaton requred under secton 122 , or the reguatons there-
under, sha for each such offense be sub|ect to a cv penaty of not more than
0.
SURCn rT C G L provsons
Subchapter C contans provsons appcabe to both subchapter and sub-
chapter .
S CTION 1230. D FINITIONS
Under ths secton the term ta abe year has the same meanng as when
used In chapter 1 of the Interna Revenue Code. The term person as used
In chapter C Incudes any government, agency or nstrumentaty thereof, and
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
any potca subdvson, agency or nstrumentaty thereof. The term non-
resdent aen ndvdua ncudes an aen resdent of Puerto Rco. Thus,
a dvdend, nterest, or royaty pad to an aen resdng n Puerto Rco Is e -
empt from the provsons of chapter 6.
S CTION 1231. NOND DUCTI ILITY OP T IN COMPUTING N T INCOM
Under ths secton any ta wthhed s not aowabe as a deducton n com-
putng net ncome for the purpose of any ta on ncome mposed by act of Con-
gress. ny nterest or royaty aowed as a deducton to the person payng such
nterest or royaty s of course deductbe wthout regard to the amount of ta
wthhed by such person.
S CTION 1232. R TURN ND P YM NT Y GO RNM NT L P YOR
If the person requred to fe a return and pay the ta under the provsons of
secton 3203(a) or 1223(a) s the Unted States, or any State, Terrtory, or
potca subdvson thereof, or the Dstrct of Coumba, or any agency or n-
strumentaty of any one or more of the foregong, the return and payment re-
qured by such sectons may be made ether by the ofcer or empoyee havng con-
tro of the payment of the dvdend, nterest, or royaty, or by any offcer or
empoyee appropratey desgnated for the purpose by the person makng payment
of the dvdend, Interest, or royaty.
S CTION 1233. T - MPT ORG NIZ TIONS R FUNDS
Secton 1233 provdes that In the case of a person whch s e empt from the
Income ta , f the amount requred to be wthhed as ta wth respect to dvdends
and nterest receved durng any caendar quarter and the amount actuay wth-
hed as ta wth respect to royates receved durng such caendar quarter
e ceed the credt camed by and aowed to such person for such quarter under
secton 1637, whch s added to the Interna Revenue Code by secton 203 of the
b, the e cess sha be mmedatey refunded or credted to such person as an
overpayment of the ta mposed by chapter 6, provded a cam for refund s
fed, or n case no cam s fed f credt or refund s made, after the cose of
such caendar quarter and on or before March 1 of the fourth caendar year
begnnng after the cose of such caendar quarter. No provson s made n
secton 1202 or 1222 for a specfc e empton from wthhodng n the case of
dvdends, nterest, or royates pad to a person whch s e empt from ncome
ta aton. The term person as used n ths secton ncudes not ony an organza-
ton (ncudng a trust) whch Is e empt from ta under secton 101 of the In-
terna Revenue Code, but aso any Government or potca subdvson, or agency
or nstrumentaty thereof. The term person whch Is e empt from the ta
Imposed by chapter 1 does not ncude a ta payer whose gross ncome s ess
than the e emptons provded n secton 2 (b) or whose deductons e ceed
hs gross ncome.
Sub|ect to the credt whch may be camed and aowed under secton 1637,
a cam may be fed under ths secton for refund of the amount of ta requred
to be deducted and wthhed upon any dvdends or Interest pad to the person
entted to fe the cam. Faure of the wthhodng agent to wthhod the ta
upon dvdends or Interest does not mt the amount whch may be refunded or
credted under ths secton. If the wthhodng agent fas to wthhod the ta
under secton 1201, the ta w be coected from hm. Thus, the fact that the
ta requred to be wthhed under secton 1201 may not have been actuay
wthhed by the wthhodng agent or pad to the coector Is no bar to a refund
of such ta under ths secton. On the other hand, a cam for refund may be
fed under ths secton wth respect to the ta requred to be wthhed under
secton 1221 upon the payment of royates, ony f ta was actuay wthhed by
the wthhodng agent.
ny person entted under ths secton to cam a refund of ta wthhed upon
dvdends, nterest, and royates pad to t may fe such cam mmedatey
after the cose of the caendar quarter n whch such dvdends, Interest, and
royates were receved by t. The term receved as used n ths secton
ncudes constructve recept. Therefore, n any case where a person e empt
from Income ta aton constructvey receves nterest n any caendar quarter,
the ta requred to be wthhed upon such nterest may be ncuded In the cam
9 016 62 2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2G
fed for such quarter, even though the Interest may not be actuay coected
or pad unt a subsequent quarter. cam for refund under ths secton need
not be fed for each caendar quarter n whch dvdends, nterest, or royates
are receved by t. owever, no cam n respect of ta wthhed upon ncome
may be fed pror to the cose of the caendar quarter n whch such ncome s
receved.
If the person camng a refund under ths secton a so cams a credt under
secton 1037 for a caendar quarter and such credt Is aowed, the amount whch
may be refunded under ths secton may not e ceed the ta requred to be wth-
hed wth respect to dvdends and Interest receved durng such quarter, pus
the ta actuay wthhed wth respect to royates receved In such quarter,
ess the amount of such credt aowed. owever, the credt aowabe under
secton 1637 s not requred to be camed by a person entted to fe a cam
for refund under ths secton. Such person may pay ts abty, f any, for the
ta es mposed by subchapters and D of chapter 9 and fe a cam for refund
of the tota amount n respect of ta requred to be wthhed upon ucome receved
by t durng a caendar quarter.
cam under ths secton wth respect to a caendar quarter must be fed on
or before March 1 of the fourth caendar year begnnng after the cose of such
caendar quarter. No nterest sha be aowed or pad wth respect to any refund
or credt aowabe under ths secton for any perod pror to the date on whch a
cam for refund or credt s fed or pror to March 16 of the frst caendar year
sycecdng the cose of the caendar quarter n respct of whch such refund or
crtd t s camed, whchever date Is the ater.
S CTION 12S . F ILU TO FIL R TURNS
Under ths secton f any person requred to fe any return under chapter 6
fas to fe such return wthn the tme prescrbed by aw or by reguatons,
uness t s shown that such faure s due to reasonabe cause and not to wfu
negect, the addton to the ta or ta es requred to be shown on such return
sha not be ess than .
CTI0N 123 . OT R L WS TTI.IC L
provsons of aw ncudng penates, appcabe to the ta Imposed by
secton 2700 of the Interna Revenue Code are nsofar as appcabe and not
nconsstent wth the provsons of chapter 6 appcabe wth respect to any ta
requred to be wthhed under chapter 6. The provsons of secton 3661 are
aso appcabe wth respect to such ta es.
S CTION 202. CR DIT FOR T WIT LD
Secton 202 of the b amends secton 33 of the Interna Revenue Code by
addng a new subsecton (b). The amendment provdes that under reguatons
prescrbed by the Secretary, the amount requred to be deducted and wthhed
as ta under chapter 0 upon the payment of a dvdend or nterest, and the
amount actuay wthhed as ta upon the payment of a royaty, sha be aowed
as a credt to the recpent of the ncome aganst hs ncome ta abty. Under
secton 3. )(b) ( ) the amount requred to be deducted and wthhed as ta upon
any payment of a dvdend or nterest s aowed as a credt to the recpent of
such dvdend or nterest, whether or not such amount or any amount was actuay
wthhed by the wthhodng agent. Faure on the part of the wthhodng agent
to deduct and wthhod the ta does not deprve the recpent of the dvdend or
nterest of the credt provded by secton 3 (b) (1). Such credt s aowed n
any case where the ta payer receves a dvdend or nterest upon whch a ta s
requred to he deducted and wthbhed under chapter 6. On the other hand,
the amount aowed as a credt under secton 3 (b) (1) wth respect to a royaty
receved by the ta payer s mted to the amount actuay wthhed as ta upon
the payment of such royaty by the wthhodng agent.
The credt provded by secton 3 (b) s aowed to the ta payer aganst hs
Income ta abty for the ta abe year In whch the dvdend, nterest, or roy-
aty s receved. The term receved ncudes constructve recept. Thus, n the
case of coupon bond nterest constructvey receved by a ta payer on the due
date of the coupon, the credt wth respect to the amount requred to be de-
ducted and wthhed s aowabe to the ta payer for hs ta abe year n whch
fas such due date, even though the coupon s not presented for payment durng
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
27
such ta abe year. For e ampe, the M Corp. has outstandng an Issue of coupon
bonds. Interest on such bonds s due on pr 1 and October 1 of each year.
On pr 1, 19 2, M Corp. makes avaabe for payment the nterest due on that
date. , an ndvdua who owns one of the bonds, fas to present the coupon
cue on pr 1 unt anuary 17, 19 3. ssumng fes hs returns on the ca-
endar-year bass, the credt provded by secton 3 (b) s aowed for the ta abe
year 19 2.
Under the wthhodng system ncorporated n subchapter of chapter 6, no
recept or statement of the amount of dvdends or nterest pad to the recpent
or the amount of ta wthhed s requred to be furnshed by the payor of such
ncome.
It s contempated that approprate provson w be made on the return form
whereby a recpent of dvdends or nterest upon whch ta s requred to be
wthhed at the source may determne the proper amount to be reported n gross
ncome and the amount to be camed as a credt under secton 3 (b). The re-
cpent w enter on hs ta return (1) the net amount of dvdends and nterest
receved after wthhodng, (2) the amount wthhed whch, at the 20 percent
wthhodng rate, w be determned by computng one-fourth of the net amount
receved, and (3) the sum of the amount actuay receved and the amount wth-
hed. The tota of the amount actuay receved and the amount wthhed s the
sum sub|ect to ta . The recpent w be aowed a credt aganst hs ta a-
bty for the amount determned as ta wthhed at source.
fter makng the computaton to determne the gross amount of dvdends
and nterest upon whch ta has been wthhed and the amount to be aowed as
a credt aganst ta , approprate ad|ustment w be made to e cude any amounts
whch had been propery reported n ncome for pror years, amounts whch are
not ncuded n gross ncome for ncome ta purposes, or amounts whch are
ta abe as gan from the sae or e change of capta assets. mounts ta abe
as gan from the sae or e change of capta assets w e transferred from the
dvdend schedue to the approprate schedue n whch the ta payer sts gans
and osses from such saes or e changes.
The grossng up method whch w be ncorporated on the return forms may
be ustrated by the foowng e ampe:
, an ndvdua, prepares hs ncome ta returns on the cash recepts and ds-
bursements method of accountng and on the bass of the caendar year. Durng
the caendar year 19 2, receves the foowng tems of ncome:
(1) Dvdends:
(a) net amount of S00 from M Corp., representng dvdends of 1,000,
ess the ta wthhed.
(6) net dstrbuton of 120 from N Corp., a reguated nvestment com-
pany, representng an ordnary dvdend of 100 and a capta gan dvdend
of 0, ess the ta wthhed.
(2) Interest:
(a) net amount of 0 , representng S0 of nterest on two 1,000 coupon
bonds of P Corp.. ess the ta wthhed.
(b) net amount of 2 0, representng 300 of nterest upon the proceeds
of a 10,000 fe nsurance pocy, ess the ta wthhed, pad by the
Insurance Co.
w ncude n the schedue wth respect to dvdends upon whch ta s
requred to be wthhed at the source the net amount of 00 receved from M
Corp. after wthhodng. The amount of 120 w be sted as dvdends re-
ceved from N Corp.. ess the ta wthhed. Thus, the tota net amount of dv-
dends after wthhodng ncuded n the schedue w be 020. w then enter,
as the ta wthhed, one-fourth of ths amount, or 230. e w then enter
1,1 0 as the tota amount of dvdends receved whch were sub|ect to wth-
hodng. From ths amount 0, representng capta-gan dvdends receved
from N Corp., w be subtracted and transferred to the capta pans schedue of
the return. The resutng fgure of 1,100 s the proper amount to be ncuded n
s gross ncome wth respect to dvdends receved upon whch ta was requred
to be wthhed at the source.
In the nterest schedue w enter as nterest receved upon ccupon bonds
of P Corp., the sum of 0 and aso 2 0 receved from the Insurance Co.
w then enter the tota net amount of nterest receved after wthhodng, or
30 . One-fourth of ths amount, or 76, w be entered n the schedue as the
amount of ta wthhed at the source. w then add the amount of ta wthhed
and the tota net amount of nterest receved after wthhodng and enter the sum,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
or 360, n te schedue as the tota Interest receved. Ths s the proper amount
to be reported n gross ncome wth respect to the nterest receved. The tota of
the amounts of ncome ta wthhed as shown on the schedues, 230 on the
dvdend schedue pus 70 on the nterest schedue, or 300, s the amount aow-
abe to ns a credt aganst hs fna ta abty under secton 3 (b).
The rue that the credt provded by secton 3 (b) Is aowabe aganst the
ncome ta abty of the ta payer for the ta abe year n whch the dvdend,
nterest, or royaty s receved s appcabe to a ta payers, Incudng ta payers
who report ther ncome on the accrua bass of accountng. Such ta payers
w foow the same grossng up procedure outned above wth respect to dv-
dends and nterest upon whch ta s requred to be wthhed at the source.
ny nterest whch accrued and was reported n a pror year, athough ncuded
n the grossng up schedue, w be subtracted from the amount to be ncuded
n the prross ncome of the ta payer for the ta abe year. The credt under sec-
ton 3 (b) wth respect to such nterest Is aowabe for the ta abe year n
whch the nterest s receved, and not for the pror year or years when the
nterest was reported for ta purposes.
c nder secton 3 (b) the amount wthhed as ta upon the payment of a royaty
s aowed as a credt to the recpent aganst hs ncome ta abty for the ta -
nbe year n whch the royaty s receved. The credt wth respect to a royaty
s mted to the amount actuay wthhed as ta . The recpent of a royaty w
receve from the payor on or before anuary 31 foowng the cose of the caendar
year n whch the royaty s pad a statement showng the amount of the royaty
pad to hm n such year and the amount of the ta wthhed. From ths statement
the recpent can ready ascertan the amount to be ncuded n gross ncome
and the amount of ta wthhed to be camed as a credt on hs return aganst hs
fna ta abty.
If the recpent of the dvdend, nterest, or royaty s a partnershp or a com-
mon trust fund, a proportonate share of the entre credt s aowed to each mem-
ber of the partnershp or to each partcpant n the common trust fund, as the
case may be. partnershp or common trust fund w gross up ts dvdends
and nterest upon whch ta s requred to be wthhed at the source. Ths pro-
cedure w enabe t to determne the dstrbutabe shares of partners and benef-
cares and the aocated amounts of ta wthhed. partner or partcpant n a
common trust fund w not ncude any dvdends or nterest receved from a
partnershp or common trust fund n the grossng up schedues on hs return.
The partnershp or common trust fund w provde each partner or partc nr
wth the necessary nformaton as to hs share of dvdends and nterest receved
and ta wthhed at the same tme he s gven the annua summary of hs share
of ncome derved from the organzaton.
If the recpent of a dvdend, nterest, or royaty upon whch ta Is requred
to be wthhed s an estate or trust, any egatee, her, or benefcary who s sub|ect
to ncome ta nnd who s requred to ncude a porton of such dvdend, nterest,
or royaty n computng hs net ncome, s entted to such porton of the credt as
s propery aocabe to hm on the bass of the ncome aocabe to hm under
secton 102 for the ta abe year of the estate or trust. ny porton of the credt
aowed to any egatee, her, or benefcary Is not aowed to the estate or trust.
Secton 3 (b) (2) s desgned to obtan an equtabe apportonment of the tota
credt aowabe under secton 3 between the estate or trust and the egatee,
hers, or benefcares who share n the ncome upon whch ta s requred to be
wthhed at the source. owever, under ths secton a egatee, her, or benefcary
who s not sub|ect to ncome ta s not entted to any porton of the credt wth
respect to dvdends, nterest, and royates receved by the estate or trust, even
though the share of the ncome dstrbuted to such benefcary s derved from
such sources.
The appcaton of secton 3 (b) (2) may be ustrated by the foowng
e ampes:
1. The w of estabshes a trust under the terms of whch the trustee s to
pay one-haf of the net ncome of the trust to s wdow and the other haf of
the net ncome to M unversty, an organzaton e empt from ncome ta nton
undo:- secton 101(G) of the Interna Revenue Code. Durng the caendar year
19 2, a ta abe year of the trust, the trustee receved from corporatons a net
amount of ,000, representng dvdends of 10,000 ess the ta wthhed. Other
ncome receved by the trust was not sub|ect to wthhodng at the source. ,000
of the ,000 was pad by the trustee to s wdow, and M unversty receved
the other ,000. The trust s entted to a deducton of ,000 under secton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29
162 (b) wth respect to the ,000 pad to s wdow, and she s entted to a credt
of S1.000 aganst her ncome ta for the ta abe year n whch the ,000 s
ncudbe by her. The trust s entted to a deducton of ,000 under secton
162(a) wth respect to the ,000 pad to the unversty, snce the M unversty
under these facts Is entted to receve from the trust the baance of 1,000 whch
w be refunded to the trust as an overpayment of ta resutng from the credt
aowed under secton 3 (b) to the trust for ts ta abe year. Snce the M un-
versty s a benefcary whch s not sub|ect to ncome ta , t s not entted to any
porton of the credt aowed under secton 3 (b) (2).
2. Under the terms of a trust estabshed by tbe w of . the trustees are
drected to pay the net ncome derved from desgnated mproved rea property
to the wdow of . Net ncome derved from other sources s to be dvded equay
among s three chdren. The ncome of the trust, other than ncome derved
from such rea property, s from dvdends or nterest upon whch ta s requred
to be wthhed. s wdow s not entted to any porton of the credt provded by
secton 3 (b), snce she s not requred to ncude any porton of such dvdends
or nterest n computng her net ncome. The entre credt provded by secton
3 (b) woud be apportoned equay among s three chdren.
3. Under the terms of a trust created by , the entre net ncome s to be
dstrbuted to hs wfe on uy 1 of each year. The trust makes ts returns on
the caendar year bass. On uy 1, 19 2, the trustee dstrbutes the entre net
ncome of the trust for the caendar year 19 1 to the benefcary. In 19 2, the
entre net ncome of the trust s derved from dvdends and nterest upon whch
ta s requred to be wthhed at source and e ceeds the net ncome for the year
19 1. The benefcary s entted to the entre credt provded by secton 3 (b).
ven though none of the ncome actuay pad to her was sub|ect to wthhodng,
the amount dstrbuted to her on uy 1, 19 2. s treated under secton 162(d) (2)
as a dstrbuton of the ncome of the trust for the year 19 2. ence, the pro-
vsons of secton 3 (b) (2) are appcabe.
Secton (b) (3) provdes that n the case of a reguated nvestment company
or a persona hodng company, the credt sha be reduced by the amount of the
credt aowed such company under secton 120 .
The credt provded by secton 3 (b) s not aowabe to any recpent whch s
e empt from ncome ta . In the case of such a recpent, secton 1637, whch s
added to the Code by secton 203 of the b, aows a credt for the amount of
the ta wthhed at the source aganst abty for the payment of empoyment
ta es mposed by subchapters and D of chapter 9. Secton 1233, whch s added
to the Code by secton 201 of the b, aso makes provson for a refund of the ta
wthhed at the source under chapter 6.
S CTION 203. CR DITS IN C S OF ORG NIZ TIONS MrT FROM T
Ths secton amends subchapter of chapter 9 of the Interna Revenue Code
by addng after secton 103G a new secton 1637. The new secton provdes that
n the case of any person (ncudng any government or potca subdvson,
agency, or nstrumentaty thereof) whch s e empt from ncome ta aton, the
amount of ta requred to be wthhed at the source wth respect to dvdends and
nterest receved durng any caendar quarter, and the amount of ta actuay
wthhed from royates receved durng such caendar quarter, may be camed
by such person under reguatons prescrbed by the Secretary as a credt aganst
(but not n e cess of) the amount shown on ts return as ts abty (after the
ad|ustments, f any, provded for In sectons 1 01(c) and 1 11 of the Code) for
such quarter for the ta es mposed by subchapters and D of chapter 9, reatng
to the ta Imposed or wthhed at the source under the Federa Insurance Contr-
butons ct and the ta wthhed at the source on the payment of wages and
saares, respectvey. Ths credt may be aowed ony f cam therefor s made
n accordance wth the reguatons at the tme the return under subchapters
and D of chapter 9 s fed. No provson s made n secton 1202 or 1222 for a
specfc e empton from wthhodng n the case of dvdends, nterest, or royates
pad to a person whch s e empt from ncome ta aton. The purpose of secton
1(37 s to permt a person e empt from ncome ta to offset the ta wthhed on
dvdends, nterest, and royates receved by t aganst ts abty for payro
ta es mposed by subchapters and D of chapter 9. If the amount of ta re-
qured to be wthhed from dvdends and nterest receved durng any caendar
quarter and the amount of ta actuay wthhed from royates receved durng
such caendar quarter e ceeds the credt provded by secton 1637, the e cess may
be refunded under the provsons of secton 1233 of chapter 6.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
30
The term person as used n ths secton has the same meanng as used n
secton 1233. trust e empt under secton 101 s entted to cam the credt.
The term receved as used n secton 1637 ncudes constructve recept Thus,
n case of nterest constructvey receved n a caendar quarter the ta requred
to be wthhed upon such nterest may be camed as a credt, even though the
nterest may not be actuay coected or pad unt a subsequent quarter.
The credt aowed by secton 1637 may be camed ony wth respect to ta
requred to be deducted and wthhed on dvdends and nterest receved durng
a caendar quarter and the ta actuay wthhed from royates receved durng
such quarter. If an amount n respect of ta wthhed upon dvdends, nterest,
and royates receved durng a caendar quarter s not camed as a credt under
secton 10;7 aganst the abty for payro ta es for such quarter, no credt
may b3 camed under secton 1637 n any subsequent quarter n respect of such
amount. The credt provded by secton 1637 may not e ceed the amount shown
on the return of the person camng such credt as ts abty, after the ad|ust-
ments, f any, provded for n sectons 1 01(c) and 1 11 of the Interna Revenue
Code for the caendar quarter n respect of payro ta es mposed by subchapters
and D of chapter 9. If the abty shown on such return s ess than the
ta es actuay due, the underpayment n respect of such ta es w be assessed
and no credt under secton 1637 may be aowed aganst the underpayment. If
the abty shown on the return e ceeds the ta es actuay due, the e cess s
an overpayment of the ta es mposed by subchapters and D of chapter 9, and
s sub|ect to the refund provsons appcabe to such ta es; and no part of the
credt camed on such returns may be refunded under the provsons of secton
1233.
S CTION 20 . T C NIC L M NDM NTS
Secton 20 of the b makes approprate technca amendments to the Interna
Revenue Code to correate e stng aw wth the wthhodng system ncorporated
n chapter 6 added to the Code by ths tte of the bL
Subsecton (a) amends secton 1(f) reatng to the empoyee s optona nd-
vdua ncome ta return (Form 10 0 ), on whch the ta s computed by the
coector of nterna revenue. Under e stng aw an ndvdua s egbe to use
the short form return f hs gross ncome for the caendar year s ess than ,000
and conssts entrey of wages sub|ect to wthhodng, or of such wages and not
more than 100 n the aggregate of wages not sub|ect to wthhodng, dvdends,
and nterest. Under secton 1(f) ns amended, an ndvdua w be entted to
use the short form (and have hs ta computed by the coector) f hs gross
ncome s ess than ,000 and s entrey from one or more of the foowng
sources: Wages, sub|ect to wthhodng; or dvdends (other than a capta gan
dvdend dstrbuted by a reguated nvestment company) or nterest on whch
ta s requred to be wthhed at source.
Secton 1(f)(3), as amended by subsecton (a) of ths secton, authorzes
the Secretary under reguatons to e tend the use of the short form return to
cases n whch the gross ncome ncudes ncome other than wages, dvdends, or
nterest sub|ect to wthhodng, f such other ncome s not more than 200, and
aso to cases n whch the gross ncome s ,000 or more but not more than
,200.
Subsecton (b) amends secton (a), whch provdes for decaratons of est-
mated ta . t the present tme secton (a) requres every ndvdua (other
than an estate or trust, and other than a nonresdent aen whose wages are not
sub|ect to wthhodng, but ncudng every aen ndvdua who s a resdent of
Puerto Itco durng the entre ta abe year) to fe a decaraton of hs estmated
ta for the ta abe year f (1) hs gross Income from wages sub|ect to wthhod-
ng w e ceed the sum of , 00 pus (100 wth respect to each e empton pro-
vded n secton 2 (b), or (2) hs gross ncome from sources other than wages
sub|ect to wthhodng w e ceed 100 for the ta abe year and hs gross ncome
w be 600 or more. Under the amendment an ndvdua w be requred to
fe a decaraton of estmated ta for the ta abe year ony f (1) hs gross
ncome from wages sub|ect to wthhodng pus hs gross ncome from dvdends,
nterest, and royates sub|ect to wthhodng under chapter 6 w e ceed the
sum of , 00 pus 600 wth respect to each e empton provded n secton 2 (b),
or (2) hs gross ncome from sources other than wages, dvdends, nterest, or
royates sub|ect to wthhodng w e ceed 100 for the ta abe year and hs
gross ncome w be 000 or more.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
31
Subsecton (c) amends secton 1 3 (reatng to wthhodng of ta at source
on payments to nonresdent aens and others) by addng a new subsecton (1),
whch provdes that where any person s requred to deduct and wthhod a ta
under secton 1 3(b) on dvdends or nterest on whch ta was requred to be
wthhed or on a royaty on whch a ta was wthhed under chapter 6 whether
by hm or by another wthhodng agent, ony the e cess of the amount whch
woud be requred to be wthhed under secton 1 3(b) but for the appcaton
of chapter 6 over the amount requred to be wthhed under chapter 6 sha
be wthhed. Thus, f stock benefcay owned by a nonresdent aen s.n the
name of a nomnee or agent who s a ctzen or resdent of ths country, under
chapter 6 the corporaton payng a dvdend on such stock s requred to wth-
hod a ta of 20 percent of the amount of the dvdend. In the absence of ths
amendment the nomnee or agent woud be requred to wthhod the fu ta
requred by secton 1 3(b) when he remts the dvdend payment to the owner.
owever, under secton 1 3(1) the nomnee or agent w be requred to wthhod
ony the amount, f any, by whch the ta whch woud otherwse be wthhed
under secton 1 3(b) e ceeds the ta requred to be wthhed by the corporaton
payng the dvdend. If the rate appcabe to the nonresdent aen.owner under
secton 1 3(b) s ess than the ta requred to be wthhed under chnpter 6, the
nomnee or agent s reeved of wthhodng under secton 1 3(b). Secton 1 3()
s appcabe whether or not the wthhodng agent under subsecton (b) s the
same person who s requred to deduct and wthhod a ta under chapter 6.
Subsecton (d) makes a correspondng amendment of secton 1 .
Subsecton (e) amends secton 1 7 reatng to nformaton at the source.
Under e stng aw, nformaton returns wth respect to the payment of nterest
Is mted to payments of 600 or more n any ta abe year, e cept payments
of nterest upon bonds, mortgages, deeds of trust, or other smar obgatons
of corporatons for whch nformaton returns may be requred regardess of
the amount of payment. Ths amendment requres nformaton returns for pay-
ments of nterest, upon whch ta s requred to be wthhed under chapter ,
of 300 or more and for payments of other Interest of 100 or more. The amend-
ment aso authorzes the Secretary by reguatons to requre nformaton returns
for payments of nterest not sub|ect to wthhodng under chapter 6, regardess
of the amounts.
Subsecton (f) amends secton 1 (a) to emnate the requrement of an
nformaton return by a corporaton wth respect to dvdends pad to a share-
hoder In any caendar year f the entre amount of dvdends pad to such
sharehoder for such year s sub|ect to wthhodng under chapter 6 and s ess
than 300.
Subsecton (g) makes a cerca amendment to secton ( 9(b) by strkng out
the reference theren to chapter 6, whch had to do wth the od chapter 6 of
the Code, reatng to the capta .stock ta whch was repeaed by the Revenue
ct of 19 .
Secton 20 (h) amends secton 322(a)(2), reatng to refunds and credts.
The present aw provdes that where the amount of the ta wthhed on wages
and saares e ceeds the ta abty of the recpent, the amount of the e cess
s consdered an overpayment. Ths amendment provdes thnt the amount of
the credt provded n secton 33 aganst the ta for any ta abe year sha, to
the e tent thereof, be consdered as payment of the ta for such year, whether
or not the wthhodng agent has pad to the coector the amount of the ta
wthhed at the source under subchapter D of chapter 9 or subchapter of
chapter G or the amount of ta requred to be wthhed at source under sub-
chapter of chapter 6. The purpose of ths amendment s to treat the credt
aowed wth respect to ta requred to be wthhed upon payments of dvdends
and nterest and the ta wthhed upon payments of royates under chapter 6
n the same manner as the credt wth respect to the ta wthhed on payments
of wages and saares s treated under e stng aw.
Subsecton (1) adds a new paragraph (7) to secton 322(b) to provde a speca
7-year perod of mtatons for fng cams for sma refunds of ta wthhed
on dvdends, nterest, and royates. The new provson may be avaed of ony
by ndvduas whose gross ncome s ess than 600 and who are not requred
to fe a return under secton 1(a) of the Interna Revenue Code. The 7-year
perod of mtatons s appcabe ony If the overpayment s attrbutabe to
the credt aowed by secton 3 of the Code for ta requred to be wthhed
under chapter 6 on dvdends and nterest or for ta actuay wthhed under
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
32
such chapter on royates pad to the ta payer. refund made under secton
322(b)(7) may not e ceed 2 for the ta abe year. Ths provson does not
mt the amount of a refund or credt of an overpayment attrbutabe to the
credt aowed under secton 3 n respect of ta wthhed at the source on
dvdends, nterest, and royates whch may be made wthn the perod of mta-
tons provded by e stng aw. Subsecton (k) amends secton 3771(f) of the
Code to provde that n the case of a credt or refund of an overpayment made
under secton 322(b) (7), as amended by subsecton (), no nterest on the over-
payment may be aowed or pad for any perod endng pror to the e praton
of 6 months after the cam s fed, f the cam woud be barred under secton
322(b), e cept for paragraph (7) thereof.
Subsecton (|) amends secton 322(e), reatng to presumptons as to date
of payment of ta . The present aw provdes that for the purpose of secton
322 any ta actuay deducted and wthhed upon the payment of wages s
presumed to have been pad by the recpent of such wages not earer than the
1 th day of the thrd month foowng the cose of the ta abe year wth respect
to whch such ta s aowabe as a credt under secton 3 . Secton 322(e)
as amended by ths amendment provdes that the amount of ta aowabe as
a credt under secton 32 or secton 3 s presumed to be pad by the person
entted to such credt on the ast day prescrbed by aw (wthout regard to any
e tenson of tme granted) for tng the return for hs ta abe year. Secton
32 aows the ta wthhed under secton 1 3 or 1 as a credt aganst ncome
ta abty. Under e stng aw there s no presumpton of payment of the
ta aowabe as a credt under secton 32. If the wthhodng agent has faed
to pay the ta wthhed to the coector, such ta s not treated as pad by the
person entted to the credt under secton 32, end no amount may be refunded
to such person on account of such ta . The amendment changes ths rue so
that the amount of the ta wthhed under sectons 1 3 and 1 and aowed
as a credt under secton 32 s presumed to have been pad by the person entted
to the credt on the ast day prescrbed by aw for fng the return for the
ta abe year for whch the credt s aowabe. Thus, f the appcaton of the
credt under secton 32 resuts n an overpayment, t may be refunded whether
or not the ta wthhed has actuay been pad to the coector.
Subsecton (1) makes a cerca amendment of secton 3797(a) (1C) of the
Code, reatng to the defnton of wthhodng agent by addng references
theren to sectons 1201 and 1221.
Subsecton (m) provdes that the amendments made by subsectons (a) and
(b) sha be appcabe to ta abe years begnnng after December 31, 19 1.
other amendments made by part I of tte II of the b become effectve upon
the date of enactment of the ct.
Part II. Increase n Wthhodng: of Ta at Source on Waoes
S CTION 221. P RC NT G M T OD OF WIT OLDING
Secton 221 amends secton 1622(a) of the Code by changng the percentage
rate of wthhodng from 1 percent to 20 percent.
S CTION 222. W G R C T WIT OLDING
Secton 222 amends secton 1022(c) (1), reatng to wage bracket wthhodng,
to provde new tabes to refect the ncreased ta rates.
S CTION 223. DDITION L WIT OLDING OF T ON W G S UPON
GR M T Y MPLOY R ND MPLOY
Secton 223 of the b adds to secton 1622 of the Code (reatng to Income
ta coected at source on wages) a new subsecton numbered (k) and entted
ddtona Wthhodng. Ths new subsecton authorzes the Secretary to pro-
vde, by reguatons, for wthhodng n addton to that otherwse requred
under secton 1622 n cases n whch the empoyer and the empoyee agree to such
addtona wthhodng. The Secretary s authorzed to prescrbe by reguatons
the form of such agreement and the condtons under whch and the e tent to
whch such an agreement sha be deemed proper. It s further provded by ths
new subsecton that any addtona wthhodng pursuant to such an agreement
entered nto by and between an empoyer and an empoyee sha, for a purposes,
be consdered ta requred to be deducted and wthhed.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
33
S CTION 22 . FF CTI D T
The amendments made by ths part are appcabe ony to wages pad on or
after September 1,19 1. It s mmatera whether the wages were earned before
or after September 1, 19 1. If they are pad on or after September 1, 19 1, the
new wthhodng rates w appy.
TITL III MISC LL N OUS INCOM T M NDM NTS
S CTION 301. T TR TM NT IN C S OF D OF OUS OLD
Ths secton amends secton 12(c) of the Code to provde a speca computaton
of surta for a ta payer who quates as the head of a househod. The effect of
the amendment s that the combned norma ta and surta of such a ta payer
w be an amount appro matey equa to the combned norma ta and sur-
ta as computed under sectons 11 and 12(b) reduced by one-haf of the amount
by whch such combned ta e ceeds the combned norma ta and surta that
woud be determned f the return of the ta payer were a |ont return to whch
secton 12(d) was appcabe. Secton 12(c) s appcabe ony wth respect to
ta abe years begnnng after ugust 31, 19 1.
Paragraph (1) of secton 12(c) contans a speca surta tabe prescrbng the
rates of surta to be used n computng the ta of a head of a househod for
ta abe years begnnng after ugust 31, 19 1. The ta computed under such
tabc w be ncreased by 12 percent as provded n secton 16. owever,
such tabe s not to appy In the case of any ta payer whose surta net ncome
s over 90,000 for any ta abe year f the defense ta provded In secton 10
s appcabe to such ta abe year. In the case of such a ta payer, the ta s to be
computed by use of a separate tabe provded for n paragraph (2) of secton
12(c) whch s so desgned that the margna combned norma ta and surta as
ncreased by the defense ta provded n secton 16 can n no case e ceed 9 .
percent of net ncome for any ta abe year for whch the tabe may be used.
Paragraph (3) defnes a head of a househod as an ndvdua who s not mar-
red at the cose of hs ta abe year and who mantans as hs home a house-
hod whch consttutes for such ta abe year the prncpa pace of abode, as a
member of such househod, of one or more of certan casses of persons reated
to the ta payer and descrbed n subparagraphs ( ) and ( ) of paragraph (3).
In no event, however, sha an ndvdua be consdered as mantanng a house-
hod uness he furnshes over haf of the costs of mantanng such househod
durng the ta abe year. Thus, for purposes of secton 12(c), ony one person
can be consdered as head of a partcuar househod durng a partcuar ta abe
year.
The persons descrbed n subparagraph ( ) ncude ony a son or daughter
(ncudng a stepson or stepdaughter) of the ta payer, or a descendant of such
son or daughter. The persons descrbed n subparagraph ( ) are those persons
(other than those descrbed n subparagraph ( )) who are dependents of the
ta payer and for whom the ta payer s entted to an e empton for the ta -
abe year under secton 2 (b).
If the person, whose prncpa pace of abode Is the home of the ta payer,
Is an unmarred person, as descrbed n subparagraph ( ), that s, a chd or
descendant of a chd of a ta payer, the ta payer may (f the other requrements
of secton 12(c) are met) quafy as a head of a househod even though the ta -
payer woud not be entted to an e empton for such person as a dependent
under secton 2 (b). Thus, an unmarred ta payer who mantans as hs home
a househod whch ncudes ony hmsef and hs unmarred son, may be the
head of the househod even though the ta payer does not furnsh more than
haf the support of the son and even though the son has gross ncome of 00 or
more. If, however, the son s marred at the cose of the ta abe year of the
ta payer, the ta payer may not quafy as the head of the househod by reason
of the fact that the prncpa pace of abode of the son s such househod uness
the ta payer s entted to an e empton for the son under secton 2 (b), that s,
uness the son receves more than haf hs support from the ta payer, has gross
ncome of ess than 00 n the caendar year In whch the ta abe year of the
ta payer begns, and does not make a |ont return wth hs spouse for hs ta abe
year begnnng n such caendar year.
ta payer whose status as head of a househod depends upon the fact that
such a househod s the prncpa pace of abode of a person descrbed n sub-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
paragraph ( ) cannot quafy as the head of a househod uness such person,
for the caendar year In whch the ta abe year of the ta payer begns, receved
more than haf of hs support from the ta payer, had gross ncome of ess than
00 n such caendar year, and, f marred, has not made a |ont return wth
hs spouse for hs ta abe year begnnng n such caendar year. Thus, a ta -
payer who mantans a home for hmsef and hs mother does not quafy as
head of a househod, even though hs home consttutes the prncpa pace of
abode of hs mother uness he s entted to cam hs mother as a dependent under
secton 2 (b).
ta payer w not he consdered as the head of a househod uness such
househod actuay consttutes hs home for the ta abe yenr and aso consttutes
the prncpa pace of abode for such ta abe year of another member of the
househod who meets the requrements of secton 12(c)(3) ( ) or ( ). If
such other member of the househod des durng the ta abe year, the ta payer
w not be dened the benefts of ths subsecton f the ta payer s househod
consttuted the member s prncpa pace of abode durng the ta abe year up
to the date of hs death. Secton 12(c) s ntended to appy ony where the
ta payer and such other members of the househod ve together n such house-
hod durng the entre ta abe year (e cept for temporary absences due to
speca crcumstances). The fact that a chd may be at coege durng the coege
term does not prevent the home of the ta payer from aso consttutng the
prncpa pace of abode of the chd. owever, such home w not be con-
sdered as the prncpa pace of abode where the chd estabshes a separate
habtaton and ony returns for perodc vsts. Smary, such home w not
be consdered as consttutng the prncpa pace of abode of a dependent of
the ta payer who s supported by the ta payer for a substanta part of the
year n odgngs other than those occuped by the ta payer even though such
person may at varous perods ve n the househod, uness the resdence of the
dependent n other odgngs Is not permanent and s due to necessty such as
ness. It s aso ntended that the househod consttute the actua pace of
abode of the ta payer and t s not suffcent that the ta payer mantan the
househod wthout beng an occupant thereof.
Paragraph ( ) contans rues for ascertanng the status of the ta payer and
other persons for the purpose of determnng whether the ta payer s the head
of a househod.
Paragraph ( ) ( ) provdes that a egay adopted chd of a person sha
be consdered a chd of such person by bood.
Pnragraph ( ) ( ) provdes that an ndvdua who Is egay separated from
hs spouse under a decree of dvorce or separate mantenance sha not be
consdered as marred.
Paragraph ( ) (C) provdes that a ta payer whose spouse s a nonresdent
aen sha be consdered as not marred at the cose of the ta abe year for the
purposes of consderng whether the ta payer s the head of a househod.
Thus, a ta payer whose spouse s a nonresdent aen (so that such ta payer
may not compute hs ta under the ncome spttng provsons of secton 12(d) )
and who, f unmarred, woud quafy as a head of a househod may be consdered
as unmarred despte the fact that he has a spouse.
Paragraph ( ) (D) provdes that a ta payer whose spouse (other than a
spouse who was a nonresdent aen) des durng the ta abe year sha be
consdered as marred at the cose of hs ta abe year for the purposes of secton
12(c). Such ta payer, accordngy, may not be consdered as a head of a house-
hod for such ta abe year.
ta payer who at any tme durng the ta abe year s a nonresdent aen
sha n no case be consdered as a head of a househod.
S CTION 302. P NDITUR S IN T D LOPM NT OF MIN S
Under e stng aw a e pendtures n e cess of net recepts from ores or
mneras sod are requred to be charged to capta account whe a mne s n
the deveopment stage and are to be recovered through depeton. owever,
nfter a mne has reached the producng status, deveopment costs, whether or
not n e cess of net recepts from ores or mneras sod, are not treated as capta
charges recoverabe through depeton but as operatng e penses deductbe
n the year n whch the produced ores or mneras benefted thereby are sod.
Secton 302 of the b a ds to secton 23(a) (1) of the Code a new subparagraph
(D) whch provdes that a e pendtures pad or ncurred nfter December 31,
19 0, n the deveopment of a mne or other natura depost (other than an
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
o or gas we), to the e tent pad or Incurred after the e stence of ores or
mneras n commercay marketabe quanttes has been dscosed sha be
deducted rataby as the produced ores or mneras benefted by such e pendtures
are sod. Ths secton of the b makes no change n the present treatment
of such e pendtures for the perod after the mne or depost has reached the
producng status. It provdes, however, that e pendtures durng the deveop-
ment stage, and after competon of the nta e poratory work, whch under
e stng reguatons are requred to be charged to capta account sha be
treated In a manner smar to the treatment now accorded such e pendtures
ncurred after the mne or depost has reached the producng status.
The e pendtures whch are to be treated as a deferred e pense are to be
deducted rataby as the unts of produced ores or mneras are sod. ccord-
ngy, t w be necessary to estmate the number of unts, benefted by such
e pendtures, n the reserve of the mne or depost at the cose of the nta
e poratory work. Ths estmate s, of course, sub|ect to revson n the event
t s ascertaned as the resut of operaton or deveopment work pror to the
cose of the ta abe year that the remanng recoverabe unts are materay
greater or ess than the number remanng from a pror estmate. s these
unts are produced and sod, the amount of the deveopment costs to be deducted
w be an amount whch s n the same proporton to the tota of such costs whch
are treated as deferred e penses as the number of unts sod s to the number of
unts n the reserve.
Ths provson sha have no appcaton to e pendtures for the acquston or
Improvement of property of a character whch s sub|ect to the aowance for
deprecaton under secton 23(1). owever, a reasonabe aowance for de-
precaton on property whch s sub|ect to such aowance sha be consdered as
an e pendture and sha be treated as a deferred e pense to the e tent aocabe
to deveopment costs.
pendtures ncurred n the deveopment of a mne or other natura depost
are n no case to be ncuded n the ad|usted bass of the property for the purpose
of computng a deducton for depeton under secton 11 . These tems are to be
treated as an e pense for purposes of secton 11 . For purposes of sectons 111,
112, and 113, however, these e pendtures are to be consdered as capta outays
to be ncuded as part of the cost of the mne or depost.
Subsecton (b) of secton 302 of the b adds a new subparagraph ( ) to sec-
ton 113(b)(1) (reatng to ad|usted bass of property) whch provdes that
the bass of mnes or natura deposts sha be ad|usted for amounts aowed
as deductons under secton 23(a)(1)(D) and resutng n a reducton of the
ta payer s ta es under chapter 1 of the Code, but not ess than the amounts
aowabe under such secton for the ta abe year and pror years. ccordngy,
f a ta payer purchases undeveoped mnng property for 1,000,000 and at the
cose of the deveopment stage has ncurred deveopment costs of 9,000,000, the
bass of such property at such tme for computng gan or oss w be 10,000,000.
ssumng that te ta payer n ths e ampe has operated the mne for severa
years and has deducted aowabe percentage depeton n the amount of 2,000,-
000 and has deducted aowabe deferred deveopment e pendtures of 2,000,000,
the bass of the property n the ta payer s hands for purposes of determnng
gan or oss f sod w be 0,000,000.
Subsecton (c) of secton 302 makes a technca amendment to secton 2 (a)
(2) of the Code (reatng to tems not deductbe) n order to remove any doubt
as to the deductbty under secton 23(a) (1) (D) of the e pendtures ncurred
n the deveopment of a mne or depost.
The amendments made by ths secton of the b sha be appcabe wth
respect to e pendtures pad or ncurred after December 31, 10 0.
S CTION S03. G IN FROM S L O Cn NG OF T P Y R S R SID NC
Ths secton of the b adds a new subsecton (n) to secton 112 of the Code,
whch reates to the recognton of gan or oss. Paragraph (1) of the new
subsecton provdes, n genera, that any gan from a sae of property used by
the ta payer as hs prncpa resdence (referred to herenafter as the od
resdence ) w not be recognzed f the ta payer wthn a perod begnnng 1
year pror to the date of such sae and endng 1 year after such date purchases
property and uses t as hs prncpa resdence (referred to herenafter as the
new resdence ) e cept to the e tent that the ta payer s seng prce of the od
resdence e ceeds the ta payer s cost of purchasng tbe new resdence. Such non-
recognton of gan Is mandatory. The new subsecton does not change the treat-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
36
ment tnder e stng aw of oss from the sae or e change of the ta payer s
resdence.
Whether or not property s used by the ta payer as hs resdence, and whether
or not property s used by the ta payer as hs prncpa resdence (n the case
of a ta payer usng more than one pace of resdence), depends upon a of
the facts and crcumstances n each ndvdua case, ncudng the bona fdes of
the ta payer. The term resdence s used n contradstncton to property used
n trade or busness and property hed for the producton of ncome. Neverthe-
ess, the mere fact that the ta payer temporary rents out ether the od or
the new resdence may not, n the ght of a of the facts and crcumstances
n the cape, prevent the gan from beng not recognzed. For e ampe, f the ta -
payer purchases hs new resdence before he ses hs od resdence, the fact that
he rents out the new resdence durng the perod before he vacates the od
resdence w not prevent the appcaton of ths subsecton.
Where part of a property s used by the ta payer as hs prncpa resdence
and part s used for busness purposes or n the producton of ncome (as n
the case where a part of the budng n whch the ta payer resdes s used as
a store or offce or s rented or n the case of a farm property) aocaton most
be made to determne the e tent to whch the new subsecton appes. If the
od resdence s used ony partay for resdenta purposes, a proper aocaton
of the gan and of the seng prce s necessary; ony that part of the gan
aocabe to the resdenta porton may be not recognzed under the new sub-
secton and ony so much of the seng prce as s aocabe to such part of the
property need be renvested n the new resdence. If the new resdence s used
ony partay for resdenta purposes, then ony so much of ts cost as s ao-
cabe to the resdenta porton s counted as renvestment for the purpose of the
new subsecton.
Property used by the ta payer as hs prncpa resdence may ncude a house-
boat or a house traer. Paragraph ( ) provdes that the ta payer s prncpa
resdence may aso ncude stock hed by a tenant stockhoder n a cooperatve
apartment corporaton as those terms are defned n secton 23(z) (2) of the Code,
f the apartment whch the ta payer s entted to occupy as such stockhoder
s used by hm as hs prncpa resdence. Property used by the ta payer as hs
prncpa resdence does not ncude persona property such as a pece of fur-
nture, a rado, etc., whch, n accordance wth the appcabe oca aw, s not
a f ture. ,
Paragraph (2) ( ) provdes that an e change by the ta payer of hs resdence
for other property sha be consdered, for the purposes of the new subsecton,
to be a sae. Paragraph (2) ( ) provdes that where the ta payer s resdence
(as a resut of ts destructon n whoe or n part, theft or sezure) s compu-
sory or nvountary converted nto property or money, the destructon, theft
or sezure sha aso be consdered as a sae. though paragraph (2) ( does
not specfcay provde that an e ercse of the power of requston or condemna-
ton sha be consdered a sae, such events are nevertheess saes under the
prncpe of awaan Gas Products, Ltd. v. Commssoner, 120 Fed. (2d) .
For the purposes of ths subsecton (under par. (2)(C)), the acquston of
property whch s used as the ta payer s prncpa resdence upon an e change of
property by the ta payer, or upon the compusory or nvountary converson of
property used by the ta payer as hs prncpa resdence as the resut of ts
destructon, n whoe or n part, theft, sezure, requston, or condemnaton, and
(under par. (2) (D)) the constructon or reconstructon of a resdence, sha be
consdered to be a purchase. The mere mprovement of a resdence, not amount-
ng to reconstructon, does not consttute a purchase of such resdence.
The words ta payer s seng prce of the od resdence ncude the amonnt
of any mortgage, trust deed, or other ndebtedness to whch such property s
sub|ect n the hands of the purchaser whether or not the purchaser assumes
such ndebtedness. Such words aso ncude the face amount of any abtes
of the purchaser whch are part of the consderaton for the sae. Commssons
and other seng e penses pad or ncurred by the ta payer on the sae of the
od resdence are not to be deducted or taken nto account u determnng the
ta payer s seng prce of the od resdence. In the case of an e change or
converson whch s consdered as a sae under ths subsecton, the amount
reazed by the ta payer upon such e change or converson sha be consdered
to be the ta payer s seng prce of the od resdence.
The words ta payer s cost of purchasng the new resdence aso ncude
such ndebtedness to whch the property purchased s sub|ect at the tme of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
37
purchase whether or not assumed by the ta payer (ncudng purchase money
mortgages, etc.) and the face amount of any abtes of the ta payer whch
are part of the consderaton for the purchase; but ncude ony so much of
the cost as s attrbutabe to acquston, constructon, reconstructon, or m-
provements made wthn the 2-year perod of tme n whch the purchase of the
new resdence must be made n order to have gan not recognzed under ths
subsecton and whch s propery chargeabe to capta account rather than to
current e pense. Commssons and other purchasng e penses pad or ncurred
by the ta payer on the purchase of the new resdence are to be ncuded n
determnng the ta payer s cost of purchasng the new resdence. In the case
of an acquston of a resdence upon an e change or converson whch s con-
sdered as a purchase under ths subsecton, the far market vaue of the new
resdence sha be consdered as the ta payer s cost of purchasng the new
resdence.
Where any part of the new resdence s acqured by the ta payer, for e ampe,
by gft, the vaue of such part s not to be ncuded n determnng the ta payer s
cost of the new resdence. If the ta payer acqures a resdence by gft or n-
hertance, and spends 10,000 n reconstructng the resdence, ony 10,000 may
be treated under paragraph (1) as the ta payer s cost of purchasng the new
resdence.
Paragrap) (6) of the proposed subsecton provdes that, f the ta payer and
bs spouse, n accordance wth the reguatons whch the Secretary sha pre-
scrbe pursuant to such paragraph, consent to the appcaton of subparagraph
( ) of such paragraph, the words ta payer s seng prce of the od resdence
sha mean the ta payer s or the ta payer and hs spouse s seng prce of the
od resdence, and the words ta payer s cost of purchasng the new resdence
sha mean the cost to the ta payer, or to hs spouse, or to both of them, of
purchasng the new resdence, whether such new resdence s hed by the ta -
payer, or hs spouse, or both. Such subparagraph ( ) provdes that so much
of the gan upon the sae of the od resdence as s not recognzed soey by
reason of paragraph (6) and so much of the ad|ustment to bass of the new
resdence under paragraph ( ) of the new subsecton as resuts soey by reason
of paragraph (6) sha be aocated between the ta payer and hs spouse as
provded for n the reguatons whch the Secretary sha prescrbe. Paragraph
(6) s appcabe ony f the od resdence and the new resdence are each used
by the ta payer and hs spouse as ther prncpa resdence. If the ta payer
and hs spouse do not consent to the appcaton of subparagraph ( ), the
recognton of gan upon the od resdence sha be determned under the proposed
subsecton wthout regard to paragraph (G). The foowng e ampes w
Iustrate the appcaton of paragraph (6) :
ampe (1). ta payer, n 19 1, ses for 10,000 the prncpa res-
dence of hmsef and hs wfe, whch he owns ndvduay and whch has
an ad|usted bass to hm of ,000. Wthn a year after such sae he and
bs wfe contrbute ,000 each from ther separate funds for the purchase
of ther new prncpa resdence whch they hod as tenants n common,
each ownng an undvded one-haf nterest theren. If the ta payer and
hs wfe consent to the appcaton of secton 112(n) (6) ( ), t s antc-
pated that the reguatons whch the Secretary sha prescrbe under such
secton w provde that the gan of ,000 upon the sae of the od res-
dence w not be recognzed to the ta payer, and the ad|usted bass of the
ta payer s nterest n the new resdence w be 2, 00 and the ad|usted
bass of the ta payer s wfe s nterest n such property w he 2, 00.
ampe (2). ta payer and hs wfe, n 19 1, se for 10,000 ther
prncpa resdence, whc they own as ont tenants and whch has an
ad|usted bass of 2, 00 to each of them ( ,000 together). Wthn a year
after such sae, the wfe spends 10,000 of her own funds n the purchase
of a new prncpa resdence for hersef and the ta payer and takes tte
In her name ony. If the ta payer and hs wfe consent to the appcaton
of secton 112(d)(6)( ), t s antcpated that the reguatons whch the
Secretary sha prescrbe under such secton w provde that the ad|usted
bass to the wfe of the new resdence sha be ,000, and the gan of the
ta payer of 2, 00 upon the sae of the od resdence w not be recognzed.
The wfe, as a ta payer hersef, w have her gan of 2, 00 on the sae of
the od resdence not recognzed under paragraph (1) of secton 112(n).
If the ta payer ses or otherwse dsposes of a new resdence pror to the date
of the sae of the od resdence, paragraph (2) ( ) provdes that such new
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3S
resdence w not be consdered as a new resdence for te purposes of ths sub-
secton. nd, f the ta payer, wthn the specfed perod, purchases more than
one property whch s used by hm as hs prncpa resdence durng the 1 year
succeedng the date of the sae of the od resdence, paragraph (2) (F) provdes
that ony the ast of such resdences so used by hm sha be consdered a new
resdence for the purposes of ths subsecton. owever, If the ta payer s new
resdence s destroyed, stoen, sezed, requstoned, condemned, or sod or
e changed under the threat or mmnence of requston or condemnaton wthn
the year succeedng the date of the sae of the od resdence, then, for the pur-
pose of the precedng sentence, such year s deemed to end on the date of the
destructon, theft, sezure, requston, condemnaton, sae, or e change. If
wthn 1 year pror to the sae of the od resdence, the ta payer sod other
property used by hm as hs prncpa resdence at a gan, and any part of such
gan was not recognzed under ths subsecton, paragraph (3) provdes that the
subsecton sha not appy wth respect to the sae of the od resdence. For the
purposes of the precedng sentence, however, the destructon, theft, sezure,
requston, condemnaton, or the sae or e change under the threat or mm-
nence of requston or condemnaton sha not be consdered as a sae. The
foowng e ampe w ustrate ths paragraph:
ta payer ses hs od resdence on anuary 1 , 19 1, and purchases a
new resdence on February 1 , 19 1. On March 1 , 19 1, he ses the new
resence and purchases a second new resdence on pr 1 , 19 1. The gan
on the sae of the od resdence on anuary 1 , 10 1, w not be recognzed
e cept to the e tent to whch the ta payer s seng prce of the od res-
dence e ceeds hs cost of purchasng the second new resdence purchased
on pr 1 , 19 1. Gan on the sae or the frst new resdence on March 1 ,
19 1, w be recognzed. If, nstead of seng the frst new resdence on
March 1 , 19 1, such resdence had been destroyed by fre on that date and
nsurance proceeds n cash had been receved as a resut thereof, the gan on
the sae of the od resdence on anuary 1 , 19 1, w not be recognzed
e cept to the e tent to whch the ta payer s seng prce of the od resdence
e ceeds hs cost of purchasng the new resdence purchased on February 1 ,
19 1. nd, gan on the nvountary converson by fre of the frst new
resdence on March 1 , 19 1, w not be recognzed e cept to the e tent to
whch the amount reazed from such converson e ceeds the ta payer s
cost of purchasng the second new resdence purchased on pr 1 , 19 1.
Paragraph ( ) of the new subsecton provdes that where the purchase of a
new resdence resuts n the nonrecognton, under that subsecton, of any part of
the gan reazed upon the sae of an od resdence, then, n determnng the ad-
|usted bass of the new resdence as of any tme foowng the date of the sae of
the od resdence, the ad|ustments to bass sha ncude a reducton by an amount
equa to the amount of.the gan whch was not recognzed upon the sae of the
od resdence. Such a reducton s not to be made for the purpose of determnng
the ad|usted bass of the new resdence as of any tme precedng the sae of
the od resdence. For ths purpose the amount of the gan not recognzed under
ths subsecton upon the sae of the od resdence ncudes ony so much of the
gan as s not recognzed because of the ta payer s cost, up to the date of the
determnaton of the ad|usted bass, of purchasng the new resdence. The
foowng e ampe w ustrate ths paragraph:
On anuary 1, 19 1, the ta payer buys a new resdence for 10,000. On
March 1, 19 1, he ses for 1 ,000 hs od resdence whch has an ad|usted
bass to hm of ,000. Durng pr a wng s constructed on the new house
at a cost of ,000 and n May he buds a garage at a cost of 2,000. The
ad|usted bass of the new resdence s 10,000 durng anuary and February,
,000 durng March and pr, and 7,000 foowng the competon of the
constructon n May.
Whenever a ta payer ses property used as hs prncpa resdence at a gan
the statutory perod prescrbed n secton 27 of the Code for the assessment of
any defcency attrbutabe to any part of such gan w not e pre pror to the
e praton of 3 years from the date the Secretary s notfed by the ta payer,
n accordance wth such reguatons as the Secretary may prescrbe, of the cost
of purchasng the new resdence whch the ta payer cams resuts n the non-
recognton of any part of such gan, or of the ta payer s ntenton not to, or
faure to, purchase a new resdence wthn the perod when such a purchase w
resut n the nonrecognton of any part of such gan. Such a defcency may be
assessed pror to the e praton of such 3-year perod notwthstandng the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
39
provsons of any other aw or rue of aw whch mght otherwse bar such
assessment.
Subsecton (b) of the b makes a number of technca amendments to other
sectons of the Code whch are necesstated hy the addton of subsecton (n)
to secton 112. The frst such amendment provdes that secton 112(f), reat-
ng to nvountary conversons, sha not appy n the case of property used by
the ta payer as hs prncpa resdence f the destructon, theft, sezure, requs-
ton, condemnaton, or sae or e change under the threat or mmnence of requs-
ton or condemnaton of such property occurred after December 31, 19 0. The
second such amendment provdes that secton 113(a)(9), reatng to bass of
property acqured as a resut of an Invountary converson, sha not be appcabe
to property acqured as a resut of a compusory or nvountary converson of
property used by the ta payer s hs prncpa resdence f the destructon, theft,
sezure, requston, condemnaton, or sae or e change under the threat or m-
mnence of requston or condemnaton of such property occurred after Decem-
ber 31, 19 0. These sectons are superseded n ths stuaton by the new sec-
ton 112(n) and the new secton 113(b) (1) ( ). The thrd such amendment
adds a new subparagraph ( ) to secton 113(b) (1), reatng to ad|usted bass of
property, whch provdes a cross-reference from such secton to secton 112(n) ( ).
The fourth such amendment adds a new paragraph (7) to secton 117(h),
reatng to the determnaton of the hodng perod, to provde that n deter-
mnng the perod for whch the ta payer has hed a resdence the acquston
of whch resuted under secton 112(n) n the nonrecognton of any part of the
gan reazed on the sae, e change, or nvountary or compusory converson of
another resdence, there sha be ncuded the perod for whch such other res-
dence had been hed as of the date of such sae, e change, or nvountary con-
verson. The ast of such amendments adds a new subsecton (e) to secton
270, reatng to the perod of mtaton upon assessment and coecton, whch
provdes a. cross-reference from such secton to secton 112(n)(7).
Subsecton (c) of the h contans the effectve date of the amendments made
by ths secton of the b. Such amendments are to be appcabe to ta abe
years endng after December 31, 19.r0. but the provsons of the proposed sec-
ton 112(n) (1) and (6) sha appy ony wth respect to resdences sod, wthn
the meanng of such secton, after such date. purchase of a new resdence
pror to December 31, 19 0, or n a ta abe year endng before anuary 1, 19 1,
sha, f otherwse quafed, be consdered a new resdence for the purpose of
secton 112(n) (1) and (6).
S CTION 30 . P RC NT G D PL TION
Ths secton of the b grants a percentage-depeton aowance at the rate of
percent, n the cast of deposts of asbestos, sand, grave, grante, marbe, stone
(ncudng pumce, scora, and sate), brck cay, te cay, shae, camshe, and
oystcrshe. Percentage-depeton aowance s aso provded n the case of de-
posts of trpo, bora , fuer s earth, refractory and fre cay, quartzte, perte,
datomaceous earth, metaurgca-grade mestone, and chemca-grade me-
stone, at the rate of 1 percent. The percent rate of percentage depeton now
aowed for coa has been ncreased to 10 percent. The aowances are of the
stated percentages of the gross Income from the property but not n e cess of 0
percent of the net Income (computed wthout aowance for depeton) from
the property.
Subsecton (b) of ths secton makes a technca amendment to paragraph (2)
of secton 11 (b) of the Code n order to emnate the necessty of stng by
name those mnes for whch depeton based on dscovery vaue s dened by
reason of the aowance of percentage depeton.
Your commttee has made technca amendments to secton 11 (b)( )( )
whch do not ater ts substance. change has aso been made n the paren-
thetca cause statng the source from whch thenardte s derved. Under the
present wordng of the secton, percentage depeton Is aowed for thenardte
produced from brnes or m tures of brne. To remove any ambguty your
commttee has changed the wordng of ths secton so that thenardte, ncudng
thenardte from brnes or m tures of brne, s permtted the percentage depe-
ton aowance.
The amendments made by ths secton of the b sha appy ony wth respect
to ta abe years begnnng after December 31, 19 0.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
S CTION 30 . C PIT L G INS ND LOSS S
Ths secton revses the ta trentment of capta gans and osses In the case
of a ta payer other than a corporaton.
Under present nw, n the case of a ta payer other than a corporaton, gan
or oss from the sae or e change of a capta asset hed for more than G months
(ong-term capta gan or oss) s ony 0 percent taken nto account n com-
putng net ncome, and gan or oss from the sae or e change of a capta
asset hed for G months or ess (short-term capta gan or oss) s 100 percent
taken nto account n computng net ncome. ence 1 of short-term capta
oss may offset 2 of ong-term capta gan. For e ampe, an ndvdu. havng
short-term capta oss of 1 mon woud pay no ta upon a ong-term cap-
ta gan of S2 mon.
In the ense of a corporaton present aw requres that short-term capta oss
(or gan) offset ong-term capta gan (or oss) doar for doar nstead of at
the 2-to- rato |ust descrbed. Under the amendments made by ths secton of
the b, short-term capta oss (or gan) and ong-term capta gan (or oss)
w aso offset each other doar for doar n the case of a ta payer other than a
corporaton.
The essentas of the new treatment of ta payers other than corporatons are
as foows:
1. Capta gans (whether ong-term or short-term) w he 100 percent taken
nto account n computng gross ncome.
2. Capta osses (whether ong-term or short-term) w be 100 percent taken
nto account as deductons n computng net ncome; e ept that (as under
present nw) such osses may he aowed ony to the e tent of capta gans
pus the smaer of (a) 1,000 or (b) the net ncome (or ad|usted gross Income
n case Suppement T s used) of the ta payer computed wthout regard to
capta gans and osses.
3. new deducton from gross Income Is provded, to be computed as foows:
s under present aw, the ta payer w merge hs short-term capta gans and
osses to obtan hs net short-term capta gan or oss, as the case may be: and
w merge hs ong-term capta gans and osses (taken nto account 100 per-
cent) to obtan hs net ong-term capta gan or oss, as the case may be.
ta payer havng a net ong-term capta gan w then reduce t by any net
short-term capta oss and w take as a deducton one-haf of any remanng
e cess. Ths new 0 percent deducton for the e cess of net ong-term capta
gan over net short-term capta oss supersedes the 0 percent ncuson of
ong-term capta gans and osses provded by present aw.
. s under present aw, a ta payer havng an e cess of net ong-term capta
gan over net short-term capta oss s permtted to compute an aternatve
ta by combnng a fat percentage of such e cess wth a parta ta computed
n the reguar manner upon the baance of hs net ncome.
Subsecton (a) of ths secton adds a new subsecton (cc) to secton 23 of the
Code and amends secton 117(b) of the Code (whch heretofore has prescrbed
the percentages of gan or oss taken nto account), so ns to provde the new
deducton for 0 percent of the e cess of net ong-term capta gan over net
short-term capta oss. n estate or trust s requred to e cude, n computng
ths deducton, capta gan whch under secton 102 (b) or (c) s ncudbe as
such by ts ncome benefcares.
T;e foowng e ampes w ustrate the dfferences n the computaton of
net ncome under present nw and under the new treatment n the case of an
ndvdua who, t s assumed, has net ncome of ,000 computed wthout re-
gard to capta gans and osses :
ampe (1). ssume that the Indvdua reazes 2,000 of ong-term cap-
ta gan and 1, 10 of short-term capta oss durng the ta abe year. Under
present nw one-haf of the gan ( 1,000) s ncudbe n gross ncome, the
1,300 oss s aowabe, and the net ncome s 7, 00. Under the new trentment
the entre 2,000 of the gan Is Incudbe n gross ncome, the 1, 00 oss s
aowabe, n deducton under secton 23(ec) s aso aowed n the amount of
2 0 (one-haf of the e cess of the gan over the oss), and the net ncome Is
,2 0.
ampe (2). ssume that the Indvdua reazes 3,000 of ong-term cap-
ta oss and 2,000 of short-term capta gan durng the ta abe year. Under
present aw the 2,000 gan s ncudbe n gross ncome, the one-haf of the oss
( 1, 00) taken nto account s aowabe, and net ncome s , 00. Under the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
new treatment the 2,000 gan s ncudbe n gross ncome, the 3,000 oss s
aowabe, and net ncome s 7,000.
ampe (3). ssume that the ndvdua reazes 3,000 of ong-term cap-
ta oss and 2,000 of short-term capta oss durng the ta abe year. Under
present aw net ncome s 7,000, and the ta payer may carry forward, to be
used as short-term capta oss n the fve succeedng years, 2, 00 (the short-
term capta oss, 2,000, pus one-haf of the ong-term capta oss, 1, 00, ess
the oss aowed n the current year, 1,000). Under the new treatment net
Income s aso 7,000, but the ta payer may carry forward, to be used as a
short-term capta oss n the ve succeedng yca-s, ,000 (the aggregate osses
of ,000 ess the 1,000 aowed n the current year).
Subsecton (b) of ths secton amends secton 117(c) (2) of the Code (reatng
to aternatve ta n the case of a ta payer other than a corporaton). Ths
amendment has two purposes: (1) to conform the computaton of the aterua-
tve ta to the new treatment of capta gans and osses, and (2) to provde
tat the amount ascertaned by appcaton of the aternatve rate to capta
gans sha be ncreased as specfed n secton 10(c) n the case of ta abe years
to whch the defense ta provded theren s appcabe.
ecause of the deducton provded by secton 23 (cc) and 117(b), as amended,
net ncome under the new treatment w ncude ony 0 percent of the e cess
of net ong-term capta pan over net short-term capta oss. ence t has
been necessary to provde that the parta ta , to be computed at the rates and
n the manner as f secton 117(c) had not been enacted, sha be computed upon
the net ncome reduced by ony such 0 percent of the e cess. The amount to
be added to the parta ta , to arrve at the tota ta , s computed by takng 2
percent of the whoe e cess of net ong-term capta gan over net short-term
capta oss and, f secton 10(c) s appcabe, ncreasng such amount as pro-
vded n that secton.
The appcaton of secton 117(c) (2), as amended, may be thus ustrated:
ssume that for the caendar year 19 2 an ndvdua has net ncome of 90,000
computed as foows: 0,000 of ordnary net ncome, and an S0,000 e cess of
net ong-term capta gan over net short-term capta oss, wth a deducton of
0,000 aowabe under secton 23(cc) wth respect to such e cess. The frst
step s to compute a parta ta upon 0,000 under the provsons of sectons 11,
12, and 10(b) ; ths parta ta s 30,172. 0. The second step s to take 2 per-
cent of 0,000 (e cess of net ong term capta gan over net short-term capta
oss), whch s 20,000 and to ncrease that amount by 12 percent as provded n
secton 16(c) (2) ; the amount thus determned s 22, 00. The aternatve ta
s, therefore, 2,672. 0 ( 30,172. 0 pus 22, 00).
Subsecton (c) (1) of ths secton amends secton 22(n) to provde that the
new deducton aowed by secton 23(cc) sha be taken n computng ad|usted
gross ncome.
Subsectons (c) (2) and (3) make conformng amendments to sectons
117(a) (2), 117(a) ( ), and 117(|) (2) ( ). s amended, these sectons dea wth
specfed types of gans f and to the e tent taken nto account n computng
gross ncome. though the percentage ncuson provsons have been em-
nated from secton 117(b), ths mtng e presson s necessary n order to
emnate any gan whch for any reason s not ncudbe n grwss ncome for the
ta abe year.
Subsecton (c) ( ) of ths secton makes a conformng amendment to secton
122(d) ( ) of the Code (reatng to computaton of the net operatng oss deduc-
ton. The prncpe enuncated by the Supreme Court n the Reo Motor , Inc. v.
Commssoner (33 U. S. 2) (whch dsapproved the decson n Commssoner
v oorc. Inc. (1 1 Fed. (2d) 27)) w govern n appyng the effectve date
provsons wth respect to ths amendment.
Subsecton (c) ( ) of ths secton amends secton 102(a) of the Code (reatng
to deductons of a trust or estate). Ths amendment merey makes certan that
the prncpe of Unted States v. enedct, et a . (33 U. S. G92) and reated cases
w contnue under the b as under e stng aw, namey, that approprate ad-
|ustment of the deductons under secton 162(a) s to be made on account of the
appcabe treatment of capta gans and osses.
Subsecton (d) of ths secton provdes that the amendments made by the
secton sha be appcabe ony wth respect to ta abe years begnnng on or
after the date of enactment of the b. The treatment of capta gans and
osses of years begnnng before such date s not affected by these amendments
for any purpose, ncudng the determnaton under secton 117(e) of the
016 2 29
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
amount of the capta oss or of the net capta gan for any ta abe |ear begn-
nng before such date. Thus, In the case of a ta payer whose ta abe year Is a
caendar year, a net capta oss for the caendar year 19 0, and the net capta
gan for 10 1, woud be computed wthout regard to the amendments even though
the oss s carred forward under 117(e) of the Code to the caendar year 19 2,
a year to whch the amendments w be appcabe. In determnng the amount
of the net capta oss for 19 0 whch can be carred over under secton 117(e)
to 10 3, the computaton of the net capta gan for 19 2 woud, of course, be
computed wth regard to the amendments made by ths secton.
S CTION 306. S L S OF LI STOC
Ths secton amends secton 117(|) of the Code to provde for the ta treatment
of vestock. See page 0C n the genera dscusson secton of ths report.
S CTION 307. T TR TM NT OF CO L ROY LTI S
Ths secton of the b amends sectons 117( ) (1) and 117(k) (2), whch re-
ate, respectvey, to the defnton of property used In the ta payer s trade or
busness and to the gan or oss upon the cuttng of tmber.
The amendment to secton 117(k)(2) provdes that f con whch has been
owned by the ta payer for more than 6 months Is dsposed of by hm under any
form or type of contract by vrtue of whch he retans an economc nterest n
the coa, the dfference between the amount receved for the coa nnd the ad|usted
depeton bass thereof under secton 11 (b)(1) sha be treated as a gan or
oss, as the case may be, upon the sae of the coa. The amendment to secton
117(|)() ncudes wthn the term property used n the trade or busness
coa to whch secton 117(k)(2) Is appcabe. The net effect of these two
amendments Is to treat the dfference between the amount receved for the coa
nnd the ad|usted depeton bass thereof as gan or oss to whch secton 117( )
s appcabe; whether such gan or oss w be deemed to be gan or oss from the
sae of a capta asset hed more than 0 months w depend upon the appcaton
of secton 117(|) to these and other transactons of the ta payer.
It s further provded that ths amendment sha not appy n any case where
the ta payer s personay obgated to pay any part of the cost of operatons
after the dsposa of such coa wth respect to the mnng thereof. owever, the
amendment may be apped even though the ta payer pror to the dsposa op-
erated the mne. The date of the dsposa of coa s, n accordance wth the
prncpe of Sprnqfcd Pywood Corporaton, 1 T. C. No. 91 (19 0), the date of
the royaty contract. n owner sha not be entted to the aowance for per-
centage depeton provded for In secton 11 (b)( ) wth respect to amounts
receved any part of whch are consdered to be receved from the sae of
coa under secton 117(k) (2), as amended by ths secton.
cerca amendment Is made to secton 117 (k) n order to change the
headng thereof to conform to the amendments made by ths secton.
The amendments made by ths secton sha be appcabe wth respect to ta -
abe years endng after December 31, 19 0, whether the dsposa of the con
occurred on, before, or after such date, but sha appy ony wth respect to
amounts receved or accrued after such date.
S CTION 30 . COLL PSI L CORPOR TIONS
Ths secton of the b amends secton 117(m) of the Code, reatng to coaps-
be corporatons. Secton,117(m) (2) ( ) defnes the term coapsbe corpo-
raton. Such a corporaton Is presenty defned as a corporaton formed or
avaed of prncpay for the manufacture, constructon, or producton of prop-
erty, or for the hodng of stock n a corporaton so formed or avaed of, wth a
vew to (I) the sae or e change of stock by ts sharehoders (whether n quda-
ton or otherwse), or a dstrbuton to ts sharehoders, pror to the reazaton
by the corporaton manufacturng, constructng, or producng the property of a
substanta part of the net ncome to be derved from such property, and () the
reazaton by snch sharehoders of gan attrbutabe to such property. Ths
secton of the b adds to such defnton the case of a corporaton formed or
avaed of prncpay for the purchase of property whch (n the hands of the
corporaton) Is property descrbed n secton 117(n)()( ) (stock n trade,
etc.), or for the hodng of stock In a corporaton so formed or avaed of. wth
a vew to (1) the sae or e change of stock by ts sharehoders (whether In
qudaton or otherwse), or a dstrbuton to ts sharehoders, pror to the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
reazaton by the corporaton purchasng the property of a substanta part of
the net ncome to be derved from such property, and () the reazaton by such
sharehoders of gan attrbutabe to such property.
It Is mmatera, for the purpose of the amendment made by ths secton of
the b, whether the purchase of the property n queston s made from the share-
hoders of the corporaton or from persons other than the sharehoders of the
corporaton. The property, however, must be property whch, n the hands of the
corporaton, s property of a knd descrbed n secton 117(a) (1) ( ). Secton
117(a) (1) ( ) e cudes from the defnton of capta assets set forth n secton
117(a) (1), stoc . In trade of the ta payer or other property of a knd whch
woud propery be ncuded n the nventory of the ta payer f on hand at the
cose of the ta abe year, or property hed by the ta payer prmary for sae to
customers n the ordnary course of hs trade or busness. It s assumed that
property whch, n the hands of an ordnary corporaton, woud be property of a
knd descrbed n secton 117(a) (1) ( ) woud aso be such property n the hands
of a corporaton, formed or avaed of wthn the meanng of secton 117(m).
In order to conform the other provsons of secton 117 (m) to the above amend-
ment, necessary changes have been made theren.
The amendments made by ths secton are appcabe to ta abe years begnnng
after December 31, 19 0, but t s specfcay provded that the determnaton
of the ta treatment of gans reazed n ta abe years begnnng pror to anuary
1, 19 1, sha be made as f ths secton had not been enacted and wthout
nterferences /c drawn from the fact that the amendments made by ths
secton to secton 117(m) are not made appcabe to such gans and wthout
nterferences sc drawn from the mtatons contaned n secton 117(m), as
amended by ths secton.
S CTION 309. D L RS IN S CURITI S C PIT L G INS ND ORDIN RY LOSS S
Ths secton adds a new subsecton (n), reatng to the treatment of capta
gans and ordnary osses by deaers n securtes, to secton 117 of the Code.
Under e stng aw, a ta payer may be consdered as a deaer wth respect to
certan securtes and as an nvestor wth respect to other bocks of securtes.
Under present court decsons, t s possbe for a deaer to shft securtes from
an nvestment account to an nventory account or vce versa, thereby affordng an
opportunty for convertng what shoud be ordnary gan nto capta gan and
what shoud be capta oss nto an ordnary oss. Secton 117(n), as added by
ths secton of the b, provdes rues desgned to prevent a deaer from obtanng
the most benefca ta resut by a shft n securtes from one account to another,
or by Insuffcent dentfcaton of the securtes aeged to be wthn a partcuar
account.
Paragraph (1) of subsecton (n) provdes rues for the treatment of capta
gans by a deaer n securtes. Under ths paragraph, gan by such a deaer
from the sae or e change of a securty sha n no event be consdered as gan
from the sae or e change of a capta asset uness ( ) the securty s, pror
to the e praton of the thrteth day after ts acquston or after the date of
enactment of ths ct (whchever s ater), ceary dentfed n the deaer s
records as a securty hed for nvestment; and ( ) the securty s not, at any
tme after the e praton of such thrteth day, hed by the deaer prmary for
sae to customers n the ordnary course of the trade or busness. It s con-
tempated that the reguatons may prescrbe the methods of dentfcaton whch
w adequatey earmark the securty as one hed for nvestment.
The provsons of secton 117(n)() ( ) and ( ) are ntended to operate
ony In the case where gan from the sae of a securty woud, but for the pro-
vsons of such paragraph, be consdered to consttute capta gan. Thus, f
a securty sod by a deaer woud be consdered, but for secton 117(n) (1), to
consttute the sae of a securty hed for Investment, gan from the sae of such
securty w nonetheess not be consdered as capta gan uness the securty
as been propery dentfed wthn the 30-day perod n the deaer s records as
hed for nvestment and s at no other tme thereafter hed for sae to customers
n the ordnary course of the trade or busness. Iowever, the mere fact that a
securty, whch s actuay hed by the deaer for sae to customers n the ordnary
course of the trade or busness, s dentfed as requred by ths secton ts a
securty hed for nvestment, w not cause the gan from the sae of the securty
to be treated as capta gan.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

Secton 117(n) (2) provdes the rue for treatment of ordnary osses by a
deaer n securtes. Ths rue s that a oss from the sae or e change of a se-
curty sha be consdered as a capta oss f at any tme after the thrteth day
foowng the date of enactment of ths ct the securty was ceary Identfed
n the deaer s records as a securty hed for Investment. The effect of secton
117(n) (2) s that, f a securty has once been dentfed as hed for nvestment,
a oss on the subsequent dsposton of such securty sha In no event be con-
sdered as a oss from the sae or e change of property whch s not a capta
asset.
For the purposes of secton 117 (n) the term securty means any share of
stock n any corporaton, any certfcate of stock or nterest n any corporaton,
a note, bond, debenture, or evdence of ndebtedness, or any evdence of an nterest
n or rght to subscrbe to any of the foregong.
The amendment made by ths secton s appcabe ony wth respect to saes
or e changes made after the e praton of the thrteth day after the date of
enactment of ths ct.
S CTION 310. TR TM NT OF G IN ON R L S OF C RT IN PROP RTY -
TW N SPOUS S ND TW N N INDI IDU L ND CONTROLL D COR-
POR TION
Secton 310(a) of the b adds a new subsecton (o) to secton 117 of the
Interna Revenue Code so ;s to provde that n the case of a sae or e change,
drecty or Indrecty, of deprecabe property (1) between husband and wfe,
or (2) between an Indvdua and a corporaton n whch he owns, drecty or
Indrecty, more than 0 percent of the vaue of the outstandng stock, any gan
recognzed to the transferor sha be consdered ordnary ncome and not capta
gan. The transfer of the property can be from the corporaton to the stock-
hoder or from the stockhoder to the corporaton. The property transferred
must be property whch n the hands of the transferee s property of a character
whch s sub|ect to the aowance for deprecaton provded n secton 23(1)
of the Code.
n ndvdua w be consdered to contro a corporaton f he owns, drecty
or ndrecty, more than 0 percent n vaue of the outstandng stock of the
corporaton. The new secton 117(o) (3) sets.forth detaed rues as to stock
ownershp for purposes of determnng whether an Indvdua does own more
than the requred amount of stock. Thus, secton 117(o)(3)( ) provdes that
stock owned, drecty or n recty, by or for a corporaton, partnershp, estate,
or trust shn be consdered as beng owned proportonatey by or for Its stock-
hoders, partners, or benefcares. Lkewse, secton 117(o)(3)( ) provdes
that an ndvdua sha be consdered as ownng the stock owned, drecty or
ndrecty, by or for hs spouse.
Secton 117(o) (3) (C) provdes that If an Indvdua owns more than 10
percent In vaue of the outstandng stock of a corporaton, ncudng stock
constructvey owned by hm upon the appcaton of secton 117(a) (3) ( ) and
( ), dscussed above, that ndvdua sha kewse be consdered as ownng
the stock of the corporaton owned, drecty or ndrecty, by or for hs brothers
and ssters (whether by the whoe or the haf bood), ancestors, and nea
descendants. Thus, assume thnt an ndvdua, D, owns percent of the stock
of Corporaton P, that hs wfe owns 20 percent of the stock of P, and that hs
brother owns 0 percent of the stock. Snce D owns more than 10 percent of
the stock of the corporaton, takng nto account the stock owned by hs wfe.
D w be consdered as ownng the stock owned by hs brother and consequenty
w be consdered as ownng 0 percent of the stock of Corporaton P (the
percent owned by D drecty; pus the 20 percent owned by hs wfe; pus the
0 percent owned by hs brother).
Secton 117(o) (3) (D), however, provdes that any stock whch Is consdered
as constructvey owned by a person because owned by or for hs spouse, brother,
sster, ancestor, or nen descendant sha not be consdered ns owned by such
person for purposes of determnng whether such stock s constructvey owned
by some thrd person. Thus, a man w be consdered as ownng a the stock
owned by hs wfe n determnng whether he owns more than 0 percent of
the stock of a corporaton. The wfe s stock w be dsregarded, however, n
determnng the stock ownershp of the man s brother. ssume, for e ampe,
that an ndvdua, O, owns 1 percent of the stock of Corporaton P: hs wfe
owns 20 percent of the stock of S; and hs brother owns 30 percent of the stock.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

G s consdered as ownng b th hs wfe s and hs brother s stock n determnng
whether he owns more than 0 percent of the stock of Corporaton S and conse-
quenty s consdered as ownng 6 percent of the stock (the 1 percent owned
by G; pus the 20 percent owned by hs wfe; pus the 30 percent owned by hs
brother). In determnng the stock owned by G s brother, however, the brother
s consdered as ownng the 1 percent of the stock owned by G drecty but s
not consdered as ownng the 20 percent of the stock actuay owned by G s wfe
and, therefore, ony constructvey owned by G. G s brother, therefore, w
be consdered as ownng ony percent of the stock (the 30 percent owned
by hm drecty; pus the 1 percent actuay owned by G). In summary, an
ndvdua may be consdered as constructvey ownng stock whch n turn s
constructvey owned by another person through a corporaton, partnershp,
estate, or trust, but w not be consdered as constructvey ownng any stock
whch n turn s constructvey owned by another poson through such other
person s spouse, brother, sster, ancestor, or nea descendant.
Secton 310(b) of the b provdes that the provsons of secton 117(o) sha
appy ony wth respect to saes or e changes made after May 3, 10 1.
S CTION 311. LI - INSUR NC COMP NI S
Ths secton woud amend Secton 202(b) (2) of the Code to provde that (he
speca rue contaned theren for computaton of the fgure to be used by fe n-
surance companes n determnng, for the purpose of ta abe years begnnng n
19 9 and 19 0, the reserve and other pocy abty credt aowed n computng
the ta abe ncome of such companes, sha aso be used n determnng the fgure
for the purpose of ta abe years begnnng n 19 1.
Sectons 202(b) and 203(b) of the Code provde for a reserve and other pocy
abty credt to be aowed n computng the ta abe ncome of fe nsurance
companes. The amount of the credt s computed for the purpose of norma ta
by mutpyng the norma ta net ncome, and for the purpose of the surta by
mutpyng the corporaton surta net ncome, by a fgure to be determned and
procamed by the Secretary of the Treasury for each ta abe year. The fgure,
whch s based on data wth respect to fe nsurance companes for the precedng
ta abe year, s the same for a fe nsurance companes and s computed n ac-
cordance wth a formua set forth n secton 202(b) (1) of the Code. owever,
snce the fgure resutng from the formua n the years 19 7 and 19 S was In e -
cess of 1, the effect of the pocy and other abty credt n such years was to
e empt fe nsurance companes from ta on ther otherwse ta abe fe nsur-
ance ncome. To remedy ths defect, secton 01 of the Revenue ct of 19 0
added paragraph (2) to secton 202(b) to provde for a modfcaton n the for-
mua to be used n the computaton of ta for ta abe years begnnng n 19 9 and
19 0.
The amendment made by ths secton requres the use of the formua wth the
modfcatons contaned n secton 202(b) (2) for the year 19 1 as we as for the
years 19 9 nd 19 0.
S CTION 312. T TR TM NT OF C RT IN IN STM NT COMP NI S
Ths secton adds a new subsecton (c) to secton 361 of the Code, whch con-
tans certan requrements appcabe to reguated nvestment companes under
suppement of chapter 1.
Subsecton (b) of secton 361 provdes certan mtatons on the types and
amounts of securtes whch may be hed by a reguated nvestment company f the
company s to quafy for the ta treatment under suppement . mong such
mtatons s a requrement that at the cose of each quarter of the ta abe year
of a company, at east 0 percent of the vaue of ts tota assets be represented
by cash and cash tems, Government securtes, securtes of other reguated n-
vestment companes or securtes n other companes mted In respect of any one
ssuer (1) to an amount not n e cess of percent of the vaue of the assets of
the nvestment company, and (2) to not more than 10 percent of the outstandng
votng securtes of such ssuer.
Secton 361(e), as added by ths secton of the b, provdes that n the case of
a regstered management nvestment company whch s certfed by the Securtes
and change Commsson as prncpay engaged n suppyng capta to other
corporatons whch are prncpay engaged n the deveopment or e potaton
of nventons, technoogca deveopments, new processes, or products not pre-
vousy generay avaabe, the nvestment company, notwthstandng the 10
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
percent stock ownershp mtaton n secton 361(b), may ncude, In the 0 per-
cent of Its assets restrcted under secton 361(b), securtes of an ssuer whch
consttute more than 10 percent of the outstandng votng stock of such Issuer.
The stock of any ssuer may not be so ncuded f the nvestment company ha
contnuousy hed any securtes of such ssuer (or of a predecessor company as
determned under reguatons prescrbed by the Secretary) for 10 or more preced-
ng years. Ths provson does not modfy the percent mtaton wth respect
to the amount of assets whch may be nvested n securtes of any one ssuer.
Secton 361(c) does not appy n any ta abe year f at the cose of any quarter
of the ta abe year more than 2 percent of the tota assets of the nvestment
company s represented by securtes of ssuers as to whch (1) the nvestment
company hods more than 10 percent of the outstandng votng stock and (2) the
nvestment company has contnuousy hed any securty (or any securty of a
predecessor of such ssuer) for 10 or more years, uness wthn 30 days after the
cose of such quarter the vaue of the tota assets represented by such securtes s
reduced to 2 percent or ess of the vaue of the tota assets of the nvestment
company.
In the determnaton by the Securtes and change Commsson, consdera-
ton s to be gven to the purpose and functon of the nvestment company and to
ts contnung over-a operaton. Ordnary, for e ampe, t woud be requste
that a ma|or porton of the assets of the nvestment company represent securtes
n operatng companes deveopng and e potng new processes and products.
It s recognzed, however, that such an nvestment company may fnd t desrabe
to nvest a porton of ts assets n other securtes, such as Government bonds,
whch w provde operatng ncome to meet the e penses ncurred, n makng
nvestments n companes deveopng new products, etc. n nvestment company
woud not quafy under subsecton (c) f ts prncpa purpose or actvty s to
estabsh and mantan contro, as a hodng company, over the operatng com-
panes and not merey to foster the nta deveopment of such companes.
Retenton of an nvestment n one or more operatng companes, however, woud
not necessary mpy hodng company status f the operatons of the nvestment
company, vewed as a whoe, ndcated that the retenton of such securtes s
ncdenta to Its prncpa actvtes.
n operatng company w not be consdered to be engaged n the deveopment
of new processes or products merey because the process or product s new to
the company. It s essenta that the process or product represent a substanta
technoogca Improvement, or be dfferent to a matera degree from a process or
product prevousy avaabe. Thus, a change n stye, a new mode, an adapta-
ton of an e stng product, or such mprovements as are customary made n
the trade woud not quafy.
For the purposes of subsecton (c), a corporaton whch was, at the tme of
the frst acquston of ts securtes by the nvestment company, prncpay
engaged n the deveopment or e potaton of Inventons, technoogca mprove-
ments, new processes, etc., w be consdered to have contnued to be so engaged
for at east 10 years after the date of such acquston. ccordngy, the nvest-
ment company whch acqures the securtes of another company whch Is then
prncpay engaged n deveopng a new product may contnue, for the purposes
of subsecton (c), to hod such securtes for a perod of 10 years even though
durng such perod the subsdary company may be actvey marketng the prod-
uct whch t has deveoped.
It s provded that the terms used In secton 361(c) sha have the same mean-
ng as n secton 361(b) (3). For e ampe, the term vaue as used n secton
301(c) means, wth respect to securtes (other than those of ma|orty-owned
subsdares) for whch market quotatons are ready avaabe, the market
vaue of such securtes; and wth respect to other securtes and assets, the far
vaue as determned n good fath by the board of drectors sub|ect to the e cep-
ton that the vaue of securtes of ma|orty-owned subsdares whch are nvest-
ment companes sha not e ceed the hgher of market vaue or asset vaue.
Secton 301(c) does not, e cept wth respect to waver of the 10 percent m-
taton on votng stock under the crcumstances ndcated, affect any of the re-
qurements under secton 301 or 362 whch woud otherwse be appcabe to the
nvestment company for purposes of the ta treatment under suppement .
Subsecton (b) of secton 312 provdes a technca amendment to secton
301(b)(3)( ) of the Code.
The amendments made by ths secton of the b are appcabe to ta abe vears
begnnng after December 31, 19 0.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
S CTION 313. F MILY P RTN RS IPS
Ths secton amends secton 3797(a) (2) of, and adds a new secton 191 to, the
Code to provde for the ta treatment of famy partnershps as e paned begn-
nng on page 00 n the genera dscusson secton of ths report.
TITL I CIS T S
Pabt I Ta on dmssons and Cabarets
S CTION 01. R MO L OF T ON FR DMISSIONS
Ths secton amends secton 1700(a)(1) y strkng out the second sentence
thereof provdng that persons (e cept bona fde empoyees, muncpa offcers on
offca busness, and chdren under 12 years ot age), admtted free or at reduced
rates, sha pay the same ta as persons payng the reguar admsson charge.
There w thus be no ta on free admssons, and wth respect to admssons at
reduced rates, the ta w be determned by the frst sentence of secton
1700(a) (1), as amended by secton 10 0, whch mposes on admssons a ta of
1 cent for each cents or ma|or fracton thereof. The fourth sentence (reatng
to e empton from ta by reguaton n the case of free admsson of certan
men ers of the rmed Forces) of such secton s strcken as surpusage upon
the emnaton of tbe second sentence.
S CTION 02. MPTIONS FROM DMISSIONS T
Subsecton (a) of ths secton renstates the appcabty of secton 1701 of
the Interna Revenue Code whch e empted pror to October 1, 19 1, certan
admssons from the admssons ta .
Subsecton (b) amends secton 1701(a) of the Code so as to retan the e emp-
tons from the admssons ta whch e sted pror to October 1, 1911, e cept n the
foowng respects:
(1) Under the amendment the admssons ta w appy to admssons to a
athetc games or e hbtons e cept those where the proceeds nure e cusvey
to the beneft of an eementary or secondary schoo. Under the pre-19 1 aw the
e empton from the admssons ta was dened ony wth respect to admssons
to an athetc game or e hbton the proceeds of whch nured whoy or party
to the beneft of a coege or unversty.
(2) The admssons ta w appy n the case of admssons to a wrestng
matches, prze fghts, or bo ng, sparrng, or other pugstc matches or e hb-
tons, regardess of to whom the proceeds are payabe. Under the pre-19 1 aw
admssons to such e hbtons were In some cases e empt from ta .
(3) The e empton w not appy n the case of admssons to carnvas, rodeos,
or crcuses In whch any professona performer or operator partcpates for
compensaton. There was no correspondng provson n the pre-19 1 aw.
( ) The e empton wth respect to admssons a the proceeds of whch nure
e cusvey to the beneft of socetes or organzatons conducted for the soe
purpose of Improvng any cty, town, vage, or other muncpaty Is emnated
from the pre-19 1 e emptons. Many organzatons servng such functons are
specfcay aowed an e empton under other provsons retaned by the amend-
ment.
( ) No e empton s granted under the amendment on the ground that a
the proceeds nure e cusvey to the beneft of persons n the mtary or nava
forces of the Unted States or to persons who have served n such forces and
are n need.
(0) Under pre-19 1 aw the e empton apped to admssons where the pro-
ceeds nured e cusvey to the beneft of members of the poce or fre department
of any cty, town, vage, or other muncpaty or the dependents or hers of such
members. Under the amendment the proceeds must nure e cusvey to the
beneft of a poce or fre department (ncudng a vounteer fre department)
of any such ocaty or e cusvey to a fund for the soe beneft of members of a
poce or fre department or the dependents or hers of such members.
Opera companes not operated for the purpose of makng a proft are to be
consdered as educatona organzatons so that admssons a of the proceeds of
whch nure e cusvey to the beneft of such companes w be e empt from ta .
Subsecton (c) adds a new subsecton fd) to secton 1701 of the Code. Ths
new subsecton grants an e empton coverng admssons to factes for physca
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
recreaton, such as swmmng poos, bathng benches, and skntng rnks (Incud-
ng e btons and tournaments conducted at such factes) operated by, am
wth the entre proceeds nurng to, States and potca subdvsons thereof, such
os countes and ctes, or the Unted States, and agences and nstrumentates
of the foregong. The new e empton does not encompass spectator factes, such
as zoos and aquarums.
S CTION 03. FF CTI D T OF M NDM NTS R L TING TO DMISSIONS
Ths secton of the b provdes that the amendments made by sectons 01 nn
02 sha appy to amounts pad on or after the 1st day of the frst month whch
begns more than 10 days after the date of the enactment of the ct for admssons
on or after such frst day.
S CTION 0 . T ON C R TS. ROOF G RD NS. TC.
Ths secton amends secton 1700(e)(1) of the Interna Revenue Code to
e empt from the cabaret ta bona fde dance has, barooms, and other smar
paces where the servng or seng of food, refreshments, or merchandse s
merey ncdenta to the musc and dnncng prveges furnshed uness the con-
duct of the pace s such as to brng t wthn the norma concept of a roof garden,
cabaret, or smar pace. Ths determnaton w be made by reference to the
over-a operaton of the estabshment, ncudng such factors as the reatve
ncome from the severa actvtes over a perod of tme, the reatve porton of
space devoted to the varous actvtes, the type of refreshments served or sod,
the scope and character of the entertanment furnshed, and the hoars of
operaton.
The purpose of ths amendment s to make t cear that the prncpes set forth
by the dstrct court n the case of Oeer v. rmngham ( Fed. Sapp. 1 9) are
controng n the determnaton of whether the estabshment nvoved s operat-
ng as a cabaret or as a dance ha, and to avod the broad constructon paced
upon the statute n the case of vaon musement Corporaton v. Unted Stota
(16 Fed. 2d Co.3) and n the court of appeas decson reversng the decson of the
dstrct court In the Oeer case ( rmngham v. Oeer. 1 Fed. 2d 2), whch re-
qures that dance has and smar estabshments be ta ed as cabarets, even
though the servng or seng of food, refreshments, or merchandse s merey
ncdenta.
The nmendment made hy ths secton sha take effect at 10 a. m. on the 1st day
of the frst month whch begns more than 10 days after the date of the enactment
of ths b.
Part II Ta on Cgarettes
S CTION 21. T ON CIG R TT S
Subsecton (a) of ths secton amends secton 2000(c) (2) of the Interna Rev-
enue Code (reatng to the ta on cgarettes) to ncrease the rate of ta wth
respect to cgarettes weghng not more than three pounds per thousand from 3.. )0
to per thousand.
Subsecton (b) provdes that the amendment by subsecton (a) sha take effect
on the 1st day of the frst month whch begns more than 10 days after the date of
e.net ment of ths b.
S CTION 22. FLOOR STOC S T ON CIG R TT S
Ths secton amends secton 2000 of the Interna Revenue Code (rentng to the
tn on tobacco, etc.) by addng a new subsecton (f) whch mposes a foor stocks
ta equa to the ncrease n the ta made by secton 21(a) wth respect to
cgarettes weghng not more than three pounds per thousand whch are hed for
sae on the day the ncreased rate of ta on such cgarettes takes effect.
Part III Retaers cse Ta es
S CTION 31. T ON LIG T RS
Ths secton amends secton 2 00 of the Interna Revenue Code so as to sub|ect
mechanca ghters for cgarettes, cgars, or ppes, to the retaers e cse ta of 2U
ptrccut as provded by sectons 1000 and 2 00 of the Code.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
S CTION 32. R T IL RS CIS T ON TOIL T PR P R TIONS
Ths secton amends secton 2 02(a) of the Interna Revenue Code (reatng to
the ta on toet preparatons) by addng at the end thereof a new sentence to
e empt from the ta thereby mposed toet artces ntended to be used or apped
ony n the care of babes. The determnaton of whether toet artces are
ntended to be used or apped ony n the care of babes w be made ony by
reference to the advertsng wth respect to, and the abeng contaned on, the
artce. If an artce s advertsed and abeed as beng for use n the care of
babes and s cot advertsed or abeed as usabe by persons other than babes
the artce s e empt from ta even though the partcuar purchaser buys t for
adut use. On the other hand, an artce whch s represented by advertsng or
abeng as ft for adut use n addton to use n the care of babes w not be
e empt from ta even though sod to a purchaser who ntends to use the artce
ony n the care cf babes.
Under e stng aw toet artces sod to a beauty paror, barber shop, or smar
estabshment for use n the operaton thereof are ta abe when sod. rtces
sod to such estabshments for resae are not ta abe unt sod by them. rtces
procured by such estabshments ta -free for resae and actuay used n operaton
of the pace are ta abe when frst set apart for such use. Under the amendment
made by secton 32(b) to secton 2 02(b) of the Code toet artces sod to such
estabshments, for use n the operaton thereof, are e empted from ta . The
resae of toet artces at reta by such estabshments w contnue to be ta abe,
as under present aw.
S CTION 33. FF CTI D T OF P RT III
Ths secton provdes that the amendments made by part III (reatng to
retaers e cse ta es) sha appy ony to artces sod on or after the 1st day of
the frst month whch begns more than 10 days after the date of enactment of
the ct
Part I Dese Foe
S CTION 1. DI S L FU L US D IN IG W Y ICL S
Subsecton (a) of ths secton adds to the Interna Revenue Code a new chapter,
entted Chapter 20 Dese Fue, whch mposes a ta of 2 cents a gaon upon
any qud not ta ed under secton 3 12 (reatng to gasone, naphtha, etc.)
sod or used by any person as a fue n a Dese-powered hghway vehce. The
same fue o whch s used n Dese-powered hghway vehces s aso manufac-
tured and marketed for use n heatng pants, eectrc power pants, and for other
ndustra and farm purposes. For ths reason the ta s mposed upon Dese
fue sod to any owner, essee, or operator of a Dese-powered hghway vehce
for use as a fue n such vehce, nnd w be coected from any person who makes
such a sae of Dese fue. owever, provson s aso made for coectng the
ta from a person who acqures fue n such a manner that the seer thereof does
not know that t s to be used as fue for a Dese-powered hghway vehce and
for that reason ses the fue ta -free. In such a case, the person usng the fue
n a Dese-powered hghway vehce w be requred to make a return and
remt the ta . Conversey, f fue o s sod for use n a Dese-powered hghway
vehce and s ater used n some nonta abe manner, for e ampe, n a farm
tractor or as a heatng fue, a ta refund may be aowed.
Subsecton (b) provdes that the amendment made by subsecton (a) sha
tnke effect on the 1st day of the frst month whch begns more than 10 days after
the date of the enactment of the ct. Thus, saes of fue o on or after such
date for use n Dese-powered hghway vehces w be ta abe. Lkewse, the
ta w be due on a stocks of fue purchased free of ta f used by the purchaser
thereof on or after such effectve date n Dese-powered hghway vehces.
Pabt Lquob
S CTIONS 1, 2, ND 3. DISTILL D SPIRITS, WIN S, ND F RM NT D
M LT LI UORS
Sectons 1, 2, and 3 ncrease the rates of ta on dsted sprts, wnes,
and fermented mat quors. The proposed ncreases are as foows: Dsted
sprts, from 9 to 10. 0 per proof gaon; st wnes not over 1 percent acoho
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
from 13 to 17 cents per gaon; st wnes over 1 percent and not over 21 percent
of acoho, from 60 to 67 cents per gaon; st wnes over 21 percent and not over
2 percent of acoho, from 2 to 2.2 per gaon; sparkng wnes, from 1 to 17
cents per one-haf pnt; artfcay carbonated wnes, from 10 to 12 cents per
one-haf pnt; qneurs, cordas, and smar compounds contanng fortfed
sweet wne or fortfed frut or berry wnes, from 10 to 12 cents per one-haf pnt;
fermented mat quors, from to 9 per barre. These sectons aso mpose
equazng foor-stocks ta es en ta -pad dsted sprts and ta -pad wnes hed
for sae or for use n the manufacture of any artce ntended for sae on the date
the Increased rates become effectve; and on a ta -pad fermented mat quors
hed for sae on the date the ncreased rate becomes effectve. Provsons smar
to those contaned n the Revenue ct of 19 3 are made for the fng of foor-
stocks ta returns and for the payment of such ta . Secton 1 aso ncreases
the rate of ta on mported perfumes contanng dsted sprts from 9 to 10. 0
per wne gaon.
S CTION . CL RIC L M NDM NT
Ths secton amends secton 16 0, reatng to war-ta rates of certan ms-
ceaneous ta es, by strkng out the provsons thereof reatng to dsted
sprts, mported perfumes contanng dsted sprts, wnes, and fermented
mat quors.
S CTION . FF CTI D T OF P RT
Ths secton provdes that the amendments made by ths part sha take effect
on the 1st day of the frst month whch begns more than 10 days after the date of
enactment of the ct.
Part I Occupatona Ta es
S CTION 61. D L RS IN LI UORS
Ths secton ncreases the rates of occupatona ta es on whoesae deaers n
quors, reta deaers n quors, and whoesae deaers n mat quors. The
proposed ncreases are as foows: Whoesae deaers n quors, from 110 to
200; reta deaers n quors, from 27. 0 to 0; and whoesae deaers n mat
quors, from to 100.
S CTION 62. DR W- C IN T C S OF DISTILL D SPIRITS US D IN T
M NUF CTUR OF C RT IN NON R G PRODUCTS
Subsecton (a) of ths secton Increases the rate of the draw-back authorzed
by secton 32 0(1) ( ) of the Code from 6 to 9. 0 per proof gaon. Secton
32 0(1) ( ) authorzes the aowance of draw-back of dsted sprts ta es, under
certan crcumstances, to persons who use fuy ta -pad dsted sprts of
domestc producton n the manufacture of certan nonbeverage products.
Subsecton (b) makes the ncreased rate of draw-back appcabe ony wth
respect to dsted sprts used on or after the frst day of the frst month whch
bepns more than 10 days after the date of the enactment of the ct, and on
whch the nterna revenue ta was pad at the rate of 10. 0 specfed n secton
2 00(a) (1) of the Code or at a rate equvaent to such rate.
Subsecton (c) amends secton 309(c) of the Revenue ct of 19 3 to provde
that subsecton (b) of secton 309 of that ct sha not be appcabe n any case
n whch draw-back s aowed at the rate of 9. 0 under secton 32 0(1) ( ) of
the Code, as amended by the Ravenue ct of 19 1. Secton 309 (b) of the Revenue
ct of 19 3 authorzes draw-back at the rate of 6 per proof gaon wth respect
to dsted sprts on whch the nterna revenue ta was pad at the war-ta
rate or at a rate equvaent to the war-ta rate.
S CTION 63. T ON COIN-OP R T D G MING D IC S
Ths secton amends secton 3267(a) of the Interna Revenue Code to ncrease
the present rate of the speca (occupatona) ta thereby mposed wth respect to
con-operated gamng devces from 1 0 to 2 0 per year.
S CTION 6 . T ON OWLING LL YS ND ILLI RD ND POOL T L S
Subsecton (a) of ths secton amends secton 326 of the Interna Revenue
Code to ncrease the present rate of the speca (occupatona) ta thereby m-
posed wth respect to bowng aeys and bard and poo tabes from 20 to 2 .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
Subsecton (b) Is a cerca amendment whch amends secton 16 0 (reatng to
war-ta rates of certan msceaneous ta es) by strkng out the provsons
thereof reatng to bowng aeys and bard and poo tabes.
S CTION G3. FF CTI D T OF P RT I
Ths secton provdes that the amendments made by sectons C1, 03, and 0
sha take effect on the frst day of the frst month whch begns more than 10
days after the date of the enactment of ths ct. In the case of tbe year begnnng
uy 1, 19 1, where the trade or busness on whch the occupatona ta s m-
posed was commenced pror to the frst day of the month specfed n the precedng
sentence, . e., the month whch begns more than 10 days after the date of the
enactment of the ct, the ncrease n the ta resutng from the amendments
made by sectons 61, 03, and 0 sha be reckoned proportonatey from the 1st
day of such frst month to and ncudng the 30th dny of une foowng and sha
be due on, and sha be payabe on or before, the ast day of such specfed month.
Part II Waoebno
S CTION 71. W G RING T S
Ths secton adds to the Interna Revenue Code a new chapter entted Chapter
27 Wagerng Ta es, whch mposes on wagers a ta equa to 10 percent of the
amount thereof, and a speca (occupatona) ta of 0 per year on each .person
who s abe for the ta on wafers or who s engaged n recevng wagers for or
on behaf of any person so abe. For a detaed dscusson of these new ta es
see the e panaton begnnng on page 06 n the genera dscusson secton of ths
report.
S CTION 72. FF CTI D T OF P RT II
Ths secton provdes that the ta mposed on wagers by subchapter of chap-
ter 27 of the Interna Revenue Code, as added by secton 71, sha appy ony
wth respect to wagers paced on or after the 1st day of the frst month whch
begns more than 10 days after the date of enactment of the ct. The secton
further provdes that the occupatona ta mposed by subchapter of chapter
27 of the Code, as added by secton 71, sha not he payabe wth respect to any
perod pror to the 1st day of the frst month whch begns more than 10 days after
the date of the enactment of the ct.
Part III Manufacturers cse Ta es
S CTION 1. UTOMO IL S, TRUC S, ND P RTS OR CC SSORI S
Subsectons (a) and (b) of ths secton respectvey amend secton 3 03(a)
of the Interna Revenue Code to Increase the manufacturers e cse ta from to
percent on automobe trucks and other tems ncuded n secton 3 03(a) and on
passenger automobes and a tems now ncuded In secton 3 03(b) from 7 to
10 percent, e cept chasss and bodes for house traers (ncudng parts or ac-
cessores therefor sod on or n connecton therewth or wth the sae thereof),
whch w contnue to be ta ed at the rate of 7 percent.
Subsecton (c) amends secton 3 03(c) of tne Code to ncrease the ta on parts
or accessores for any of the artces enumerated n secton 3 03 (a) and (b) of
the Code from to percent.
Subsecton (d) adds a new sentence at the end of such secton 3 03(c) to pro-
vde that n determnng the sae prce of a rebut automobe part or accessory,
there sha be e cuded from the prce, n accordance wth reguatons prescrbed
by the Secretary, the vaue of a ke part or accessory accepted n e change.
Subsecton (e) s a technca amendment of secton 3 03(e) to provde rates of
credt aowabe to manufacturers for ta -pad tres, nner tubes, or automobe
rado or teevson recevng sets used n the manufacture of automobes, etc.,
equa to the rates of ta mposed on automobes, etc., by ths ct.
Subsecton (f) amends secton 3 3(a)(3)( ) by addng a new cause (v)
to provde a credt or refund to a manufacturer of automobe parts or accessores
when a part or accessory (other than spark pugs, storage batteres, eaf sprngs,
cos, tmers, and tre chans) s resod for use as a repacement part for farm
equpment. Under e stng procedure a farm equpment manufacturer may buy
for use as component parts of such equpment, parts or accessores prmary de-
sgned for automotve use (other than spark pugs, storage batteres, eaf sprngs.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
cos, tmers, and tre chans) under a certfcate of ntent to use them as orgna
equpment, but may not buy automobe parts or accessores ta -free for resae
for repar or repacement purposes on nonta abe artces. Thus, under the
amendment a credt or refund s aowabe wth respect to those parts or acces-
sores whch under e stng aw and procedures may be sod ta -free to the
manufacturer of the orgna nonta abe equpment.
The credt or refund may not be aowed under secton 3 3(a) (3) ( ) (v) wth
respect to spark pugs, storage batteres, eaf sprngs, cos, tmers, and tre
chans or wth respect to any part or accessory ta abe under secton 3 )3(c)
resod for use as repar or repacement parts for any of the artces ta abe
under secton 3 03 (a) and (b) of the Code.
Subsecton (g) provdes that the amendment made by subsecton (f) sha
be effectve wth respect to artces purchased by the user thereof on or after
the frst day of the frst month whch begns more than 10 days after the dae
of the enactment of the ct.
Subsecton (h) of ths secton amends secton 3 00(a) of the Code to e empt
from the ta thereby mposed on tres those of a-rubber constructon wthout
fabrc or meta renforcement, whether hoow center or sod, f they are not
more than 20 nches n dameter and not more than 1 nches n cross secton,
and those of e truded trng wth nterna wre fastenng agent.
S CTION 2. N IG TION R C I RS SOLD TO T UNIT D ST T S
Ths secton deas wth communcaton, detecton, or navgaton recevers
of the type used n commerca, mtary, or marne nstaatons hereafter n
ths paragraph referred to as navgaton recevers. Subsecton (a) amends
secton 3 0 (a) of the Interna Revenue Code to e empt from the ta thereby
mposed on rado and teevson recevng sets, etc., the sae of navgaton
recevers to the Unted States for ts e cusve use. Subsecton (b) amends
secton 3 0 (b) of the Code to e empt from the ta thereby Imposed on com-
ponent parts of rado and teevson recevng sets, etc., the sae of any artce
for use by the vendee as matera n the manufacture or producton of, or as a
component part of, navgaton recevers to be sod by hm to the Unted States
for ts e cusve use. Subsecton (c) amends secton 3 3(a)(1) of the Code
to aow a manufacturer or producer of navgaton recevers a credt or refund
of ta pad on artces ta abe under secton 3 0 (b) purchased for use by hm
n the manufacture or producton of, or as a component part of, navgaton
recevers f such navgaton recevers have been sod by hm to the Unted States
for ts e cusve use. Subsecton (d) amends secton 3 3(a)(3)( ) of the
Code to aow a credt or refund to a manufacturer, producer, or mporter of
navgaton recevers n the amount of ta pad by hm wth respect to the sae
thereof f he has n hs possesson such evdence as reguatons may requre
that such navgaton recevers have been resod to the Unted States for ts
e cusve use. Subsecton (e) amends secton 3 (b) of the Code to e empt
from the ta thereby mposed on the use of ta abe artces by the manufacturer,
producer, or mporter thereof, artces ta abe under secton 3 0 (b) used n
the manufacture or producton of, or as a component part of, navgaton recevers
sod to the Unted States for ts e cusve use.
S CTION 3. R P T. OP T ON C RT IN SPORTING GOODS; INCR S : IN
T ON R M INING SPORTING GOODS
Ths secton amends secton 3 06(a)(1) of the Interna Revenue Code to
e cude from the ta on sportng goods the foowng named tems:
asketbas
o ng goves and other bo ng equpment
Crcket bas and bats
Fencng equpment
Footbas and other footba equpment
Gymnasum equpment and apparatus
ockey equpment
Indoor basebas and other ndoor-baseba equpment
Lacrosse equpment
Mass bas
I ush bas
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
Skates
Snow toboggans and seds
Soccer bas
Softbas and other Softba equpment
Track hurdes
autng equpment
oe bas and other voeyba equpment
Water-poo equpment
Wrestug head-harness
On the tems not so e cuded, the ta Is rased from 10 percent to 1 percent.
S CTION . DDITION OP C RT IN IT MS TO T T ON L CT IC. G S,
ND OIL PPLI NC S ; R MO L OF T ON L CTRIC TING P DS
Ths secton amends secton 3 00(a) (3) of the Interna Revenue Code (reat-
ng to the ta on eectrc, gas, and o appances) to remove eectrc heatng
pads from the appcaton of the ta and to ncude In the st of artces sub|ect
to the ta at the rate of 10 percent eectrc sheets and spreads and the foow-
ng appances of the househod type: ectrc bet-drven fans; eectrc or
gas cothes drers; eectrc door chmes; eectrc dehumdfers; eectrc dsh-
washers ; eectrc foor poshers and wa ers; eectrc food choppers and grnders;
eectrc hedge trmmers; eectrc ce-cream freezers; eectrc manges; eectrc
moton- or st-pcture pro|ectors; eectrc pants pressers; eectrc shavers; and
power awn mowers.
S CTION . D USTM NTS OF T R T S ON P OTOGR P IC PP R TUS
ND FILM ; R P L OF T ON C RT IN IT MS
Subsecton (a) of ths secton amends secton 3 00(a)( ) of the Interna
Revenue Code to reduce the rate of ta on cameras and camera enses from
2 to 20 percent and to ncrease the rate of ta on une posed photographc fm
from 1 to 20 percent, thus provdng, on and after the effectve date specfed
n secton 9 of the ct, an equa rate of ta for a artces ta abe under
such secton 3 00(a)( ). Ths secton aso w e cude the foowng tems
from the e stng ta :
Photographc ap paratus and equpment (other than certan cameras and
enses) ; une posed photographc fm not n ros; -ray cameras; st-camera
enses havng a foca ength of more Man 120 mmeters; moton-pcture camera
enses havng a foca ength of more than 30 mmeters; fm more than 1 0
feet n ength ; and fm more than 2 feet n ength and more than 30 mmeters
n wdth.
owever, f any person acqures fm not sub|ect to ta and ses t n, or
In connecton wth a sae thereof reduces t to, such form and dmensons that
t woud be ta abe f sod by a manufacturer, producer, or mporter, then such
person sha be consdered the manufacturer of the fm so sod by hm. -ray
fm, and cameras weghng more than pounds e cusve of ens and accessores,
contnue to be ta -e empt.
Wth respect to potofnsh or other bubs hed n foor stocks on the effectve
date specfed n secton S9 of the ct, secton (b) provdes for a credt or
refund (wthout nterest) to the manufacturer or producer of such bubs of
the manufacturers e cse ta mposed under secton 3 06(a)( ). The credt
or refund s to be aowed ony (1) f cam therefor s fed wth the Secretary
pror to the e praton of 3 months after the effectve date specfed n secton
9 of the ct and (2) to the e tent that the manufacturer ha3 rembursed the
person hodng the photofash or other bubs n foor stock for the emnaton of
the ta on such effectve date. The Secretary s authorzed to prescrbe neces-
sary reguatons pertanng to such credts or refunds, and no manufacturer
or producer w be entted to a credt or refund uness he has n hs possesson
puch evdence respectng nventores of such bubs as to whch he has made
rembursement of ta as the reguatons prescrbe. No credt or refund s to be
aowed for any bub hed by any person for sae whch was purchased by such
person as a component part of any other artce.
The provson for credt or refund appes to photofash or other bubs hed
for sae on the effectve date specfed n secton S9 or hed for use on such date
n the manufacture or producton of any artce ntended for sae.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

S CTION 6. IMPOSITION OF T ON M C NIC L P NCILS ND FOUNT IN
ND LL-POINT P NS
Ths secton adds to chapter 29 of the Interna Revenue Code a new secton
entted Sec. 3 0 . Ta on Mechanca Pencs and Fountan and a-Pont
Pens. Subsecton (a) of secton 3 0 mposes a manufacturers e cse ta of 20
percent of the prce for whch mechanca pencs, fountan pens, and ba-pont
pens are sod by the manufacturer, producer, or mporter thereof.
Subsecton (b) of secton 3 0 provdes that the 20 percent manufacturers
e cse ta w not appy to the sae of any mechanca penc, fountan pen, or
ba-pont pen f such pen or penc w be sub|ect to the 20 percent retaers
ta under secton 2 00 of the Code (reatng to the ta cn |ewery, etc.).
S CTION 37. R P L OF T ON L CTRIC L N RGY
Subsecton (a) of ths secton repeas secton 3 11 of the Interna Revenue Code
(reatng to the ta on eectrca energy for domestc or commerca consumpton)
and certan reated sectons n the nature of cross-references, namey, sectons
3 1 (d), 3 (b), and 3 7(c).
Subsecton (b) provdes In paragraph (1) that e cept as provded n paragraph
(2), such repea sha appy to eectrca energy sod on or after the frst day of
the frst month whch begns more than 10 days after the date of the enactment
of the ct, and n paragraph (2) that n the case of a sae of eectrca energy whch
s bed to the customer for a perod begnnng before such effectve date and
endng on or after such effectve date, the provsons of subsecton (a) sha ap-
py ony to that porton of the amount bed for the eectrca energy sod durng
the entre perod whch the number of days n such perod begnnng wth the
effectve date bears to the tota number of days n such entre perod. Ths
secton sha not appy to eectrca energy sod before such effectve date for
whch a b was rendered pror thereto.
S CTION . T ON G SOLIN
Subsecton (a) of ths secton amends secton 3 12(a) of the Interna Revenue
Code to ncrease the ta on gasone from 1 to 2 cents a gaon.
Subsecton (b) adds a new subsecton (1) to secton 3 12 of the Code to mpose
a foor-stocks ta on gasone sub|ect to ta under such secton whch, on the
date secton becomes effectve, s hed and ntended for sae, at the rate of
one-haf cent per gaon. It s provded that such foor-stocks ta sha not appy
to gasone n reta stocks hed at the pace where Intended to be sod at reta
or to gasone hed for sae by the manufacturer, producer, or mporter of such
gasone.
S CTION S9. FF CTI D T OF P RT III
Ths secton provdes that e cept as otherwse e pressy provded In ths part,
the amendments made by ths part sha take effect on the 1st day of the frst
month whch begns more than 10 days after the date of the enactment of ths
ct.
Paet I Msceaneous cse Ta mendments
S CTION 91. R DUCTION OF T ON T L GR P DISP TC S
Subsecton (a) of ths secton amends secton 3 6 (a) (1) ( ) of the Interna
Revenue Code so as to reduce the present ta rate of 2 percent to 20 percent on
amounts pad wthn the Unted States for each domestc teegraph, cabe, or
rado dspatch or message.
Subsecton (b) s a cerca amendment whch amends secton 16 0 (reatng
to war ta rates of certan msceaneous ta es) by strkng out the provsons
thereof reatng to domestc teegraph, cabe, or rado dspatches.
Subsecton (c) f es the tme when the amendments made by subsectons (a) and
(b) sha take effect n reaton to the rate reducton date, whch s defned n
subsecton (e) as the 1st day of the frst month whch begns more than 10 days
after the date of enactment of the ct. Pursuant to subsecton (e) the amend-
ments appy wth respect to amounts pad on or after the rate reducton date for
servces rendered on or after such date. Subsecton (d) provdes that the amend-
ments do not appy wth respect to amounts pad pursuant to bs rendered pror
to the rate reducton date. The amendments appy wth respect to amounts pad
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

pursuant to bs rendered on or after the rate reducton date for servces for
whch no prevous b was rendered, e cept wth respect to such servces as were
rendered more than 2 months before such date. Servces rendered more than 2
months before such date are governed by the provsons of sectons 16 0 and 3 03
of the Interna Revenue Code n effect at the tme such servces were rendered.
S CTION 92. MPTION OF FIS ING TRIPS FROM T ON TR NSPORT TION
Subsecton (a) of ths secton amends secton 3 69(b) of the Interna Revenue
Code to add to the e emptons from the ta on the transportaton of persons
thereby granted, an addtona e empton coverng amounts pad for transporta-
ton by bout for the purpose of fshng from such boat
Subsecton (b) provdes that the amendment made by subsecton (a) sha
appy to amounts pad on or after the 1st day of the frst month whch begns
more than 10 days after the date of the enactment of ths ct for transportaton
on or after such frst day.
S CTION 03. TR NSPORT TION OF OIL Y W T R
Subsecton (a) of ths secton amends chapter 30 of the Interna Revenne Code
by addng a new subchapter F mposng a ta , under subsecton (a) thereof,
equa to 3 percent of the far charge for the transportaton of crude petroeum and
qud products thereof by water (1) when no charge s made for such transpor-
taton, or (2) when (n any transacton not at arm s ength) the charge s ess
than the far charge for such transportaton. Provson s made that the far
charge sha be (1) the charge made by persons performng ke transportaton
for hre as determned by the Secretary, or (2) f no such charge e sts a reason-
abe charge for such transportaton as determned by the Secretary. These
provsons are smar to the provsons of secton 3 60 of the Code reatng to
transportaton of o by ppene.
empton from the ta s provded for n the case of transportaton wthn
the premses of a producng property, refnery, buk pant, termna, or gasone
pant. so, no ta w appy to the transportaton of crude petroeum or
qud products thereof used or consumed n the operaton of a vesse or durng
a voyage wthout unoadng after once beng paced aboard the vesse. Trans-
portaton by water of crude petroeum or qud products thereof by the Unted
States, any State, Terrtory of the Unted States or the Dstrct of Coumba on
vesses owned or operated by such governments s not ta abe f such products
are for the e cusve use of the government transportng t. Ths e empton
w not appy f the transportaton s furnshed by another or f the products
transported are not for the e cusve use of the government, regardess of by
whom transported. Transportaton by an ndvdua of petroeum products for
hs persona use and not for busness purposes s aso e empted.
Subsecton (b) of ths secton s a technca amendment of secton 3 7 (a)
of the Code to provde that transportaton of o by water for ess than the far
charge (other than n the case of and arm s-ength transacton) sha be ta abe
under the new subchapter F and not under secton 3 7 (a).
Subsecton (c) of ths secton provdes that the ta sha appy ony wth
res eet to transportaton whch begns on or after the 1st day of the frst month
whch begns more than 10 days after the date of enactment of the ct.
S CTION 9 . RTICL S FROM FOR IGN TR D ZON S
Ths secton w prevent the recept n customs terrtory of the Unted
States of the artces specfed n Interna Revenue Code sectons 2000(c)(2)
(cgarettes), 2 00(a) (dsted sprts) 3030(a) (wnes), and 31 0(a) (fer-
mented quors) whch were n foregn-trade zones when the ncrease n the
ta on such artces became effectve by ths ct, unt there s coected the
fu amount of a ta es whch woud have been mposed upon such artces
f they had been sub|ected to ta n customs terrtory of the Unted States on
such effectve date.
Subsecton (a) provdes that wth respect to such artces on whch the In-
terna revenue ta es have been determned, pursuant to secton 3 of the ct of
une 1 , 193 , as nmended by the ct of une 17, 19 0 (19 U. S. C. 1c), and
whch on or after the effectve date of the rates of ta mposed on such artces
by the Revenue ct of 19 1 are brought from foregn-trade zones nto customs
terrtory of the Unted States, there sha be eved, assessed, coected, and pad
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
on such artces, n addton to the ta so determned, an addtona ta at rates
equa to the ncreases n rates of ta made appcabe to such artces by ths ct.
Under the frst provso of secton 3 of the ct of une 1 , 193 , as amended,
the coector of customs now has authorty, upon request, to take under super-
vson any ot or part of a ot of foregn merchandse n a foregn-trade zone
and cause t to be apprased and ta es determned and dutes qudated thereon.
It may thereafter be sent nto customs terrtory upon the payment of such
qudated dutes and determned ta es. Inasmuch as such provso authorzes
a fndng of ta es and dutes ony once and a fndng once made woud thereafter
govern the dutabe and ta abe status of the foregn merchandse whenever t
was sent nto customs terrtory, t s necessary to provde affrmatvey for the
evy, assessment, coecton, and payment (n addton to the ta determned
pror to the effectve date of the rate of ta mposed on the named artces) of
the addtona ta at rates equa to the ncreases n rates of ta made ap-
pcabe to such artces by secton 9 (a) of the Revenue ct of 19 1.
It s further provded that wth respect to such Imported artces, the ta
mposed by secton 9 (a) sha be coected, pad, and accounted for at the
same tme and n the same manner as the ta on such artces s coected, pad,
and accounted for when brought from the foregn-trade zone nto the customs
terrtory.
Under the second provso of secton 3 of the ct of une 1 . 193 , as amended,
certan artces may be taken nto a foregn-trade zone from customs terrtory
and may thereafter be brought back to customs terrtory free of duty and ta .
Wth respect to cgarettes, dsted sprts, wnes, and fermented quors whch
were taken nto such zone pursuant to such second provso pror to the effectve
date of the rates of ta mposed on such artces by ths b, subsecton (b) of
secton 9 provdes that when, after such effectve date, they are returned
(wthout oss of dentty) from such foregn-trade zones to customs terrtory,
there sha be eved, assessed, coected, and pad on such artces an addtona
ta at rates equa to the ncreases n rates of ta appcabe to such artces by
the Revenue ct of 19 1, and that the addtona ta so mposed sha foe co-
ected, pad, and accounted for at the same tme and n the same manner as
f such artces had been taken nto the foregn-trade zone free of ta .
TITL MISC LL N OUS PRO ISIONS ND M NDM NTS
S CTION 01. MPTION OF C RT IN ORG NIZ TIONS FROM INCOM T
FOR PRIOR T L Y RS
Secton 01 of the b adds a subsecton at the end of secton 302 of the
Revenue ct of 19 0 to provde that for any ta abe year begnnng pror to
anuary 1, 19 1, an organzaton (whch term ncudes a trust) operated for the
prmary purpose of carryng on a trade or busness for proft, no part of the
net earnngs of whch Inures to the beneft of any prvate sharehoder or
ndvdua and a of the net earnngs of whch nure to the beneft of an educa-
tona organzaton whch normay mantans a reguar facuty and currcuum
and normay has a reguary organzed body of pups or students n attendance
at the pace where ts educatona actvtes are reguary carred on, sha not
be dened e empton from ta aton under any paragraph of secton 101 of the
Code on the ground that t s crrryng on a trade or busness for proft.
n e ampe of the appcaton of the amendment woud be the case of a
feeder corporaton whose busness s the manufacture of automobes for the
utmate proft of a unversty.
S CTION 02. C SS-PROFITS CR DIT S D ON INCOM
The amendments made by ths secton of the b reate to the computaton of
the e cess profts credt of a corporaton upon the bass of ncome under the
provsons of secton 3 (a) of the Code. Paragraph (1) of subsecton (a) of
secton 02 provdes that the percentage of average base perod net ncome taken
nto account n determnng the e cess profts credt on ncome under secton
3 (a) sha be reduced from percent of such average base perod net ncome to
7 percent thereof. Ths reducton s made effectve, under subsecton (b) of
secton 02, wth respect to ta abe years endng after December 31. 19 1.
Paragraph (2) of subsecton (a) adds to secton 3 (a) of the Code a new
paragraph ( ) whch provdes for the computaton of the porton of the average
base perod net ncome whch s to be used n computng the e cess profts credt
based on ncome n the case of a ta abe year begnnng In 19 0 and endng n
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
19 1. The new paragraph ( ) provdes that n the case of such ta abe year the
amount to be used, for the purposes of secton 3. )(a), n eu of percent
of the average base perod net ncome, sha be the sum of
(1) that porton of percent of the average base perod net ncome
whch the number of days n the ta abe year pror to anuary 1, 19 1, bears
to the tota number of days n such ta abe year, and
(2) that porton of 7 percent of the average base perod net ncome whch
the number of days n such ta abe year after December 31, 11) 0, bears to
the tota number of days n such ta abe year.
S CTION 03. ST T ND GIFT T TR TM NT OF UNIT D ST T S ONDS
LD Y C T IN NONR SID NT LI NS
Ths secton amends secton SGI, reatng to the computaton of net estate of
a decedent nonresdent not a ctzen of the Unted States, and secton 1000(b),
reatng n part to appcaton of gft ta n the case of a transfer by a non-
resdent aen, by the addton of specfc provsons dennng the treatment for
purposes of estate ta and gft ta of certan obgatons of the Unted States
hed or transferred by a nonresdent aen not engaged n busness n the Unted
States.
The Unted States Supreme Court, as eary as 1900, estabshed the prncpe
that a statutory provson whch n genera terms e empts property from ta -
aton appes ony to a drect ta on such property and does not appy to e cse
ta es, such as the estate ta or the gft ta whch s mposed not on the property
tsef but on the transfer of the property. Murdoch v. Ward (17 U. S. 139) ;
Pummet v. Cocr (17 U. S. 11 ). owever, the Courts of ppeas for the Second
and Thrd Crcuts have, n a number of recent cases, hed that secton of
the ctory Lberty Lean ct of March 3, 1919 ( 0 Stat. 1311; 30 U. S. C. 7 0),
e empted Unted States Government bonds owned by a nonresdent aen n-
dvdua, not engaged n busness wthn the Unted States, from estate ta
as we as from drect ta es. See state of ar andorf v. Commssoner
(C. . 2, 19 ), 171 Fed. (2d) 6 ; state of Irene DcOucbrant v. Commssoner
(C. . 2, 19 1), 1 6 Fed. (2d) 307; and Pennsyvana Co. for ankng and Trusts
( state of enry Waace Durne) v. Unted States (C. . 3, 19 0), So Fed. (2d)
12 .
Your commttee beeves that Unted States obgatons n the hands of a non-
resdent aen not engaged n busness n the Unted States are and shoud be
sub|ect to the prncpe of Murdoch v. Word and Pummet v. Cocr; accordngy
subsecton (a) adds a new subsecton (c) to secton 61 of the Code affrmatvey
so provdng n the case of the estate ta . owever, n the nterest of equty,
two e ceptons are provded to ths rue. Frst, Unted States obgatons ssued
before March 1, 19 1, are not to be ncuded n the gross estate of a deceased
nonresdent aen who was not engaged n busness n the Unted Sates snce
such ssues are e empt under present Treasury reguatons. Secondy, the
amendment e pressy provdes that such obgatons ssued on or after March
1, 19 1, are to be ncuded n the gross estate of such a decedent ony f the
decedent des after the date of the enactment of the b.
Subsecton (b) of ths secton s desgned to provde a smar resut n the
case of the gft ta , e cept that the amendment does not concern tsef wth
gfts made on or before the date of the enactment of the b. Under the amend-
ment, a gft of such obgatons made after the date of the enactment of the
b, by a nonresdent aen not engaged n busness n the Unted States, w be
sub|ect to the gft ta ony f such obgatons were ssued on or after March
1, 19 1. s to gfts made on or before the date of the enactment of the b, the
amendment does not affect any abty for gft ta whch may e st under pres-
ent aw, and s not ntended to dsturb the rue of e stng gft ta reguatons
whch e empts from ta the transfer of such obgatons ssued before March
1, 19 1.
S CTION 0 . R ORG NIZ TION PL N NO. 20 OF 19 0
Under ths secton the appcabe provsons of Reorganzaton Pan No. 26
of 19 0, respectng the Department of the Treasury, partcuary secton 1(a)
of such pan, transferrng certan functons to the Secretary of the Treasury,
sha appy to a functons stated to be vested by the Revenue ct of 19 1 n
any offcer, empoyee, or agency of the Department of the Treasury, even though
by such ct any fuacton s stated to be vested esewhere than n the Secretary
016 2 30
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

of the Treasury. Tms, as an e ampe, a requrement In the Revenue ct of
19 1 that returns sha be made and ta es due pad by the ta payer to the co-
ector for the dstrct n whch Is ocated the ta payer s prncpa pace of bus-
ness, or f he has no prncpa pace of busness n the Unted States, then to
the coector at atmore, Md., w be gven the same effect as a smar re-
qurement n effect at the tme when the pan became effectve.
19 1-2 -13712
R NU CT OP 19 1
Senate Report No. 7 1, ghty-second Congress, Frst Sesson, Caendar No. 737
September 1 (egsatve day, September 13), 19 1
Mr. George, from the Commttee on Fnance, submtted the foowng report
I to accompany . R. 73 :
I. Genera Statement
Ths s the thrd tme your commttee has been caed upon to consder reve-
nue ncreases snce the outbreak of hosttes In orea a tte over a year ago.
The Revenue ct of 19 0, whch became aw on September 23, 19 0, ncreased
revenues by 6.1 bon; the cess Profts Ta ct of 19 0, whch became aw
on anuary 3, 19 1, rased revenues by 3.9 bon; and t s estmated your com-
mttee s b w ncrease revenues by . bon. In the fsca year 19 2 the
b s e pected to ncrease revenues by 2.7 bons, rasng coectons ths year
to 6 .7 bon.
The revenue rased by these two cts, pus that provded by your commttee s
b, w add to Federa revenue 1 bon at caendar year 19 1 eves of n-
come and In a fu year of operaton. These three revenue-rasng measures on
the average w ncrease the ta es of Indvduas by 29.0 percent of the amount
v hch woud have been due under the pror aw, and w rase corporate ta es
by 2.0 percent.
Never before has so much addtona revenue been rased In so short a perod of
tme. Moreover, these three revenue measures have brought the ncome ta bur-
dens of most corporate and ndvdua ta payers near the Word War II peak
and for many such ta payers the rates Imposed under your commttee s b are
above the ma mum rates mposed durng Word War II. s a resut your com-
mttee has serous doubts as to the feasbty of rasng any substanta add-
tona amounts of revenue from ncome ta sources. Ths s sad athough t s
recognzed that present e pendture estmates made by the e ecutve depart-
ments ndcate very substanta addtons to Federa e pendtures ne t year.
In vew of ths, your commttee beeves that every effort must be made to reduce
e pendtures.
Tour commttee s b provdes ta Increases n a of the ma|or ta areas.
Indvdua Income ta es for most ta payers are rased by 11 percent effectve
November 1, 19 1. The top ncome ta rate of corporatons s rased to 2 per-
cent. The ceng rate on e cess profts ta es s rased to provde a ma mum
effectve ncome and e cess profts ta rate of about 69 percent. cse ta es
aso are rased, prmary those on acohoc beverages, tobacco, gasone, auto-
mobes, and eectrc, gas, and o appances, and a new ta s Imposed on wager-
ng. The b aso provdes ta es for certan types of presenty e empt ncome
of cooperatves, mutua savngs banks, and budng and oan assocatons.
II. Revenue stmates
Tabe 1 shows the estmated ncrease n ta abtes under your commt-
tee s b and under the ouse b n a fu year of operaton, and aso the effect
of these bs on coectons n the fsca year 19 2. oth the ncreases In a-
btes u a fu year and the ncreases n coectons n the fsca year 19 2 are
shown by ma|or revenue sources.
It s estmated that your commttee s b w Increase ta abtes In a fu
year of operaton by appro matey , 00 mon, and that t w ncrease co-
ectons n the fsca year 19 2 by about 2,700 mon. The ncreases n coec-
tons n the fsca year 19 2 are consderaby smaer than the ncrease n ta
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
abtes provded by your commttee s b In a fu year of operaton, both be-
cause the changes are not fuy effectve n the fsca year 19 2, and because co-
ectons tend to ag behnd the ncurrng of abtes. The ouse b woud
ncrease ta abtes n a fu year of operaton by appro matey 7,200 m-
on and woud ncrease coectons n the fsca year 19 2 by about ,900 mon.
The ma|or dfferences from the standpont of revenue between the ouse b and
|our commttee s b can be accounted for by the fact that your commttee dd not
mpose as arge ncreases n ndvdua and corporate ta es as the ouse, and
dd not sub|ect corporate dvdends to wthhodng.
The ncrease n e cse ta coectons In the fsca year 19 2 assumes that
the changes n these ta es become effectve as of November 1, 19 1, the same date
as s provded n your commttee s b for the ncreases n the ndvdua ncome
ta .
Tabe 1. stmated effect of the ouse M and commttee b on ta abtes
n a fu year of operaton and on coectons n the fsca year 19 2
In mons
ouse b
Commt.ee b
Fu year
effect
Fsca year
19 1 effect
Fu year
effect
Fsca year
19 2 effect
2, 7
2,
1,6 2
1,7 0
2,367
2,060
1 0
-22
-120
-2
1,27
11,379
Tu -e empt organzatons
0
2
0
70
U
9
-219
-120
Structura changes n the ncome ta es
structura changes n the e cess profts ta
0
( )
1,2 2
O
0
cse ta changes... . .
11
23
Tota
. 7,199
,90
, (W
2,733
Neggbe.
stmate based on the assumpton ouse provson s effectve Nov. 1, 19 1, Instead of Sept. 1 as pro-
vded by tbo ouse b.
3 Net ncrease after aowng for reducton In ndvdua ncome ta es due to tower dvdends.
Ths arger amount s due prmary to the acceeraton of coectons on wthhodng.
1 ssumes e cse ta changes effectve Nov. 1,19 1.
I. Changes n the Indvdua Income Ta
Tour commttee s b, In a new rate schedue, provdes the ower of the foow-
ng two ncreases: n 11 percent ncrease n present ta rates, or an percent
addtona ta based on the surta net ncome2 remanng after the deducton
of present ta es. The ouse b provded an addtona ta equa to 12 per-
cent of the e stng ta for a ncome brackets e cept the very hghest.
The ncrease provded by your commttee appes ony to the ta on ordnary
ncome. The ncrease under the ouse b aso appes to the aternatve ta
on capta gans.
The rate ncreases under your commttee s b, n effect, are made as of
November 1, 19 1, the date when ncreased wthhodng becomes effectve, and
are to termnate as of December 31, 19 3. Under the ouse b the rate n-
creases, n effect, are made as of September 1, 19 1, the date when ncreased
wthhodng was to become effectve under that b, but no termnaton date
was set.
oth your commttee s b and the ouse b grant to heads of househods
some of the benefts of ncome spttng now en|oyed by marred persons. Under
your commttee s b they obtan one-quarter of the benefts of ncome spttng,
and under the ouse b, one-haf. For caendar year ta payers ths head-of-
househod provson under both bs s to be effectve begnnng n 19 2.
It s estmated that n a fu year of operaton the ndvdua ncome ta rate
changes provded by your commttee s b w ncrease abtes by 2,39
mon and that on the same bass the head-of-househod provson provded by
your commttee s b w decrease revenues by 27 mon. Thus, t s est-
1 Ths assumes e cse and Indvdua Income ta ncreases provded by the ouse b are
effectve November 1, 1 1.
Surta net Income a Income after deductons and e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
60
mated that the combned effect of these provsons w be to Increase abtes
n a fu year of operaton by 2,367 mon.
Snce, n effect, the rate changes made by your commttee s b do not become
operatve unt November 1, and the head-of-housebod provson for practcay
a ta payers w not be effectve unt anuary 1, 19 2, coectons n the fsca
year 19 2, endng une 30, 19 2, w not fuy refect the ncreases provded.
Therefore, fsca year 19 2 coectons under your commttee s b are e pected
to be ncreased by ony about percent of the 2,367 mon, or by 1379
mon. Snce the rate changes made by the ouse b were to be effectve as of
September 1, 19 1, the report by the Commttee on Ways and Means of the ouse
estmated coectons n fsca year 19 2 woud be Increased by 1,9- 7 mon.
owever, had the effectve date been November 1, as under your commttee s b,
fsca year 19 2 coectons under the ouse b woud have been ncreased by
1,6 2 mon.
. R T C NG S
1. Descrpton.
For ta abe years begnnng after October 31, 19 1, your commttee s b
ncreases the present ndvdua ncome ta es by the ower of ether about 11
percent of the present combned norma ta and surta , or appro matey
percent of the surta net ncome after present ta es. These ncreases are to
termnate as of December 31, 19 3. The ouse b ncreases the present norma
fa and surta n most cases by 12 percent for ta abe years begnnng after
ugust 31, 19 1. No termnaton date for ths ncrease s provded. The 11
or percent ncrease provded by your commttee s b s ncorporated n the
surta rate schedue. Under the ouse b the 12 percent Increase Is to be
a separate ta computaton, athough t s ncorporated n the ta tabe used
by those wth ad|usted gross ncomes of ,000 or ess.
The new surta tabe n your commttee s b provdes surta bracket rates
rangng from 19.2 percent on the frst 2,000 of surta net ncome to .7
rceut on surta net ncome n e cess of 200,000. Ths, when combned wth
the fat 3 percent norma ta , gves tota rates whch range from 22.2 percent
on the frst 2,000 of ta abe ncome to 91.7 percent on ta abe Income n e cess
of 200,000. The combned norma ta and surta rates (ncudng the 12
percent ncrease) under the ouse b range from 22. percent on the frst
2,000 of surta net ncome of 9 . percent on surta net ncomes n e cess of
0,000. Under present aw these combned rates range from 20 percent on
the frst 2,000 of ta abe ncome to 91 percent on ncomes n e cess of 200,000.
Your commttee s b rases the effectve rate mtaton, or ma mum combned
norma ta and surta on tota net ncome, from the 7 percent provded by
present aw to percent. Ths effectve rate mtaton prevents an ndvdua s
tota net ncome from beng ta ed at a rate hgher than percent, athough
the bracket rate on ncome n e cess of 200,000 permts a porton of an ndvd-
ua s ncome to be ta ed at as hgh a rate as 91.7 percent. Under the ouse b
the effectve rate mtaton s rased to 90 percent.
Your commttee s b aso provdes a new surta rate schedue for the caendar
year 19 1. addng to the present ta burden about one-s th of the ncrease
provded for 19 2 and 19 3. Thus, for 19 1 the present ta s Increased by the
ower of ether neary 2 percent of the e stng aw ta , or by sghty over 1
percent of surta net ncome after deductng the present ta . Ths s roughy
the equvaent of makng the fu 11 percent or percent ncrease effectve
November 1. 19 1. The ouse b whch woud have been effectve as of Sep-
tember 1. 19 1, provded a percent Increase n the present aw ta for caendar
year 19 1 ta payers. Ths woud have been roughy the equvaent of makng
the ta ncrease effectve for the ast thrd of the year. The combned norma
ta and surta bracket rates under your commttee s b for the caendar year
19 1 range from 20. percent on the frst 2,000 of ta abe Income to 91.1 percent
on ta abe ncome over 200,000. Under the ouse b these rates range from
20. percent on the frst 2,000 of ta abe ncome, to 92. 6 percent on ta abe
Incomes In e cess of 200,000. Under your commttee s b the effectve rate
mtaton for caendar year 19 1 ta payers s 7.2 percent, and under the ouse
b. percent.
Your commttee s b aso adds a provson whch makes nappcabe, for 19 1,
the penates and addtons to ta for wfu faure to make decaratons or
1 Surta net ncome Is ncome atter deductons n:u e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
61
pay estmated ta wth respect to the addtona ta mposed on ndvduas
by ths b.
For 19 2 and subsequent years and for the ast thrd of 10 1 the- Iouse b
provdes an ncrease n the aternatve ta on capta sans of ndvduas. For
19 2 and subsequent years ths ncrease s 12 percent, the same ncrease as
provded for the norma ta and surta . ppyng ths to the present 2 percent
capta gans ta gves a new rate of 2 .12 percent. For the caendar year
19 1 the ouse b provdes a percent ncrease n the aternatve ta on capta
gans resutng n a tota capta gans ta rate of 20 percent. Under your com-
mttee s b no change s made n the aternatve ta on capta gans. Thus,
the rate remans at 2 percent both for 19 1 and 10 2 and subsequent years.
Under both your commttee s b and the ouse b new wthhodng tabes
are provded to refect the ncreased ta es. The wthhodng n both of these
taes s at appro matey 20 percent as contrasted to 1 percent n the tabe n
present aw. Smar ad|ustments are made n the percentage method of wth-
hodng. wthhodng ta rate of appro matey 20 percent coects the fu
amount ordnary due on the begnnng rates provded by your commttee s b
and the ouse b after aowance for the standard deducton.
Tabe 2 shows the amount of ta pad at seected net ncome eves under
present aw, under the ouse b for the caendar year 19 2 and subsequent
years, and under your commttee s b for the caendar years 19 2 and 10 3.
The ta burden s shown separatey for snge persons wth no dependents, for
marred coupes wth no dependents, and for marred coupes wth two depend-
ents. The ta of snge persons, of marred coupes wth no de ndents and of
marred coupes wth two dependents shown n ths tabe dffer because the
amount of ta pad s shown by net ncome casses. Net ncome for these
casses of ta payers dffers from the ncome on whch the ta s based because
a snge person receves one : (00 e empton, a marred coupe two 600 e emp-
tons and a marred coupe wth two dependents four 600 e emptons. In
addton, marred coupes receve the benefts of ncome-spttng.
2. Reasons for the rate changes.
Tour commttee beeves that n vew of revenue requrements resutng from the
present natona defense emergency t s necessary to make substanta ncreases
n the ndvdua ncome ta es. Ony by such ncreases w t be possbe to
come cose to baancng the budget and aevatng the mpact of ncreased
nfatonary pressures arsng from addtona defense e pendtures. It s
beeved, however, that the 12 percent ncrease n present ta es provded by the
ouse b s too severe n vew of the fact that an average ncrease of 17 percent
n ndvdua ncome ta es has been made qute recenty by the Revenue ct of
10 0. For that reason your commttee has reduced ths percentage ncrease for
the buk of the ta payers to 11 percent of ther present ta es. ven wth ths
ncrease many ta payers w fnd themseves wth ta rates n e cess of the peak
rates Imposed durng Word War II.
Tour commttee modfed ths 11 percent ncrease by provdng that In no case
Is the ncrease to be more than about percent on the ncome remanng after
ta es. Your commttee beeves that a provson of ths type s farer to a
ncome groups than the type of provson adopted by the ouse. For most
ta payers ther present ta s much smaer than ther ncome remanng after
the payment of ta es. owever, because of the present hghy pr gressve ncome
ta rates for some ta payers, ther ncome remanng after the payment of a
ta es s smaer than ther present ta burden. In the case of both of these groups
of ta payers, your commttee s b mposes an ncrease on the smaer amount;
n the case of the former group, on the present ta burden, and n the case of the
atter group, on the ncome remanng after payment of the present ta burden.
The percentage ncrease n ncome after ta es s effectve wth respect to ta abe
ncomes of about 27,000 and over. It was beeved necessary to provde a mta-
ton of ths type, n vew of the fact that n the upper ncome brackets the
margna rates, or the rates appyng to the ne t doar of ncome, are aready very
hgh. The present aw margna ta rate at 2 ,000 of surta net ncome, for
e ampe, s 62 percent; at ,000 s 72 percent; at 70,000 s 1 percent; and at
200,000 s 91 percent Tour commttee s b rases these margna rates very
Net Income Is ncome after deductons but before e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
62
Tabe 2. Comparson of ndvdua ncome ta burdens under present aw cth
those under the ouse h and Fnance Commttee b for 19 2 and 19 3
SINGL P RSON, NO D P ND NTS
Net ncome (after deductons but before e emptons)
mount of ta
Present aw
bU
Fnance
Commttee
D
00
1,000
2.000
3,000
.000
.000
.000
10,000
1 ,000....
20.000
2 .000
0.000
100,000...
300.000...
00.000.
1,000,000.

70
9
1,7 0
2, 36
.
6,9 2
, 796
26,3
66,79
2 7, 27
29,27
70,000
9
797
1,062
2,003
2,7 1
,00
7, 10
11.021
29,6 7
7 , 31
263, 31
0.000
900,000
1.0 S
1,97
2,70
,9 0
7.71
10, 72
2 .23
69.3
2 1. 22
M RRI D COUPL , NO D P ND NTS
1. 00....
2.000
3,000
,000
,000
.000
10,000...
1 ,000...
2 ,000...
2 .000...
0.000...
100,000..
300,000..
00.000..
1,000,000
60
6
67
160
1 0
17
300
0
00
60
630
622
760


1, 10
1, 93
2,12
1, 71
1,
2,096
3.260
3,66
3.61S
. 72
, 1
. 0
6,72
7. 6
7, 60
19, 92
22,0 1
21,7
2.776
9,373
6,
222, 72
2 .161
22 ,66
03,
33,161
11,3
,
900,000
69,
M RRI D COUPL , 2 D P ND NTS
Ma mum effectve rate mtaton of 7 percent.
Ma mum effectve rte mtaton of 90 twrccnt.
Ma mum effectve rate mtaton of percent.
substantay, athough not as mveh as the 12 2 percent Increase provded by the
ouse. In the vew of your commttee, the margna rate of about 70 percent
provded on surta net ncome of 2 ,000 under the ouse b w serousy
mpar the ncentves of the ta payers n ths bracket to work and to nvest
St more drastc s the margna rate of neary So percent provded by the ouse
b on ncomes of 0,000, and the rate of 0 . percent provded for ncomes of
0,000. The rates provded by vour commttee s b n these brackets aso are
drastc but ess so than those of the ouse b. Under your commttee s b the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
63
margna rate at 2 ,000 s 67 percent; at ,000 s 73 percent; at 70,000 s
2 percent; and at 200,000 s 91.7 percent
smar mtaton on the ta ncrease was prevousy provded n the ctory
ta mposed by the Revenue ct of 19 2. That ta was mted to the e cess of
90 percent of net ncome after the reguar ncome ta abty. The 19 0 defense
ta aso used ths type of formua. Tour commttee beeves that n bracket areas
where the progresson s aready qute steep the formua used n mposng add-
tona ta es shoud measure abty to pay by takng nto consderaton ta es
aready pad. It s ony the funds remanng after the payment of the present
ta burden whch such ndvduas w have avaabe to meet addtona ta
burdens.
though the ouse b ncreases the aternatve ta on capta gans to a tte
over 2 percent, your commttee s b retans the ceng rate n ths ta at 2
percent. Your commttee recognzes that capta gans are dfferent from ord-
nary ncome n that the tme of reazng a capta gan, to a substanta degree, s
sub|ect to the contro of the ta payer. Therefore, n ths case, partcuary, hgh
rates tend to dscourage the reazaton of gans. Congress has recognzed ths
as far back as the Revenue ct of 19 2 by pacng an effectve ceng rate of
2 percent on capta gans ncome. Snce that tme, athough ndvdua ncome
ta rates have been both substantay ncreased and decreased, ths ceng rate
has remaned the same. In vew of ths your commttee does not beeve that t
s approprate to consder a change n ths ceng rate at ths tme.
termnaton date, namey, December 31, 19 3, has been provded by your
commttee for the ndvdua ncome ta rate ncreases because t s recognzed
that these rates are e ceedngy hgh, and your commttee hopes that t w be
unnecessary to contnue rates at ths hgh eve after December 31, 19 3. In any
case, t appears desrabe to revew the eves of the ndvdua ncome ta rates
at that tme.
November 1, 19 1 was seected as the effectve date for the ndvdua ncome
ta ncreases because so much of the ndvdua ncome ta s coected through
the wthhodng system that t s not feasbe to make changes n ths ta app-
cabe pror to the tme the wthhodng rate ncreases can be made. ecause
some tme w be requred for the preparaton of the new wthhodng ta tabes
and ther dstrbuton to empoyers, November 1 appears to be the earest possbe
date at whch wthhodng can be made effectve. The September 1 date con-
taned n the ouse b was seected before t was known how much tme woud
be requred for the proper consderaton for ths ta measure.
Your commttee has ncuded the ncrease provded by ts b n the reguar
surta rate schedue because t Is beeved that ths w be easer for both the
ta payers and the admnstrators. The report of the Commttee on Ways and
Means of the ouse ndcates that the rate ncrease provded by the ouse b
was not ncuded n the rate schedue because t was beeved that a separate
schedue woud be more generay recognzed as representng a temporary ta
ncrease. Your commttee agrees wth ths ob|ectve, but beeves that t s better
accompshed by the termnaton date for the ndvdua ncome ta ncreases as
provded n ts b. Therefore, t was beeved unnecessary to retan the ncrease
made by your commttee as a separate computaton.
. D-OF- OUS OLD PRO ISION
. Descrpton.
For persons quafyng as a head of a househod your commttee s b
provdes a new surta tabe appcabe for ta abe years begnnng after October
31, 19 1, and the ouse b, for ta abe years begnnng after ugust 31, 19 1.
Thus, n both cases, for a caendar year ta payer, the provson w not become
effectve unt 19 2. In your commttee s b the new surta tabe s constructed
to gve heads of househods appro matey one-quarter of the benefts of ncome-
spttng, whe the surta tabe n the ouse b provdes them appro matey
one-haf of these benefts.
Your commttee s b defnes a head of a househod, for purposes of obtan-
ng the benefts of ths speca provson, as an ndvdua who s not marred and
who mantans a househod n whch ves
(1) One of hs chdren (ncudng an adopted chd), one of ther descend-
ants or a stepchd (but the chd, descendant, or stepchd f marred must
st be a dependent of the ta payer and not fe a |ont return) ; or
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G -
(2) ny person (not fng a |ont return wth a spouse), who has a gross
ncome of ess than G00, more than haf of whose support s supped by
the ta payer and who bears one of the foowng reatonshps to the
ta payer:
(a) brother or sster or stepbrother or stepsster,
(b) parent or one of ther ancestors,
(c) stepparent,
(d) nephew or nece,
(e) n unce or aunt, or
(f) son-n-aw, daughter-n-aw, nother-n-aw, father-n-aw, sster-
n-aw, or brother-n-aw.
The ouse b dffers ony n one mnor respect n the tests outned abore.
In the ouse b the descendants of stepchdren are ncuded among the
reatves who f vng n the househod of a ta payer may make hm egbe fur
the head-of-househod status.
Under both bs, a ta payer s consdered as mantanng a househod ony f
durng the year he furnshes more than haf the mantenance costs of such
househod. Moreover, the ndvdua who makes t possbe for the ta payer to
gan the benefts of the head-of-househod status must actuay ve n the ta -
payer s househod durng the entre ta abe year uness he s temporary
absent, for e ampe, attendng schoo or for reasons of heath. Under ths
defnton t s mmatera how much gross ncome an unmarred chd or grand-
chd vng wth the ta payer may have.
Tabe 3 shows for both the ouse b and your commttee s b the amount
of ta pad at seected net ncome eves for heads of househods wth one de-
pendent, for snge ndvduas wth one dependent, and for marred coupes wth
no dependents. It aso shows how much ess the ta of the head of househod
and the ta of the marred coupe are than that of the snge person at the
same ncome eve. Ths represents the benefts of ncome spttng whch pres-
ent aw grants n fu to marred coupes and whch both the ouse and your
commttee s b grant n part to heads of househods. The ast coumn of the
tabe e presses the ncome-spttng benefts granted heads of househods as
percentages of the ncome-spttng benefts avaabe to marred coupes. Ths
shows that your commttee s b grants about 2 percent, and the ouse b
about 0 percent, of the benefts of ncome spttng to heads of househods.
S. Reasons for adoptng the hcad-o|-househod provson.
Your commttee agrees wth the ouse that ta payers, not havng spouses
but nevertheess requred to mantan a househod for the beneft of other
ndvduas, are n a somewhat smar poston to marred coupes who, because
they may share ther ncome, are treated under present aw substantay as t
they were two snge ndvduas each wth haf of the tota ncome of the
coupe. The ncome of a head of househod who must mantan a home for a
chd, for e ampe, s key to be shared wth the chd to the e tent necessary
to mantan te home and rase and educate the chd. Ths, t s beeved,
ustfes the e tenson of some of the benefts of ncome spttng. The hard-
shp appears partcuary severe n the ease of the ndvdua wth chdren to
rase who, upon the death of hs spouse, fnds hmsef n the poston not ony
of bPng dened the spouse s ad n rasng the chdren, but under present aw
aso may nd hs ta oad much heaver.
s Indcated by the report of the Commttee on Ways and Means of the ouse
t does not appear approprate to gve a head of househod the fu benefts of
ncome spttng because t s unkey that there s as much sharng of Income
n these cases as between spouses. Moreover, t s your commttee s opnon
that n vew of the fact that under the head-of-househod provson ta payers
are not requred to ncude the ncome of the dependent (spouses must te a
ont return n order to en|oy the benefts of ncome spttng) an aowance of
2 percent of the benefts of ncome spttng for such ta payers shoud be
adequate.
In defnng the reatonshp to the ta payer of an Indvdua who enabes
the ta payer to cam the head-of-househod status, the reatonshps provded
n secton 2 (b)(3) of the Code for camng a dependency credt have been
foowed. In n cases e cept those n whch unmarred chdren, ther de-
Under present nw the ta payer Is aowed a dependency credt provded the dependent
hns a pross Inrn|re f ess nn 00. See. 330 of your commttee s b, dscussed ese-
where n ths report, rases the aowabe gross ncome of a dependent to 600.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
Tabe 3. Comparson of ndvdua ncome ta burden or heads of househods
under the ouse b and your commttee s b wth those for snge persons
wth 1 dependent and for marred coupcs-undcr both bs, for 19 2
. OUS ILL
mount of ta
mount of ta dfference
between snge person
wth 1 dependent and
Percent ta
Seected net
ncome eves 1
dfference
of head of
househod
s of that
o marred
coupe
ITead of
househod
Snpe nd-
vdua wth
1 e empton
Marred
coupe fne
a |ont re-
turn
ead of
househod
Marred
coupe
wth 1
dc cndent
1 00 .
tee
16
1 0
0
96
1, 00
2, 11
,696
7, 2
1(1,622
29,201
7 ,26)
ft 000
900,000
6
1 0
0

1, 03
2,12
3,
, 1
7, 6
22.0 1
9, 373
33, 161
900,000
2,000
ISO
0
7
1, 7
2,313
,172
6, 62
9,092
2 ,60
66, 30
2,72
900,000
13,000

1 ,000
21
1
f.2
9.
9.9
1.0
0.2
0.0
0.2
9.9
3.2
1 .000
103
193
2
990
1, 30
3,
7, 3
7,270
207
3S7
1.02
1,971
3,0 7
7. 160
1 , 91
16, 39
10.000
1 .000
20,000
2 ,000
SO,0O0
00.000
,0U ,0uO .....
. COMMITT ILL
1 00
67
17
00
72
1, 72
2,3
,372
6, 72
9,722
26,2
6 , 732
2 , 90
SSftOOO
67
17
011
3
67
17S
00

1, 71
2,090
3,61
, 0
7, 60
21,7
6, 6
11,3
09,
2,000
3,000
,000
11
39
20
3 0
1,01
1,9 6
3,022
6,0 2
12,3
23,02
10,1 6
2 . 2
23.
23.2
2 .9
2 . 2
2 .1
2 .9
2 .0
23.
.000
1, 776


26
92
76(1
1, 0
3,0
, 2
10,000
2, 7ft
.630
7,36
1 ,000
20.000
2 ,000
10, 2
27.796
6 , 16
3 , 372
0,000
0.000
100,000
00.000
1,000,000
1 Income after deductons but before e emptons.
Ma mum effectve rate mtaton of 90 percent.
Ma mum effectve rate mtaton of percent.
seendants or stepchdren ve In the home of the ta payer he must suppy
over haf of the support of the reatve and the reatve must have gross ncome
of ess than 00. These mtatons are beeved to be unnecessary n the case
of chdren, grandchdren, or stepchdren because such reatves are ordnary
a part of the cfose famy unt and the reatonshp s more neary smar to
that e stng between spouses than s true n the other cases. owever, even
snch ndvduas must ve n the same househod as the ta payer, e cept for
the temporary absences prevousy descrbed, and the ta payer must suppy
over haf the cost of mantanng the househod. owever, the mtatons de-
scrbed n secton 2 (b) (3) are apped where the chdren or grandchdren are
marred. Ths w prevent e tendng the benefts of a head of househod to a
parent whe the chd s hmsef obtanng the benefts of ncome spttng wth
hs spouse.
C. DISTRI UTION OF T U D N
Tabe shows the dstrbuton of the ndvdua ncome ta burden under
present aw, the ouse b and your commttee s b by ad|usted gross ncome
casses. It aso dstrbutes by the same casses the number of ta abe returns,
the ad|usted gross ncome, the vaue of the e emptons and the norma ta
and surta net ncome.
Sec footnote above.
Income after busness but before per- nm deductons and e emptons.
Income after busness and persona deductous and e emptons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
66
The tabe ndcates that of 2 , 23 mon n tota Indvdua ncome tar
abty under your commttee s b, 9,637 mon w come from those wth
ad|usted gross ncomes of ,000, or ess and 16,1 6 mon from those wth
ad|usted gross ncomes of over ,000.
Tabe . stmated dstrbuton of ndvdua ncome ta returns, ncome, e -
emptons, and ta abty under present aw, ouse b, and Fnance Com-
mttee b when fuy effectve
Money amounts n mons of doars
Tota
number
of returns
d|usted
pross
ncome
aue of
e emp-
tons
Surta
Tota
ta ,
present
aw 1
Tota ta
under
ouse
b
Tots U
under
Fnance
Commt-
tee bO
d|usted moss ncome casses
net
ncome
fnder 1 000... .
1. ,00
6,991.07
10, 90 ,01
9, 30. 797
6,262,777
1, 6
10, 7
27. 27
33, 62
27.90
1,121
. 36
12,91
1 , 96
11.2 9
272
.209
11.226
1 ,31
13,2 7

61
9 7
2. 26
3,229
3,002
S
93
2. 92
3,1 6
196
1,000 o 2.000
2
2.2
2. 71
2.672
2,000 to 3.000
3,000 to ,000
S ,000 to ,000
Tota under .000
:c, ku. 7 7
101.073
6, 230
3,2
.6
9.76 9.637
,000 to 10.000
6,6 , 679
1, 3 2. 6
2 7. 1 1
70.11
1 . 276
1,967
79
1 9
2, 0
19, 70
,200
, 67
2, 9
6 7
316
310
12. 2
2,637
9
13
3
3
1
2 .916
1 , 7 2
6,970
3,966
1,966
3
IS
17
6.0 0
3,
2.2 9
1. 62
1,276
37
192
206
,707
I.M
2, 60
2,0 6
1, 29
1
209
219
S.63
3. 6
2. 2S
2,0
1.3 1
3
19
30
S 10,000 to 2 ,000
).0O0 to 2. 0.000
2 0,000 to 00.000
00,000 to 1,000.000
1,000,000 and over
m
Tota over ,000
.326.711
79.027
1 , 33
3.363 1 .771 16, 37
M
Tota
, 1 7, 6
1 0,100
62,063
96,631
23, 1
26,302
2 . 23
In udes norma ta , surta , and aternatve ta on net ong-term capta gans.
Less than 00,000.
Note. Fgures are rounded and may not add to totas.
I . Genera Cobporate Ta Changes
oth your commttee s b and the ouse b provde a top corporate rate of
2 percent as contrasted to 7 percent under e stng aw. Your commttee s b
provdes a corporate ncome ta rate of 27 percent on the frst 2 ,000 of each
corporaton s ncome, and a 2 percent rate on n ncome n e cess of 2 ,000.
Ths can be compared wth ouse b rates of 30 percent on the frst 2 ,000 of
ncome, and 2 percent on a ncome n e cess of 2 ,000. Under e stng aw
the frst 2 ,000 of each corporaton s ncome s ta ed at 2 percent and a ncome
n e cess of ths amount s ta ed at 7 percent. Under both your commttee s b
and the ouse b the top corporate ncome ta rate, taken together wth the
30 percent e cess profts ta rate, gves a combned rate of 2 percent appyng
to ad|usted e cess profts net ncome, as compared wth a combned rate of 77
percent under e stng aw. Your commttee s b provdes a ceng rate of 17
percent for e cess profts ta and consodated return purposes, whch when
taken together wth the ma mum effectve rae of about 2 percent under the
corporate ncome ta , means that n no case w more than about 69 percent
of a corporaton s ncome be taken n ncome, consodated return and e cess
profts ta es. The ouse b provdes a ceng rate on ncome ta es and e cess
profts ta es, taken together, of 70 percent, and present aw provdes a 62 percent
ceng of tn s type. The norma ta and surta rate changes provded by your
commttee s b are effectve as of pr 1, 19 1, and are to termnate as of
December 31, 19 3. The ouse b sets anuary 1, 19 1, as the effectve date
but has no termnaton provson.
It s estmated that n a fu year of operaton these changes n corporate rates
w ncrease abtes by 2,220 mon before consderaton s gven to the
effect on ndvdua Income ta es of the smaer amounts whch w be avaabe
for corporaton dvdend payments. Of ths amount, 2,100 mon s attrbutabe
to the ncreases n the reguar corporate ncome ta es. The addtona 120
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
1
:

9

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
C7
mon Is attrbutabe to ncreases n e cess profts ta abtes. It Is estmated
that after the decrease n ndvdua ncome ta coectons resutng from smaer
dvdend payments s taken nto account, the net ncrease provded by the actons
of your commttee wth respect to corporate rates w be 2,000 mon. The
ouse b provded a gross ncrease n corporate ta abtes of 3,07 mon
and a net ncrease of 2, mon.
In the fsca year 19 2, endng une 30, 19 2, t s estmated thnt the ncreases
n corporate rates provded by your commttee s b w ncrease revenues a
ths year by 70 mon as compared wth 1,7 0 mon under the ouse b.
. NORM L T ND SURT R T C NG S
Tour commttee s b provdes a corporate norma ta rate of 27 percent bs
compared to 2 percent under e stng aw, and 30 percent under the ouse b.
The corporate surta rate under your commttee s b s 2 percent as compared
to 22 percent under both e stng aw and the ouse b. Changes are aso
provded n both your commttee s and the ouse bs n the credts aowed
Western emsphere trade corporatons and the credts for dvdends pad and
receved on preferred stock of pubc uttes, n order to retan the ta dfferen-
ta provded n these cases under e stng aw.
Snce corporatons wth ncomes of 2 ,000 or ess are sub|ect ony to the
norma ta , ther rate of ta s ncreased from 2 percent to 27 percent under
yonr commttee s b, or by 3 percentage ponts ess than s provded by the
ouse b. The combned norma ta and surta on ncomes In e cess of 2 ,000
s ncreased from 7 percent to 2 percent by your commttee s acton, the same
ncrease as s provded by the ouse b. Tabe compares for corporatons
wth seected net ncomes the combned corporate norma ta and surta effectve
rates under your commttee s b wth those under the ouse b, under e stng
aw and nnder the aw n effect pror to the enactment of the Revenue ct of 19 0.
The tabe ndcates that under your commttee s provsons the effectve rate,
or average rate on the entre ta abe ncome, for corporatons wth ncomes of
2 ,000 or ess, s aways 2 percentage ponts above e stng aw and 3 percentage
ponts beow the ouse b. For corporatons wth ncomes above 2 ,000 the
percentage pont ncrease provded by your commttee as the ncome grows
arger graduay approaches, but never qute reaches, a -percentage-pont n-
crease over e stng aw. Or, e pressng t another way, the ncrease provded
by yonr commttee s b never qute reaches the ncrease provded by the nouse
b. Ths s attrbutabe to the fact that your commttee dd not pace the fu
-percentage-pont ncrease on the norma ta wth respect to whch corporatons
are fuy ta abe, but rather added 3 of the addtona percentage ponts to the
surta wth respect to whch corporatons have a 2 ,000 e empton.
Tabe . Comparson of corporate combned norma ta and surta effectve
rates under present aw, ouse h and Senate Fnance Commttee b
ffectve rates of combned norma ta and
surta (percent)
Percentage pont
ncrease over present aw
Net Income sub|ect to norma
ta and surta
Pre-19 0
Present
aw
ouse
b
Fnance
Commttee
b
onse
b
Fnance
Commttee
b
21.00
21.00
22.00
23.00
2 .00
3 .2
3 .00
3 .00
3 .00
3 .00
3 .00
3 .00
3 .00
3 .00
3 .00
2 .00
2 .00
2 .00
26.00
2 .67
33.2
36.00
37. 3
39.07
1. 0
.2
6.90
0.
6.9
6.99
30.00
30.00
30.00
30.00
33.67
3 .2
1.00
2. 3
.67
6.60
9.26
60.90
61.
61.96
61.99
27.00
27.00
27.00
27.00
31.17
36.3
39. 0
1.
3.67
.76
.
0.76
1.3
1.9
61.99
.00
. 0
.00
.00
.00
.00
.00
.00
6.00
6.00
6.00
6.00
6.00
6.00
.00
2.00
2.00
ZOO
2.00
2. 0
a 13
60.000
3. 0
3.7
.00
.2
.63
.
7 .000
100.000
200,000
00.000
10.000.000
3
100 000,000
6.00
1 Ths percentage s rounded. It actuay Is |ust undo: percent.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
GS
Tabe C. Comparson of corporate norma ta and surta abtes under
19 0 aw, present aw, ouse b, and Fnance Commttee b
Net ncome sub-
|ect tonornmta
and surta
t.OOO
6,000
10,000
2 ,000
30,000
0,000
0,000
60.000
7 ,000
W .UIO
200,000
00.000
1.000,000...
10,000,000.
100,000,000.
Combned norma ta and surta
Prc-C 0
210
1.0 0
2,200
6. 7 0
. 00
13.700
19.000
22, 00
2 , 00
3 ,000
70,000
190.000
3 0.000
3. 00.000
3 ,000,000
Present
aw
2 0
1.2 0
2. 00
0,2 0
,600
13,300
1 ,000
22.700
29.7 0
1, 00
, 600
)
6 . 00
.69 . 00
6. 99 , 00
ITouse
b
000
1, 00
3,000
7, 00
10,100
1 ,300
20. 0
2 ,700
33, 00
0, 00
vs. 110
2 , 00
1 , 00
,19 , 00
1,99 , 00
Fnance
Com-
mttee
b
270
1,3 0
2,700
6,7 0
9,3 0
1 , 0
19,7 0
2 .9 0
32.7 0
. 7 0
97. 7 0
2 3, 7 0
13,7 0
, 193, 7 0
61,993,7 0
Increase n ta abty over present av
ITouse
b
Fnance
Com-
mttee
b
0
260
00
1,2 0
1,600
2,000
2,600
3,000
3,7 0
6,000
n.o )
2 ,000
0,000
00.000
,000,000
20
100
200
600
7 0
1,2 0
1,7 0
2,2 0
3,000
,2 0
9,2 0
2 .2 0
9,260
99.2 0
1 .999,260
Percent
Douse
b
20.00
20.00
20.00
20.00
17.
1 .0
13. 9
13.22
12.61
12.0
II. 30
III. v|
10.76
10.6S
10.6

Tnbe C shows for corporatons wth seected net ncomes the combned cor-
porate norma ta and surta abtes under your commttee s b, under the
ouse b, under e stng aw, and under the aw n effect pror to the enactment
of the Revenue ct of 19 0. The ncrease n ta abtes of your commttee s
b over e stng aw ranges n the cases shown from percent on ncomes under
2 ,000, to 10.0 percent on Incomes of 100,000,000. Under the ouse b the
ncrease n ta abtes ranges n the cases shown from 20 percent of the ta
due under present aw on ncomes under 2 ,000, to 10.6 percent on ncomes of
100,000,000. Thus under your commttee s b the percentage ncrease In ta
grows arger as the ncome ncreases, whe under the ouse b e acty the
reverse s true.
The rate ncreases provded by your commttee s b are much arger than t
woud ordnary be desrabe to provde, and t s reazed that f corporate rates
are contnued at ths hgh eve Indefntey the e panson of productve factes
may be serousy mpared. For ths reason your commttee has set December 31,
19 3, as the termnaton date for these ncreases. In the nterva before 19 3,
your commttee beeves that corporatons w be abe to stand these hgh rates
n vew of the hgh corporate profts stemmng n a arge part from the natona
defense program and the hgh eve of demand generay for products and servces.
In the frst quarter of 19 1 corporate profts before ta es were runnng at the
annua rate of neary 2 bon, and n the second quarter of 19 1 t s estmated
that corporate profts were runnng at the annua rate of / bon. Thus,
corporate profts n the frst naf of 19 1 are above the very hgh rates reached
n the ast haf of 19 0 and one-haf agan as arge as the profts n the caendar
year 19 . whch were the argest pror to 19 0. It s e pected that corporate
profts after a ta es, even ncudng the ta es mposed by your commttee s b,
w be wthn about 2. bon of the eve of corporate profts after ta es n
1030 and above the profts after ta es n any pror year e cept 19 . Durng
Word War II, for e ampe, corporate profts after ta es ranged from S. bon
to 10. bon as compared to antcpated corporate profts of about 20 bon
after the ta es mposed under your commttee s b.
Moreover, these arger ta coectons durng the mmedate perod ahead w
occur durng a perod of arge defense orders and a hgh eve of consumer n-
come. The assurance of these arge and predctabe markets for producers dur-
ng the mmedate perod ahead must be offset aganst the adverse effect on
ncentves of the hgh corporate ta es provded by ths b.
Your commttee deems t desrabe to add ony two out of the fve percentage
ponts by whch corporate ta es are ncreased to the norma ta because ths
n the ony rate under whch some sma corporatons are ta ed and the rate
under whch most of the ncome cf other reatvey sma corporatons s ta ed.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
09
Yonr commttee beeves that the contnuance of a free compettve market
demands the creaton of new, and the growth of e stng, sma busnesses and
that ths necesstates preferenta ta treatment wth today s corporate ta
burden.
. C ILING R T OR M IMUM R T LIMIT TION
Under e stng aw the norma ta , surta , 2 percent ta on consodated re-
turns, and e cess profts ta together may not e ceed 02 percent of a corporaton s
e cess profts net ncome (ncome before deductng the e cess profts credt and
unused e cess profts credt carry-over. Thus, for corporatons wth effectve
ncome ta rates of about 7 percent, ths means that the e cess profts ta may
not e ceed about 1 percent of ther e cess profts net ncome.
Under the ouse b ths ceng rate, or ma mum rate mtaton, s rased
to 70 percent, or by percentage ponts. Fve of these percentage ponts merey
offset the -percentage-pont ncrease n the ncome ta rates n the case of the
corporaton wth most of ts ncome ta ed at the 2 percent rate. The addtona
3-percentnge-pont ncrease n the ceng rate provded by the ouse b, how-
ever, has the effect of ncreasng the e cess profts ta abtes of many cor-
poratons. The 70 percent ceng rate for a corporaton wth an effectve n-
come ta rate of about 2 percent means that ts e cess profts ta may not e ceed
about 1 percent of ts e cess profts net ncome under the ouse b as contrasted
to 1 percent under e stng aw.
Your commttee s b adopts a new type of ceng rate. The ceng rate n
ths b s 17 percent of e cess profts net ncome but appes ony wth respect
to e cess profts ta abty and the ta abty on consodated returns. For
corporatons wth ncome ta effectve rates of about 2 percent ths s the
equvaent of about a 09 percent ceng rate on abtes under the ncome ta s,
consodated return ta and e cess profts ta , taken together, and ths s the
rate whch s comparabe n these cases to the 70 percent ceng rate under the
ouse b and the 02 percent ceng rate under e stng aw. owever, because
of the 2 ,000 surta e empton, the effectve ncome ta rates of corporatons
wth ta abe ncomes of ess than 300,000 s ess than 0 percent. s a resut
a ceng rate of 60 percent on ther combned ncome and e cess profts abtes
s qute dfferent from a 17 percent ceng on ther e cess profts ta abtes.
Tabe 7 shows for seected ncome eves, the effectve ncome ta rates under
your commttee s b, and the ma mum effectve rates wth the 00 percent ceng
formua and the 17 percent ceng formua. The tabe ndcates that for corpo-
ratons wth ncomes over ,000 10 the 17 percent formua s the more generous,
resutng n a ma mum ta savng of neary 6 percent of tota ncome for corpora-
tons wth ncomes of about 106,000.
Your commttee prefers ths ceng on e cess-profts-ta abtes over the
type of ceng rate n present aw and the ouse b because ths type of
ceng rate s more advantageous to sma corporatons. Moreover, even for
arge corporatons ths 17 percent ceng rate provdes a ma mum effectve
rate on tota abtes whch s never qute 69 percent as compared to the fat
70 percent ceng provded under the ouse b. though the arge corporatons
sub|ect to ths ma mum rate necessary have substantay arger earnngs
than Lher e cess-profts-ta credt woud suggest s norma, ths ower ma -
mum rate s deemed desrabe because mperfectons n the present aowabe
methods of computng the e cess-profts credt may substantay understate
norma earnngs.
C. C PIT L-G INS T T
The ouse b ncreased the capta-gans ta rate for corporatons from 2
to 2 .12 percent. Ths s an ncrease of 12 percent, whch corresponds wth
the 12 6 percent ncrease made by the ouse b n the capta-gans ta rate
of ndvduas. Snce your commttee s b provdes no ncrease n the ma mum
capta-gans ta rate of ndvduas, no ncrease s made n the capta-gans
For ths purpose the e cess profts ret ncome Is substtuted for the norma ta net
ncome and surta net ncome n computng the varous ta es nvoved. cess profts
net Income s Income before the deducton of the e cess profts ta credt and the e ceS
profts credt carry-over. The 30 percent e cess profts ta rnte s apped to ad|usted
e cess profts net ncome that Is. e eess profts net ncome after deducton of the e cess
profts credt and the unused e cess profts credt carrv-ovcr.
10 For corporatons wth ncomes unrer T.692 31 the 2r 000 mnmum e cess profts
ta credt prevents a hgher effectve rate than 17 percent under both formuas.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
70
Tabe 7. Corporaton norma ta and surta effectve rates under the Fnance
Commttee b, and a comparson of the ma mum effectve rates of ncome and
e cess-profts ta es under a 69 percent ceng rate on ncome and e cess-proft
ta es u:th the ceng rate under the Senate Fnance Commttee b (a 11
percent ceng rate on e cess-profts ta es aone)
Cur.ent ncome
10,000
2 ,000
30,000
0,000
0,000
7,612
00,000
70,000
0.000
90,000
co,oao
10 .709
1 0,000
200.000
2 0.000
300.000
00.000
00. 00
1,000.000....
10.000.000..
100,000,000.
ffectve rate
ot norma ta
and surta
under F-
nance Com-
mttco LU
Percent
27.0(.
27.00
31.17
36.3
39. 0
1.17
1.
3.07
.19
.06
. 7
n. ()
7. 3
.
9. 0
9.92
a
60.7
1.3
61.9
1.99
Ma mum effectve rate of
e cess-profts .a es
C9 percent
and
3ts
Percent
27.00
127.00
36.17
7.63
. 0
.17
9.0
62.36
6 . 1
66.72
6 .2
69.00
69.00
69.00
69.00
69.00
69.00
69.00
69.00
69.00
69.00
17 percent
e cess-profts
a ceng
(provded
by b)
Percent
27.00
27.00
36. 17
7.63
. 0
.17
60.07
a.
62.06
62.7
63.09
6 . 3
6 .
66. 0
66.92
67.
67.7
6 .3
6 .9
pont (
Percent
.66
. 0
.91
.17
3.12
2. 0
2.06
. S
1.2
.62
.0
.01
s a resut o. the 2 ,000 surta e empton and the 2 ,000 mnmum credt, the
on ncome r-.nd e cess-profts ta ab es s aways ess than 69 percent for corporatons wth ncomes beow
:a .769.23.
s a res t of the 2 ,000 mnmum e ecs -profts-ta credt, the ma mum effectve e cess profts ta
rate for corporatons wth ncomes beow C 7.692.31 s aways ess than 17 percent.
ta rnte of corporatons. Under the ouse b t was esMmnted that the rate
ncrease n capta gans woud ncrease corporate ta abtes by 3 mon
before takng nto account the reducton n corporate dvdend payments.
D. P RC NT G OF TII R G S P RIOD N T INCOM T N INTO
CCOUNT IN COMPUTING T C SS PROFITS CR DIT
Under present aw a corporaton n computng ts e cess profts credt on the
bass of average earnngs may take nto account ony percent of ts average
earnngs n ts three best years n the perod 10 6- 9. The ouse b reduces
ths percentage to 7 percent, but your commttee s b keeps t at percent.
fter studyng ths pont ast year In ts consderaton of e cess profts ta
egsaton, your commttee concuded that a 1 percent dscount was an adequate
ad|ustment n order to pace 19 6- 9 earnngs on a norma bass and your com-
mttee beeves a greater dscount cannot be sustaned. To further reduce ths
percent n the case of the average-earnngs base s to penaze those usng
ths type of credt nstead of the nvested capta credt. It shoud not be for-
gotten that n the Word War II e cess profts ta the average earnngs n
the base perod was ony reduced by percent.
. FF CTI D T
Under your commttee s b the corporate rate ncreases are effectve as of
pr 1, 19 1. Under the ouse b they are effectve as of anuary 1, 19 1.
Your commttee generay s opposed to makng retroactve rate ncreases and
for ths reason dd not accept the ouse effectve date of anuary 1. owever,
the need for revenue n the fsca year 19 2 made t necessary for your com-
mttee to appy these rate ncreases as far back as pr 1 of ths year. y
makng those corporate rate ncreases effectve at that tme t s antcpated
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
71
that coectons n the fsca year 19 2 (before takng nto account the effect
of smaer dvdends pn ndvdua ncome ta coectons) w be ncreased by
07 mon as contrasted to ony 61 mon f, for e ampe, the corporate
rate changes were not made effectve unt uy 1, or 29 mon f the rate
changes were made effectve as of October 1. Moreover, by makng the rate
ncrease effectve as of anuary 1, the ouse b ncreases the ta of most
corporatons even before they have pad any of the addtona ta es resutng
from the ncreases made by the Revenue ct of 19 0. Thus, for a caendar year
corporaton, for e ampe, the top corporate rate woud |ump from 2 percent n
19 0 to 2 percent n 19 1. Ths s an ncrease of about 2 percent, and your
commttee consders t too steep an ncrease to be made wth respect to a snge
year. y makng the ncrease effectve as of pr 1, your commttee s h
spreads the fu 2 percent ncrease over 2 years nstead of 1. It shoud aso
be noted that for the buk of the corporatons, whch are on a caendar-year
bass, the Government w not begn coectng ths addtona 19 1 ta abty
unt March 19 2 and w not compete ts coecton unt December 19 2. Thus,
corporatons w have adequate tme n whch to prepare for these addtona
ta payments.
The corporate ncome ta and ceng rate changes provded by your com-
mttee s b are to be effectve wth respect to ta abe years begnnng after
March 31, 19 1. For corporatons wth ta abe years begnnng pror to uy
1, 19 0, and endng after March 31,19 1. your commttee s b provdes a formua
for proratng the ta es due under the aw n effect pror to the Revenue ct of
19 0, under e stng aw and under your commttee s b. For corporatons wth
ta abe years begnnng after une 30, 19 0, and endng after March 31, 19 1,
your commttee s b prorates the ta es due under e stng aw and under your
commttee s b. In genera these proraton formuas provde that the ta on
the entre ncome s to be computed at the two or three dfferent rates appcabe.
Then these ta es are mutped by a fracton of whch the numerator s the
number of days n the corporaton s ta abe year n whch the rate n queston
s effectve, and the denomnator s the tota number of days n ts ta abe year.
The sum of these fractona ta es s the corporaton s fna obgaton.
F. DISTRI UTION OF T URD N
Tabe shows the combned corporate ncome and e cess-profts-ta abtes
of corporatons n varous ncome casses under e stng aw, under the ouse
b and under your commttee s b. The tabe ndcates that of the 1 ,1 2
corporatons wth ta abe net ncome, 292, 91, or about 70 percent of the tota,
have ncomes of ess than 2 ,000. These corporatons whch have . percent
of the tota ta abe ncome, bear 3. percent of the ncrease n ta abtes
provded by the ouse b, but ony 1.9 percent of the ncrease n ta abtes
under your commttee s b. The ,022 corporatons wth ncomes of 100,000
and over, whch consttute about 11 percent of the tota number of corporatons
wth ta abe net ncome, have 7.2 percent of the tota ta abe ncome, and
woud bear 9.3 percent of the ncrease provded by the ouse b, or 92.37
percent of the ncrease provded by your commttee s b.
. Ta - empt Organzatons
Your commttee s b mposes the reguar corporate ncome ta on certan
undstrbuted profts of the foowng organzatons fuy e empt from ncome
ta under secton 101 of the present aw: farmers purchasng and marketng
cooperatves, mutua savngs banks, and State chartered savngs and oan as-
socatons, as we as Federa savngs and oan assocatons. mnor amend-
ment s aso provded n the case of educatona bodes wth respect to ther
feeder organzatons. Ths provson s n the ouse b. Wth respect to
mutua casuaty and fre nsurance companes, presenty sub|ect to mted ta a-
ton, the staffs of the Treasury Department and the ont Commttee on Interna
Revenue Ta aton have been requested to prepare a report on ther ta treat-
ment, and your commttee w gve consderaton to ths matter as soon as s
feasbe after the competon of that report.
The ouse b does not go nto the sub|ect of ta treatment of cooperatves or
mutua fnanca nsttutons. s a resut the 1 0 mon whch t s antcpated
w be derved from the ta treatment provded n your commttee s b for
these organzatons represents an ncrease not ony n the amount coected under
present aw but n the amount whch woud be coected under the ouse b.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
72
Tabe . stmated corporate ncome and e cess profts ta abtes unaer
present ac, the ouse b and the Fnance Commttee b, caendar year
19311
Number
of ta abe
returns
Ta abe
net n-
come
Income and e cess profts ta
abtes
Increase over present
Ta abe net Income casses
Present
rates
ouse
b
Fnance
Commt-
tee b
ouse
b
Fnance
Commt-
tee b
Mon
MUcns
0
Mon t
0
COS
1,027
,1 2
Me v
3
63
9 2
23. 73
Mon
Mm
Up to 2 .000
292. 91
. 192
2,161
1, 66
2,01
U0

12
2.716
3
3
2 ,000 to S 0.000
20
0,000 .0 -100.000
30. 77
. 022
S3
2.0 7
100,000 and over
39.311
21. 16
Tota
1 ,1 2 ,0 6
23, 3 26, 2 1 2 ,601
3,0 0 2.216
Percent dstrbuton
Up to S2f ,000 -
70.
11.37
7.3
10.
. SO
3. 7
.
7.2
2.31
2.
2.30
3. 9
91. So
2.2
2.20
3.
k 63
3.
2.90
.21
9.3
L9
2 ,000 to 0,000
2.22
3.M
. 62
LM
0,000 to 100,000
17
100,000 am over
100.00
100. 00 100.00
100.00
100.00
100.00
r
ased upon a eve of profts before ta (Commerce bass) of bon.
. COOP R TI S
Secton 101(12) of the Code e empts from ncome ta a farm cooperatves
whch meet certan specfed requrements. Ths e empton ncudes not ony
cooperatves marketng the products of farmers but aso cooperatves purchasng
products and reseng them to farmers. The chef requrements whch must
be met by cooperatves n order to be e empt from ncome ta . under secton
101(12) are as foows:
1. They must be farmers , frut growers , or ke assocatons organzed
and operated on a cooperatve bass for :he purpose of marketng products
or purchasng suppes for ther members.
2. Substantay a of ther stock (other than preferred nonvotng stock)
must be owned by producers marketng products or purchasng suppes
through the cooperatves.
3. The marketng of products of nonmembers may not e ceed 0 percent
n vaue of the cooperatve s tota marketng.
. The purchasng for nonmembers may not e ceed 0 percent of the
cooperatve s tota purchasng, and the purchasng for persons who are
nether members nor producers may not e ceed o percent of the coopera-
tve s tota put chasng.
. Nonmembers must not be dscrmnated aganst n the aocaton of
patronage dvdends or refunds to the accounts of patrons.
t the present tme, the advantages whch are derved from e empton can
be summarzed as foows: Frst, the earnngs of a cooperatve whch are pad
out to sharehoders n the form of dvdends on capta stock are not ta abe
to an e empt cooperatve but are ta abe to other cooperatves. Second, any
part of the net margns or profts whch are retaned as reserves and not aocated
tc the accounts of patrons are not ta abe to an e empt cooperatve but are ta -
abe n the case of other cooperatves. Thrd, nonoperatng ncome such as
nterest, dvdends, rents, and capta gans and aso the ncome from certan
busness done wth the Unted States Government or ts agences, s ta abe to
the ordnary cooperatve even when aocated to the accounts of patrons, but
are ta -free to the e empt cooperatve whether or not aocated.
Secton 31 of your commttee s b contnues the e empton provded by sec-
ton 101 (12) of the Code but removes from ts appcaton earnngs whch are
paced n reserves or surpus and not aocated or credted to the accounts of
patrons. In addton to beng ta -free wth respect to patronage dvdends pad
or aocated to patrons, as s generay aso true n the case of other cooperatves,
the cooperatves comng under secton 101(12) are aso to reman e empt wth
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
73
respect to amounts pad as dvdends on capta stock, and wth respect to
amounts aocated to patrons where the ncome nvoved was not derved from
patronage, as for e ampe n the case of nterest or renta ncome, and ncome
derved from busness done wth the Federa Government. Moreover, the w
not be ta ed n any way wth respect to reserves set asde for any necessary pur-
pose, or reserves requred by State aw, f such reserves are aocated to natrons.
s a resut of ths acton, a earnngs or net margns of cooperatves w be
ta abe ether to the cooperatve, ts patrons or ts stockhoders wth the e cep-
ton of amounts whch are pad or aocated to patrons on the bass of purchases
of persona, rather than busness, e pense tems. Wth ths e cepton, funds
whch are aocated to the accounts of patrons, or pad n cash or merchandse,
are ta abe to them. Ths s true n the case of ether ta abe or ta -e empt
cooperatves. In the case of ether a ta -e empt or a ta abe cooperatve, funds
whch are pad or aocated to patrons on the bnss of persona e pense tems
have no ncome ta consequences to the patrons, snce they represent a return
wth respect to e pendtures by the patron of a persona nature, for whch
no ncome ta deducton has been taken by hm. Funds whch are not pad or a-
ocated to patrons hut are retaned as reserves by the cooperatves w be ta -
abe to the cooperatve. Ths aso w be true of both types of cooperatves.
Funds pad out as dvdends on ordnary capta stock n the case of the e empt,
cooperatve w be ta abe to the stockhoder, whe n the case of the ta abe
cooperatve a ta s mposed at both the stockhoder and the cooperatve eves.
Whe the ta treatment provded by your commttee for cooperatves does not
mpose the doube ta es payabe n the case of ordnary corporate ncome, your
romnttee beeves that the securng of a snge ta wt respect to substantay
a of the ncome of cooperatves shoud be suffcent n vew of the unque char-
Cterstcs of a cooperatve.
Your commttee dsapproves of wthhodng on dvdends. owever, shoud
wthhodng on corporate dvdends be provded your commttee beeves t shoud
aso be provded for patronage dvdends pad by cooperatves. For that reason
your commttee has added a provson to the h whch sub|ects patronage dv-
dends of cooperatves to a wthhodng ta f at any tme one shoud be mposed
npon corporate dvdends.
It has been contended that, athough patronage dvdends are generay ta abe
to the patron, the patronage dvdends pad n scrp or some other noncash form
have not been ncuded n the patron s ncome. It has been suggested that ths s
true because the patron who reports hs other ncome on a cas bass s not ac-
customed to consderng noncash payments as ncome. so, t has been sug-
gested that the patron s reuctant to ncude noncash patronage dvdends n
hs ncome n many cases because he does not have suffcent other cash ncome
avaabe to pay the ta nvoved. To ascertan the degree to whch both cash and
noncash patronage dvdends are ncuded n returns at the present tme your
commttee s b provdes that the Commssoner of Interna Itevenue s to re-
qure reportng by a cooperatves of patronage dvdends whch are pad to or
aocated to the accounts of patrons n amounts of 100 or more, and s to have the
dscreton to requre reportng on smaer amounts. so, the commttee has
nstructed the staffs of the Treasury Department and ont Commttee on In-
terna Itevenue Ta aton to study and report by pr 1, 19, 2, the possbty of
wthhodng aganst reserves aocated and on the varous methods used n
aocatng reserves and n the form and character of the certfcates ssued.
It s estmated that the acton provded by your commttee wth respect to
e empt cooperatves w ncrease coectons from ths source n a fu year of
operaton by 10 mon.
I. MUTL L FIN NCI L INSTITUTIONS
/. Mutua savngs hau s.
Mutua savngs banks were estabshed to encourage thrft and to provde safe
and convenent factes to care for savngs. They aso have the responsbty
of nvestng the funds eft wth them so as to be abe to gve ther depostors a
return on ther savngs. Mutua savngs banks were orgnay organzed for
the prncpa purpose of servng factory workers and other wage earners of
moderate means who, at the tme these banks were started, had no other pace
where they coud depost ther savngs.
Most mutua savngs banks were started by groups of ndvduas who put up
guaranty funds whch were repad out of subsequent earnngs. The organzers
0 010 62 31
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
apponted boards of trustees to manage the affars of the hanks. The hoards of
trustees, whch are generay sef-perpetuatng, drect the poces of the banks,
sub|ect to the mtatons mposed upon them by the aws of the severa States
n whch they operate. The depostors themseves have no voce ether n the
choce of trustees or In the management of the bank s affars. owever, snce
a mutua savngs bank has no capta stock, everythng that the bank earns s,
n theory, hed for the beneft of the depostors.
Wth respect to outets for ther funds, mutua savngs hanks are sub|ect to
mtatons smar to those whch appy to other bankng nsttutons. They are
not requred to make oans ony to depostors or members. Tabe 9 shows the
types of assets hed by mutua savngs banks as of December 30, 19r 0, and n the
case of federay nsured mutua savngs banks, the types of rea estate oans as
of une 30, 19 0. and ther earnngs, e penses, and dvdends for the year endng
December 30, 19 0. The tabe ndcates that Unted States Government obga-
tons represent neary 1 percent, and oans 3 percent of the tota oans and
nvestments of these banks. In the case of commerca banks neary 9 percent
of ther tota oans and nvestments represent Unted States Government ob-
gatons, and 1 percent represent oans. Ths ndcates that f there s any
mportant dfference between the use of funds by mutua savngs banks and
commerca banks, t s that the nvestments of the former are somewhat safer.
Mutua savngs banks, of course, have a arger porton of ther oans n rea
estate than do commerca banks, but ths can be attrbuted to the fact that
snce the deposts of mutua savngs banks are amost e cusvey tme deposts,
t s possbe for them to nvest a substanta porton of ther funds n nonqnd
assets. On the other hand, the ma|orty of the deposts of commerca banks
are demand deposts requrng greater qudty n ther nvestments. In any
case, the nvestment of funds n rea estate today s not a sgn of nsecurty n
vew of the fact that an mportant segment of such oans are backed by the
Federa Government. Tabe 9 ndcates n the case of federay nsured mutua
savngs banks, for whch statstcs are avaabe, that, as of une 30, 19 0, about
33 percent of the rea estate oans hed by these banks were ether nsured by
the Federa ousng dmnstraton, or guaranteed by the eterans dmns-
traton. Moreover, even the other rea estate oans are more secure than
formery was the case because of the present genera use of decnng-baance
oans n eu of the oder f ed-amount oans.
The tota deposts of mutua savngs banks as of une 27. 19 1. were 20, 00
mon and ther capta accounts, 2,290, ndcatng that they have about
1 of capta for every 9 of deposts. s of the same date the tota deposts of a
commerca banks were 1 0,2 0 mon, and ther capta accounts 11, 00 m-
on, ndcatng that they ony have about 1 of capta for every 13 of deposts.
Thus, despte the absence of capta stock the mutua savngs banks today on
ths ground aso appear to have consderaby more protecton than commerca
banks.
Secton 102(2) of the Code e empts mutua savngs banks from the payment
of any ncome ta . The effect of the e empton has been to reeve mutua
savngs banks of ncome ta on the amounts retaned as undvded profts and
addtons to surpus. Snce they have Increased ther surpus and undvded
profts by over 00 mon snce 19 0, and by more than 00 mon snce
19 . t woud appear that they have en|oyed substanta ta savngs as a resut
of the e empton.
Secton 313 of your commttee s b removes the e empton of mutua savngs
banks and permts them to deduct amounts pad, credted or aocated to the
accounts of depostors and, ns n the case of other hanks, permts them to de-
duct amounts credted to a reasonabe reserve for bad debts. The addton to
the reserve for osses on oans s to be determned wth due regard to the
ta payer s surpus or oss reserves at the cose of December 31, 19 1. In add-
ton, mutua savngs banks are to be aowed as a deducton from gross ncome
any amount currenty pad to the Unted States, or to any Federa Government
nstrumentaty e empt from Federa ncome ta es, n repayment of ndebted-
ness ncurred pror to September 1, 19 1. On the remanng ncome, mutua
savngs banks are to be ta ed n the. same manner as ordnary corporatons.
Ths provson s effectve wth respect to ta abe years begnnng after De-
cember 31,19 1.
s of December 30, 1930. Computed from data avaabe In tbe Federa Reserve
u.n.
These statstcs arc pubshed reguary n the Federa Reserve uetn.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
Tabe 9. Types of assets hed by mutua savngs bancs as of Dec. SO, 19 0, and
for federay mtrcd mutua savngs banks, types of rea estate oans hed as of
une SO, 19 0, and earnngs, e penses, and dvdends n the caendar year 19 0
. SS TS OF LL MTTU L S INGS N S IN T UNIT D
ST T S, S OF D C. 30, 19 0
Doar amounts
|f m n mons
Tota assets . S |
Cash and funds duo from banks
Unted States Government obgatons 10, S6S
Obgatons of States am subdvsons 3
Otber securtes 2, 2- 3
Rea estate and others oans S, 137
Msceaneous assets - 2
Number of banks, 29.
It. F D LLY INSUR D ND CON NTION L R L ST T LO NS 1I I.D Y INSUR D
MUTU L S INGS N S, UN 30, 19 0
Tota rea estate oans So, 17
Federay nsured:
Insured F and guaranteed mortgage oans on
1- to -famy propertes 1,36
Insured FII and guaranteed oans on or more
famy propertes 1
Tota L 779
Conventona oans 3,60
Number of nsured mutua savngs baa -S, 192.
ITT. RNINGS, P NS S ND DI ID NDS OF INSUR D MUTU L S INGS N S FO
T Y R NDING D C. 30, 10 0
Doar amounts
n thousands
Current operatng earnngs, tota 7 ,69
Interest, dscount and other ncome on rea estate oans 231, 730
Interest on U. S. Government obgatons, drect and guaranteed 1 2, 7
Other current earnngs 6 , 0
Current operatng e penses 11 , 70
Net current operatng earnngs 363,22
Dvdends (nterest) pad on deposts 2 7,770
Net profts after nterest and dvdends 91,17
Number of nsured mutua savngs banks, Dec. 30, 19 0, 19 .
Source : nnnn Report of the Federa Depost Insurance Corpornton for the year ended
Dec. 31, I .)o0. pp. f nnd 2T2. nnd Operatng Insured Comuerrn and Mutua Savngs
unks. ssets uud Labtes, une 30, 1900, ept. No. 33, Federa Depost Insurance
Corporaton.
The sze of the bad-debt aowance provded n the case of commerca banks
Is determned under admnstratve rungs by the Commssoner of Interna
Revenue. t present It Is provded n the ense of commerca banks that the
(mount whch can be deducted from ta abe ncome n any one year sha be
determned by appyng the rato of osses to outstandng oans durng the past 20
years, to the oans outstandng n the current year. These reserves are mted
to three tmes the current 20-year oss rato. In the case of mutua savngs
banks aso, the formua permtted may be qute dfferent from that now pro-
vded for commerca banks f the Commssoner after nvestgaton fnds that
the hstorca oss e perence of these nsttutons dffers substantay from
that of commerca banks. In fact, your commttee beeves that the oss
e perence of these banks shoud bo based upon a perod of at east 2 years f
ths, n the aggregate, woud resut n greater oss deductons for these banks
than the 20-year perod now provded n the case of commerca banks. asng
oss reserve deductons on the oss e perence of the past 20 or 2 years w
ncude a perod n whch the osses of the mutua savngs banks were qute
arge, wth the resut that the oss reserve deductons permtted n the ne t
severa years w be reatvey arge.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
76
t the present tme, mutua savngs hanks are In actve competton wth com-
merca banks and fe nsurance companes for the pubc savngs, and they
compete wth many types of ta abe nsttutons n the securty and rea estate
markets. s a resut your commttee beeves that the contnuance of the ta -
free treatment now accorded mutua savngs banks woud be dscrmnatory. So
ong as tey are e empt from ncome ta , mutua savngs banks en|oy the advan-
tage of beng abe to fnance ther growth out of earnngs wthout ncurrng the
ta abtes pad by ordnary corporatons when they undertake to e pand
through the use of ther own reserves. The ta treatment provded by your
commttee woud pace mutua savngs banks on a party wth ther compettors.
Moreover, earnngs of a mutua savngs bank whch are aocated to the ac-
counts of depostors are sub|ect to ndvdua ncome ta . Snce t s contended
that the ncome whch s retaned by the mutua savngs banks s the ncome of
depostors, there seems to be no reason why ths aso shoud not be sub|ect to
tu . owever, t s mpossbe to ta the depostors on these unaocated funds,
snce they have no ega rght to the funds uness they are depostors at the
tme of qudaton of the bank. Therefore, f these earnngs are to be recog-
nsed ns ncome, there s no aternatve but to ta them In the hands of the
mutua savngs banks whch have the power over ther management and
dsposton.
It has been suggested that mutua savngs banks mght be ta ed ony on ther
net Income n e cess of some specfed reserve. Iowever, f the funds gong
nto ths reserve represent ncome there woud appear to be no reason for not
ta ng them. If they are funds whch are necessnry to offset future osses,
aowance w aready have been made for them through a oss-reserve deduc-
ton whch w afford these Insttutons at east as generous treatment as s
accorded ther chef compettors, namey, commerca banks.
2. Sa-ngs and oan assocatons.
Savngs and oan assocatons were estabshed to encourage thrft and to
promote home ownershp. These organzatons, whch aso go under the name
of budng and oan assocatons, are typcay nonstock corporatons whch In
reaty secure ther funds through deposts, whch are known as- shares.
Pavngs and oan assocatons may be chartered by the States or by the ome
Loan ank oard. Of the ,9 0 assocatons whch were dong busness at the
end of 19 9, 1, 0 were Federa assocatons and the remander were State-
chartered nsttutons. The former group accounted for 7.1 bon, or neary
0 percent, of the 1 .7 bon of tota assets of a the assocatons.
Not a of the earnngs of savngs and oan assocatons are dstrbuted n the
form of cash or credted to the sharehoders accounts. Some earnngs are set
asde n varous reserve accounts, and some are retaned as undvded profts. t
the end of 19 9, the genera reserves and undvded profts of a savngs and
oan assocatons n the Unted States amounted to 1.1 bon. Ths was over
7. percent of the 1 .7 bon of prvate savngs nvested In these nsttutons.
Most of the assets of savngs and oan assocatons take the form of mortgage
oans, usuay on resdenta propertes. Thrty years ago, ths type of oan
accounted for over 90 percent of the assets of these nsttutons; today, the per-
centage s somewhat ower, athough mortgage oans represented 0 percent of
a assets hed at the end of 19 0. Tabe 10 shows for 19 0 the types of assets
hed by savngs and oan assocatons at the end of the year 19 0, and n the
case of federay Insured assocatons, the types of mortgage oans hed at the
end of the year and the net Income, dvdends, and addtons to undvded profts
durng the year. The tabe Indcates that these assocatons have a much arger
porton of ther assets nvested n rea estate mortgages than s true n the case
of commerca banks. owever, ths can be attrbuted to the fact that snce
the deposts of savngs and oan assocatons are amost e cusvey tme deposts,
t s possbe for them to nvest most of ther funds In nonqud assets. The
ma|orty of the deposts of commerca banks, on the other hand, are demand
deposts requrng greater qudty n ther nvestments. It shoud aso be noted
that, as n the case of the mutua savngs banks, neary one-thrd of the mortgage
oans of the budng and oan assocatons, n terms of vaue, are Insured or
guaranteed by the eterans dmnstraton or the Federa ousng dmn-
straton.
In the eary days of these Insttutons, the transactons of the assocatons
were confned to members, and no one coud partcpate In the benefts they
afforded wthout becomng a sharehoder. Indvduas became Investng mem-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
77
Tabe 10. Types of assets hed ;/ savngs and oan assocatons as of Dec. SO,
19 0, and for federay nsured assocatons, types of rea estate oans hed as of
Dee. SO, 19 0, and ncome dvdends and undvded reserves and profts n 19 0
I. SS TS OF LL S INOS ND LO N SSOCI TIONS ND INSUR D S INGS ND
LO N SSOCI TIONS S OF D C. 30, 0
Doar amounts n mons
pavngs
Insured sav-
ngs and oan
assocatons
Item
and o:n
assocatons
f 1ft, 2
C13, 10
913
U. 91
,0 0
13. 0
11,1 3
00
1,203
2, 60
II. F D R LLY INSUR D ND CON NTION L FIRST-MORTG G LO NS LD
Y INSUR D S INOS ND LO N SSOCI TIONS, D C. 30, 11 0
Doar amounts n n.ons
Tota frst-mortgage oans M, 1
Feaeny nsured:
-7Uurnnteed oans - - - 733
F -nsurcd oans 2, 07
Tota - 3,2 1
Conventona oans - - 7,9 7
III. INCOM , DI ID NDS, ND UNDI ID D PROFITS OF INSUR D S INGS ND
LO N SSOCI TIONS, FOR T Y R ND D D C. 30, 19 0
Doar amounts n thousands
Net ncome 11.3 7
Dvdends 262.7M
Undvded profts nt. reserves _ ._ -- 1 , 06
P.emnary.
The d e-enee between ths fgure and the comparabe category shown n pt. I s due to dfferences n
accountng methodoogy.
Scup es- Sttstea Summary, 10 1, ome Loan ank oard, pp. Sand 1 ; Operatona nayss Cccton,
ome Lo.n Dan oard.
bers of these organzatons n the e pectaton of utmatey becomng borrowng
members as we. Membershp mped not ony reguar payments to the asso-
caton for a consderabe perod of tme, but aso rsk of osses. Members coud
not cance ther membershps or wthdraw ther shares before maturty wthout
Incurrng heavy penates. The fact that the members were both the borrowers
and the enders was the essence of the mutuaty of these organzatons.
though many of the od forms have been preserved to the present day, few
of the assocatons have retaned the substance of ther earer mutuaty. The
steady decne n the proporton of share-accumuaton oans s evdence that
the character of these organzatons has changed. More and more, nvestng
members are becomng smpy depostors, whe borrowng members fnd deang
wth a savngs and oan assocaton ony techncay dfferent from deang wth
other mortgage endng nsttutons n whch the endng group s dstnct from
the borrowng group. In fact, borrowers ordnary have very tte voce n the
affars of most savngs and oan assocatons.
One characterstc of the earer mutuaty whch remans s the absence of
capta stock. owever, the character of the organzaton has been modfed by
the practce of payng more or ess f ed rates of return on shares, and of bud-
ng up substanta surpus accounts to protect sharehoders aganst the rsk of
osses.
Savngs and oan assocatons at present are e empt from ncome ta under
secton 101( ) of the Code. In addton, Federa savngs and oan assocatons
whch are chartered by the Federa Government are e empt from ncome ta
under the ome Owners Loan ct of 1933 and are covered by subsecton (1 )
of secton 101 of the Code provdng for the e empton of Unted States nstru-
mentates.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
Secton 313 of your commttee s b removes the e empton of savngs and oan
assocatons, ncudng Massachusetts cooperatve banks, and those chartered by
the Federa Government and ta es them as ordnary corporatons. owever, t
specfcay aows the deducton for dvdends pad to depostors and the amounts
paced n bad-debt reserves on bass smar to that provded for mutua savngs
banks. Ths provson s effectve wth respect to ta abe years begnnng after
December 31, 19 1.
The grounds on whch your commttee s b ta es savngs and oan assocatons
on ther retaned earnngs, after makng a reasonabe aowance for addtons to
reserves for bad debts, are the same as those on whch mutua savngs banks are
ta ed under the b. Moreover, snce savngs and oan assocatons are no onger
sef-contaned cooperatve nsttutons as they were when orgnay organzed
there s reatvey tte dfference between ther operatons and those of other
fnanca nsttutons whch accept deposts and make rea estate oans.
The prncpa argument that a savngs and oan assocaton does not reay
have ncome whch coud be ta ed s based on the theory that both the borrowers
and the nvestors are members of the assocaton and that the nterest pad by
the borrowers on ther oans s reay ony pad to themseves as members of
the assocaton. In other words, t s argued that the mutuaty of the borrowng
and the nvestng members s such that no ncome e sts.
The mutuaty argument assumes that n the ong run, the nvestments of each
member are equa to the debts he has owed the organzaton. It aso assumes that
the membershp n each organzaton s f ed and that eventuay each member
w receve a proportonate share of the accumuated earnngs of the organza-
ton. These assumptons mght have been vad for the orgna savngs and
oan assocatons whch termnated after they had fufed ther purposes for
the orgna membershp groups. They are not generay vad, however, for
the present-day assocatons, where nvestng members may never contempate
becomng borrowers and where the organzatons are permanent and a member
has no rght to a share n the undstrbuted earnngs upon wthdrawa.
nother bass on whch t s argued that the savngs and oan assocatons do
not have ncome s that a ther recepts are ether pad out as e penses or as
dvdends to members or accumuated for the mutua beneft of the members.
owever, an ndvdua member or depostor has no cam to a share of the
accumuated earnngs uness he remans n the organzaton unt ts dssouton.
The dea that Income of a savngs and oan assocaton beongs to a member
even though t s not pad to hm or aocated to hs account s a more e treme
concept of cooperatve ownershp than that used by cooperatves.
The ncome whch s add d to reserves and undvded profts by the savngs
and oan assocatons cannot be treated as ncome to a member or depostor for
ncome ta purposes under the doctrne of constructve recept because the
member cannot obtan t uness he remans a member of the assocaton unt
t s dssoved. It s ncome of the assocatons. The fact that t s retaned
for the beneft of the members makes t anaogous to the ncome retaned by an
ordnary ta abe corporaton for the beneft of ts stockhoders.
C. UNR L T D USIN SS INCOM OF GO RNM NT COLL G S ND
UNI RSITI S
The Revenue ct of 19 0 mposed the reguar corporate Income ta on certan
ta -e empt organzatons whch are n the nature of corporatons wth respect
to so much of ther ncome as arses from actve busness enterprses whch
are unreated to the e empt purposes of the organzaton (ncudng certan
ease-back ncome). owever, the present provson does not appy to such
Income of State unverstes and other schoos of governmenta nnts. It has
been caed to the attenton of your commttee that some State schoos are
engagng n unreated actvtes and ease-backs whch woud be ta abe f
they were not a State or ts nstrumentaty. It s cear that the same oppor-
tuntes for unfar compettve advantage e st n connecton wth these actvtes
of State unverstes as wth respect to smtar actvtes of other educatona
nsttutons. Therefore, secton 33 of your commttee s b e tends the present
ta to the unreated busness ncome of unverstes and coeges of States and
of other governmenta unts. s a resut governmenta unverstes and coeges
w be ta abe on ncome derved from any unreated busness actvtes carred
on by the schoos themseves (ncudng the Income derved from eases for
over years of property purchased wth borrowed funds), and aso ther feeder
corporatons carryng on a trade or busness w be fuy ta abe.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
79
Ths amendment Is effectve wth respect to ta abe years begnnng after
December 31, 19 1.
The ouse b contaned no smar provson.
The revenue gan from ths provson s e pected to be sma.
D. DUC TION L F D R CORPOR TIONS
The Revenue ct of 19 0 ncuded a seres of provsons whch, under specfed
condtons, resuted n the mposton of ta es on educatona, chartabe, and
certan other ta -e empt organzatons, foundatons, and trusts. mong those
provsons was one whch for 19 1 and subsequent years specfcay dened
e empton to feeder corporatons, that s, corporatons carryng on a trade
or busness for proft whose profts nure e cusvey to organzatons e empt
under secton 101 of the Code. Wth respect to pror years the ta status of
such corporaton- was then n tgaton. Wth respect to these years the
Revenue ct of 19 0 provded that no ta woud b asserted for years pror
to 19 7 uness a defcency had aready been asserted, or ta es had aready
been assessed or pad. Your commttee beeves undue hardshp woud arse
f any of these educatona feeder corporatons were requred to pay ta es on
ncome whch had aready been spent to carry on educatona programs.
Therefore, both secton G01 of your commttee s b and secton 01 of the
ouse b amend secton 302 of the Revenue ct of 10 0 to provde that for
years pror to 10 1 e empton s not to be dened feeder corporatons f ther
profts nure to a reguary estabshed schoo, coege, or unversty.
Ths provson s e pected to have no permanent effect on revenues.
I. Structura Changes s the Income Ta es
. PRO ISIONS IN T OUS ILL LSO IN TOUR COMMITT S ILL
1. Lfe nsurance companes.
In secton 01 of the Revenue ct of 19 0 the formua used for computng
the net ncome of fe nsurance companes was amended, the acton beng effec-
tve ony for 1P 9 and 19 0. Ths acton was necesstated by the fact that the
formua set up n the Revenue ct of 19 2 resuted n no ta beng due from any
company on ts fe-nsurance-nvestment ncome for the years 19 7 and 19 .
The substtute formua provded for 19 9 and 19 0 was ntended to be a stopgap
whch woud termnate the ta -e empt status of ths type of ncome and permt
the competon of the study needed for the deveopment of a permanent souton
to the probem of the ta aton of fe nsurance companes.
Secton 311 of the ouse b appes the stopgap formua to fe-nsurance-
Investment ncome for 10 1. Ths was deemed necessary because, athough
consderabe progress has been made n the study of the probems of the proper
ta aton of fe nsurance companes, a reasonabe and acceptabe souton to
many of the probems has not yet been deveoped, and t s generay recognzed
that the formua set up In the Revenue ct of 19 2 s defectve. though that
formua woud no onger have resuted n a ta -free status for fe nsurance
companes n 19 1, because the yed on fe nsurance nvestments has somewhat
ncreased and the average rate of nterest requred to mantan the fe nsurance
reserves has decreased, the revenue whch woud have been obtaned under that
formua s. because of ts defectve nature, ony about haf that whch woud
be obtaned for 19 1 by a contnuaton of the use of the stopgap formua.
Durng the hearngs conducted by your commttee, representatves of amost
a the fe nsurance companes presented a proposa whch n ther vew s a
reasonabe and adequate method of ta ng the ncome of those companes. In
your commttee s b that pan s substtuted for the stopgap formua as pro-
vded n the ouse b, as the method for determnng the ncome ta abty
of fe nsurance companes for 19 1.
Under the stopgap formua, as used for 10 9 and 19 0 and as provded for
39 1 n the ouse b, the ta abe ncrme of each fe nsurance company reat-
ng to ts fe nsurance busness s determned by deductng from ts net nvest-
ment ncome a percentage of that ncome. To that amount s added an amount
3 I percent of the unearned premums and unpad osses refectng the ta abe
ncome of ts accdent and heath busness, f any. pproprate ad|ustments
nre made wth respect to e empt nterest and the credt for dvdends receved.
The norma ta s obtaned by appyng the ordnary corporaton norma ta
rate to that entre amount, and the surta s obtaned by appyng the ordnary
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
surta rnte to that porton n e cess of 2 ,000. The percentage to be deducted
n arrvng at the ta abe ncome s the same for a fe nsurance companes,
and s determned and procamed for each year by the Secretary of the Treasury,
by comparng the aggregate amount needed n the prevous year by a fe nsur-
ance companes to meet ther fe nsurance pocy obgatons and any other
nterest on ndebtedness wth the aggregate net nvestment ncome of a fe
nsurance companes ess 3 t percent of the unearned premums and unpad
osses of those companes whch had heath and accdent nsurance. For 19 0
ths percentage, based on 19-19 data, was sghty more than 90 percent; for 19 1,
based on 19 0 data, t woud probaby be between 7 and percent.
Secton 33 of your commttee s b substtutes a dfferent formua for the
ta aton of fe nsurance companes n 19 1. Under t the ncome ta s n
genera to be 3 percent of so much of the net nvestment ncome of each com-
pany as s not n e cess of 200,000, and CMs percent of the amount over 200,000.
It w be noted that 3 percent of 200.000 s appro matey the same as 27 per-
cent of 2 ,000; and that G percent of net nvestment ncome s appro matey
the same as 2 percent of 12 to 13 percent (100 percent ess or 7 percent)
of the entre net ncome. For those companes wth accdent and heath nsur-
ance an approprate ad|ustment s made so that the ta computed at the 3 and
percent raes s appro matey the same as a ta at the ordnary 27 and 2
percent rates on the ncome (determned as before) from that part of ther bus-
ness. s under the present stopgap formua, approprate ad|ustments are made
for e empt nterest and the credt for dvdends receved.
Snce the new formua, under the crcumstances of 19 1, Is substantay
equvaent to the stopgap formua, t Is cear that, for most fe nsurance com-
panes, the ncome ta abty under your commttee s b w be substan-
tay the same for 19 1 as t woud be under the provsons of the ouse b.
It Is e pected that a number of companes, mosty sma, w not n 19 1
earn ther nterest requrements, or w earn an amount ony sghty n e cess
of ther requrements. Under the stopgap formua these companes woud have
pad ordnary corporaton norma ta es and surta es on the same percentage
of ther net nvestment ncomes as the other companes whose net nvestment
ncome materay e ceeded ther pocy requrements. Under your commt-
tee s b a measure of reef s accorded such companes: those wth net nvest-
ment ncome ess than ther pocy requrements w, n genera, pay a ta at
3 or percent on ony 0 percent of ther net nvestment ncomes, whe
those wth net nvestment ncomes of from 100 to 10 percent of ther pocy
requrements w pay a ta at the rate of 3 or 6 percent on amounts vary-
ng from 0 to 100 percent of ther net nvestment ncomes. Wth respect to
companes whch nso do an accdent and heath nsurance busness, n deter-
mnng whether or not ther net nvestment ncome s ess than that requred
to meet ther fe nsurance pocy requrements, or not more than 10 percent
of that amount, the tota net nvestment ncome s reduced by one-haf of 3-T
percent of ther unearned premums and unpad osses on the accdent and
heath poces. The mtaton of ths reducton to one-haf of the ad|ustment
for such busness appears to be reasonabe snce, as was stated n the report on
the 19 2 provsons by the Commttee on Fnance, there Is very tte nvest-
ment ncome derved from the nvestment of premums on such (accdent and
heath) contracts.
It s beeved that the method of ta aton provded by your commttee s b Is
not ony more equtabe wth respect to certan of the smaer companes whch do
not earn a margn of nvestment Income over ther requrements but aso that t s
smper In structure and nvoves fewer compance and admnstratve dffcutes
than the stopgap formua provded n the ouse b.
It has been suggested thnt ths new method of ta ng fe nsurance companes
shoud be used permanenty, or for an ndefnte perod In the future. It s the
opnon of your commttee, however, that the queston whether ths new method Is
the best practcabe method shoud ony be answered after the resuts of the
present contnung study are avaabe, and after ths method s carefuy com-
pared wth other possbe methods of ta ng fe nsurance companes whch may
be suggested as the resuts of that study. Therefore, n your commttee s b,
the appcaton of ths method s mted to ta abe years begnnng n 19 1.
It s estmated that for 19 1 the revenue under your commttee s b w be
about 111 mon, an amount about mon more than woud be obtaned
under the 19 2 formua.
77th Cong., 2d soss., S. Ropt. No. 1631, p. 1 .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
2. Offset of short- and ong-term capta gans and osses.
Secton 322 of ths b amends the treatment of the pans and osses of ndvd-
uas so as to emnate a defect n e stng aw. Ths secton s dentca to
secton 30 of the ouse b. Present aw e cudes 0 percent of a ong-term
capta gan or oss from the computaton of net capta gan, net capta oss and
net ncome, but ncudes 100 percent of a short-term capta oss n such computa-
tons. s a resut a 1 short-term oss can wpe out a 2 ong-term gan.
Under the b ong-term gans are ncuded n gross ncome at 100 percent and
a deducton from gross ncome s aowed equa to 0 percent of the amount by
whch the ta payer s net ong-term gan e ceeds hs net short-term oss. Thus,
f a ta payer has a net ong-term gan of 1,000 and a net short-term oss of ke
amount, no deducton s to be aowabe. If the net ong-term gan s 2,000 and
the net short-term oss s 1,000, the deducton aganst gross ncome w be
0 percent of the e cess of 2,000 over 1,000, or 00. ence the amount actuay
ta ed as a ong-term capta gan w be 00. Under e stng aw the 1,000 of
short-term oss offsets the porton of the ong-term gan ncuded n the cacuaton
of net ncome, and no ta abty e sts.
Long-terra osses, ke ong-terra gans, are to be taken nto account n fu.
Long-terra osses w therefore offset short-term gans on a doar-for-doar bass,
|ust as short-term osses w offset ong-term gans. If ong-term osses e c ed
short-term gans, the unreduced e cess w he offset aganst other ncome up to
1,000. The net oss whch s not absorbed n ths manner w be carred forward
as a short-torm capta oss, whether arsng out of short- or ong-term operatons.
Under both your commttee s b and the ouse h, the amendment appes
ony to ta abe years begnnng on or after the date of enactment of ths ct.
It s estmated that when fuy effectve ths amendment w ncrease the
revenues by 2S mon annuay.
3. Coapsbe corporatons.
Secton 32G of ths b, whch s dentca to secton 30S of the ouse b,
amends secton 117(m) of the Code, whch denes capta-gans treatment to the
sae, e change, or retrement of stock n a coapsbe corporaton, so as to
e tend the appcaton of ths secton to cases where the corporaton s used as a
devce for convertng nventory profts nto capta gans. Secton 117(m) was
added to the Code by the Revenue ct of 19 0 to foresta the use of the coapsbe
corporaton as a devce for convertng ordnary ncome nto ong-terra capta
gan. t that tme t was beeved that the coapsbe corporaton was used
prncpay n the moton-pcture and budng-constructon ndustres. The
reports on the b whch became the Revenue ct of 19 0 ustrated the devce
by the case of a corporaton organzed for the producton of a snge moton
pcture. Upon the competon of the fm, but pror to the reazaton by the
corporaton of any ncome therefrom, the corporaton woud be qudated and ts
assets dstrbuted. No ta woud be pad by the corporaton because t had rea-
zed no ncome. ach former sharehoder woud pay a ta upon the dfference
between the cost of hs stock and the far market vaue of hs porton of the far
market vaue of the moton pcture and any other assets so dstrbuted. Pror to
the Revenue ct of 19 0 ths gan mght have been ta ed as a ong-term capta
gan wth a ma mum effectve rate of 2 percent; under the aw as amended by
that ct the gan s now ta ed as ordnary ncome.
The coapsbe corporaton was aso ustrated wth cases n whch a corpora-
ton set up to construct a budng was qudated and the rghts n the budng
were sod by (he former stockhoders actng as ndvduas.
ecause the devce of the coapsbe corporaton was beeved to be used argey
n these two cases, secton 117(n) was drafted so as to appy when the corpora-
ton was formed or avaed of prncpay for the manufacture, constructon, or
producton of property.
It s now understood that the coapsbe-corporaton devce has aso been used
n an attempt to convert nto capta gans the profts on nventory and stock n
trade. The procedure used s to transfer a commodty to a new or dormant
corporaton, the stock of whch s then sod to the prospectve purchaser of the
commodty who thereupon qudates the corporaton. In ths manner the accre-
ton n the vaue of the commodty, whch n most of the actua cases has be n
whsky, s converted nto a gan reazed on the sae of stock of a corporaton, thus
creatng the possbty fnt t mght be ta ed as a ong-term capta gan.
To prevent the use of |the coapsbe corporaton n cases of ths type, secton
117 (n ) s e tended by both bs to corporatons formed or avaed of prncpay
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
for the purchase of property whch ts Inventory or stock In trade n the hands of
the corporaton.
Ths amendment appes wth respect to ta abe years endng after ugust 31,
19 1, but w ony appy to gans reazed after that date. The ouse provson
appes to ta abe years begnnng after December 31, 10 0. The determnaton
of the ta treatment of gans reazed n ta abe years begnnng pror to Septem-
ber 1, 19 1 ( anuary 1, 10 1, under the ouse b), w be made as f ths secton
had not been enacted and wthout nferences drawn from the fact that the amend-
ment made n ths b s not specfcay retroactve and wthout nferences drawn
from the mtatons contaned n secton 117(m) as amended by secton 326 of
ths b.
It s estmated that n a fu year s operatons ths provson w ncrease the
revenues by mon.
. Deaers n securtes.
Under e stng aw, deaers n securtes are permtted to hod some securtes
as n persona nvestment. Gans or osses on those securtes whch are hed
by the ta payer n hs capacty as a deaer are treated as ordnary Income.
Capta gan or oss treatment s accorded the resuts of the transfer of secur-
tes whch the ta payer hods as an nvestor. stng aw aso permts the
transfer of securtes from such a ta payer s nvestment account to hs nventory
account and vce versa wth correspondng changes n ta abtes. These
transfers ncrease the dffcuty of determnng n whch portfoo specfc se-
curtes are actuay hed, and factate the manpuaton of the ta payer s
accounts so as to obtan ordnary oss treatment on securtes sod at a oss
and capta-gans treatment on those sod at a gan.
To foresta ths practce, secton 327 of ths b, whch s substantay the
same as secton 300 of the ouse b, provdes that In the case of a deaer n
securtes capta-gans treatment be avaabe ony under certan specfc con-
dtons. The securty n queston must have been ceary dentfed n the
deaer s records as a securty hed for nvestment wthn n perod of 30 days
after the date of Its acquston or after the, date of enactment of the Revenue
ct of 10 1, whchever s ater, and must not at any tme thereafter have been
hed by the ta payer prmary for sae to customers n the ordnary course of
hs trade or busness. Uness these terms are comped wth, the gan on the
sae of the securty s to be ta ed as ordnary ncome.
Ordnary oss treatment s not to appy where the securty sod was, at any
tme after ths secton becomes appcabe, ceary dentfed n the deaer s
records as a securty hed for nvestment.
Your commttee has changed the ouse provson to nsure that ths amend-
ment w not affect the appcaton of secton 117() of the Code whch provdes,
n the case of banks, that, f osses from the sae of a securtes durng a year
e ceed the gans, then the net oss sha be treated as an ordnary oss.
The amendment appes to saes or e changes made more than 30 days after
the date of enactment of ths ct.
The revenue oss resutng from ths amendment s e pected to be neggbe.
. Gan from sae or e change of the ta payer s resdence.
Secton 31 of your commttee s b and secton 30 of the onse h are the
same e cept n one respect. oth sectons amend the present provsons reat-
ng to a gan on the sae of a ta payer s prncpa resdence so as to emnate
a hardshp under e stng aw whch provdes that when a persona resdence
s sod at a gan the dfference between Its ad|usted bass and the sae prce
s ta ed as a capta gan. The hardshp s accentuated when the transactons
are necesstated by such facts as an ncrease n the sze of the famy or a
change n the pace of the ta payer s empoyment. In these stuatons the
transacton partakes of the nature of an nvountary converson. Cases of ths
type are partcuary numerous n perods of rapd change such as mobzaton
or reconverson. For ths reason the need for remeda acton at the present
tme s urgent.
Itoth bs provde that when the sae of the ta payer s prncpa resdence
s foowed wthn a perod of 1 year by the purchase of a substtute, or when
the substtute s purchased wthn a year pror to the sae of the ta payer s
prncpa resdence, gan Is to be recognzed ony to the e tent that the seng
prce of the od resdence e ceeds the cost of the new one. Thus, f a dweng
purchased n 10 0 for 10,000 s sod n 19 1 for 1 ,000, there woud ordnary
be a ta abe gan of ,000 under e stng aw. Under both bs no porton of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
the gan Is to bo ta abe provded a substtute prncpa resdence s pur-
chased by the ta payer wthn the stated perod of tme for a prce of 1 ,000
or more. If the repacement cost s ess than 1 ,000, say 1 ,000, the amount
ta abe as gan s to be 1,000.
The provson of both your commttee s b and the ouse b appes to
cases where one resdence s e changed for another, where a repacement
resdence s constructed by the ta payer rather than purchased, and where
the repacement s a resdence whch had to be reconstructed n order to permt
ts occupancy by the ta payer. owever, under the ouse b, where a
repacement resdence s constructed by the ta payer, he must occupy the
new resdence wthn 1 year after sae of hs od resdence. Ths s the same
rue whch both your commttee s b and the ouse b appy n the case of the
purchase of a new resdence. owever, n the case of new constructon the
requrement of occupancy wthn 1 year appears to your commttee not to be
reastc, partcuary durng the present perod of matera and abor shortages.
Therefore, your commttee s b provdes that n the case of the constructon
of n new house, f the constructon of the house begns wthn a year before
or after the sae of the frst house, and the new house s used as the ta payer s
prncpa resdence wthn 1 months after the sae of the frst house, then a
e pendtures on the new resdence wthn ths 1 -month perod are to be con-
sdered as a renvestment of the seng prce of the frst resdence.
In cases where the repacement s but or reconstructed, ony so much of the
cost s to be counted as an offset aganst the seng prce of the od resdence
as s propery chargeabe aganst capta account wthn a perod begnnng 1
year pror to the date of the sae of the od resdence and endng 1 months
(1 year under the ouse W after such date n the case of constructon of
a new house, nnd 12 months after such dae n the case of reconstructon of an
e stng house.
Ths speca treatment s not mted to the Invountay converson type of
case, where the ta payer s forced to se hs home because the pace of hs
empoyment s changed. he the need for reef s especay cear n such
cases, an attempt to confne the provson to them woud ncrease the task of
admnstraton very much.
The ad|usted bass of the new resdence s to be reduced by the amount of
gan not recognzed upon the sae of the od resdence. Thus, f the repace-
ment s purchased for 19,000, the od resdence cost 10,000 and was sod for
1 ,000, the ad|usted bass of the new resdence s to be 10,000 mnus ,000,
or 1 ,000. Ths s equa to the cost of the od resdence pus the addtona
funds nvested at the tme the new resdence s purchased. If the second res-
dence had been purchased for 1 ,000, so that 1,000 of gan on the sae of the
od resdence woud be recognzed, ts bass woud be 1 ,000 mnus ,000, or
10,000.
For the purpose of quafyng a gan as a ong-term capta gan the hodng
perod of the resdence acqured as a repacement n a set of transactons whch
quafy under the terms of the amendment s to he the combned perod of
ownershp of the successve prncpa resdences of the ta payer.
The new provson e tends to cases n whch smar treatment s avaabe
Tnder e stng aw under the nvountary-converson provsons of secton
112(f). Such cases arse when a home s destroyed by fre or s ost by sezure
or by the e ercse of the powers of requston or condemnaton and the pro-
ceeds are nvested n a repacement. In such cases the new provson, and not
secton 112(f), s to appy. Generay ths w resut n more favorabe treat-
ment for the ta payer than that avaabe under the nvountary-converson
provsons. The atter requre the tracng of the e pendture of the funds ob-
taned as a resut of the oss of the prevous resdence, and substanta ta
consequences resut from such techncates as a decson to use the money
po receved to repay a mortgage on the prevous resdence and to use other
funds for the purchase of a repacement. Moreover, no reef s avaabe under
the nvountary-converson sectons n cases where the repacement s acqured
before the actua condemnaton or requston of the prevous resdence.
The ta payer s not requred to have actuay been occupyng hs od res-
dence on the date of ts sae. Reef s to be avaabe even though the ta payer
moved nto hs new resdence and rented the od one temporary before ts
sae. Smary, he may obtan reef even though he rents out hs new resdence
temporary before occupyng t.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

The speca treatment s to be avaabe ony wth respect to one sae or e -
change per year, e cept when the ta payer s new resdence s nvountary
converted, n whch case he s to be treated as though a year had eapsed snce
the tme of the prevous sae of an od resdence.
The ownershp of stock n a cooperatve apartment corporaton s to be treated
as the equvaent of ownershp of a resdence, provded the purchaser or seer
of such stock uses the apartment whch t enttes hm to occupy as hs prncpa
resdence.
Reguatons are to be ssued under whch the ta payer and hs spouse actn
sngy or |onty may obtan the benefts of the b even though the spouse who
sod the od resdence was not the same as the one who purchased the new one,
or the rghts of the spouses n the new resdence are not dstrbuted n the same
manner as ther rghts n the od resdence. These reguatons are to appy ony
f the spouses consent to ther appcaton and both od and new resdence are
used by the ta payer and hs spouse as ther prncpa resdence.
Where the ta payer s resdence s part of a property aso uf-e: for busness
purposes, as n the case of an apartment over a store budng or a home on a
farm, and the entre property s sod, the provsons of both bs appy ony to
that part of the property used as a resdence, ncudng the envrons and out-
budngs reatng to the dweng but not to those reatng to the busness opera-
tons.
These provsons appy to a traer or houseboat f t s actuay used, as the
ta payer s prncpa resdence.
In order to protect the Government n cases where there s an unreported
ta abe gan on the sae of the ta payer s resdence, ether because he dd not
carry out hs ntenton to buy a new resdence or because some of the technca
requrements were not met, the perod for the assessment of a defcency s
e tended to 3 years after the ta payer has notfed the Commssoner ether
that he has purchased a new resdence, or that he has not acqured or does not
ntend to acqure a new resdence wthn the prescrbed perod of tme.
The benefts of both your commttee s b and the ouse b w appy to the
sae of a ta payer s prncpa resdence made after December 31, 19 0.
The revenue oss w be about 112 mon annuay.
6. Percentage depeton.
Under e stng aw depeton based on cost Is avaabe to a mnng ndustres
and n addton percentage depeton s avaabe to o, gas, sufur, meta mnes,
and certan nonmetac mneras. The aowabe rate of percentage depeton
Is percent n the case of coa, and 1 percent n the case of the other non-
metac mneras e cept sufur whch Is aowed 23 percent.
The testmony receved by ths commttee both n connecton wth ths b
and the b whch became the Revenue ct of 19 0 reveaed that n a number
of cases nonmetac mneras whch are not n the enumerated group under
e stng aw are compettve wth those recevng percentage depeton, or have
|ust as good a cam for such treatment as the enumerated mneras. The test-
mony aso Indcated that the percent rate aowed coa s of tte practca
vaue, and that the coa mnng ndustry Is pecuary n need of more favorabe
ta treatment because of the nroads whch aternatve sources of energy, par-
tcuary o and gas, have made on the potenta markets of coa.
oth secton 319 of your commttee s b and secton 30 of the ouse b
sot up a new group of mneras to whch percentage; depeton s avaabe at
the rate of percent. oth bs e tend ths rate to sand, grave, sate, stone
(ncudng pumce and scora), brck and te cay, shae, oyster she, cam
she, grante, and marbe. In addton, your commttee has added to ths cate-
gory entted to the percent rate sodum chorde, and, f from brne wes,
cacum chorde, magnesum chorde, potassum chorde, and bromne. In
the aowance of percentage depeton for these tems, your commttee does not
ntend to reduce aowances now granted. For e ampe, potash s aowed per-
centage depeton at 1 percent under present Inw, and your commttee does
not ntend to reduce ths aowance wth respect to potash or any of ts sat de-
rvatves whch are presenty recevng percentage depeton at 1 percent. The
b aso makes a technca change n ths porton of the ouse provson by n-
cudng sate as a separate tem rather than ncudng t as a type of stone as
n the ouse b.
The ouse b aso ncuded asbestos at the new percent rate. ecause of
the mportance of ths product and the smaness of ts suppy n ths country,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

your commttee tns aowed asbestos a 10 percent rate. oth bs ncrease coa
from ts present percent rate to 10 percent.
The ouse b added to the st of nonmetac mneras, to whch percentage
depeton s avaabe at a 1 percent rate, bora , fuer s earth, trpo, refractory
and fre cay, quartzte, perte, datomaceous earth, and metaurgca and
chemca grade mestones. Your commttee s b, on the other hand, provdes
that these tems added by the ouse are to receve percentage depeton at the
same 10 percent rate accorded coa and asbestos. In addton to these tems,
your commttee has added a 10 percent rate for woastonte, whch s mportant
as an nsuatng and freproofng matera and thus compettve wth other tems
presenty accorded smar treatment, and the magn sum compounds magneste,
doomte, and bructe.
Your commttee s b adds to the nonmetac mneras presenty recevng 1
percent depeton, apte. Ths matera, whch s found n ony sma quanttes
n ths country, s cosey reated to fedspar, whch aready receves 1 percent
depeton.
Your commttee has aso made two technca revsons n the 1 percent depe-
ton secton of the ouse b. The atter ncudes at the 1 percent rate thennr-
dte from brnes or m tures of brne). Your commttee has emnated the
parenthetca mtaton as unnecessary and because t m ht gve rse to doubt
as to certan other of the enumerated products. For e ampe potash, trona, and
bora are aso frequenty recovered from brnes or m tures of brne. The
phrase mnes and other natura deposts s ceary broad enough to ncude
brnes as we as a other natura sources. The partcuar type of source s
mmatera.
The names of a the varous enumerated mneras are of course ntended to
have ther commony understood commerca meanng. For e ampe, the term
thennrdte appes to sodum suphate, aso known as sat cake; the term
trona to sodum carbonate and sodum bcarbonate, aso known as soda ash;
and the term bora to boron mneras generay.
Your commttee has aso amended the ouse provson whch reads ba
nnd sagger cay to read ba cay, sagger cay n order to remove the mpca-
ton of the ouse b that these are rot separate types of cay.
Many of the above changes were provded n the ouse verson of the b
whch became the Revenue ct of 1030 but they were emnated by your com-
mttee and from the fna egsaton argey because of the revenue oss nvoved.
It s apparent, however, that the need for equazaton s substantay greater
now because of the addtona ta es mposed under the egsaton of 10 0 and
under ths b. Therefore, the commttee beeves that the proposed e tenson
of the percentage depeton system s necessary n spte of the revenue oss
nvoved. The atter s estmated to be about 70 mon n a fu year s
operaton.
The amendments made by ths secton of the b appy to ta abe years begn-
nng after December 31, 10 0.
7. Famy partnershps.
Secton 330 of your commttee s b s ntended to harmonze the ru e.-s govern-
ng nterests n the so-caed famy partnershp wth those generay appcabe
to other forms of property or busness. Two prncpes governng attrbuton of
ncome have ong been accepted as basc : d) ncome from property Is attrbutabe
to the owner of the property : (2) ncome from persona servces s attrbutabe to
the person renderng the servces. There s no reason for appyng dfferent
prncpes to partnershp ncome. If an ndvdua mnk s a bona tde gft of
rea estate, or of a share of corporate stock, the rent or dvdend ncome s ta abe
to the donee. Your commttee s amendment makes t cear that, however the
owner of a partnershp nterest may have acqured such nterest, the ncome
s ta abe to the owner, f he s the rea owner. If the ownershp s rea, t
does not matter what motvated the tran fcr to hm or whether the busness
benefted from the entrance of the new partner.
though there s no bass under e stng statutes for any dfferent treatment
of partnershn nterests, some decsons n ths fed have Ignored the prncpe
nt ncome from property s to e ta ed to the owner of the property. Many
court decson snce the decscn of the Supreme Court n Commn oner v.
Cubertson (337 C. S. 733) have hed nvad for ta purposes famy partner-
shps whch arose by vrtue of a gft of a partnershp nterest from one member
of a famy to another, where the donee performed no vta servces for the
partnershp. Some of these cases apparenty proceed upon the theory that a
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
partnershp cannot he vad for ta purposes uness the ntrafamy gft of
capta s motvated by a desre to beneft the partnershp busness. Others
seem to assume that a gft of a partnershp nterest s not compete because
the donor contempates the contnued partcpaton n the busness of the
donated capta. owever, the frequency wth whch the Ta Court, snce the
Cubcrtson decson, has hed nvad famy partnershps based upon donatons
of capta, woud seem to ndcate that, athough the opnons often refer to
ntenton, busness purpose, reaty, and contro, they have n practca
effect reached resuts whch suggest that an ntrafamy gft of a partnershp
nterest, where the donee performs no substanta servces, w not usuay
be the bass of a vad partnershp for ta purposes. We are nformed that
1 e settement of many cases n the fed s beng hed up by the reance of
I he fed offces of the ureau of Interna Revenue upon some such theory.
Whether or not the opnon of the Supreme Court n Commssoner v. Tower
(327 U. S. 2 0) and the opnon of the Supreme Court n Commssoner v.
Cubcrtson (337 U. S. 733), whch attempted to e pan the Tower decson,
afford any |ustfcaton for the confuson s not matera the confuson e sts.
The amendment eaves the Commssoner and the courts free to nqure n
any case whether the donee or purchaser actuay owns the nterest n the
partnershp whch the transferor purports to have gven or sod hm. Cases
w arse where the gft or sae s a mere sham. Other cases w arse where the
transferor retans so many of the ncdents of ownershp that he w contnue
to be recognzed as a substanta owner of the nterest whch he purports to
have gven away, as was hed by the Supreme Court n an annagons trnst
stuaton nvoved n the case of everng v. Cfford (309 . S. 3 1). The
same standards appy n determnng the bona fdes of aeged famy partner-
shps as n determnng the bona fdes of other transactons between famy
members. Transactons between persons n a cose famy group, whether or
not nvovng partnershp nterests, afford much opportunty for decepton
and shoud he sub|ect to cose scrutny. the facts and crcumstances at
the tme of the purported gft and durng the perods precedng and foowng
t may be taken nto consderaton n determnng the bona fdes or ack of
bona fdes of a purported gft or sae.
Not every restrcton upon the compete and unfettered contro by the donee
of the pro|erty donated w be ndcatve of sham n the transacton. Con-
tractua restrctons may be of the character ncdent to the norma reaton-
shps among partners. Substanta powers may be retaned by the transferor
as a managng partner or n any other fducary capacty whch, when con-
sdered n the ght of a the crcumstances, w not ndcate any ack of
true ownershp n the transferee. In werhng the effect of a retenton of any
power upon the bona fdes of a purported gft or sae, a power e ercsabe for
the beneft of others must be dstngushed from a power vested n the transferor
for hs own beneft.
Snce egsaton s now necessary to make cear the fundamenta prncpe
that, where there s a rea transfer of ownershp, a gft of a famy partnershp
nterest s to he respected for ta purposes wthout regard to the motves
whch actuated the transfer, t s consdered approprate at the same tme to
provde specfc safeguards whether or not such safeguards may be nherent
n the genera rue aganst the use of the partnershp devce to accompsh the
defecton of ncome from the rea owner.
Therefore, the h provdes that n the case of any partnershp nterest
created by gft the aocaton of ncome, accordng to the terms of the partner-
shp agreement, sha be controng for ncome ta purposes e cept when the
shares nre aocated wthout proper aowance of reasonabe compensaton
for servces rendered to the partnershp by the donor, and e cept to the e tent
that the aocaton to the donated capta s proportonatey greater than that
attrbutabe to the donor s capta. In such cases a reasonabe aowance w
be made for the servces rendered by the partners, and the baance of the ncome
w be aocated accordng to the amount of capta whch the severa partners
have nvested. owever, the dstrbutve share of a partner n the earnngs
of the partnershp w not be dmnshed because of absence due to mtary
servce.
When more than one member of a famy s a member of a partnershp, a
nterests purchased by one member of the famy from another w be treated
as though the transfer were made by gft. For ths purpose the famy of an
ndvdua Incudes hs spouse, ancestors, nea descendants, and an; trust for
the prmary beneft of such persons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
The amendment made by the ouse b was made appcabe ony to ta abe
years begnnng after December 31, 1930, wth the e prsss ntenton that no
nferences were to be drawn from the enactment of the amendment wth respect
to ta abe years begnnng pror to anuary 1, 19 1. pparenty wth respect
to pror ta abe years the ouse amendment woud have eft the status of
famy partnershps to be determned under e stng aw. s the above ds-
cusson ceary ndcates, the appcaton of e stng aw as been e tremey
uncertan. Your commttee beeves that t s equay mportant to estabsh
a rue whch can be used wth respect to those pror years, thus mnmzng
the necessty for tgaton n ths area. Therefore, your commttee has pro-
vded that the amendment sha, at the eecton of any member of such a partner-
shp, be effectve wth respect to any open ta abe year snce December 31, 1 ) . ,
that date beng |ust pror to the enactment of the Code. Such an eecton w
e vad ony f any other members of the partnershp whose ta abe ncome
woud be ncreased consents to the assessment and coecton of such defcency,
or f the ta payer who woud be entted to a refund or reducton of hs ta
abty consents to the reducton of such refund or ta decrease by the amount
of the reated ta payer s addtona ta .
. Gans from saes of t-cstoek.
Secton 117(|) of the Code provdes, n effect, that a net gan from saes of
property used n the trade or busness of a ta payer and hed for more than
0 months s to be treated as a capta gan. In the case of a oss, t s to be
treated as an ordnary oss. owever, secton 117(.) states that ths treatment
s not to appy to property of a knd whch woud be propery ncudbe n the
nventory of the ta payer f on hand at the cose of the ta abe year, or property
hed by the ta payer prmary for sae to customers n the ordnnry course of
hs trade or busness. In the ense of farmers there has b en consderabe con-
fuson and dspute for severa years as to whether a vestock hed for draft,
dary, or breedng purposes s property used n the trade or busness, or whether
In some cases the vestock shoud be deemed hed prmary for sae to customers
n the ordnary course of hs trade or busness.
Rungs of the Treasury Department ssued n 19 and 19 . hed that the
capta gans treatment was appcabe ony n the case of unusua saes such as
those whch woud reduce the norma sze of the herd or those resutng from
a change of breed or other speca crcumstances, and that the capta gans
treatment woud not appy to the customary sae by a farmer of od or dsabed
anmas cued from the breedng herd and repaced by young anmas produced
by the breedng herd. ary In 19 9 the Unted States Court of ppeas, ghth
Crcut, hed n the brght case (173 Fed. 2d 399) that anmas used for breed-
ng purposes, whether or not sod as cus n the ordnary course of busness,
consttuted property used n the trade or busness wthn the meanng of secton
117( ). That decson specfcay apped to dary catte and hogs but was ap-
pcabe by mpcaton to other types of vestock.
Notwthstandng the brght decson, the Treasury Department contnued to
adhere to ts poston ntated n the 19 and 19 rungs, pendng possbe
contrary decsons n other courts whch mght resut n a concusve decson
by the Supreme Court. The Revenue ct of 19 0 as passed by the Senate con-
taned a provson ntended to carfy ths stuaton, but ths was re|ected n
conference, prncpay because t referred to catte and thus dd not cear up
the stuaton wth respect to other forms of vestock such as sheep and hogs.
owever, the conference commttee e pressed the hope that the Treasury woud
foow the brght decson.
In anuary 19 1 the Unted States Court of ppeas, Ffth Crcut, decded
the ennett case (1 0 Fed. (2d) 07) n a manner smar to the brght de-
cson. Subsequenty the ureau of Interna Revenue ssued a rung. Mn. GGGO,
statng that the capta gans treatment provded by secton 117(3) woud be
apped to saes of cus. owever, ths rung contaned a statement that ths
treatment mght not be apped n the case of anmas not used for substantay
ther fu perod of usefuness. Ths e cepton appears to have resuted n new
uncertantes, and t has been stated that ureau agents are nterpretng ths
rung to mean that ony anmas whch have competey outved ther usefuness
can quafy for the capta gans treatment.
The ouse b added a new sentence to secton 117(.) (1) provdng that the
term property used n the trade or busness ncudes vestock hed by the ta -
payer for draft, breedng, or dary purposes for 12 months cr more. In vew of
the uncertantes resutng from the recent rung (Mn. 0000), secton 32 of
your commttee s b restates the sentence contaned In the ouse b as foows:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

Such term nso ncudes vestock, regardess of age, hed by the ta payer for
drnft, breedng, or dary purposes, and hed by hm for 12 mouths or more from
the date of acquston.
Under your commttee s b, the term vestock does not ncude poutry
e cept that t does ncude turkeys, regardess of age, hed by the ta payer for
breedng purposes and hed for 12 months or more from the date of acquston.
Thus secton 117(|) w appy to vestock used for draft, breedng, or dnry pur-
poses, and to turkeys used for breedng purposes, whether od or young; and the
hodng perod w start wth the date of acquston, not wth the date the
anma or fow s put to such use.
The provson of the ousf|b s effectve wth respect to ta abe years be-
gnnng after December 31, 10 0. Your commttee s b makes the amendment
nppcnbe wth respect to ta abe years begnnng after December 31, 19 1.
e cept that the e tenson of the hodng perod from 6 to 12 mouths and the
amendment wth respect to poutry and turkeys both appy ony n the case of
ta abe years begnnng after December 31. 1930.
Your commttee beeves that the gans from saes of vestock shoud be com-
puted n accordance wth the method of vestock accountng used by the ta payer
and presenty recognzed by the ureau of Interna Revenue.
The revenue oss under ths provson s e pected to be 1 mon In a fu
year of operaton.
). Coa royates.
Secton 32 of your commttee s b, whch s smar to secton 307 of the ouse
b, provdes ta reef for the recpents of coa royates. Most eases on coa
propertes are ong-term and ca for royaty payments e pressed n cents per
ton. Therefore, the essor does not receve the automatc ad|ustment for prce
changes whch occurs when a royaty s e pressed as a percentage of the vaue
of the mnera e tracted from the property. Many of the e stng coa eases
are od and ther royaty payments are sma.
It s reported aso that as a practca matter the essor of a coa property s
not key to beneft from percentage depeton even under the new 10 percent
rate provded n ths b, athough t s antcpated that ths rate w be of
matera beneft to the coa operators.
Ths secton e tends to the recpents of coa royates the capta gans treat-
ment now avaabe to tmber under secton 117(k) (2) of the Code. It s
Intended by ths provson of your commttee s b that coa royates receve the
same treatment as tmber royates. In the case of tmber comng under ths
secton, percentage depeton Is not aowed, and t aso s not to be avaabe n
the case of these coa royates.
Consderabe uncertanty now e sts as to the proper nterpretaton of the
cause hed for more than G months pror to such dsposa n secton 117(k) (2)
of the present aw, because of a recent decson of the Ta Court (Sprngfed
rD ood Corp., 1 T. C. No. 91) whch hed, under the partcuar facts n that
case, that dsposa of the tmber occurred when the ease was made and not when
the tmber was cut. Your commttee beeves that, whatever the ega techn
cates may be, the essor s hodng perod shoud run to the tme the coa s
mned or the tmber s cut, as the case may be,.and the provsons of the ouse
b are amended to so provde.
In order to dfferentate a essor entted to receve royates from a person
partcpatng n the operaton of a mne, the provsons of the ouse b are
Inappcabe f the owner of the coa s personay obgated to pay a share of the
cost of mnng operatons. Snce essors who have no nterest n the operatng
profts of a mne may nevertheess pay rea estate ta es, e poraton e penses,
or other e penses, your commttee s b provdes, nstead, that those provsons
sha Ik1 nappcabe to Income reazed by the owner as a coadventure, partner,
or prncpa n the cuttng of suc tmber or the mnng of such coa.
It s aso made cear that these provsons do not appy to a essee, and that
the term coa Incudes gnte.
ecause treatment of coa royates as capta gans w automatcay e cude
such ncome from ncome sub|ect to e cess profts ta , your commttee s b
provdes conformng amendments to the e cess profts ta aw. Where the ta -
payer computes hs e cess profts credt by the ncome method, these royates
are to be e cuded from the ta payer s base perod ncome. Smary, for the
purposes of computng the nvested capta credt and computng capta changes,
the essor s nterest n the coa property from whch the royates are derved
s to be treated as an nadmssbe asset.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
Secton 32 appes to ta abe years endng after December 31, 19 0, but ony
wth respect to amounts receved or accrued after that date.
The revenue oss nvoved s estmated to be about 10 mon annuay.
10. pendtures n the deveopment of mnes.
Under e stng aw and reguatons a e pendtures made wth respect to a
mne pror to the tme t has reached the producton stage must be captazed,
e cept that Incdenta ncome from the producton of ore whe the mne s beng
deveoped s offset by deveopment e pendtures, ony the e cess of such e pend-
tures over such recepts beng captazed. mounts so captazed are deductbe
for ncome ta purposes ony through depeton aowances.
Incuded n the e pendtures whch must be so captazed are the costs of
shafts, tunnes, gaeres, etc., whch are necessary to make the ore or other
mnera accessbe. Such e pendtures are requred to be captazed ony unt
the mne reaches the producton stage, whch occurs when the ma|or porton of
the mnera producton s obtaned from workngs other than those opened for
the purpose of deveopment, or when the prncpa actvty of the mne becomes
the producton of deveoped ore rather than the deveopment of addtona ores
for mnng.
fter n mne reaches ths producton stage contnued e pendtures must be
made to e tend tunnes, gaeres, etc., as the workng face of the ore or other
mnera recedes. Such e pendtures are deductbe currenty, uness e traord-
nary n scope, n whch case they are treated as prepad e penses to be deducted
rataby as the ore benefted by the e pendture s produced and sod.
It s beeved that the e pendtures for the deveopment of a mne those n-
curred after the e stence of ores or mneras n commercay marketabe quan-
ttes has been dscosed are essentay smar to those ncurred after the
producton stage has been reached, and, ke those, shoud be treated as e penses
reatng to the producton of the ore or mneras.
Ths s partcuary mportant where the depeton aowance Is a percentage
of the gross ncome from the property. Ths aowance s the same whether a
arge e pendture or a reatvey sma one s necessary to deveop the mne
n order to ennbe the ore-or mnera to be e tracted, wth the resut that mnes
wth reatvey arge deveopment costs are sub|ected to unfar dscrmnaton.
Moreover, where percentage depeton s used, the deveopment costs are never
specfcay deductbe for ta purposes, e cept n years when the deducton ava-
abe under cost depeton e ceeds that whch may be taken under percentage
depeton.
The requrement that deveopment e pendtures must be captazed presents
a serous obstace to e panson n the mnng ndustry. Ths s especay
serous at the present tme because of the shortage of many essenta mneras
and the desrabty of ma|or deveopments n the case of certan mneras such
ns ron whch are necessary to the defense effort.
The ouse b provdes that e pendtures pad or ncurred nfter December 31,
19 0, n the deveopment of a mne or other natura depost are to be deductbe
rataby over the perod durng whch the ores or mneras benefted by such
e pendtures are sod. Ths provson appes even though the ore or mneras
were produced n a year other than the year of the sae. owever, ths rue
appes ony when the e pendtures are made after the e stence of ores or
mneras In commercay marketabe quanttes has been determned and the
deveopment stage has begun. It s not apped to o or gas wes, where the
probem at ssue has been deat wth through the optona deducton of ntangbe
drng and deveopment costs n the year they are ncurred.
pendtures made for the purchase of deprecabe property are not to be
counted as deveopment e pendtures for ths purpose but the deprecaton
charges whch appear as the resut of the use of such property for deveopment
purposes may quafy for such treatment as deveopment costs.
pendtures made for deveopment w contnue to ncrease the ad|usted
bass of the mne for computng gan or oss as under e stng aw; however,
ths bass w then be reduced as the deductons aowabe under ths prov-
son of the ouse b occur. though thus ncuded n the ad|usted bass for
the purpose of computng a gan or oss from a sae, n order to prevent dupca-
ton of ta benefts, such deveopment e pendtures are not to be taken nto
account n determnng the ad|usted bass of the property for the purpose of
computng depeton based upon costs.
010 2 32
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
90
Your commttee s b retans the prncpe of the ouse b. owever, sec-
ton 309 of your commttee s b provdes that the ta payer may eect ether
to deduct deveopment e pendtures, whetuer ncurred before or after the
producton stage has been reached, n the year when they are ncurred, or to
treat deveopment e pendtures ncurred before the producton stage has been
reached as deferred e penses, to be deducted rataby as the ore or mnera Is
sod. Ths second aternatve s the same as under the ouse b. Such an
eecton may be made for eac year, but must be for the tota amount of net
deveopment e pendture made n that year wth respect to the mne. s under
the ouse b, f the ta payer eects to defer deveopment e pendtures the
amount so deferred w be. ncuded n the bass of the mne for the purpose of
determnng a gan or oss on ts sae, and the bass w be reduced as the
deductons, aowabe when ore or mnera s sod, are made.
Your commttee s b aso provdes that f the ta payer eecta to defer the
deducton of deveopment e pendtures ncurred durng the deveopment stage,
the amount to be so deferred n any year w be the e cess of the deveopment
e pendtures n that year over the net recepts durng that year from the ores
or mneras produced.
Ths provson of your commttee s b s effectve wth respect to ta abe
years begnnng after December 31, 10 0.
It s estmated that n a fu year s operaton ths provson w nvove a
revenue oss of about 20 mon annuay.
11. enture capta companes.
Secton 3,10 of ths b w permt certan so-caed venture capta companes
to quafy as reguated nvestment companes. Under Suppement of the
Code, reguated nvestment companes whch dstrbute currenty at east 90
percent of ther ncome, and meet certan other tests set out n secton 361(b)
of the Code, are not ta ed upon amounts dstrbuted to sharehoders. One of
these tests s that the company must not nvest more than 0 percent of It
assets n companes n whch t hods more than 10 percent of the vaue of the
votng securtes. Ths rue has the effect of denyng speca treatment to
companes whch undertake to contro the enterprses In whch the buk of ther
funds are paced. It ceary e cudes a hodng company n the ordnary sense
of the word.
It has been brought to the attenton of ths commttee that the 10 percent
stock-ownershp mtaton consttutes a serous m edment to the deveopment
of so-caed venture capta companes. These are nvestment companes whch
are used prncpay to provde capta for other companes engaged n the
deveopment or e potaton of nventons, technoogca mprovements, new
processes and products whch were not prevousy generay avaabe. In such
cases the nvestment company must provde most of the capta needed to
fnance the venture and w frequenty hod more than 0 percent of ts assets
n stock representng more than 10 percent of the votng stock of the operatng
companes. s a resut, t cannot quafy under Suppement f t nvests
more than 0 percent of ts assets n such companes. Uness ths rue s
amended, t w not be possbe for an nvestment company to devote tsef
prncpay to the deveopment of such ventures and obtan the benefts of
mpement .
The venture capta company promses to serve ns an Instrument for drectng
an ncreasng porton of the current savngs of the country Into the sma,
nnovatng ventures whch are so mportant for ong-run economc progress.
Therefore, secton 336 of ths h amends secton 301 of the Code so ns tn permt
venture capta companes to quafy as reguated nvestment companes. Ths
s accompshed by wavng, tnder certan condtons, the 10 percent mtaton
ns to certan types of hodngs. To quafy for ths e cepton the Investment
company must obtan a certfcaton from the Securtes and change Com-
msson whch states that the Investment company s a regstered management
nvestment company ns defned n the Investment Company ct of 19-10 and
that ts prncpa busness Is the furnshng of capta to companes prncpay
engaged In the deveopment or e potaton of nventons, technoogca Im-
provements, new processes or products not prevousy generay avaabe. Ths
certfcaton w be made under reguatons, to be ssued by the Securtes and
change Commsson.
To foresta the possbty that ths amendment w permt hodng com-
panes to obtan the benefts of Suppement , the b aso provdes that the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
91
10 percent rue sha not be waved In the case of an Investment company whch,
at Ue cose of the ta abe year, has more than 2 percent of Its funds Invested
U companes, the securtes of whch It has hed for more than 10 years.
the other mtatons on reguated Investment companes now Imposed
under Suppement are retaned.
The ouse b contans a provson whch Is substantay Identca wth
secton 3. . of your conmttee s b. Ony mnor, technca changes have been
made n the ouse provson.
Sk-vton 33(1 s effectve wth respect to ta abe years begnnng after De-
cember 31, 10 0. The revenue effect of ths provson Is neggbe.
It. ddtona wthhodng upon agreement hy empoyer and empoyee.
Frequenty concern s e pressed by ta payers wth Income above the frst
(surta bracket because the entre amount of ta due Is not wthhed from ther
wages or saares. They dske the necessty of makng a payment wth ther
decaraton of estmated ta n March, or the necessty of makng quartery
payments. owever, t s not feasbe to estabsh a system of genera app-
caton whch w wthhod the tota tn due In a eases, because, as a resut
of mch factors as varatons n deductons and ncome not sub|ect to wth-
hodng, the addtona ta due dffers wdey from case to case.
In ndvdua nstances, however, where the ta payer can estmate qute
accuratey the amouut of the addtona ta due and the empoyer fnds the
addtona wthhodng s not burdensome, a vountary system Is feasbe and
woud be a convenence to the ta payer. For these reasons secton 203 of your
commttee s b, whch s the same as secton 223 of the n mse h, amends
secton 1622 of the Code to provde that addtona wthhodng may be author-
zed by reguaton where the empoyer and empoyee agree to t. No addtona
revenue s e pected to be provded by ts provson.
. PRO ISIONS DD D T TOTTR COMMITT
/. ddtona aowance for certan memhers of the rmed Forces.
The Revenue ct of 19 0 added a ae-v secton 22(b) (13) to the Code whch e -
cudes from ta abe ncome the compensaton of members of the rmed Forces of
the Unted States receved for actve servce n combat zones such as orea.
Ths e cuson covers a the pay of ensted men and warrant offcers and the
frst 200 per month pad to commssoned offcers. The present e cuson ony
appes to servces performed after une 2 , 19 0, and pror to anuary 1, 19.12.
Secton 30 of your commttee s b makes two changes n the e stng prov-
son. Frst, the e empton s e tended for 2 years beyond the present termna-
ton date to anuary 1, 19 -1. Second, the e empton s e tended to ncude the
compensaton of mtary personne receved whe hosptazed as a resut of
wounds, dsease, or n|ury ncurred whe servng n a combat zone.
These amendments w resut n a revenue oss of 10 mon annuay unt
19 .
The amendments made by your commttee to secton 22(b) (1.1) are appcabe
to ta abe years endng after une 2 , 19 0.
2. Saes of and tcth unharrcstcd crops.
Secton 117 (|) of the Code provdes, In effect, that a net gan from saes of
propertes used n the trade or busness of the ta payer, ncudng rea prop-
erty so used, f hed more than 6 months s to be treated as a capta gan. In
the case of a net oss, t s treated as an ordnary oss. Where unharvested crops
are sod wth the and, or unrpe frut s sod together wth the and and the
trees, a dffcut queston has arsen as to the proper appcaton of the present
aw to the unharvested crops or the unrpe frut. ;
The ureau of Interna Revenue has rued that, whether or not such crops or
frut are regarded as a part of the rea estate under oca aw, they consttute
property hed prmary for sae to customers n the ordnary course of hs
(the ta payer s) trade or busness and thus, under the provsons of secton
7( ), any gan on the sae of the unharvested crops or unrpe frut s to be
separatey determned and treated as ordnary ncome nstead of as a capta
gan. In severa decsons the Ta Court (wth some members dssentng) has
taken a smar vew, but two dstrct courts have hed that such fruts or crops
consttute property used n the trade or busness so that a gan from a sae of
the and, trees, and frut woud be treated as a capta gan wth the resut that
the entre gan from the sae of such property woud consttute ordnary Income.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
02
Tour commttee beeves that saes of and together wth growng crops or frut
are not such transactons as occur n the ordnary course of busness and shoud
thus resut n capta gans rather than n ordnary ncome. Secton 323 of the
b so provdes.
Your commttee recognzes, however, that when the ta payer keeps hs account
and makes hs returns on the cash recepts and dsbursements bass, the e -
penses of growng the unharvested crop or the unrpe frut w be deducted n fu
from ordnary ncome, whe the entre proceeds from the sae of the crop, as
su- h, w be vewed as a capta gan. ctuay, of course, the true gan n such
eases s the dfference between that part of the seng prce attrbutabe to the
crop or frut end the e penses attrbutabe to ts producton. Therefore, your
commttee s b provdes that no.deducton sha be aowed whch s attrbutabe
to the producton of such crops or fmt, but that the deductons so dsaowed
sha be ncuded n the bass of the property for the purpose of computng the
capta gan.
The provsons of ths secton are appcabe to saes or other dspostons oc-
currng n ta abe years begnnng after December 31, 10 0.
The revenue oss under ths provson s e pected to be about 3 mon
annuay.
3. ectons to fc |ont or separate returns and to use the standard deducton.
Under secton 1 of the Code, marred ta payers may fe ether separate re-
turns or a snge |ont return. The eecton, once made, as to whch type of re-
turn to fe s bndng wt respect to the ta abe year for whch the return s
fed.
Secton 2.3faa) of the Code permts an Indvdua the use of an optona stand-
ard deducton n eu of temzng hs deductons. The eecton to use ether of
these methods of handng deductons s kewse bndng upon the ta payer for
the ta abe year wth respect to whch the opton s e ercsed.
s a proper eecton frequenty requres nformed ta knowedge not pos-
sessed by the average person, the bndng eectons referred to above may resut
n substantay e cessve ta es. Ths resut of makng an n|proper eecton s
partcuary apt to occur durng a perod of hgh ta rates such as the present.
Tour commttee s b contans two amendments drected at ths probem.
Secton 312 of the b provdes that marred ndvdua ncome ta payers who
te separate returns may e ercse the rght to change ther eecton and fe
|ont returns at any tme wthn the perod of the statute of mtatons. Ths
provson s effectve wth respect to ta abe years begnnng after December 31.
0. Secton 30 of the b aso provdes that ndvduas who have used the
standard deducton when fng ther return may substtute temzed deductons at
any tme wthn the perod of the statute of mtatons. Moreover, ta payers
vho have temzed ther deductons are aso to have the opton to amend ther
return wthn the same perod In order to take advantage of the stnndard de-
ducton. Ths provson s effectve wth respect to ta abe years begnnng after
De-ember 31, 19 ).
It s antcpated that the revenue oss from these amendments w be neggbe.
. Pensons.
1 nder secton 10. of (he Code, payments made from an empoyees retrement
fund are ta abe to the recpent as receved. It has been reported to your com-
mttee that fe nsurance agents have been dened the benefts of ths secton be-
cause of n rung that they are not techncay empoyees for the purposes of
the provson. s a resut the entre ump-sum vaue of the penson n e cess f
any amount contrbuted to the fund by the empoyee s ta abe as ncome of the
agent In the year he retres when hs rght to hs share of the company s contr-
butons br-cones nonforfetabe. Your commttee beeves ths treatment to be
Inequtabe, partcuary nasmuch as Congress provded specfcay that fu-
tme fe nsurance agents are to be empoyees for soca securty purposes.
Therefore, s. cton 3 3 of the b amends secton 3707(a) of the Code to e tend
the benefts of secton 10 to fe nsurance agents who are empoyees for soca
securty rurprsos.
Ths amendment s effectve wth respect to ta abe years begnnng after
December 31, 19 .
The revenue oss from ths amendment w be neggbe.
case has aso been brought to the attenton of your commttee n whch nn
r socaton provdng retrement benefts desres to nvest n porton of ts fund
n common docks, thus provdng for n hedge aganst nfaton. queston has
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
93
arsen as to whether the varabe payments whch w be made from ths fund
w quafy for secton 1G treatment. It s reported that n the past such
treatment has been mted to those retrement pans wheren the annuty con-
tracts provde for the payment of f ed amounts. Your commttee understands
that treatment as annutes of payments whch vary n amount s to be provded
admnstratvey under present aw, thus permttng the recpents of these
annutes to be ta ed on the amounts as receved nstead of beng ta ed on the
ump-sum vaue of the annuty at the tme payments begn. The revenue effect
of ths provson s neggbe.
. Stock dstrbutons of proft-sharng pans.
Secton 10 (b) of the Code provdes for the ta aton of dstrbutons to em-
poyees from e empt penson and proft-sharng funds. s a rue both the
empoyee and the empoyer contrbute to such funds. The amounts so con-
trbuted are then nvested, usuay n the stock of the empoyer company. Such
amounts may or may not be credted to the accounts of ndvdua empoyees at
the tme the purchases of stock are made. t the tme that the tota dstrbu-
tons payabe wth respect to any empoyee are pad to hm wthn one ta abe
year on account of hs separaton from servce, he s ta abe at capta gan
rates upon the entre vaue of the stock whch was contrbuted by hs empoyer.
Ths Is kewse true of any unnvested cash contrbuted to hs account by the
empoyer. The vnue of the wthdrawa for ta purposes under present aw s
the sum of ths unnvested cash and the market prce of the stock at the tme
of wthdrawa. It s frequenty the case that the prce the fund pad for the
stock was substantay ess than the current market prce that Is used n
determnng the ta abe vaue of the empoyee s wthdrawa. Ths resuts n
the empoyee s beng ta ed cn the amount of company contrbuton, the fund earn-
ngs, and any ncrease n the vnue of stock whch was purchased for hs account.
Therefore, where companes seect ths method of provdng for ther empoyees
retrement rather than through the purchase of annutes, ths accumuated vaue
of the empoyer s contrbutu n n the fund s bunched n one ta abe year, thus
sub|ectng t to ta n hgher surta brackets.
Tour commttee beeves that the present ta on the stock apprecaton n such
oases substantay reduces the empoyees proft-sharng accumuaton and thus
s retrement ncome. Ths s a dscrmnaton aganst those empoyees who
seect ths method of provdng for ther od age.
Therefore, secton 33 of your commttee s b provdes that n the case of
such dstrbutons consstng of stock n the empoyer corporaton the appreca-
ton n the vaue of the stock contrbuted by the empoyer whch has arsen
snce beng deposted n the fund s not to be sub|ect to capta-gan ta unt
the empoyee ses the stock, rather than at the tme t s dstrbuted to hm as
under present aw. Ths amendment makes no change n the present ta treat-
ment of that porton of the vaue of such stock whch does not represent appre-
caton n vnue.
Ths amendment appes to dstrbutons made after December 31, 10 0.
The revenue oss from ths amendment w be neggbe.
6. Death benefts to empoyees.
Secton 22(b) (1) of the Code e cudes from gross ncome amounts receved
under a fe nsurance contract pad by reason of the death of the nsured,
whether n a snge sum or otherwse. owever, by ts terms, ths provson s
mted to fe nsurance payments, and the e cuson does not e tend to death
benefts pad by nn empoyer by reason of the death of an empoyee. In order
to correct ths hardshp, secton 302 of your commttee s b e cudes from
gross ncome death benefts not n e cess of ,000 pad by any one empoyer wth
respect to any snge empoyee s benefcary or benefcares n accordance wth
a pree stng contract. The mtaton of the e cuson to payments not n e cess
of ,000 w prevent abuses under ths new provson.
Ths provson s effectve wth respect to ta abe years begnnng after Decem-
ber 31, 19 0.
The revenue oss from ths amendment w be neggbe.
7. Termnaton payments to empoyees.
Some empoyment contracts provde for payments to the empoyee after the
empoyment perod, based on a share of future profts or a percentage of future
gross recepts. Such payments when receved are ta ed under present aw as
ordnary ncome, nasmuch as they are n the nature of payments of addtona
compensaton. owever, f the empoyee chooses to receve a ump-sum payment
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
In en of the contract rghts upon termnaton of hs empoyment, the entre
ump sum s Incuded n one year s ncome. The resut may be to pace the
empoyee n an unusuay hgh surta bracket. Tour commttee beeves ths
present treatment of such ump-sum settements to be unduy harsh n vew of
the fact that the empoyee may not wsh to eave hs retrement ncome dependent
u on the operaton of the busness subsequent to the severance of hs connec-
ton wth t.
s a resut, secton 32 of the b provdes, wth certan restrctons, for
capta-gan treatment of amounts receved by an empoyee, upon termnaton of
hs empoyment, n e change for hs reease of a of hs rghts to receve a
percentage of future profts or recepts. Ths provson s mted to cases where
the ta payer has been empoyed for more than 20 years and has hed such rghts
to future profts or recepts for at east 12 years.
Ths provson s effectve wth respect to ta abe years begnnng after De-
cember 31, 10 0.
The revenue oss from ths amendment w be neggbe.
. Restrcted stock optons.
The Revenue ct of 10 0 added a new secton 130 to the Code, whch pro-
vdes that the grantng to empoyees of certan types of stock optons w not
gve rse to ta abe ncome to the recpent. To be e cuded under ths provson
the opton must fa wthn a defned category of restrcted stock opton .
Secton 130 requres that to quafy as a restrcted stock opton the
opton prce at the tme of the grantng must be percent or more of the far
market vaue of the stock. Ordnary, when nn opton s used as an ncentve
devce, the opton prce appro mates the far market vaue of the stock at the
tme the opton s granted. T e 1 percent eeway s aowed because many
stocks are not sted on e changes and therefore, the far market vaue s
dffcut to determne. It as come to the commttee s attenton that the oper-
aton of the 0 percent mtaton has resuted n a hardshp n one respect. In
many cases, the grantng of stock optons s sub|ect to ratfcaton by th3 corpora-
ton s stockhoders. Thus, at the tme of the acton by a corporaton s honrd f
drectors the opton may be fuy quafed as to the percent mtaton, bnt
because of the deays typcay ncdent to acton by a corporaton s sharehoders,
the far market prce may have so changed by the tme of ther ratfcaton that
the opton no onger quafes under the sta te.
In order to correct ths harsh operaton of the present provson, Mcton 331
of your commttee s b provdes that th date of the grantng of a restrcted
stock opton whch s sub|ect to stockhoder ratfcaton sha be determned as
If the opton had not been sub|ect to such approva.
Ths amendment w be effectve as f t had been enacted as part of the
stock opton provson of the Revenue ct of 10 0.
0. Medca e penses.
Secton 23( ) of the Code permts the deducton of a ta payer s medca e -
penses ony to the e tent that such e penses e ceed percent of the ta payer s
ad|usted gross ncome.
Secton 307 of your commttee s b removes ths percent mtaton for any
ta payer, f ether the ta payer or hs spouse s aged 6 or over, but ony wth
respect to the medca e penses of such ta payer and hs spouse. Persons n
that age bracket have generay reached a perod of owered earnng capacty.
These same ndvduas typcay are confronted wth ncreased medca e penses.
Dsaowance of the deducton of many of these e penses under present aw
merey serves to accentuate ths e stng hardshp.
Ths b does not affect the ma mum mtatons of present aw on the amount
of the deducton.
Ths provson of your commttee s b Is effectve wth respect to ta abe
years begnnng after December 31, 10 0.
It s estmated that the provson w Invove a oss of revenue of about 1
mon n a fu year of operaton.
10. Redempton of stock to pay death tares.
The Revenue ct of 19 0 amended secton 11 (g) of the Code to prove that
the redempton of stock n a decedent s estate n an amount not In e cess of the
estate, nhertance and successon ta es (ncudng nterest) on the estate s,
n certan cns.es, not to be treated as a ta abe dvdend. mong other requre-
ments, ths provson s mted at present to cases where the vaue of the stock
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
n the corporaton comprses more than 0 percent of the vaue of the net estate
of the decedent.
Tour commttee beeves that the atter mtaton mposes a hardshp on
those estates where the stock n a corporaton forms a substanta part of the
vaue of the net estate but fas short of meetng the restrctve 0 percent re-
qurement. Therefore, secton 320 of the b e tends the benefts of secton
11 (g) to cases where the stock comprses more than 2 percent of the vaue of
the decedent s net estate.
Ths amendment w be appcabe ony to amounts dstrbuted on or after
the date of enactment of the b.
The revenue oss resutng from ths secton w be neggbe.
11. ass of |ont and survvor annutes ncuded n the gross estate.
Secton 113(a)( ) of the Code provdes that property acqured by bequest,
devse, or nhertance sha have a bass for determnng gan or oss equa to
ts far market vaue at the date of the decedent s death or, f the decedent s
e ecutor eects the optona vauaton date, at a dnte 1 year after the decedent s
death. owever, a property whch s ncuded n the decedent s gross estate
for estate ta purposes does not take a new bass upon the decedent s death.
|ont and survvor annuty s ncudbe n the decedent s gross estate but
s treated as a gft for bass purposes so that, for purposes of gan, t has the
same bass as n the hands of tn donor. Secton 303 of your commttee s b
amends sectons 22(b) (2) and 113(a) ( ) of the Code to provde that where a
|ont and survvor annuty s ncuded n the decedent s gross estate, ts bass
sha be the vaue of the property ncuded n the estate.
Ths amendment s to appy ony where the decedent des after December 31,
10 0.
No apprecabe oss of revenue s antcpated from the amendment.
12. batement of ncome ta es for certan members of the rmed Forces dyng
n combat zones or as a resut of n|ures receved n such zones.
Indvduas dyng whe n actve servce durng Word War II as members
of the mtary or nava forces of the Unted States or other Unted Natons
were forgven ther ncome ta wth respect to the year of the death and the
pror year. They aso were reeved of unpad ncome ta es at the tme of
ther death.
Secton 333 of your commttee s b provdes smar treatment for members
of the rmed Forces of the Unted States dyng whe servng n combat zones
or whe hosptazed as a resut of wounds, dsease, or n|ures Incurred whe
servng n combat zones.
Tour commttee s b provdes for the forgvng of ncome ta n the year of
death of such ndvduas and n pror ta abe years endng after the com-
mencement of hosttes n orea. so, such ndvduas are reeved of any
ncome ta es for any year unpad at the date of ther death. The provson s
effectve wth respect to ndvduas dyng after the commencement of hosttes
n orea and pror to anuary 1,19 .
IS. Indvduas earnng ncome abroad.
Secton 116(a) of the Code e empts from ncome ta ctzens of the Unted
States who are bona fde resdents of a foregn country wth respect to ncome
earned outsde the Unted States, and dsaows deductons chargeabe aganst
ths ncome. Ths provson s ntended both to encourage ctzens to go abroad
and to pace them n an equa poston wth ctzens of other countres gong
abroad who are not ta ed by ther own countres.
owever, the present aw has two defects whch secton 321 of your com-
mttee s b corrects. Frst, the e cuson s aowed ony wth respect to an
entre ta abe year wth respect to whch the ndvdua s a bona fde res-
dent of the foregn country. Thus, e empton s dened an ndvdua n hs
frst year abroad uness he becomes a bona fde resdent of the foregn country
as of anuary 1. Secton 321 of your commttee s b corrects ths defect of
present aw by grantng the e cuson wth respect to an unnterrupted perod
whch ncudes an entre ta abe year wth respect to whch an ndvdua
was a bona fde resdent of a foregn country.
In addton, the term bona fde resdence abroad has been construed qute
strcty wth the resut that many persons who have gone abroad to work even
for a reatvey ong perod of tme have been unabe to meet the test of a
bona fde resdent of a foregn country. Sometmes ths has occurred because
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9G
the nnture of the ndvdua s work s such ns to make t dffcut to estabsh a
resdence n the more wdey accented use of the term. On other occasons
t has resuted from the fact thct ndvduas have gone abroad ony for a stated
perod of tme. ampes of ths are managers, techncans, and sked work-
men who are nduced to go abroad for perods of 1 to 30 months to compete
specfc pro|ects. Your commttee beeves, n accord wth the pont program,
that t s partcuary desrabe to encourage men wth technca knowedge to
go abroad. s a resut your commttee has added a paragraph to secton I Ua)
of the Code provdng that ncome earned abroad by a ctzen of the Unted
States who s present n a foregn country or countres for 17 out of 1 con-
secutve months s to be e cuded from ncome, and that deductons chargeabe
to such ncome w be dsaowed n computng hs Federa ucome ta .
These two changes made by your commttee s b are effectve wth respect
to ta abe years begnnng after December 31, 10. 0.
Tour commttee s b aso amends secton 1621(a)( )( ) of the Code to
provde that there s to be no wthhodng by the Unted States where t s
reasonabe to beeve that the ncome s pad to a person who w quafy fur
the e cuson on the bass of presence n a foregn country for 17 out of 1
consecutve months. In addton, t provdes that there s to be no wthhodng
of ncome ta es for the Unted States upon an amount earned for servces per-
formed n foregn country f wthhodng on that amount s requred for a
foregn country. These changes n your commttee s b are effectve as of
anuary 1, 19.T2. wth respect to wages pad on or after that date.
Th revenue effect of these provsons s neggbe.
1). War osses.
Secton 127 of the Code, In genera, authorzes a war oss deducton for property
n enemy hands when the Unted States entered Word War II n 1911. for prop-
erty whch ater came under enemy contro and for property destroyed or sezed
n the course of mtary or nava operatons. Ths deducton s mted to the
ta payer s deprecated cost or other bass of the property. Secton 127 aso
provdes that f any of the property was recovered, the far market vaue of the
recovered property, not the amount deducted, s to be ta ed as ordnary ncome
to the e tent that the deducton resuted n a reducton of ta .
Where ony one property was nvoved, there has been no dffcuty wth ths
rue, snce n those cases where the far market vaue of the recovered property
e ceeded the amount of the deducton, the vaue of the recovered property
was ncudbe n ncome ony to the e tent that the deducton resuted n a
reducton n ta . The fu far market vaue was not Incuded n ncome n
such cases because t was beeved approprate to treat the ta payer ns neary
as possbe as f he had hed the property throughout the entre perod rnd re-
ceved no deducton for the temporary oss. In such a case apprecaton n the
vaue of the property woud nor, of course, he sub|ect to ta . owever, where
the war oss embraces more than one property, the present rue does not aways
acheve ths resut. For e ampe, where war oss deductons have been taken
for two or more propertes, and ony one of these propertes s recovered, f
the recovered property has apprecated n vaue, the deducton prevousy taken
not ony wth respect to ths property but aso wth respect to the property not
recovered s taken nto consderaton n determnng how much of the far market
vaue of the property recovered represents a prevous reducton n ta . In such
n case the effect of the present provson s not to treat the property as f t has
been hed for the entre perod snce part or a of the apprecaton n vaue of
the property s sub|ect to ta n the year of recovery merey because a deducton
had aso been taken for another property whch has not been recovered.
To correct ths stuaton secton 3 0 of your commttee s b amends secton
127 of the Code to provde that, at the eecton of the ta payer, n the case of
war oss recoveres the ta for the year n whch the deducton was taken s to
be recomputed by reducng the deducton by the amount of the recovered prop-
erty, taken at ts deprecated cost on the date of the oss or ts far market vaue
on the date of the recovery, whchever s ower, and by addng the ncrease, f
any. In the ta so resutng to the ta for the year of the recovery.
The attenton of your commttee has aso been brought to cases where war
osses have been reazed but no deducton was camed. In such cases, f other
war osses were deducted wth a ta beneft, secton 127 of the Code operates
to requre the far market vaue of the property on the date of the recovery to
be ncuded n ncome n the year of the recovery to the e tent not n e cess of
the benefca deductons for other war osses. Under secton 3 0 of your com-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
97
mttee s b there woud be no ta In the year of the recovery wth respect to
property for whch no deducton was camed n the year of the oss.
No nterest s to be pad or assessed on refunds or defcences arsng from
tbs provson.
These amendments w have no permanent revenue effect.
1 . Foregn ta credt for ta es pad by a foregn subsdary.
stng aw permts a domestc corporaton, ownng the ma|orty of the votng
stock of a foregn corporaton, to cam a foregn ta credt for ncome ta es pad
by the foregn corporaton to a foregn government wth respect to the profts of
the foregn corporaton whch are pad as dvdends to the domestc corporaton.
Your commttee beeves that the prncpe estabshed by present aw s correct
but does not beeve that the aowance of the foregn ta credt shoud be mted
to those cases where the domestc corporaton owns a ma|orty of the votng stock
of the foregn corporaton. Irrespectve of the proporton of the foregn corpora-
ton owned by the domestc corporaton, the dvdends receved by the domestc
corporaton are equay key to be affected by the ta es pad to a foregn govern-
ment. Moreover, severa foregn countres prohbt the ownershp of as much as
0 percent of one of ther domestc corporatons by a foregn corporaton. Thus,
t s mpossbe for mercan corporatons to operate a foregn subsdary n these
countres and receve the foregn ta credt wth respect to dvdends pad to them
by the foregn corporaton whch they partay own. so, n some cases a
foregn corporaton s owned |onty by two or more domestc corporatons, and
In such cases ether none receve the foregn ta credt or one receves t whe the
others do not. For these reasons secton 331 of your commttee s b amends
secton 131(f) (1) of the Code to provde that the foregn ta credt s to be a-
owed f the mercan corporaton owns 10 percent or more of the votng stock of
the foregn corporaton. The 10 percent mtaton s mposed for admnstratve
reasons.
Ths provson s effectve wth respect to dvdends receved durng ta abe
years begnnng after December 31, 19 0.
Under present aw f a foregn subsdary of an mercan corporaton owns a
of the votng stock of another foregn corporaton, the dvdends receved by the
mercan parent wth respect to the earnngs of the second subsdary are egbe
for a foregn ta credt. owever, your commttee sees no reason why t s
necessary for the frst foregn subsdary of the mercan corporaton to own a
of the votng stock of the second foregn subsdary n order for the mercan
parent corporaton to receve the foregn ta credt wth respect to dvdends
pad from the profts of the second foregn subsdary. On admnstratve grounds
there s a bass for requrng ma|orty ownershp, but not compete ownershp, of
the second foregn subsdary by the frst foregn subsdary. Therefore, secton
331 of your commttee s b e tends the foregn ta credt to appy n the case of
dvdends receved by mercan corporatons n such eases of ma|orty ownershp.
These amendments are e pected to resut n a revenue oss of 30 mon n a
fu year s operaton.
Ths provson s effectve wth respect to dvdends receved by a foregn corpo-
raton durng ta abe years begnnng after December 31,19 0.
16. Postponement of due date for returns of Chna Trade ct Corporatons.
Under present aw Chna Trade ct Corporatons are aowed a credt aganst
ther ncome for the net ncome derved from sources wthn Chna wth respect
to the porton of the stock of the corporaton hed by Chnese or mercan share-
hoders. so, the corporaton must dstrbute an amount at east equa to the
amount of the ncome ta whch ordnary woud be mposed n such cases n
order to receve the fu credt. s a resut of hosttes and unsetted condtons
generay n the Far ast, t s mpossbe n many cases for corporatons dong
busness n Chna to make a dstrbuton of any earnngs derved from Chna or
even to know the sze of such earnngs. For that reason secton 613 of your
commttee s b amends present aw to provde that the Secretary of the Treasury
may postpone the due date up to the end of 19 3 for the payng of any ncome ta
and the fng of the return wth respect to years begnnng and endng n the
perod anuary 1,19 9, to September 30,19 3, f he deems such deferment reason-
abe under the crcumstances. Snce the requrement, that n order to receve the
fu credt the dstrbuton of earnngs derved from Chna must at east equa the
ncome ta whch otherwse woud have been pad, need not be met pror to the
tme the ta es are due and payabe, the postponement of the due date aso has the
effect of permttng the ta payer to postpone the dstrbuton of earnngs.
Ths provson w have no permanent effect on the revenue.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
17. ppcaton of the ntercorporate dvdends-receved credt n the ease of
resdent foregn corporatons. t
Under present aw foregn corporatons engaged n trade or busness wthn the
Unted States are sub|ect to the reguar corporate ncome ta es wth respect to
that porton of ther ncome whch s derved from sources wthn the Unted
States. owever, where such corporatons pay dvdends to a Unted States
domestc corporaton, no dvdends-receved credt s aowed the atter, athough
such credt woud be aowed f the domestc corporaton were recevng dvdends
from another domestc corporaton. Thus, two fu corporate ta es are pad wth
respect to dvdend ncome receved from foregn corporatons engaged n trade
or busness wthn the Unted States (to the e tent that the dvdends are pad out
of ncome derved from sources wthn the Unted States), whe as a resut of the
ntercorporate dvdends-receved credt, dvdends pad by one domestc corpora-
ton to another are sub|ect ony to a tte more than one fu corporate ncome
ta .
To remove ths dscrmnaton, secton 311 of your commttee s b amends sec-
ton 20(b) of the Code, reatng to the dvdends-receved credt, to provde that
under certan condtons dvdends receved from foregn corporatons engaged n
trade or busness wthn the Unted States are to be egbe for the S3 percent
ntercorporate dvdends-receved credt. owever, the credt s to be e tended
ony wth respect to so much of the ncome as was earned n the Unted States.
Moreover, the credt s to be made avaabe ony wth respect to ncome earned
n the Unted States durng an unnterrupted perod n whch the corporaton was
engaged n a trade or busness wthn the Unted States. so, for admnstratve
reasons, the credt s to be made avaabe ony where DO percent or more of the
gross ncome of the foregn corpcraton was derved from sources wthn the
Unted States.
Ths provson of your commttee s b s effectve wth respect to ta abe years
begnnng after December 31, 19 0.
It s estmated that ths provson w resut n an annua oss of revenue of
1 mon.
1 . Net operatng oss deductons.
Secton 323 of the b permts net operatng osses of 191 and 19 9 to be
carred forward years nstead of 2. Ths provson Is necessary n order to
reduce the e stng dspartes n the treatment of dfferent ta years.
The Revenue ct of 19 0 provded that the net operatng oss for a year may
be carred back to offset ncome of the precedng year and may be carred
forward to offset ncome of the fve succeedng years. Ths provson was made
effectve for osses n 19 0 and ater years. Losses n years pror to 19 0 may
be carred back 2 years and carred forward 2 years. The effect of the change
n the 19 0 ct was to permt osses n 19 0 and subsequent years to be apped
to offset possbe ncome n s other years, whereas osses n 19 9 and earer
years coud be apped to offset possbe ncome n ony four other years.
So far as a ta payer wth ncome n 19 0, 19 1, or 19 2 s concerned, the
19 0 ct had the effect of reducng the number of possbe oss years whose
net operatng osses coud be apped to offset the 19 0, 19 1, or 19 2 ncome.
Ths s because a oss n a year subsequent to 19 9 may be carred back ony
1 year nstead of 2 years. For e ampe, a ta payer wth ncome n 19 7 had
four potenta oss years whch mght be apped aganst the 19 7 ncome 19 ,
19 6, 19 , and 19 9 whereas a ta payer wth ncome n 19 0 has ony three
potenta oss years whch mght be apped aganst the 19 0 ncome 19 , 19 9,
and 19 1. so, a ta payer wth ncome n 19 3 or 19 woud not have ns
many potenta oss years whch mght be apped aganst hs ncome n those
years as a ta payer wth ncome n 19 (when the provson n the 19 0 ct
becomes fuy effectve), snce 19 3 ncome may be offset ony by 19 0, 19 1.
19 2, and 19 osses ( years) and 19 ncome may t 3 offset ony by 19 0,
19 1, 19 2, 19 3, and 19 osses ( years), compared wth an offset aganst
s potenta oss years n the case of ncome n 19 and subsequent years.
y permttng 19 nnd 1919 osses to be carred forward years, the b
ncreases to four the number of oss years whch may be apped to 1C 1 ncome
and ncreases to fve te number of oss years whch may be apped to the ncome
of 19 2 and 19 3. No comparabe provson appears n the ouse b.
Under present aw, new corporatons formed durng the perod 19 6 to 19 9
are at a compettve dsadvantage as a resut of the e stng net operatng
oss provsons. For e ampe, a corporaton formed n 19 7 wth osses n that
year obvousy s unabe to carry back ts osses and can ony carry them
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
99
forward 2 ypars. compettor, formed n 10 0, can carry forward ts osses
years to 19 . In order to correct ths nequty, the b provdes that new
corporatons formed n a ta abe year begnnng after December 31, 10 ,
whch sustan a net operatng oss for any ta abe year begnnng after that
date and before anuary 1, 10 0, may carry forward such oss (to the e tent
not absorbed by a carry-back-) for four ta abe years, nstead of two ta abe
years as under present aw.
These provsons are appcabe n computng the net operatng oss deducton
n ta abe years begnnng after December 31, 10 .
There w be no permanent revenue oss from these provsons.
19. Corporate reorganzatons spn-offs).
Secton 317 of your commttee s b adds a new secton 112(b) (11) of the
Code to provde for the nonrecognton of gan from the recept of stock n
corporate e changes carryng out transactons known as spn-offs. spn-off
occurs when a part of the assets of a corporaton s transferred to a new corpo-
raton and the stock n the atter s dstrbuted to the sharehoders of the
orgna corporaton wthout a surrender by the sharehoders of stock n the
dstrbutng corporatons. It s ntended that secton 317 sha be appcabe
even though the porton of the busness whch s spun off s aready organzed
as a separate corporaton, wth the resut that t s the stock of that corpora-
ton, rather than the underyng assets, whch s transferred to the new corpo-
raton whose stock s dstrbuted. For e ampe, f among the assets of
corporaton s the stock of a subsdary corporaton , whether or not whoy
or even ma|orty owned, and busness reasons e st, unreated to any desre
to make a dstrbuton of earnngs and profts to ts sharehoders, for the
separaton of the assets consstng of such stock, such separaton may be ef-
fected wthout recognton of gan to corporaton or ts stockhoders by trans-
ferrng the stock of to a newy organzed corporaton C n e change for
ts stock, foowed by the dstrbuton of C s stock to the stockhoders of
wthout the surrender of ther stock.
Ths secton has been ncuded n the b because your commttee beeves
that t s economcay unsound to mpede spn-offs whch break-up busnesses
nto a greater number of enterprses, when undertaken for egtmate busness
purposes. smar provson was contaned n the revenue revson b of
19 whch passed the ouse but was not acted upon by the Senate, and a
smar provson was ncuded n the Senate verson of the b whch became
the Revenue ct of 10 0.
Secton 317 has been drafted so as to mt ts benefts to reorganzatons
n whch a of the new corporatons as we as the parent are ntended to
carry on a busness after the reorganzaton and where ony stock (other than
preferred) s dstrbuted by the corporaton or corporatons. Nonrecognton
of gan has been dened aso n cases where the reorganzaton was prncpay
n devce for the dstrbuton of the earnngs and profts of the corporatons
whch are partes to the reorganzaton.
Secton 317 of the b aso adds a new secton 113(a) (23) to the Code pro-
vdng that, n the case of stock dstrbuted n a spn-off, the bass of the new
stock, and the od stock, respectvey, n the sharehoder s hands, s to be
determned by aocatng between the od stock and the new stock the ad|usted
bass of the od stock.
These provsons of your commttee s b are to be effectve wth respect
to ta abe years endng after the date of the enactment of ths b, but are
to appy ony to dstrbutons of stock made after that date.
The revenue oss resutng from ths provson s e pected to be sma.
20. ark ma pay of raroads.
fter an appcaton for ncreased ma pay made by the raroads n Febru-
ary 19 7, the Interstate Commerce Commsson n December 19 7, ordered an
nterm ncrease of 2 percent n ma-pay rates effectve after February 19, 19 7,
pendng further nvestgaton. mounts represented by ths ncrease were
reported for ta purposes by the raroads n the years n whch the servces
were rendered. On December , 10 0, the ICC awarded the raroads 312 m-
on n back ma pay for the perod from February 19, 10 7, through Decem-
ber 31, 19 0. Of ths amount, about 1G0 represented the 2 percent ncrease
prevousy granted on a temporary bass wth respect to the servces rendered
n the perod 19 7- 0, and about 1 mon represented an addtona ncrease
wth respect to those same servces.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
00
Your commttee beeves that ths Intter amount shoud receve the Fame ta
treatment as the amount prevousy granted, nasmuch as both represent com-
pensaton for the same servces. Therefore, n order to avod any uncertanty,
secton CIO of your commttee s b provdes that the addtona payments au-
thorzed by the December , 19 0, order sha be ncuded n ncome for the years
n whch the raroads rendered the servces for whch the addtona payment
were made. It s specfcay provded that no nterest sha be due wth respect
to any perod pror to uy 1, 19 1, for defcences resutng from the ncuson
of the addtona payments n the back years.
It s estmated that ncuson of those payments In the back years w resutt
n about 10 mon ets revenue than f they were ta ed n the year In wh. h
receved,
21. Income from dscharge of ndebtedness.
Secton 22(b)(9) of the Code e cudes from gross Income, n the case of a
corporaton, the amount of ncome attrbutabe to the dscharge of ndebtedness
evdenced ny a bond, debenture, note, certfcate, or other evdence of ndebtedness.
The provsons of ths secton are temporary under e stng aw and e pre
automatcay on December 1, 19 1. Secton 30 of your commttee s b
provdes for the permanent enactment of the secton.
The e cuson provded by secton 22(b) (9) s to be appcabe ony f the cor-
poraton consents to a reducton n the bass of ts propertes under secton 113
(b) (3) n accordance wth the reguatons then n effect. The reducton of bass
under secton 113(b)(3) s n an amount equa to the ncome e cuded under
secton 22(b) (9). In the event an amount s e cuded from gross ncome under
these provsons, an ad|ustment s made for unamortzed premum or unamortzed
dscount on the dscharged obgaton.
The Secretary of the Treasury has authorty under secton 113(b)(3) to
prescrbe reguatons whch w set forth rues under whch the ad|ustment to
bass sha be made. stng reguatons (sec. 29.113(b) (3)- of Reguatons
t) provde that an amount equa to the e cuded ncome s frst to be apped
n reducton of the bass of the specfc property (other than nventory, notes, or
accounts recevabe) n the acquston of whch the ndebtedness was ncurred.
The reducton of bass n such case merey refects an ad|ustment n the purchase
prce of the property. The reducton of bass under the reguatons s then
successvey apped to the foowng casses of property: (1) Property securng
the ndebtedness, (2) other property of the ta payer, and fnny (3) Inventory
nnd accounts and notes recevabe. Wthn these casses, the reducton n bass
s apped proportonatey to the property ncuded n the cass wthout regard
tc whether the property s deprecabe or nondeprecabe. In order to assure
that the e cuson of ncome by operaton of secton 22(b) (9) may resut ony
n a temporary postponement of the tn abty, your commttee understands
that the Secretary of the Treasury w requre by reguatons that, after ad-
|ustment of the bass of certan property acqured wth the purchase non-y
ndebtedness, whatever reducton In bass of property remans to be taken under
secton 113(b)(3) w be taken, n genera, aganst deprecabe property or
property sub|ect to cost depeton and ony as a ast resort aganst nondeprecabe
property. Thus, n genera, t s ntended that a reducton n the bass of non-
deprecabe property w be made ony after the e hauston of deprecabe prop-
erty or property sub|ect to cost depeton. Ths provson w ns-ure the coec-
ton wthn a reasonabe tme of the ta es postponed and w, therefore, have no
apprecabe, ong-run effect on the revenue.
Secton 30 of your commttee s b makes a technca amendment to secton
22(b) (9) to aow for greater fe bty as to the tme for fng the requred
consent to a reducton of bass. Under the present aw, the ta payer must e
ts consent wth Its return for the ta abe year. The b amends the secton to
provde tha the consent s-n be fed at uch tme as the Secretary of the Treas-
ury may prescrbe. Under ths amendment, the Department coud contnue to
requre that the consent be fed wth the return n the ordnary case, bnt mght
n uke provson for tng of the consent at a ater date n approprate hardshp
cases.
Your commttee has provded that ths amendment sha be effectve wth re-
spect to ta abe years endng after December 31, 19 0.
Secton 30 of your commttee s b e tends for an addtona 3-year perod
the e cuson provded for raroad corporatons under secton 22(b) (10) of the
Code. Secton 22(b) (10) provdes that the amount of Income attrbutabe to
the dscharge of any ndebtedness of a raroad corporaton, as defned n secton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
01
77(m) of the Natona ankruptcy rt. sha he e cuded to the e tent that such
ncome Is deemed to have een reazed by a modfcaton or canceaton of
ndebtedness pursuant to an order of the court In a reeeversbp proceedng or a
proceedng under secton 77 of the Natona ankruptcy ct. Ths secton aso
e pres automatcay on December 31, 10 1. Unke secton 22(b)(0), secton
22(b) (10) does not requre a reducton n the bass of the ta payer s propertes
as a condton to the e cuson of the ncome. The e tenson of the e praton
date of secton 22(b)(10) made by ths secton of your commttee s b s
December 31, 10 .
The revenue oss from these amendments s e pected to be neggbe.
22. Lqudaton of corporaton .
Under the Revenue ct of 19 0, domestc corporatons. Incudng persona hod-
ng companes, may be qudated under secton 112(b)(7) of the Code for a
mted perod wthout payment of capta gan ta by the stockhoders on the
apprecaton In vaue of assets hed by the companes. In genera, n the case of
gan on stock hed by Indvduas ony that porton of the dstrbuton to the
sharehoders whch represents accumuated earnngs s to be ta ed, to the e tent
of the gan, as ordnary ncome. So much of the remander, to the e tent of the
bannce of the gan as conssts of money, or of stock or of securtes acqured y
the corporaton after a basc date ( ugust 1 , 10 0) s to be treated as a capta
gan.
Under secton 112(b) (7) n Its pre-19 0 form, a smar eecton was avaabe
when the pan of qudaton was adopted after the date of enactment of the
Revenue ct of 10 3 and put Into effect durng the caendar year 10 . Under
the amendment made by the Revenue rt of 10 0. ths eecton was restored for
pans of qudaton adopted after December 31, 19 0, and effected durng any one
caendar month In 10 1.
Secton 316 of your commttee s b e tends the appcaton of serton
112(b) (7) so that ta payers may e ercse a smar eecton to cover qudatons
of corporatons durng 19 2. Ts 1-year e tenson of the eecton w factate
the qudaton of domestc persona hodng companes. The commttee beeves
t desrabe to e pedte the qudaton of such companes.
Ths provson of your commttee s b s effectve wth respect to ta abe years
endng after December 31, 10 1.
It s antcpated that the revenue oss resutng from ths amendment w be
neggbe.
2S. Capta gans of corporatons mpropery accumuatng surpus (sec. 102).
Serton 102 of the Code mposes an addtona ta on corporatons mpropery
accumuatng surpus to avod payment of surta by stockhoders. Ths add-
tona ta s mposed on the undstrbuted secton 102 net ncome , whch s. n
genera, net ncome mnus the norma ta , surta , and e cess profts ta of the
corporaton. Under present aw, the secton 102 ta appes to the ong-term
capta gans of the corporaton as we as to ts ordnary ncome. Your com-
mttee s of the opnon, however, that the probem of avodance of surta by
stockhoders does not arse In the case of net ong-term capta gans, snce
these gans woud have been ta ed at a ma mum rate of 2 percent f they
had been reazed by the stockhoder drecty. Furthermore, wth present hgh
repacement costs, corporate capta gans must be renvested n order to keep
the corporaton s busness actvtes at ther current eve. Therefore, secton
31 of your commttee s b amends secton 102 n order to e cude net ong term
capta gans from the undstrbuted ncome sub|ect to the secton 102 ta . ow-
ever, ths amendment further provdes that the capta gan ta s not to be
aowed as a deducton n computng ncome sub|ect to the secton 102 ta .
Ths provson s effectve wth res ect to ta abe years begnnng after De-
cember 31. 19 0.
The revenue oss from ths amendment s e pected to be neggbe.
2. LIFO method of accountng.
Under the present aw ta payers usng the LIFO nventory method have unt
the end of 10 2 n whch to make repacements of nventores Invountary de-
peted durng Word War II. They have unt the end of 19 to make repace-
ments of nventores Invountary depeted durng the present emergency. ow-
ever. Inventory repacements are requred to be attrbuted to the most recent
qudatons not aready repaced, so that a repacement before the end of 19 2
must be treated as a repacement of nventory qudated durng the present
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
02
emergency before any nventory ncreases can be treated as repacements of n-
ventory qudated durng Word War II. Ths makes t dffcut for ta payers
now sufferng qudatons to repace Word War II nventory qudatons before
the end of 10 2.
Secton 300 of your commttee s b corrects ths stuaton by provdng, n
effect, tnt repacements made pror to 19 3 are frst to be deemed to be repace-
ments of qudatons durng the Word War II perod rather than frst beng
deemed to be repacements of qudatons durng the present emergency.
Ths provson of your commttee s b s effectve wth respect to ta abe
years endng after une 30. 19 0.
The revenue oss from ths amendment Is e pected to be sma.
2o. changes and dstt butons under S C orders.
Suppement R of chapter 1 of the Code provdes, n genera, that gan sha
not be recognzed to a corporaton transferrng property to another corporaton
whch s a member of the same system group f the transfer s under order of the
Securtes and change Commsson. system group s there defned as a
chan of corporatons connected wth a common parent through 90 percent
ownershp of each cass of stock other than stock preferred both as to dvdends
and assets.
case as been brought to the attenton of your commttee n whch a parent
corporaton owned over 90 percent of a 0 mon stock ssue but owned sghty
ess than 90 percent of a 1 ,000 stock ssue whch was preferred as to dvdends
but not as to assets. Thus, under the present provsons of Suppement R ths
corporaton s faure to own 90 percent of the 1 ,000 ssue resuts n the non-
reoognton-ofgnn provson beng nappcabe n ths case. Your commttee
beeves ths appcaton of the rue to be unduy harsh n ts resuts.
Therefore, secton 337 of your commttee s b nmends Suppement R to
provde that, n addton to the present defnton of a system group, corporatons
be permtted to quafy as a system group f the parent owns 90 percent of each
cass of stock other than preferred stock and other than stock whch s preferred
as to dvdends but not as to assets f the vaue of such stock s ess than 1 percent
of the aggregate vaue cf a casses of nonpreferred stock.
Ths amendmnt s effectve wth respect to ta abe years affected by an e -
change or dstrbuton made after December 31, 19 7.
The revenue oss under ths amendment w be neggbe.
SG. Preferred stock of puoc uttes.
Secton f of your commttee s b s Intended to correct secton 1 (a) of the
Code whc permts pubc uttes furnshng teephone servce, eectrca energy,
gas, or water to take a parta credt aganst net ncome for dvdends pad on
preferred stock orgnay ssued before October 1, 19 2. The e stng credt s
desgned to gve these pubc uttes a ta savng equa to 1 percent of the
amount of the preferred stock dvdends. The provson of your commttee s b
nmends secton 1 (a) wth respect to ta abe years begnnng before pr 1.
19 1. to make the ntercorporate dvdends-receved credt avaabe n the case
of dvdends on preferred stock of pubc uttes f the speca dvdends pad
credt for pubc uttes provded by secton 20(b) has not been receved by
the utty.
The revenue oss resutng from ths amendment w be neggbe.
27. arnngs of dependents.
Secton 2 (h)(1)(D) of the Code aows a ta payer, as a credt aganst net
ncome, an e empton of 000 for each dependent whose gross ncome n the
year s ess than 00. Pror to the Revenue ct of 19 , the e empton for
dependents amounted to 00. Thus, before the amendment made by that ct,
the amount of the e empton conformed wth the amount of earnngs whch a
dependent was aowed before the ta payer was dened an e empton on hs
nceount. owever, n ncreasng the e empton to 000, the 19 ct faed to
make an equvaent ncrease n the amount of the dependent s aowabe earnngs.
Your commttee beeves that these provsons of present aw shoud be brought
nto conformty. Not ony s the present treatment nconsstent, but t eads
nevtaby to confuson on the part of ta payers.
For ths reason, secton 310 of your commttee s b amends secton
2 (b)(1)(D) n order to permt the e empton for dependents whose earnngs
are ess than 0C0.
Ths amendment appes to ta abe years begnnng after December 31, 19 0.
The revenue oss from ths provson s e pected to be sma.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
03
2 . Mne e poraton e pendture .
It s generay recognzed that the presenty avanbe mnera resources of
ths country are In many respects defcent In vew of the ever-ncreasng
demands of our economy, especay n an emergency perod such as the present.
Not ony Is ths true wth mnny common metas such as copper, znc, and ead,
but t s even more true wth respect to mnny nre metns and nnnmetnc mn-
eras. Intensfed and e panded efforts to fnd new deposts of ores and other
mneras are hghy desrabe.
nder present aw, e pendtures for ascertanng the ocaton, e tent, and
quaty of mnera deposts cannot be deducted (uness stch e pendtures pro-
duce no usefu resuts. In whch ense they can be deducted as wth any other
oss), but must be captazed. mounts so captazed can be recovered for tn
purposes ony through depeton aowances. Moreover, f the depeton aow-
ance s based upon a percentage of gross ncome from the property, ths deduc-
ton s the same whether a arge or a sma sum was spent for e poraton, so
that there Is no speca ta ncentve for Increased e poraton e pendtures.
Your commttee neeves that a speca Incentve for Increased e pcnt on for
mnera deposts Is desrabe, especay In the case of ta payers wth mted
fnanca resources. Therefore, secton 3 1 of your commttee s b provdes
that wth respect to e pendtures made to ascertan the e stence, ocaton,
e tent, or quaty of any depost of ore or other mnera (other than o and gas,
pror to the deveopment stn e of a mne, the ta payer may eect to deduct n
any ta abe year any amount up to 7 .000 pad or ncurred n that year; or he
may defer any amount up to r .000 not deducted n the current year, and
dednct that amount rataby as the mneras dscovered or e pored as the resut
of the e pendture are sod. ny ta payer may treat such e pendtures made n
any years, up to 7r.0O0 per year, as deductbe n ether of these ways; after
he has done ths for years, addtona e pendtures for e poraton must e
captnzed as under present aw. monnts so deducted w be a substtute for
cost depeton based on such e pendtures, but the aowances for depeton based
upon a percentage of gross proft w not be affected.
The reducton n revenue resutng from ths provson s e pected to
be n a fu year s operaton.
The amendments made by ths secton of your commttee s b w appy to
ta abe years endng after December . 0, 19 0.
2f. Corporate qudatons accompaned by reorganzatons .
Secton 112(c) (2) of the Code provdes, n effect, that f a dstrbuton e cash
or other property together wth stock or securtes s made n pursuance of a
pan of reorganzaton, but has the effect of the dstrbuton of a ta abe dv-
dend, then the e cess of the vaue of the cash or other property and stock or
securtes receved by the stockhoder over the cost or other bass of hs stock,
whch woud otherwse be ta abe as a capta gan to the e tent of the cash or
other property receved, sha, to the same e tent and to the e tent of the earn-
ngs and profts so dstrbuted, be ta ed at ordnary rates as f the cash or other
property had been receved as a dvdend.
Ths provson was ntended to appy to a stuaton where a corporaton wth
accumuated earnngs and profts n the form of cash or the equvaent trans-
ferred ts operatng assets to a newy formed corporaton In e change for ts
stock and then dstrbuted (he cash and the stock of the new corporaton to ts
stockhoders. In such cases the corporaton can contnue ts ndustra or com-
merca operatons under the new corporaton s charter e acty as t woud have
done had twre been no reorganzaton but merey the dstrbuton of a cash
dvdend to ts sharehoders. In such cases the underyng reates and not the
outward forms of the transacton shoud determne the ta consequences.
owever, there are stuatons whch nvove a reorganzaton whch s ony
ncdenta to the actua dscontnuance and qudaton of a busness, and where
the reorganzaton s e pedent to carry out certan necessary transactons.
Such a case was brought to the attenton of your commttee. In that case a
corporaton whch had been engaged n certan ndustra operatons for many
years termnated those operatons, sod ts remanng ndustra pant and equp-
ment, coected ts accounts recevabe, and prepared to competey qudate.
owever, among ts assets, n addton to a substanta amount of cash obtaned
from the dsposa of ts operatng assets, were severa tracts of unmproved
and. It was not desrabe to se the and, snce vauabe eases coud be e e-
cuted wth respect to much of t Nether was t e pedent to dstrbute the and
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
C1
o a number of stockhoders, vng n dfferent parts of the country, snce ont
e ecuton of eases, coecton of rents, etc., woud be mpractcabe. So the and
was transferred to a newy organzed corporaton for ts stock and that stock,
together wth the proceeds of the sae of the operatng assets, was dstrbuted
to the stockhoders n compete qudaton and the od corporaton was dssoved.
It appears that n such cases we have, not a contnuaton of an e stng bus-
ness wth a ucre change n corporate dentty to afford an e cuse for a dstrbu-
ton of earnngs and profts n the guse of a qudaton, but a bona fde quda-
ton resutng from the termnaton of busness operatons, and the formaton
of a new corporaton ncdenta thereto motvated by sound busness reasons.
Nevertheess, t seems probabe that the Treasury Department w hod that
n such ta es a ta abe dvdend was dstrbuted, n vew of the anguage of a
decson of the Supreme Court ( state of edford, 32 U. S. 2 3), whch appears
to ndcate that any dstrbuton of cash or the equvaent, where the corpora-
ton as undstrbuted earnngs and prots, n connecton wth a reorganzaton,
s a dstrbuton of a ta abe dvdend.
To avod hardshps whch mght resut from unduy rgd nterpretatons of
secton 112(c)(2) of the Code, your commttee provdes, n secton 3 2 of the
b, that where a corporaton, as part of a pan of qudaton, e changes unm-
proved rea estate whch s ony part of ts assets for stock of a now corporaton
nnd thereafter dstrbutes such stock and ts remanng assets n qudaton,
the gans to the sharehoders resutng from such dstrbuton sbn be treated as
capta gans and not as ta abe dvdends. Ths treatment s provded ony
If there was a sound busness reason for the formaton of the new corpora-
ton, f the corporaton was organzed and s operated for the soe purpose of
hodng tte to such rea estate and coectng ncome from the easng or sae
thereof and f the busness of the od corporaton s dscontnued. The prov-
son s made appcabe to ta abe years begnnng after December 31, 19 7.
It Is e pected that the reducton n revenue resutng from ths provson w
be sma.
C. PRO ISIONS OF T OUS ILL NOT CC PT D Y YOUIt COMMITT
1. Wthhodng on dvdends, nterest, and royates.
Part I of tte II of the ouse b provdes for wthhodng at the rate of 20
percent n the case of dvdends, certan nterest (prncpay corporate bond
Interest), and royates. Under e stng aw recpents of such ncomes are
requred to report the tota amount receved as ncome on ther annua ncome
ta returns. Wthhodng s requred of the payor ony n the case of non-
resdent aens.
The stated purpose of the ouse b s to mprove compance on the part
of ta payers wth respect to these types of nvestment ncome. arous est-
mates have been made to the effect that for caendar year 11 31 underreportng
n ths area may reach as much as S. bon.
Whe your commttee recognzes that there may we be substanta under-
reportng of such ncome, argey through careessness on the part of ta payers,
t does not beeve that suffcent nvestgaton of the probem has been made
to |ustfy such a drastc souton as the ouse b proposes. Your commttee
beeves that the wthhodng provsons of the ouse b woud work a great
hardshp upon many ta payers and mpose e pensve admnstratve burdens
upon the wthhodng agents.
The most obvous nequty whch woud resut from adopton of the ouse
provsons woud, of course, be that wthhodng woud be apped to many
tn ayers who n fact nave no ncome ta abty. Ths hardshp woud be
partcuary severe, for e ampe, wth respect to an edery retred ndvdua
vng on a sma nvestment ncome. s a resut of wthhodng at the source,
such a person s ncome wodd be reduced by 20 ercent at the tme he receves
t. The ta payer woud be out-of-pocket ths amount unt such tme as be
coud te a cam for refund and bs cam coud be acted upon. No system has
yet been devsed whch. In your commttee s opnon, woud provde refunds
speedy enough to mtgate ths hardshp. Your commttee aso fears that
many ta payers, especay those n the ower ncome brackets, woud, ether
through msunderstandng or careessness, fa to appy for the refunds due
them, thus, beng deprved permanenty of a porton of. ther ncome.
Ths type of nequty can aso be acute n the case of ta -e empt organsa-
tons whch depend for ther support argey upon nvestment ncome. Whe
the ouse b attempts to reduce ths dffcuty by permttng such organza-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
tons to take the refunds due them as n credt aganst any wthhodng ta
abty wth respect to ther empoyees, your commttee beeves ths to be
ony a mted souton, especay wth respect to such organzatons wth sma
payros.
It has been argued that wthhodng on dvdends, nterest, and royates w
remove an e stng dscrmnaton aganst wage earners whose earnngs are
generay wthhed upon today. owever, t shoud be ponted out that under
the ouse b the proposed 20 percent wthhodng rate woud be apped to
the enumerated types of dvdends, nterest, and royaty payments wthout
aowance for any persona e emptons. Ths s not true wth respect to wage
wthhodng. Thus the hardshp mposed upon recpents of nvestment ncome,
especay those wth arge famy responsbtes, woud be greater than any
now mposed upon wage earners.
In addton to the hardshps descrbed above wth respect to the ndvduas
to be wthhed upon under the ouse b, your commttee foresees the mpos-
ton of greaty ncreased admnstratve burdens upon the wthhodng agents
f the pan were adopted. though the proposa contans no provson whch
woud requre payor corporatons to notfy ther stockhoders of amounts wth-
hed from dvdends, t s obvous that good stockhoder reatons w n prac-
tce requre that ths be done n many cases. It s kewse probabe that the
burden w frequenty fa upon the wthhodng agent to e pan to the ncome
recpent why hs payments have suddeny been reduced. These consequences,
n addton to the statutory requrements of wthhodng n the case of each
of unny recpents and transmtta of these amounts to the Government, w
ceary mpose consderabe e pense upon wthhodng agents.
It has been noted that the ouse nrovson woud aso requre wthhodng
wth respect to royaty payments. Your commttee has not been shown any
need for wthhodng n ths area. Royaty payments are much more apt to
represent arge amounts than s true n the case of dvdends and nterest and
are more apt to be receved at reguar ntervas over n ong perod of tme.
For these reasons such payments are more key to be ncuded n the payee s
ncome. Your commttee beeves t unkey that there s any substanta
underreportng n ths area. It shoud be ponted out that royaty payments
wth respect to mneras are frequenty sub|ect to depeton and varous e pense
deductons. The ouse b makes no aowance for such deductons.
Whe the ouse b requres wthhodng ony on mted types of nterest,
prncpay nterest on corporate bonds, your commttee beeves there are st
many unresoved probems wth respect to the nterest upon whch wthhodng
has been proposed. Ths s true, for e ampe, wth respect to the treatment
of transfers of certan types of coupon bonds.
amnaton of ncome ta returns through a sampng technque s re-
ported to ndcate substanta underreportng of varous forms of nvestment
ncome. owever, no effort has been made to determne the e tent to whch
dvdends, nterest, and royates are pad to persons who fe no tn returns.
Thus, no accurate nformaton has been deveoped whch woud ndcate ether
(1) the proporton of ndvduas not now requred to fe returns who receve
ncome from dvdends, nterest, and royntes and woud, therefore, be re-
qured to fe for refunds f wthhodng were mposed, or (2) the number of
ndvduas who receve dvdends, nterest, and royates who do not fe returns
but who shoud do so. Informaton of ths type s essenta to any apprasa of
the need and the desrabty for egsaton n ths area. It s hoped that the
ureau of Interna Revenue w make every attempt to secure ths nformaton.
In vew of the serous ob|ectons to the wthhodng pan of the ouse b
descrbed above and the ack of essenta nformaton |ust referred to, your
commttee has not ncuded the wthhodng provsons n ts b.
It has been estmated that the wthhodng provsons of the ouse b woud
Increase the revenues by 323 mon annuay.
The ouse b requres the furnshng of nformaton at the source as to
a payments of nterest sub|ect to wthhodng of 300 or over and requres
smar nformaton as to a other nterest payments of over 100. eow
those amounts nformaton coud be requred at the dscreton of the Secretary
of the Treasury. Under present aw, nterest payments of 600 or more are
requred to be reported. Secton 332 of your commttee s b amends ths
provson to gve the Secretary dscretonary authorty to requre nformaton
returns as to nterest payments of any amount. Moreover, the provsons of
0S 010 2 33
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0G
present aw whch authorze that payments of dvdends n any amonnt be
reported at the dscreton of the Secretary are retaned. Your commttee be-
eves that these nformatona requrements, n addton to the wdespread
pubcty whch as been gven recenty to the probem of underreportng of
these types of nvestment ncome, shoud substantay mprove ta payer com-
pance n ths entre area.
. Surta e emptons and mnmum e cess profts ta credts of reated
corporatons.
Under e stng aw the 2 ,000 corporate surta e empton and the 2 ,000
mnmum credt under the e cess profts ta nre avaabe to each member of
a group or chan of reated corporatons. It has been camed that ths treat-
ment confers an unwarranted ta advantage on busnesses carred out by means
of a seres of corporatons, rather than a snge corporaton, and sets up an
ncentve for the artfca spttng-up of corporatons. It s argued that ths
effect of the e stng aw s dffcut to reconce wth the fact that the surta
e empton and the mnmum credt were ntended to confer ta advantages on
sma busness. In an attempt to correct ths stuaton, secton 123 of the
ouse b woud reduce to one the number of surta e emptons whch may
be camed by a group of reated corporatons and woud mt the mnmum
e cess profts ta credt to a snge credt of 2 ,000 for the entre group.
Under the ouse b the 2 ,000 surta e empton and the 2 ,000 mnmum
e cess profts credt woud be dvded equay among the reated corporatons
uness they eect another method of apportonment. Such an eecton woud be
made by fng wth the Secretary of the Treasury a consent ndcatng the por-
ton of the 2 ,000 whch woud be taken by each of the reated corporatons
as ts surta e empton for the ta abe year. Ths eecton woud permt the
reated corporatons to absorb the fu surta e empton and the fu mnmum
e cess profts credt so ong as the group has a combned surta net ncome
of 2 ,000.
reated group of corporatons s defned In the ouse b so as to ncude
one or more chans of corporatons connected through ownershp wth a common
parent corporaton when at east 9 percent of the votng power of a casses
of stock of each of the corporatons (e cept the common parent corporaton)
s owned drecty by one or more of the other corporatons, and the common
parent owns drecty stock possessng at east 9 percent of the votng power of
a casses of stock of nt east one of the other corporatons, e cudng, n
computng such votng power, stock hed by such other corporatons. re-
ated group woud aso e st f at east 9 percent of the votng power of a
casses of stock of each of two or more corporatons were owned, drecty or
ndrecty, by or for one ndvdua, or f at east 9 percent were owned,
drecty or ndrecty, by or for not more than fve Indvduas each of whom
owns substantay the same proporton of the votng power n each of the
corporatons.
In determnng the e tent of an Indvdua s hodngs of the stock of a corpora-
ton for ths purpose under the ouse b, he woud be deemed to own stock
hed drecty or ndrecty by or for hs spouse, and aso that porton of the stock
owned by a corporaton, partnershp, estate, or trust n whch he hods an Inter-
est, whch refects the e tent of hs nterest n such corporaton, partnershp,
estate, or trust If he and hs spouse own drecty or Indrecty more than 0
percent of the votng power of a corporaton he woud be consdered to own aso
the stock n that corporaton hed drecty or ndrecty by hs ancestors and nea
descendants.
Your commttee reazes that there may he some opportuntes for ta avod-
ance under present aw through the use of mutpe corporatons, athough t
shoud be ponted out that sectons and 129 of the Code now afford the
Government protecton n cases where the prncpa purpose of the formaton
of mutpe corporatons can be shown to be the avodance of ta es. owever,
the ouse b Is so broad In ts attack on ths probem that, f enacted, t
coud resut n substanta In|ury to mnny busnesses whose present corporate
organzaton has not been motvated by ta avodance.
Many busnesses were organzed n the form of mutpe corporatons ong
before the present surta e empton and mnmum e cess profts ta credt were
ntroduced. busness may be requred to ncorporate separatey n each
State n whch It carres on ts actvtes. Furthermore, State aws sometmes
prohbt the charterng of n corporaton for more than one busness purpose.
reated corporaton frequenty w be formed for the purpose of mtng
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
07
abty wth respect to the deveopment of n new nnd rsky enterprse. of
these are tradtona and egtmate purposes for the creaton of new and sep-
arate corporatons, yet the ouse woud strke nt these bona fde corporate
enttes n the same manner as t woud treat cnses of true ta avodance.
Corporatons defned as reated under the ouse b may, n fact, be carry-
ng on entrey unreated types of busness wth few or no transactons between
the members of the reated groups. In such cases, faure to e tend the fu
surta e empton and the fu e cess profts ta credt to each corporaton coud
affect serousy ts compettve poston wth respect to other corporatons of
smar sze carryng on the same type of busness.
The provsons of the ouse 1)111 woud appy to corporatons wthout regard
to when they wore formed. Ths woud work n partcuar hardshp on those
reated corporatons whch were organzed In the past for egtmate busness
reasons. It shoud be noted that the dena of the fu surta e empton and
the fu mnmum e cess profts ta credt can resut In a very substanta
ncrease n ta abtes, especay In the case of sma corporatons. On the
other hand, to mt a provson such as that of the ouse b to corporatons
created n the future woud gve rse to numerous compettve dscrmnatons
between new and od corporatons.
For these reasons, your commttee has emnated entrey ths provson of
the ouse b. ny future study undertaken to deveop methods of mtng
avodance n ths area shoud emphasze the mportance of correctng the true
cases of avodance wthout workng a hardshp on egtmate busness organza-
tons.
It was estmated that th ouse provson woud have Increased the revenues
by about . mon annuay.
S. Sae of property to controed corporatons.
Secton 310 of the ouse b s ntended to foresta a reported practce of
seng deprecabe assets to a corporaton controed by the ta payer n order
to obtan certan benefts avaabe under e stng aw. For e ampe, f the
ta payer owns a patent, or a budng whch has materay ncreased n vaue
and whch he ses to a corporaton whch he kewse contros, the capta gans
ta must ordnary be pad by the ta payer, but the budng then has, n the
hands of the corporaton, an ad|usted bass whch s greater than the bass n
the hands of the ta payer by the amount of the gan reazed on the sae to
the corporaton. The property beng deprecabe, the corporaton w then be
abe to wrte off the ncrease n the ad|usted bass over the remanng fe of
the budng. These addtona deprecaton charges are, of course, an offset to
ordnary ncome. Thus, n effect, the mmedate payment of the capta gans
ta has been substtuted for the emnaton over a perod of years of the corporate
ncome ta es on an equvaent amount.
The ouse b attempted to emnate the ta advantage from such trans-
actons by denyng captn gan treatment to the transferor wth respect to saes
or e changes of deprecabe property between a husband nr.d wfe or between
an ndvdua nnd a corporaton more than haf of the outstandng stock of
whch s owned by or for hm drecty or Indrecty. For the purpose of de-
termnng ownershp of stock under the ouse b an ndvdua woud be con-
sdered as ownng a porton of the stock hed by a corporaton, partnershp,
state or trust whch refects hs nterest as a sharehoder, partner, or benefcary.
e woud aso be consdered as ownng stock owned drecty or ndrecty by or
for hs spouse, nnd f he and hs spouse owned more than 10 percent of the
outstandng stock of the company, he woud aso e consdered as ownng stock
hed drecty or ndrecty, by or for hs brothers and ssters, ancestors and
nea descendants.
Upon consderaton of ths probem by your commttee, t s of the opnon
that a coser e amnaton nto the reported cases shoud be made before an
amendment of ths type s adopted. It appears that the ouse provson woud
deny capta gans treatment to some ona fde transactons whe fang to
deny such treatment n cases of cear avodance. For e ampe, under the pro-
vson there woud be no bar to the sae of property to a thrd person who then
coud se t to the corporaton. Your commttee beeves that acton on ths
probem shoud be deferred unt actua cases nvovng use of ths avodance
devce have been submtted for study. For ths reason the b emnates the
ouse provson.
It was estmated that the ouse provson woud have ncreased the revenue
by 1 mon annuay.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
II. Structcka Chances n the cess Profts Ta
Your commttee s acton wth respect to the over-a ceng on the e cess
profts ta and Its acton reatng to the ouse amendment whch reduced the
e cess profts ncome credt from to 7 percent of average base perod net
ncome have been dscussed n part I of ths report pertanng to genera
corporate- rate changes.
In addton, your commttee s b ncudes severa new provsons whch dea
wth varous other e cess profts ta probems of a reef nature. great
number of these probems were brought to the attenton of the commttee durng
ts hearngs on ths b, and these probems were e amned by the staff. Tour
commttee has confned ts acton to those cases whch present the most mme-
date and pressng need for statutory change. Of necessty, the commttee has
deferred acton upon the buk of e cess profts ta proposas even though a
number of the suggestons undoubtedy are mertorous.
It Is beeved that further acton n ths entre area shoud be deferred unt
the e cess profts ta returns have been fed and there has been an opportunty
to evauate the detaed operaton of the aw. It s antcpated that ths w he
possbe eary n 19 2. In the meantme, the staff w contnue ts study of the
probems nvoved In ths entre fed.
In genera, the foowng e cess profts ta amendments made by your com-
mttee are effectve retroactvey to the tme the e cess profts ta became effec-
tve.
It s estmated that the e cess profts ta amendments dscussed beow w
decrease revenues by 120 mon n a fu year of operaton.
1. tenson of grocth aternatve to netc corporaton .
Under secton of the present e cess profts ta aw, new corporatons
(those corporatons whch commenced busness nfter the begnnng of the base
perod) are entted to compute a substtute earnngs credt based on the n-
dustry rate of return apped to ther tota assets. They may aso compute ther
earnngs credt by averagng ther base perod earnngs over 3 years, treatng
oss years and years n whch they were not n busness as zero. They are aso
entted to the mnmum e cess profts credt of 2 ,000. They may aso use the
ordnary nvested capta credt. 1
Whe consderabe attenton was gven to the probem of new corporatons n
the preparaton of the present e cess profts ta aw, the prmary reef provded
them, namey, the use of an aternatve average earnngs credt based upon ther
ndustry rate of return, often proves nadequate. Many new corporatons have
ony mted assets to whch they can appy the ndustry rate. Furthermore,
the ndustry rate s often especay unreastc n the case of new corporatons
because they frequenty are engaged n reatvey specuatve undertakngs and
n varous specazed actvtes whch cannot be compared satsfactory wth
the operatons of estabshed companes.
The ma|or faure of the present treatment of new corporatons s a faure
to gve adequate recognton to the growth typca of ther norma deveopment.
New corporatons are not entted to the growth aternatve under secton 3 (e)
of present aw because ths reef s avaabe ony to corporatons whch com-
menced busness before the begnnng of ther base perod (ordnary anuary
1, 19 (1, and n no case ater than pr 1, 19 6). The growth aternatve was
mted to corporatons whch commenced busness before the begnnng of the
base perod because the egbty tests are based on comparsons of 19 6 am
19 7 wh 19 and 19 9 or the frst haf of 19 0, and t was beeved that the
e tenson of the growth formua to new corporatons woud prove unnecessary n
vew of the speca aternatve provded such ta payers.
Your commttee beeves that equtabe treatment of new corporatons requres
adequate recognton of the growth characterstc of them. Therefore, secton
0 of your commttee s b removes the mtaton now found n secton 3
(e) (1) whch prevents corporatons whch commenced busness durng the base
perod from appyng the egbty tests to ther e perence. Your commttee s
amendment w not appy to corporatons whch commenced busness after the
end of the base perod snce the egbty tests under the growth formua are
wrtten In terms of base-perod e perence. owever, such corporatons formed
In the e cess profts ta perod w have the benefts of the ower over-a ta
cengs provded by another secton of your commttee s b for new corporatons.
Corporatons formed after 2 years of the base perod had eapsed, and before
the end of the base perod, ordnary w automatcay become egbe for
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
09
the growth aternatve. Ths s because the egbty requrements of secton 3
(e) (1)( ) (other than the tota asset mtaton) are based upon a comparson
of the ta payer s tota payro, or gross recepts, n 19 0 and 19 7 wth ts tota
payro, or gross recepts, n 19 and 19 9. Therefore, corporatons formed n
the atter haf of the base perod must automatcay meet the tests of growth
n those respects because such corporatons had no payros and no gross recepts
n the frst haf of the base perod. For corporatons whch commenced busness
pror to the mdde of the base perod (ordnary anuary 1, 19 ), quafcaton
for the growth formua w not be automatc as n the case of the corporatons
descrbed above, but shoud prove reatvey easy n most cases snce tota pay-
ro or gross recepts for two fu years of the busness n the second haf of the
base perod w be compared wth payro or gross recepts for somethng ess
than two fu years of busness n the frst haf of the base perod. Ths ease
of quafcaton w dmnsh as the corporaton s startng date approaches the
begnnng of the base perod unt for a corporaton commencng busness on the
1st day of the base perod t w be on substantay the same footng as those od
corporatons now entted to the growth aternatve.
New corporatons formed before the end of the base perod whch meet the
egbty requrements of secton 3 (e) (1) ( ) w aso be entted under your
commttee s b to use the speca growth aternatve provded n secton 3 (e)
(2) (G). owever, n order to quafy under that provson the corporaton w
have to have been n e stence for a of 19 9 and at east part of 19 n order
to meet the entrance requrement that ther e cess profts net ncome for the
caendar year 19 9 must have been not more than 2 percent of ther e cess
profts net ncome for the caendar year 19 .
Z. Speca ceng rate for new corporatons.
though secton 0 of your commttee s b e tends the benefts of the growth
aternatve to certan new corporatons commencng busness after anuary 1,
19 6, a number of new corporatons w not be benefted by ths. No new corpora-
ton formed after the end of the base perod (usuay December 31, 19 9), for
e ampe, can be egbe for the growth aternatve. Moreover, even new cor-
poratons commencng busness durng the base perod may fnd the growth
aternatve of tte beneft to them f ther prmary e panson n earnngs came
after 19 0. In addton, your commttee beeves that despte the need for revenue
n the present emergency every possbe effort must be made to assure the crenton
and deveopment of new technques, new processes, and new corporatons. Ths
s desrabe f the abty of ths country to produce s to contnue to e pand.
s a resut t s beeved necessary to gve assurance to new corporatons n
ther nta perod of deveopment that the e cess profts ta w not work
nndue hardshp upon them. Secton 01 of your commttee s b does ths by
provdng a seres of speca ceng rates avaabe ony to new corporatons.
s ndcated on page 10 of ths report your commttee s b provdes a new
type of ceng rate of 17 percent wth respect to e cess profts ta abty. For
ordnary corporatons, ths rate s to appy wth respect to years begnnng after
March 31, 19 1. On a smar bass, but retroactve to 19 0. the frst year the
e cess profts ta was n effect, your commttee s b provdes the foowng seres
of ceng rates appcabe to e cess profts net ncome whch are to be avaabe
to certan new corporatons organzed after the begnnng of ther base perod,
wth respect to the frst 00,000 of ther e cess profts ta net ncome:
rerccnt
In the frst year of a new corporaton s busness
In the second year of a new corporaton s busness
In the thrd year of a new corporaton s busness
In the fourth year of a new corporaton s busness 11
In the ffth year of a new corporaton s busness 1
For that part of the e cess profts not ncome n e cess of 00,000, new corpora-
tons ess than 0 years od are to be sub|ect to a ceng rate cf 1 percent wth
respect to 19 0, G percent wth respect to the caerdar year 19 1, and 17
percent wth respect to ta abe years begnnng after March 31, 19 1. Other
corporatons are aso sub|ect to the 16 percent rate n the caendar year 19 1
and the 17 percent rate wth respect to ta abe years begnnng after March
31, 19 1, but n ther cases these rates are apped to ther entre e cess profts
ta net ncome. In 19 0 these other corporatons n effect are sub|ect to a ceng
rate on ther entre e cess profts ta net ncome whch s at east as hgh as the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
10
3 percent rate appcabe to new corporatons wth respect to ther e cess profts
ta net ncome In e cess of 00,000.
In a cases the ceng rates for sma corporatons w appy ony to abty
under the e cess profts ta .
Your commttee decded to provde a seres of ceng rates graduated accordng
to the number of years a new corporaton has been n busness rather than pro-
vdng a ower ceng rate for one or two specfc years for new corporatons
because t beeves that the need of new busnesses for ths type of speca reef
vares n accordance wth the number of years they have been n busness. so,
a provson nppyng ower ceng rates to specfc years woud create a notch
probem eadng to dscrmnaton between companes formed before and com-
panes formed after the cut-off dates.
These speca ceng rates, together wth the effectve ncome ta rates, w
have the effect of provdng for 19f 2 the foowng ma mum effectve rates of
Income and e cess profts ta es for the e cess profts net ncome eves shown:
orma ta
and surta
effectve
rates
Senate
Fnance
Commt-
tee acton
percent
Ma mum effectve rate of ncome and
e cess profts ta es
cess profts net ncome
Frst nnr
second year
percent
Thrd year
percent
Fourth year
11 percent
Ffth year
1 percent
S th and
subsequent
years 17
percent
no.ooo.
1.
6.
0.6
62.
6 .
.
7 .000
3.67
.67
1.67
6 .67
67.67
60.67
100.000
. 7
0. 7
3. 7
f. 7
69.76
62.7
200,000
.
3.
M . S3
9. SS
62.
.
300,000
0.92
6 .92
67.92
6a 92
63.92
66.92
These speca ceng rates avaabe to new corporatons n ther perod of
deveopment are not to be avaabe to new corporatons created as the resut of
ether a ta -free reorganzaton or a ta abe transacton of the type where, under
your commttee s acton, the purchasng corporaton woud be entted to base ts
ncome credt on the earnngs e perence of the predecessor. Your commttee
beeves that such corporatons do not truy represent new busness. owever,
where the predecessor corporaton n a reorganzaton or ta abe transacton was
tsef egbe for the speca ceng rates, the new corporaton w determne ts
egbty on the bass of when ts predecessor commenced busness. so these
ceng rates are not to be avaabe to new corporatons prncpay engaged n
Government busness. Such a corporaton s defned as one whch derves more
than 0 percent of ts gross ncome for the ta abe year from a contract or
contracts to whch the provsons of the Renegotaton ct of 10 1 or any pror
renegotaton aw are appcabe. These new busnesses are dervng ther prn-
cpa ncome from Government contracts provdng predctabe and secure markets
for ther products, eavng tte need for speca reef. The speca ceng rates
are dened new corporatons whose assets were transferred from od corporatons
under the same contro n order to prevent assets beng transferred to obtan the
beneft of the speca ceng rates. They are aso dened new corporatons whch
are controed by persons ownng an od corporaton engaged n the same busness
through od corporatons.
The speca ceng rates are avaabe ony wth respect to the frst 00,000 of
a new corporaton s e cess profts net ncome because t s beeved that reef s
nut needed for new corporatons whch have rapdy become arge corporatons.
owever, makng these ceng rates avaabe wth respect to the frst 00,000 of
e cess profts net ncome, even In the case of the arger corporatons, prevents the
deveopment of a notch area and dscrmnatory treatment wth respect to uew
corporatons wth ncomes ust over and |ust under 00,000.
3. Speca reef provson for companes engaged n teevson broadcastng durng
the base perod.
The buk of the teevson broadcastng statons have been deveoped and are
owned by corporatons prevousy engaged n rado broadcastng. The deveop-
ment of teevson broadcastng has resuted n arge osses for a great porton of
the combned rado-teevson broadcastng ndustry contnung through at east
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
11
part of 10 0. The resut of ths as been to douby penaze the Industry, because
19 7- 9 teevson broadcastng osses have decreased the average earnngs of the
ndustry durng the base perod, whe the profts shown for teevson broad-
castng commencng n )r have further ncreased the proporton of the ndustry s
profts whch are sub|ect to e cess profts a .
Your commttee beeves that the probem presented by the rado-teevson
broadcastng busness represents a unque stuaton whch deserves speca reef.
It s an e ampe on an ndustry-wde bass of new busness supermposed on e st-
ng busness. s a resut, the genera reef formuas, where avaabe, provde
tte reef for these cases, snce the earnngs of the entre ndustry were
depressed durng most of the base perod when teevson osses were ncurred,
but e panded substantay after the end of the base perod after the new porton
of the ndustry had begun to reach maturty.
s a resut, secton 19 of your commttee s b grants corporatons whch
derved, durng the base perod, part of ther gross Income from teevson broad-
castng and part from rado broadcastng an aternatve method of computng
ther average earnngs base perod net Income for e cess profts ta purposes.
They are gven two new aternatve methods of computng a rate of return for the
base perod and are permtted to appy to ther tota assets at the end of ther base
perod whchever rate of return resuts n the ower ta . The frst aternatve
rate of return s to be computed by emnatng from the corporaton s own ncome
n the perod 19 6 to 10 9 ts teevson osses and by emnatng from ts assets
n the same perod those used In the teevson busness. The rate of return s
then to be computed on the rado busness by the dvson of the ncome (e cud-
ng teevson ncome and osses) by the assets used otherwse than n teevson
busness. The second optona method permtted such busnesses n the computa-
ton of ther rate of return s the use of the ndustry s rate of return for the perod
19 6 to 19 9.
The above method of determnng base perod earnngs, where the company s
own e perence s used, represents, n effect, what the company woud have earned
had t remaned n the rado broadcastng busness aone durng the base perod
but had had the use of the assets hed as of 19 9 durng the entre base perod.
Due to the ack of data on ta returns for the base perod years as to teevson
osses and assets devoted to teevson busness, t s not possbe to offer a smar
aternatve for those usng the ndustry rnte of return. Thus, n ths case, t was
ony possbe to permt the use of the unad|usted rnte of return for the entre
rado-teevson broadcastng ndustry.
In some cases corporatons whch are n the rado and teevson broadcastng
busness aso derve part of ther ncome from some other busness, such as
newspaper pubshng. In order to permt such busnesses to use the reef
provson descrbed above, secton 19 of your commttee s b aso provdes that
such other busness may be treated, n effect, as f t were a separate corporaton
wth respect to the computaton of average base perod net Income. The rado
and teevson busness n such cases woud then be egbe for the reef provson
descrbed above. To the average base perod net ncome of the other busness or
busnesses woud be added an mputed average base perod net ncome for the
rado-teevson broadcastng porton of the corporaton s operatons, derved, n
the way descrbed n the precedng paragraph, by usng ether the ndvdua
corporaton s rate or the ndustry rate as a return on the rado-teevson assets at
the end of the base perod.
. Ta abe e changes.
Part II of the cess Profts Ta ct of 19 0 provdes rues under whch an
acqurng corporaton may utze the earnngs e perence of a predecessor corpo-
raton n computng ts own average earnngs base. owever, under the cess
Profts Ta ct of 19 0, the acqurng corporaton may use ths earnngs e per-
ence ony where the assets of the predecessor corporaton were acqured n certan
ta -free e changes. In genera, these ta -free e changes occur where the assets
of a predecessor corporaton are acqured by the acqurng corporaton n e change
for ts stock. Under the present aw the earnngs e perence of a predecessor
corporaton may not be used by an acqurng corporaton where the assets were
acqured by purchase for cash or n some other type of ta abe e change. Ths
was aso true under the Word War II e cess profts ta , but under that ta , the
secton 722 reef provsons, under certan condtons, provded for the reconstruc-
ton of an earnngs record and the earnngs e perence of a corporaton whose
assets were purchased by a ta payer provded, n some cases, a rough measure
upon whch to base such a reconstructon.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
12
Your commttee beeves that, In the case of ta abe e changes, sub|ect to cer-
tan mtatons, where purchasng corporatons have obtaned substantay a
of the assets of a predecessor corporaton and such predecessor s qudated, the
earnngs e perence base of the predecessor corporaton shoud be avaabe to
the purchasng corporaton. Therefore, secton 20 of your commttee s b pro-
vde. that n the case of ta abe e changes occurrng pror to December 1, 1 ,
where the predecessor corporaton has been qudated and a purchasng corpo-
raton has obtaned substantay a of the predecessor corporaton s assets, the
purchasng corporaton may use the predecessor corporaton s base perod e -
perence n computng ts average base perod net ncome under the genera aver-
nge method. owever, t s to be permtted the use of ths base ony to the
e tent that new funds were used for the purchase of these assets. These prov-
sons are aso to appy where the predecessor was a partnershp, n whch case
the base perod ncome of the predecessor s to be computed as f t were a cor-
poraton. smar opton s to be avaabe for each of two or more corpora-
tons, f each new corporaton purchased a the assets of a separate busness of
the predecessor, and the new corporatons together purchased a the assets of te
predecessor. Where the purchasng corporaton purchased a busness whch
comprses ony a part of the assets of a predecessor whch was qudated, the
porton of the base.perod e perence of the predecessor whch s to be made ava-
abe to the purchasng corporaton s to be determned under reguatons provd-
ng an aocaton based on the vaue or earnng e perence of the assets purchased
by the purchasng corporaton.
Your commtte s b further provdes that In the case of ta abe e changes a
purchasng corporaton s not to be dened the use of the earnngs base of a prede-
cessor merey on the grounds that a franchse or cense, whch was an mportant
source of earnngs of the predecessor, cannot be transferred from the predeces-
sor to the acqurng corporaton, but must be obtaned by the atter from the
same source. n e ampe of ths woud be an automobe deaer agency. In
such cases the franchse to act as the representatve of an automobe manufac-
turer generay must be acqured drecty from the manufacturer.
Your commttee s amendment s mted to ta abe e changes occurrng before
December 1, 19 0, because of the possbty of abuse through purchase of corpo-
rate assets to obtan an ncreased e cess profts credt f the provson were made
appcabe to the perod after the e cess profts ta provsons were known. so
t s beeved that the greatest need for reef n the area s n the case of pur-
chases whch were made before the e cess profts ta , when ta payers had no way
of knowng the future e cess profts ta consequences whch coud resut from ,t
decson to enter nto a ta abe rather than a nonta abe e change.
. ase perod abnormates.
Under present aw, f an abnormaty e sts In the ta payer s owest year of
earnngs durng the base perod, that year s automatcay emnated from the
average base perod net ncome computaton. owever, f an abnormaty oc-
curred n one of the remanng perods of 12 months or ess n the base perod,
secton 2 of the Code provdes that the ta payer may, f t was n busness at the
begnnng of ts base perod, substtute for ts actua e cess profts net ncome
for the perod of the abnormaty an amount determned by mutpyng ts tota
assets for the ast day of the year of the abnormaty by the rate of return of ts
ndustry for that perod.
The aternatve average base perod net Income provded by secton 2 s
avaabe, f the ta payer can estabsh for any ta abe year wthn ts base pe-
rod ether that ts norma producton, output, or operaton was nterrupted or
dmnshed because of the occurrence, ether mmedatey pror to, or durng the
ta abe year, of events unusua and pecuar n the e perence of the ta payer
or that the busness of the ta payer was depressed because of temporary eco-
nomc crcumstances unusua n ts ense. These tests frequenty may nvove
e tremey dffcut evdentary probems, partcuary wth respect to a determ-
naton of the e tent that any snge event has affected the ta payer s norma pro-
ducton, output or operaton.
The phosophy upon whch the e stng reef provsons, Incudng sec-
ton 2, were deveoped was that automatc formuas, both as to egbty
requrements and as to the e tent of the reef granted, are preferabe to the
approach of the Word War II aw wth ts requrement of sub|ectve anayss
and decson. Your commttee beeves t s desrabe to mantan ths approach
of present aw. Therefore, your commttee has adopted an addtona aterna-
tve egbty requrement under secton 2 whch woud emnate, n many
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
13
cases, the dffcutes of proof prevousy referred to. Secton 09 of the b
provdes that where the earnngs of the ta payer s thrd-best base perod year
were ess than 3 percent of the average of the earnngs of hs two best base
perod years, the ta payer w automatcay be entted to use ts ndustry
rate of return for the thrd best year. Ths new provson s mted, however, so
that the substtuted earnngs may not n any case e ceed the average of the
ta payer s two best years.
The requrement of present aw that the substtute e cess profts net Income
provded by secton 2 may be utzed for a snge abnorma year ony f t
e ceeds 110 percent of the ta payer s e cess profts net ncome for that year
computed wthout the substtuton w not appy to ta payers who are egbe
under your commttee s amendment. Such a mtaton s not necessary n vew
of the fact that the amendment requres no showng of an abnormaty.
G. Change n products commtted to pror to cose of brne perod.
Secton 3 of present aw provdes that where a corporaton made a sub-
stanta change n the products or servces t furnshed durng the Inst 3 years
of ts base perod, and, wthn 3 years after the change, the new product ac-
counted for more than 0 percent of gross ncome or percent of net ncome
and net ncome ncreased percent, then the corporaton s entted to de-
termne ts average base perod net ncome by mutpyng ts ndustry rate of
return by ts tota assets.
s the above descrpton Indcates, present aw confnes ths type of reef
to corporatons whch actuay Introduced a new product before the end of
the base perod. The present aw mted ths reef to products Introduced
n the base perod prmary to avod the possbty of gvng the advantage
of an automatc formua to corporatons deveopng new products durng the
present emergency. owever, t s cear that the danger whch was sought to
be avoded does not e st when the change n product was defntey commtted
to pror to the end of the base perod and constructon of the factes to
produce the new product had actuay commenced before the begnnng of the
present emergency. In such cases, negotatons may have started eary n the
base perod wth respect to the deveopment of a new product, and wth respect
to the constructon of the necessary addtona factes. In cases smar to
ths your commttee sees no vad reason why the reef ntended by secton 3
shoud be dened f carefuy restrcted so as not to gve the benefts to new
products deveoped durng the emergency perod.
s a resut, secton 11 of your commttee s b provdes that where a sub-
stanta change n the products produced by a ta payer has been made after
the end of the base perod, such a change sha be deemed to have been made
n the base perod, for the purpose of quafyng for the aternatve average
base perod net ncome avaabe under secton 3 of the Code, f the ta payer,
pror to uy 1, 19 0, commenced the constructon of the factes necessary
to the producton of the new product, and f such constructon and the produc-
ton of the new product were n furtherance of a course of acton to whch
the ta payer (or corporaton wth whch the ta payer had the prvege of
fng a consodated return for ts frst e cess profts ta year) was commtted
pror to the end of the base perod. Ths commtment must have been ev-
denced, under your commttee s amendment, by a contract wth another person
and that contract must have granted a cense, franchse, or smar rghts
essenta for the producton of the new product.
7. Lessor raroad corporatons.
Secton of the Code provdes an aternatve e cess profts ta credt for
certan reguated pubc uttes. In the case of raroads ths aternatve
credt s equa to a return of 6 percent upon net nssots after aowance s made
for norma ta and surta . To estabsh egbty for ths aternatve credt
a raroad corporaton must be engaged as a common carrer n the furnshng
or sae of transportaton by raroad and must be sub|ect to the |ursdcton
of the Interstate Commerce Commsson. Furthermore, such a raroad can
quafy ony f 0 percent or more of ts gross ncome (computed wthout regard
to dvdends and capta gans and osses) Is derved from the furnshng or
sae of raroad transportaton.
though secton 1 1 of the Code permts the fng of consodated returns
by affated corporatons whch are reguated pubc uttes wthn te mean-
tag of secton 1 , doubt has been rased as to whether a essor raroad corpo-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
raton whch eases substantay a of ts property to an operatng eswe
raroad corporaton (whch Itsef utzes the pubc utty credt) may be
|oned wth such essee In the fng of a consodated return. Ths probem has
arsen because, athough the essor company s sub|ect to the |ursdcton of
the Interstate Commerce Commsson, and athough ts propertes are operated
by the essee as Integra parts of Its system n the furnshng or sae of trans-
portaton by raroad, and athough ts revenues, n the form of renta, are
derved from such operaton, the essor does not tsef operate the property
and does not tsef drecty derve Its revenues from the furnshng or sae of
transportaton.
The use of a consodated return s desrabe In the case of the affated
corporatons descrbed above. Subsequent to the assumpton of management
and contro of the essor propertes by the essee, the factes of the two
corporatons become, n practce, ntegrated parts of a unfed transportaton
system.
s a resut, secton 1 of your epmmttee s b nsures that certan essor
raroad corporatons w be permtted to quafy for the reguated pubc utty
credt where they fe consodated returns wth ther essee raroad corporatons.
. empt e cess output of sufur, potash, metaurgca grade mestone and
chemca grade mestone.
Secton 3 of the present aw provdes a parta e empton for coa and
Iron mnes, tmber propertes, and natura gas and meta mnng propertes
not n operaton durng the base perod. One-thrd of the net Income n the
current ta abe year of these propertes s e empt from e cess profts ta .
These provsons are smar to those n effect durng Word War II and were
adopted n order to provde a greater ncentve for the openng up of new
propertes.
Coa and Iron mnes, tmber propertes, and natura gas propertes whch were
n e stence durng the base perod are aso e tended speca reef under ths
provson by e emptng from e cess profts ta one-haf the ncome from
e cess output durng the ta abe year. The e cess output s the producton n
e cess of average annua producton from the property (whether or not then
owned by the ta payer) durng the perod 19 0- une 30, 19 0.
Nonmetac mneras are not provded the speca treatment descrbed above,
ether n the case of new or od propertes. Tour commttee recognzes that
crtca shortages have deveoped n certan mted areas whch woud ustfy
the further e tenson of these provsons. Ths Is partcuary true wth respect
tc sufur and potash deposts and wth respect to metaurgca grade mestone
and chemca grade mestone deposts. Sufur and potash are vta to many
defense ndustres and arc n short suppy, whe metaurgca and chemca
grade mestones are a necessty for the stee and chemca Industres, whch are
cruca to defense. It s beeved that every ncentve shoud be gven for the
openng up of new deposts and for the energetc deveopment of e stng prop-
ertes. Therefore, secton 1 of your commttee s b e tends the speca treat-
ment avaabe under secton 3(b) (2) and ( ) to sufur, potash, and meta-
urgca or chemca grade mestone deposts.
9. Reductons n nadmssbe assets subsequent to the base perod.
Under the 10 0 cess Profts Ta ct, changes n nadmssbe assets sub-
sequent to the base perod do not consttute a capta addton or reducton (a-
though reductons n nadmssbes are subtracted from capta reductons and
ncreases n nadmssbes are subtracted from capta addtons).
Ths provson of the present ct adversey affects any ta payer computng
ts e cess profts credt under the Income method (and not havng a capta
reducton after December 31, 19 9) f t had substanta nvestments n nad-
mssbe assets n 19 9 whch It dsposed of n 19 0 or 19 1 n order to obtan
funds to fnance e pandng manufacturng operatons, factes and nventores.
Such a ta payer s ncreased earnngs resutng from the addtona factes
empoyed In manufacturng operatons may, under present aw, be treated en-
trey as e cess profts. Ths s because the ta payer receves no addtona
e cess profts credt for the funds transferred from nadmssbe assets, the
ncome from whch was e empt from e cess profts ta , to manufacturng fac-
tes and nventores, the ncome from whch s sub|ect to e cess profts ta . If
the ta payer obtaned the addtona capta for manufacturng operatons by
sae of Its own securtes or by borrowngs, t woud obtan an ncrease n e cess
profts credt For such a ta payer not to receve an addtona e cess profts
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
credt on addtona workng captn obtaned from dsposa of Inadmssbe assets
appears nequtabe.
To correct ths stuaton, secton 07 of your commttee s b provdes that n
computng the average earnngs credt, reductons n Inndmssbes subsequent to
the base perod are to be aowed a credt as capta addtons provded that the
addtona capta s Invested In operatng assets. Operatng assets are defned
as tangbe nventory tems and tangbe property used n the ta payer s trade or
busness.
10. Inadmssbe assets of hanks.
Under present aw, both the ta payer usng the average earnngs credt and
the ta payer usng the Invested capta credt arc aowed to ncrease ther credt
by specfed percentages of the net addtons to ther capta after 19 9. ow-
ever, e cept n the case of ta payers wth ess than mon of capta who use
the nvested capta credt based on assets, and, e cept n the case of tn pnyers
who use the credt based on the hstorca Invested capta, an ncrease n Invest-
ment n Inadmssbe assets w offset doar for doar what woud otherwse
be a capta addton, even though the ncrease n tota assets avaabe for
nvestment s greater than the ncrease n capta. For e ampe, f a corporaton
ncreases ts capta by 1 mon on the 1st day of an e cess profts ta year
and then on the same day nvests 1)0,000 of the new capta n nadmssbe
assets, t s ony aowed under the present aw to ncrease Its credt for that
year wth respect to 00,000, because the 00,000 Increase n nadnsses Is
subtracted from the capta addton of 1 mon n arrvng at the net addton
to capta whch may be taken nto account.
The treatment descrbed above works a consderabe hardshp upon banks,
snce they nvest addtona funds deposted wth them as we as ther addtona
capta, so that, for e ampe, Investment of 10 pecent of ther addtona assets
n nadmssbe muncpa bonds may competey offset ther capta addtons.
n ncrease In the capta of a bank makes possbe an ncrease n deposts of
severa tmes that amount, tota assets beng ncreased by the s un of the new
capta and ncreased deposts. Yet, even though ts ta abe ncome s thus
ncreased, under present aw the bank may have no addtona credt based upon
the new capta.
Secton 06 of your commttee s b provdes that whe a bank s ncrease n
nadmssbes n an e cess profts ta year w st serve to reduce ts ncrease n
capta n the same year, the captn addtons w be redrced bv an amount
based on the rato of addtona nadmssbe assets to the addtona tota assets
acqured snce the begnnng of ts frst e cess profts ta year. smar pro-
porton s to be used where there s a decrease n nadmssbe assets.
Ths secton of the b aso provdes an ad|ustment of the nadmssbe asset
factor n the computaton of base perod capta addtons for banks whch s
based on the same rato prncpe.
11. Deaers n muncpa bonds.
In computng the nvested capta credt and n computng capta addtons,
certan ad|ustments are made to e cude from the nvested capta certan assets
known as nadmssbe assets. These ncude stock n other corporatons,
State and oca government obgatons and partay ta -e empt Federa obga-
tons. The reason for ths e cuson from nvested capta of such assets s that
the ncome from them s not sub|ect to the e cess profts ta .
owever, deaers n muncpa bonds are sub|ect to e cess profts ta on ther
profts from the sae of these bonds. Ths s because muncpa bonds are ther
stock n trade or nventory and the gan on the sae of the bonds s treated,
therefore, as ordnary ncome rather than as a capta gan. It s reported that
muncpa bonds frequenty consttute SO to 90 percent of the tota assets of these
deaers.
The above treatment s manfesty nequtabe. Iecause muncpa brnds are
requred to be e cuded from the ta payer s nvested capta, he s n practce
dened an nvested capta credt wth whch to offset hs norma earnngs from
the sae of such bonds. Ths nequty dd not arse under the Word War II
e cess profts ta because, under that aw, ta payers were permtted, at ther
opton, to treat ta -e empt or partay ta -e empt bonds as admssbe assets
If they eected to ncude the nterest receved from such bonds n e cess profts
ta net ncome. Your commttee beeves that, whe a smar opnon shoud not
be e tended to a ta payers under the present aw, because the nvested capta
credt rates, rangng from S to 12 percent, are competey dsproportonate to the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
16
ow-Interest rates on ta -e empt bonds, such treatment shoud be e tended to
muncpa bond deaers snce most of ther ncome wth respect to these bonds
arses from proft on ther sae and such Income s sub|ect to e cess profts ta .
s a resut, secton 0 of your commttee s b provdes. In effect, that where
ta -e empt bonds are hed by a deaer prmary for sae to customers n the
ordnary course of hs trade or busness, the deaer may eect to treat such bonds
ns amssbe assets, provded that he aso eects to Incude n hs e cess profts
ta net ncome the nterest on such bonds.
12. Reguated pubc utty credt for ntrastate ppenes.
The aternatve e cess profts ta credt for certan reguated pubc uttes
provded by secton of the Cote e tends, under present aw. to corporatons
engaged as common carrers n the furnshng or sae of gas, o or other petroeum
products (ncudng shae o) by ppene, f sub|ect to the |ursdcton of the
Interstate Commerce Commsson. The aternatve credt n these cases Is, n
effect, equa to a return of 6 percent upon tota equty and borrowed capta after
norma ta and surta .
It has been brought to the attenton of your commttee, that, snce the |ursdo-
ton of the Interstate Commerce Commsson e tends ony to nterstate ppenes,
the speca credt provded by secton s dened those ppenes whose opera-
tons are entrey Intrastate In character. Ths dstncton appears Inequtabe
wth respect to these atter corporatons f ther operatons are sub|ect to regua-
ton by State reguatory bodes. The necessty for guaranteeng these uttes
a mnmum return after norma ta and surta before appcaton of the e ee s
profts ta woud appear to be as cear n ths area as wth respect to nterstate
ppenes.
Secton 13 of your commttee s b amends secton of the Code to provde
that ppene common carrers sub|ect to the |ursdcton of the pubc servce
commssons of any State sha be egbe for the reguated pubc utty credt.
The same 0 percent credt s made appcabe as n the case of nterstate ppenes.
IS. Management and technca servce fees.
Secton 33(a) (1) ( ) of the present aw provdes the same 100 percent credt
aganst e cess profts net ncome for dvdends receved from foregn corporatons
as s aowed In the case of dvdends from domestc corporatons. Secton 02
of your commttee s b e tends a smar e cuson to management and technca
servce fees pad to domestc corporatons by certan affated foregn corpora-
tons n return for nformaton and other servces furnshed n connecton wth
products of the type manufactured by the domestc corporaton. Your com-
mttee beeves that the renderng of technca assstance to foregn busnesses
by mercan corporatons shoud not be dscouraged by sub|ectng fees receved
for such servces to the e cess profts ta . In genera, such management and tech-
nca servce fees do not refect profts from the domestc rearmament program
and arc usuay sma n amount. The e empton s mted so as not to e cude
from e cess profts ta the Income of a corporaton whose prncpa busness s
furnshng technca, etc., servces.
The b makes a conformng amendment n that It e cudes these earnngs
of domestc corporatons from ther base perod earnngs, thus equatng the
trentment of both base perod and e cess profts ta perod earnngs. Lkewse
any e penses attrbutabe to the producton of ths type of Income are dsaowed
as deductons under your commttee s amendment.
. . Technca amendment reatng to new corporatons.
new corporaton computng ts ncome credt under secton for any of
Its frst 3 years whch are e cess profts ta years s, under the present aw, en-
tted to appy the ndustry rate of return ony to ts tota assets at the begnnng
of the e cess profts ta perod pus Its net capta addton ess Its net capta
reducton after the end of the base perod. Thus, the ndustry rate can be
apped ony to ncreases n ts equty capta and 7 percent of Increases n ts
borrowed capta, to the e tent that ts assets are acqured after the begnnng
of ts frst e cess profts ta year. Ths treatment s ess favorabe than that
provded for other new corporatons or that provded for corporatons usng
other reef sectons Invovng the ndustry rate of return because t provdes for
the ncuson of ony 7 percent of borrowed capta.
Your commttee s b corrects ths technca defcency of present aw. Secton
S12 of the b provdes that a new corporaton computng ts ncome credt under
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
17
secton for any of Its frst 3 years whch are e cess profts ta years s to he
entted to ts ndustry rate of return apped to equty capta pus 100 percent
of borrowed capta, ess nterest on borrowed capta.
1 . Technca amendment of growth aternatve.
Secton .3 (e) (2) (G) of the Code provdes a speca aternatve average base
perod net ncome for corporatons whose e cess profts net ncome for 19 9 s
not more than 2 percent of ts e cess profts net ncome for 19 . In effect,
such a ta payer s granted an aternatve average base perod net ncome equa to
the sum of one-haf ts e cess profts net ncome for 19 and 0 percent of ts
e cess profts net ncome for 19 0.
In order to quafy for the above aternatve, present aw requres that the
ta payer quafy for the growth credt ony under the provsons of secton
3 (e)(1)( ). The atter secton permts the use (wthout mtaton as to
the amount of assets) of the genera growth aternatve f the ta payer meets
certan tests of ncreased net saes of new products n the base perod. owever,
secton .3 (e)(1)( ) as an aternatve egbty requrement for ta payers
whose tota assets at the begnnng of the base perod dd not e ceed 20 mon.
Ths aternatve egbty requrement s based upon certan tests of ncreased
payro and gross recepts.
Your commttee s unaware of any vad reason why the aternatve average
base perod net ncome provded by secton 3 (e)(2)(G) shoud be dened to
ta payers quafyng for the growth aternatve both under secton 3 (e) (1) ( )
and 3 (e) (1) ( ).
To correct ths anomay of present aw. secton 0 of your commttee s b
e tends the benefts of secton 3 (e) (2) (G) to ta payers quafyng under sec-
ton 3 (e) (1) ( ) whether or not they quafy under secton 3 (e) (1) ( ).
16. ase perod of fsca-year corporatons.
The present aw provdes certan varatons n the base perod wth respect
to corporatons on a fsca-year bass. Ta payers wth fsca years endng after
December 31, but before pr 1, use as ther base perod months endng wth
thpr ast ta abe year endng pror to pr 1, 19 0. For e ampe, a ta payer
wth a March 31 fsca year has as ts base perod the months from pr 1,
19 6, through March 31, 19 0. somewhat dfferent procedure s foowed n
the case of ta payers whose fsca years end after March 31 and before Decem-
ber 3t. Such ta payers are requred to use the -month perod begnnng on
anuary 1, 19 G, and endng on December 31, 19 9. Thus, a ta payer wth f.cca
years endng on une 30, for e ampe, must compute ts ncome for the frst 6
months of 19 0 by takng haf ts actua ncome for the year ended une 30,
19 6. Such a ta payer woud have ts average base perod earnngs affected by
the ast two quarters of 19 nnd the frst quarter of 1916. Inasmuch as those
quarters were typfed by ow earnngs generay, the ncuson of that perod
usuay resuts n a reducton of the ta payer s average earnngs.
In order to correct ths hardshp, secton 03 of your commttee s b provdes
that the base perod of any ta payer wth a fsca year endng after March 31,
19 0, may, at ts opton, for purposes of the genera averae method of com-
putng the e cess profts credt, be the months endng wth March 31, 19 0.
.7. Consodated returns.
Secton 612 of your commttee s b amends the consodated return provsons
of the Code to permt a corporaton e empt from e cess profts ta under secton
(f) of the Code, whch has fed a consent to be ncuded n a consodated
return for a ta abe year endng after une 30, 19 0. the rght to amend ts eec-
ton wthn 90 days after the effectve date of ths ct.
Under the cess Profts Ta ct of 19 0, an affated group of corporatons
entted to fe a consodated return may ncude corporatons recevng at east
0 percent of ther ncome from foregn sources f these corporatons e con-
sents n a ta abe year endng after une 30, 19 0. Corporatons of ths type
woud be e empt from e cess profts ta tnder secton 1(f) of the Code uness
they fe such consents, and these consents are rrevocabe. Many of those con-
sents were fed under crcumstances where there was nadequate tme fcr the
ta payers to adequatey assess the effects of such acton. It s deemed proper
to aow them a mted perod of tme to reconsder ther acton.
1 . Capta reducton for oans made by parent corporatons to subsdares.
Secton 10 of your commttee s b provdes that where a subsdary corpora-
ton computes ts average earnngs credt on the bass of the ndustry rate of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
return apped to ts tota assets and where such subsdary has borrowed funds
from ts parent corporaton on open account, the amount so borrowed sha be
emnated from ts tota assets.
Ths Is necessary to cose a oophoe n the e stng e cess profts aw. Under
present provsons, a parent corporaton does not ncur a capta reducton by
reason of amounts oaned on open account to subsdares. The subsdary, how-
ever, woud obtan an ncrease n the amount of ts tota assets to whch the
ndustry rate of return s apped under severa of the reef sectons. y
e cudng from the totn assets of the subsdary the amount represented by such
oans from a parent corporaton or from a member of a controed group, the
amendment made by your commttee prevents dupcaton n computng the
credts of the respectve corporatons.
Ths amendment s effectve wth respect to ta abe years endng after the
date of enactment of ths b.
10. Transtons from Word War II producton and ncreases n peacetme
capacty.
The attenton of your commttee has been caed to cases where corporatons
have been fuy engaged n war busness durng Word War II and as a rtsut
have had dffcutes durng 19 6 and 19 7 n convertng to peacetme produc-
ton. s a resut, ther earnngs n these years have been reatvey ow. Never-
theess, tcy have nvested arge amounts n pant and factes n antcpaton
of securng a broad-gauce peacetme market. owever, to a substanta degree
many such corporatons were not successfu n toong up for e tensve produc-
ton unt 19 9 or 19 0. Thus, athough they are not engaged n war producton,
such corporatons fnd themseves sub|ect to heavy e cess profts ta es athough
the war economy has had tte effect on ther busness. To the e tent that such
corporatons had ow earnngs n 19 9, they woud receve tte beneft from
the growth provson generay avaabe, even where they are egbe for t.
Your commttee beeves that corporatons of ths type whose profts are attrb-
utabe to peacetme producton shoud be abe to use ther earnngs e perence
ate In the base perod and eary n 19 0 as the bass for the computaton of
ther average earnngs base for e cess-profts-ta purposes. Therefore, secton
16 of your commttee s b e tends to corporatons meetng certan requre-
ments the benefts of the speca growth formua descrbed n secton
3 (e)(2)(G) of the Code. In genera, ths permts corporatons to compute
an aternatve average base perod net ncome on the bass of the sum of one-
haf of ther ncome n 19 3 and 0 percent of ther ncome n 19 0.
The requrements provded by your commttee for the benefts of ths prov-
son are:
1. The ad|usted bass of the corporaton s rea property and tangbe
deprecabe property must not be n e cess of 10 mon on the 1st day of ts
base perod.
2. Seventy percent of the corporaton s ncome for the years 19 2 throuzh
19 must be attrbutabe to contracts wth the Unted States or reated
subcontracts, but ess than 20 percent of the corporaton s ncome durng
the base perod and n the caendar year 19 0 must be attrbutabe to con-
tracts wth the Unted States or reated subcontracts.
3. The unad|usted bass of the corporaton s rea property and deprecabe
tangbe property at the end of ts base perod must be 2 0 percent or more
of the bass of such factes on the 1st day of ts base perod.
. oth the corporaton s profts n 19 and the average of ts profts
n 10 and 19 9 must be at east 300 percent of the average of ts profts for
19 0 and 19 7.
SO. Speca reef provson for corporatons sufferng catastrophes.
Secton 2 of the Code provdes that, n the case of corporatons havn
abnormates n one of ther three hghest bnse-perod years, ther ndustry rate
of return for the year of the abnormaty, mutped by ther tota assets n such
year, may be substtuted for the earnngs n ther year of abnormaty. In the
case of abnormates n two or a of ther three hghest years, t provdes that
the avernge ndustry rate of return for the base perod, mutped by ther aver-
age totn assets for the base perod, may be substtuted for ther base-perod
earnngs. though your commttee beeves that ths s satsfactory n the
case of most abnormates, t appears that where a fre or e poson or other
smar catastrophe has destroyed an mportant part of the conwraton s produc-
tve factes, the credt computed under secton 2 may be nadequate. The
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
19
corporaton may have base-perod e perence pror to the catastrophe whch
ndcates that n the absence of the oss t woud have bad earnngs substantay
above the earnngs constructed by appyng ts ndustry s rate of return to ts
tota assets.
Therefore, secton 17 of your commttee s b provdes that nrmufacturng
corporatons sufferng from a catastrophe n the ast 30 months of the base
perod may substtute ther average e cess profts net ncome n ther base
perod, pror to the year n whch the catastrophe occurred, for ther earnngs
durng the year n whch the catastrophe occurred.
catastrophe s defned as a fre, storm, e poson, or other casuaty whch
rendered noperatve a of the factes of a pant or pants accountng for at
east 1 percent of a corporaton s tota factes, for a perod of at east 12
months durng the ast 3 years of the base perod.
21. Consodaton of newspapers.
I ere twc newspapers have consodated a ma|orty of ther operatona fac-
tes, a faure to recognze the ncreased earnngs attrbutabe to that conso-
daton as forma earnngs can resut n consderabe hardshp to the ta payers
nvoved. Ths s because credts bnsed on the earnngs e perence of two nde-
pendent newspapers In the base perod may not fary represent what the earn-
ngs woud n fact have been had they consodated ther operatons eary n or
pror to the base perod. The fact of consodaton may ncrease the rate of proft
through a smaer overhead force and through the |ont use of pant and equp-
ment. Profts attrbutabe to such ncreased effcency shoud not be assumed to
be e cess profts.
In order to correct ths stuaton, secton 1 of your commttee s b e tends
the aternatve average base perod net ncome provded for growth companes
under secton 3 (e)(2) to any ta payer whch was engaged prmary n the
newspaper pubshng busness pror to the end of the base perod and whch,
after the mdde ot ts base perod and pror to une 30, 19 0, consodated sub-
stantay a of ts mechanca, crcuaton, advertsng, and accountng opera-
tons n connecton wth ts newspaper pubshng busness wth the smar
operatons of another corporaton engaged n the newspaper pubshng busness
n the same ocaty.
In order to be egbe for ths aternatve, the ta payer must estabsh to the
satsfacton of the Secretary that the consodaton resuted n substanta re-
ductons n (he e penses whch woud have been ncurred had the consodaton
not taken pace. Furthermore, the deductons of the ta payer for the ta abe
year foowng that of the consodaton must not have been n e cess of 0
percent of the average of those deductons for the 2 years precedng the conso-
daton, and the ta payer s ncome n the year foowng the consodaton must
have been at east 12 percent of ts avarage base perod ncome. These egbty
requrements are desgned to furnsh automatc ndcatons that an Increase In
ncome and a reducton n e penses have n fact occurred snce the conso t;nn.
III. Structura Changes n state and Gft Ta es
. PRO ISION IN TII ODS ILL LSO IN TOUR COMMITT S ILL
/. Unted States bonds hed by nonresdent aens.
Secton CO. of ths b and secton 03 of the ouse b contan dentca
provsons deang wth the status under the estate and gft ta es of obgatons
of the Unted States Government owned by nonresdent aens not engaged n
trade or busness n the Unted States. Pror to March 1, 19 1, the transfers
of such obgatons were e empt by reguaton even though the transfer of
smar securtes ssued by domestc corporatons was ta abe when the ev-
dence of the obgaton was n the Unted States. Ths e empton was based on
the theory that an e empton from a ta aton of such bonds when hed by
foregn nvestors ncuded e empton under the estate and gft ta es.
On March 1, 19 1, a new reguaton was ssued whch made the ta abty of
transfers of such securtes under the estate and gft ta es depend on the same
consderatons whch woud appy n the case of bonds of domestc corporatons.
The new rung was based on the theory that the e empton of such Government
securtes from a ta aton meant e empton from drect ta es ony and dd
not ncude e empton from the transfer ta es. The new reguaton apped
ony to securtes ssued after March 1,19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
20
Ts revsed reguaton was hed to be nvad In andorfs state v. Comms-
soner (171 Fed. (2d) 6 ), a decson of the Court of ppeas, Second Crcut,
dated December 21,19 , and n The Pennsyvana Co. v. Unted States, a decson
of the Court of ppeas, Thrd Crcut, n November 19 0.
oth your commttee s b and the ouse b gve statutory sancton to the
pocy of the March 1,19 1, reguaton. The resut w be that for estate and gft
ta purposes Unted States Government securtes w receve the same treatment
as other types of domestc bonds. Ths treatment w aso conform wth the
pocy of ta ng the nterest on such Government bonds under the ncome ta
when receved by nonresdent aens.
The amendment w appy ony to obgatons ssued by the Unted States
on or after March 1, 19 1, whch are transferred In the estates of decedents who
de after the date of enactment of the Revenue ct of 19 1 or by gfts made after
such date.
The revenue effects of ths provson are mnor.
. PRO ISIONS DD D Y TOUR COMMITT
1. state ta es of servcemen ked n orea.
Your commttee s b provdes the same estate ta treatment for members of
the rmed Forces dyng n combat zones or from wounds receved n combat
zones as was prevousy provded durng Word War II.
Secton ( 0 provdes that the estate ta sha not appy to the estates of
decedents dyng whe n actve servce as a member of the mtary or nava
forces of the Unted States f the decedent was ether ked n acton whe
servng n a combat zone, or ded as a resut of wounds or other n|ures, or a
dsease, suffered whe In ne of duty by reason of a hazard to whch he was
sub|ected as an ncdent of such mtary or nava servce.
Ths provson s effectve wth respect to deaths occurrng after the com-
mencement of hosttes n orea ( une 2 , 19 0) and before anuary 1, 19 .
S. Pre-1916 transfers wth reversonary nterests retaned.
Under the present aw a transfer n trust pror to 1931 s not sub|ect to estate
ta by reason of the retenton of a fe estate and a .transfer pror to October
, 19 9, s not sub|ect to estate ta by reason of the retenton of a reversonary
nterest uness the reversonary nterest s e press, rather than arsng by
operaton of aw, and e ceeds percent of the vaue of the property mme-
datey before the decedent s death. The present aw makes no dstncton
between transfers made before the enactment of the estate ta , September ,
1916, and transfers made after that date. owever, from 1927 to 193 the
reguatons provded that transfers made before enactment of the estate ta
woud not be ta abe. so, pror to the decson of the Supreme Court n the
aock case n 19 0 It was fet that property woud not be ta ed n a decedent s
estate by reason of hs retenton of a reversonary nterest.
case has been brought to the attenton of your commttee n whch the
decedent made a transfer n trust n 1903 retanng a reversonary nterest
whch was worth about 1 percent at the tme of her death n December 19 9.
s a resut of the retenton of ths mnor nterest, the entre estate s sub|ect
to ta .
In order to avod ths severe hardshp, secton 60 of your commttee s b
provdes, n effect, that property w not be ncuded In the estate of a decedent
by reason of the retenton of a reversonary nterest n a transfer made pror
to September . 1916, where the decedent ded after February 10, 1939, the date
of enactment of the Interna Revenue Code.
S. Reversonary nterest of decedents dyng pror to February 10, 1039.
The provsons of the Technca Changes ct of 19 9 appy ony wth respect
to decedents dyng after February 10, 1939, the date of enactment of the Interna
Revenue (. ode. In the case of such decedents, property s ncuded In the gross
estate by reason of the retenton of a reversonary Interest n a transfer made
before October , 19 9, ony f the reversonary nterest s e press and s worth
more than percent mmedatey before the decedent s death.
On March 1 , 1937, Treasury Decson 729 was ssued by the Treasury
Department, provdng that property shoud not be ta ed by reason of the
retenton of a reversonary nterest. In order to treat the estates of decedents
dyng before February 11, 1939, and after March 1 , 1937, In accordance wth
the aw then n effect, secton 606 of your commttee s b provdes that property
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
21
transferred by the decedent dyng In such perod s not to be ncuded n the
estate of the decedent because of a possbty of reverter f the reguatons n
effect at the tme of the death of the decedent dd not provde for the ncuson
of property so transferred.
. Decedents dyng n 19 0 wth pre-1931 fe estates retaned.
The Technca Changes ct of 19 9 provded that, n the case of fe estates
retaned n transfers made on or before March 3, 1931 (and n some cases
before une 7, 1932), the property woud not be ncuded n the decedent s gross
estate by reason of retenton of the fe estate f the decedent ded before
anuary 1, 19 0. The 19 9 ct aso provded that these fe estates coud be
reeased free of estate and gft ta at any tme durng 19 9 or 19 0. The 19 9
ct contanng ths ta -free reease provson became aw on October 2 , 19 9.
There have been severa cases n whch decedents ded n 19 0 before reeasng
ther pre-1931 fe estates, possby because they were not aware of the ta -free
reease provson or were not n condton to effect a reease.
Snce these fe estates coud have been reeased at any tme durng 19 0
wthout estate ta , t seems equtabe to your commttee that the anuary 1,
19 0, date n the 19 9 ct be changed to anuary 1, 19 1, so that the perod n
whch death mght occur wthout estate ta w be consstent wth the perod
for ta -free reease of these fe estates.
Therefore, n the case of fe estates retaned n transfers made on or before
March 3. 1931, secton 607 of the b provdes that property w not be ncuded
n the decedent s gross estate by reason of retenton of the fe estate f the
decedent ded before anuary 1, 19 1 (nstead of anuary 1, 19 0, as provded
by present aw).
. Reversonary nterests n te nsurance Decedents dyng after October 11,
191,2.
The Revenue ct of 19 2 provded that, n determnng the proporton of
fe nsurance premums pad by the decedent, premums pad by a decedent on
or before anuary 10, 19 1, sha be ncuded f the decedent at any tme after
that date possessed an ncdent of ownershp n the pocy. Snce a reversonary
nterest was construed to be an ncdent of ownershp, the retenton of any
reversonary nterest, regardess of ts sze and regardess of whether t was
e press or by operaton of aw, had the effect of makng the premums pad by
the decedent ncudbe for purposes of the premum payment test. In order to
make the treatment of fe nsurance consstent wth the treatment of other
property under the Technca Changes ct of 19 9, the Revenue ct of 19 0
provded that a reversonary nterest shoud be consdered an ncdent of
ownershp ony f t were e press and, at some tme after anuary 10, 19 1,
e ceeded percent of the vaue of the pocy. The provson n the 19 0 ct
was an amendment of the Revenue ct of 19 2, so that t was effectve wth
respect to the estates of decedents dyng after October 21, 19 2. owever, the
19 0 provson dd not provde for the reopenng of cosed cases. In ths
respect t was dfferent from the 19 9 amendment of secton 11(c), whch
provded a 1-year perod durng whch cams for refund coud be fed for
cosed cases.
In order to correct that defcency, secton 609 of your commttee s b amends
secton 03 of the Revenue ct of 19 0 n order to permt the reopenng of
cosed cases f a cam s fed wthn 1 year from the date of the enactment of
ths b.
6. Foregn estate ta credt.
Under present aw the Unted States asserts estate ta abty wth respect
to the entre estate, wherever stuated (e cept rea property outsde the Unted
States), of decedents who were ether domced n the Unted States or ctzens
of the Unted States. Snce many other countres, ke the Unted States, ta
property stuated wthn ther boundares, estates of nonresdent ctzens of the
Unted States are qute key to be sub|ected to a doube ta . Wth a consder-
abe number of foregn countres, the Unted States has entered nto estate ta
conventons whch provde reef for ths probem and other treates at present
are under consderaton. owever, n many other cases the possbty of doube
ta aton st e sts, and cases have been brought to the attenton of your com-
mttee where, as a resut of ths doube ta aton, estates wth foregn nvest-
ments have been ta ed much more heavy than smar estates sub|ect ony to
domestc ta .
016 2 3
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
22
Secton G02 of your commttee s b removes ths doube ta aton by provdng
n foregn estate ta credt n the case of Unted States ctzens anC resdent
(sub|ect to a mtaton ndcated beow) where the doube ta arses from the
Unted Sates mposng a ta on the entre estate, and a foregn couutry mposng
an estate ta on property stuated vthn that country. The foregn estate ta
credt s aowed both aganst the basc estate ta and the addtona estate ta .
s n the case of the ncome ta , a foregn ta credt s aowed n the case of
those who were resdents but not ctzens of the Unted States ony f the foregn
country n whch the decedent was a ctzen aows a smar foregn ta credt
n the case of ctzens of the Unted States who are resdents of that country.
s n the case of the foregn ta credt aowed for ncome ta purposes, the
foregn estate ta credt s mted n a manner whch permts the offsettng of
ta es pad the foregn country wth respect to property stuated n that country
ony to the e tent that such property s ta ed by the Unted States. Thus, f a
foregn country mposes an estate ta at a hgher effectve rate than that pro-
vded by the Unted States, a credt s to be aowed ony to the e tent of the
effectve rate of ta mposed by the Unted States.
Ths provson s effectve wth respect to estates of decedents dyng after the
date of enactment of ths b.
7. Works of art oaned by nonresdent aens.
Secton 00 of your commttee s b provdes that works of art owned by a
nonresdent aen whch are oaned to pubc gaeres or museums n the
Unted States for e hbton purposes sha be e empt from estate ta f the
nonresdent aen des whe the works of art are n ths country.
I resent aw (sec. 03(e) of the Code) mts the e empton to works of art
oaned to the Natona Gaery of rt.
Ths provson s effectve wth respect to estates of decedents dyng after
the date of enactment of ths b.
The revenue oss from a of the changes n the estate and gft ta changes
made by ths b are e pected to decrease revenues by 2 mon.
I . cse Ta Changes
It s estmated that at the eves of producton antcpated n the fsca year
10 2 e cse ta changes by your commttee s b, when fuy effectve, w
rare revenues by 1,27 mon as compared wth 1,2 2 mon under the
ouse b. s shewn n tabe 11, amost a of the e cse ta revenue provded
by both your commttee s b and the ouse b s rased from the manufac-
turers e cses, the new ta es on gambng, and the ta es on acohoc beverages
and tobacco. No rate ncreases are provded n the case of the reta e cses,
the e cses on transportaton and communcaton or the admssons ta es, because
the rates of these ta es generay are aready qute hgh. Not ony are most
of these ta es mposed at rates around 20 percent, but aso they are based on
the reta prce or the amount charged the consumer, whch may range up to
twce the manufacturer s prce. s a resut, these rates now are generay
three to four tmes as hgh as most of the manufacturers e cses, usuay
eved at a 10 percent rate on the manufacturers prces.
Tabe 11. esc ta revenue rased by the b by ma|or sources
t estmated fsca year 10 2 eves of producton and consumpton hut n a fu year of operaton
ddtona revenue
Type of ecre ta
ouse b
Commttee
b
Mons of
doars
MUms of
doars
musement and recreaton
2 2
177
7

S
21
07
2 2
IP
SS
-7
-1
-IS
n
Tota
1,2 2
1,27
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
23
The e cse ta changes made by your commttee s b become effectve on
the 1st day of the frst month whch begns more than 10 days after the date
of enactment of the b. Your commttee s b aso provdes that the e cse
rate ncreases are to e pre on December 31, 10 3. No termnaton date was
provded for the e cse ta ncreases made by the ouse b, but the same
provson apped wth respect to the tme when the e cse ta changes were
frst to become effectve. ssumng that November 1 s the effectve date for
these changes, t s estmated that your commttee s b w ncrease e cse
ta revenues by SS23 mon n the fsca year 10 2 (ths ncudes the foor stock
ta es), rasng tota recepts for 10 2 from e cses to 9,3S3 mon. Wth ths
same assumpton, the ouse b woud ncrease e cse coectons n 10 2 by
M mon, rasng tota e cse recepts n 10 2 to 9,371 mon.
. LCO OLIC R G S
The addtona revenue estmated to be derved from the ta es on acohoc
beverages n a fu year of operaton s dstrbuted among the varous e cses:
under both the ouse b and your commttee s b as foows:
In mons
ouse
Commttee
b
b
16
16
eer.
6
6
Wnes

Tota
2 2
2 2
1. Dsted sprts.
Secton 1 of your commttee s b ncreases the ta on dsted sprts m-
posed by sectons 16 0 and 2 00 of the Interna Revenue Code from 0 to 10. 0
per proof gaon. Ths s the same ncrease as s made by the ouse b. The
ncrease of 1. 0 per proof gaon amounts to about 26 cents a ffth on the ord-
nary type of whsky botted at about proof. Under present aw the 0 per
gaon ta on dsted sprts averages about 0 percent of the reta prce per
botte, ncudng ta . The ta mposed by both your commttee s and the ouse
bs woud rase ths fgure to about 3 percent. Ths assumes the addton n
fu of the ta to current prces, but no prce mark-up on the ta .
Durng Word War II and the mmedate postwar years consumpton of ds-
ted sprts cmbed nmost contnuousy n spte of hgher quor ta es and
prces, reachng a peak consumpton n 10 6 when consumers purchased more
than 230 mon wne gaons of dsted sprts for whch they spent bon,
or 3 percent of ther tota dsposabe ncome. gh ncome eves and the na-
bty of consumers to purchase scarce durabe goods probaby were the most
mportant factors n accountng for ths hgh consumpton eve. though
consumpton of quor decned durng the postwar years, snce the outbreak
of hosttes n orea t has agan been ncreasng, and the 19 0 consumpton of
100 mon wne gaons was hgher than n any pror years e cept 19 and
19 6. The acceeraton of the defense program presents the kehood that
ncome eves agan w rse and that consumers agan w have to cut down
ther purchases of durabe goods. Your commttee beeves that, under the con-
dtons descrbed above, t does not appear the ncrease provded by the b w
sorousy affect the consumpton eve of quor. Thus, t s not beeved that
the ta ncrease provded here w have much effect on the ndustry.
From the standpont of the consumer t s not beeved that ths ta ncrease
w prove to be partcuary burdensome, snce the mteM data avaabe sug-
gest tha : up to ncome eves of ,000 ths ta bears about equay on the varous
ncome eves.
Your commttee carefuy revewed the ncrease n the ta on dsted sprts
wth reference to the probem of booteggng. It found that even under present
ta rates there s a substanta fnanca ncentve to engage n ct operatons
of ths type, whch had been hed at a reatvey ow eve ony as a resut of
enforcement measures. owever, any ncreased fnanca ncentve for ct
operatons resutng from the ta ncrease provded by your commttee s b s
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
1

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
key to be more than offset by a tghtenng of the abor suppy avaabe for
these operatons and by hgher ncomes on the part of consnmers, whch w
decrease the mportance of the prce dfferenta between ta -pad and no-n-ta -
pad quor. Nevertheess, It was recognzed that too arge an ncrease n the
ta on dsted sprts mght we resut In a szabe ncrease n ct operatons.
t the present tme, athough the genera ta rate on dsted sprts s
a proof gaon, a draw-back of 6 per proof gaon s provded for dsted sprts
used for medcnes, medcna preparatons, food products, favors, eavng a
net ta of 3 per proof gaon n such cases. Draw-backs are used rather than
reducng the rate of ta , because a ower rate mght resut n dsted sprts
beng dverted to beverage purposes on whch the hgher rate of ta shoud be
pad. .Usng these medcnes and nonbeverage food products as a source of
revenue, however, appears to be n contradcton to the pocy generay foowed
of not mposng e cse ta es on medcnes or food. In part ths prncpe s
recognzed under present aw by provdng a draw-back of a but 3 of the ta
per proof gaon. oth your commttee s and the ouse bs recognze ths
prncpe n fu by ncreasng these draw-backs so that a net ta of ony SI
per proof gaon, suffcent to cover admnstratve costs, s fnay pad. Wth
the ta rate of 10. 0 per proof gaon ths Is accompshed In secton .T2 of
the b provdng n secton 32 0 of the Code a draw-back of 0. 0 per proof
gaon.
It s estmated that n a fu year of operaton the changes made n the ta
on dsted sprts by both your commttee s and the ouse b w ncrease
revenues by 10 mon.
2. eer.
Secton 3 of the b Increases the ta Imposed on fermented mat quor,
or beer, by sectons 31 0 and 16 0 of the Code by 1 per barre, or from the
per barre provded by present aw to 9 per barre. Ths represents the same
ncrease as s made by the ouse b. Ths s an ncrease n ta of 12 / per-
cent as contrasted to an ncrease of 16 percent provded n the case of dsted
sprts. Under present aw the ta on beer represents about 1 percent of the
average reta prce and under both your commttee s and the ouse bs ths s
ncreased to between 16 and 17 percent. In the case of a 12-ounce botte of
beer the ta ncrease represents an ncrease of about one-thrd of 1 cent.
The ncrease provded for beer Is smaer than that provded for dsted
sprts because your commttee beeves that beer to a greater e tent s con-
sumed by the ower ncome groups and, therefore, that an ncrease n ths ta
generay Is more burdensome than the ta on dsted sprts.
Wth th2 present hgh ncome and consumpton eves t appears probabe
that much, f hot a, of the ta ncrease provded for beer can be shfted by
the ndustry to the consumer wthout serousy affectng the current eve of
consumpton. Thus t s not antcpated that ths ta Increase w have any
Important effect on the ndusry.
In a fu year of operatons t s estmated that 1 per barre ncrease In the
ta on beer w rase revenues by about 6 mon.
S. Wnet.
Secton 2 of the b amends sectons 3030 and 16 0 of the Code to provde
for the same ncrease n the ta on wnes as n the case of beer, namey, an
ncrease of appro matey 12 percent. Thus, n the case of st wnes, n-
cudng vermouth, the ta per gaon woud be
(a) Increased from 1 to 17 cents where the acohoc content of the woe
s not more than 1 percent,
(6) ncreased from 60 to 07 cents where the acohoc content of the
wne s over 1 percent but not over 21 percent; and
(c) ncreased from 2 to 2.2. where the acohoc content of the wne s
over 21 percent but not over 2 percent.
In the case of sparkng wnes, queurs, and cordas the ta per haf pnt
woud he:
(a) ncreased from 1 to 17 cents In the case of champagne or sparkDg
wnes; and
(6) Increased from 10 to 12 cents n the case of queurs, cordas, and
artfcay carbonated wnes.
These are the same ncreases as are provded by the ouse b.
11 Wnes wth acohoc content In e cess of 2 percent are sub|ect to the ta on dsted
sprts.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
Most of the wne consumpton In the Unted States today s represented hy
the frst two categores of st wnes. Natura, or tabe, wnes wth an acohoc
content not over 1 percent and ncudng such wnes as sauterne, caret, and
burgundy represent about one-quarter of the tota consumpton. Sweet or dessert
wnes wth an acohoc content between 1 and 21 percent and ncudng such
wnes as port, sherry, tokay, and muscate represent appro matey three-fourths
of the tota consumpton n the Unted States today. These wnes are fortfed
wth brandy or acoho before the natura fermentaton s competed. Sparkng
wnes account for most of the sma remanng consumpton n the Unted States
today and n arge part represent mports.
In terms of reta prce the ta under present aw represents about percent
of the reta prce, ncudng ta , n the case of tabe wnes, and woud be n-
creased by about one haf of 1 percent under both your commttee s and the
ouse bs. The ta on sweet wnes under present aw represents about 1
percent of the reta prce and under both bs ths percentage woud be n-
creased by sghty more than 1 percentage pont. The ta on sparkng wnes
represents about 2 percent of the reta prce under present aw and under
both bs ths woud be ncreased to about 26 percent. Thus the rate of ta
tnder the bs w contnue to be graduated n accordance wth acohoc
content.
Your commttee deemed t approprate to make ony a moderate ncrease n
the case of the ta es on wnes because of the mportance of wnes to the grape-
growng ndustry. etween one-thrd and one-haf of the tota grape crop s
customary absorbed by wne. The demand for wne, therefore, aso has an
mportant effect on the prces whch can be obtaned by producers for rasns
and fresh grapes, the two other mportant uses of grapes. Moreover, n vew of
the fact that t has been necessary for the Department of grcuture at tmes
snce the end of Word War II to support the prce of rasns, t woud appear
Inapproprate for your commttee to make a substanta ncrease n the ta on
wne whch mght have the effect of requrng further prce supports. In add-
ton t shoud be ponted out that wne consumpton n the Unted States reatve
to consumpton of other forms of acohoc beverages s reatvey ow when
compared to reatonshps generay estabshed abroad. Moreover, the wne
ndustry s one of the few ndustres whch has been cassfed under the e cess
profts ta as a depressed ndustry.
The effect of both your commttee s b and the ouse b n the case of the
ta es on wnes s to rase revenues by an estmated mon n a year n whch
the ncrease s fuy effectve.
. Occupatona ta es on deaers n quor.
Reta deaers n quor other than those deang e cusvey In wne and beer
are requred under secton 32 0 of the Code to pay a speca annua occupatona
ta of 27. 0. Secton 1 of the b rases ths occupatona ta to 0 a year.
Ths s the same ncrease as s made by the ouse b. Under present aw the
ow ta has made t mpractca from an admnstratve standpont for the
ureau of Interna Revenue to verfy the names and addresses of persons payng
ths speca occupatona ta . ttenton has been caed to many cases where
ncorrect names and addresses have been gven wth the probabe ntenton of
avodng detecton by State and oca quor authortes. Your commttee be-
eves t feasbe for the ureau of Interna Revenue to estabsh a verfcaton
system for a payees of ths ta and t s the ntenton of your commttee that
the ureau of Interna Revenue do so. Severe penates for frauduent returns
are aready provded under e stng aw. It s estmated that ths provson w
ncrease coectons by 7 mon n a fu year of operaton.
Secton 1 of your commttee s b aso ncreases the occupatona ta es on
whoesae deaers n quors and whoesae deaers n mat quors. Secton
32 0(a) (1) of the Code mposes a speca occupatona ta of 110 on whoesae
deaers n quors. Ths ncudes whoesae deaers n wnes, as we as whoesae
deaers n dsted sprts. oth your commttee s b and the ouse b rases
ths ta to 200. Secton 32 0(d) of the Code provdes an occupatona ta of
for whoesae deaers n mat quor. Ths ta s rased to 100 by both
bs. It s estmated that n a fu year of operaton the ncrease n these occu-
patona ta es on whoesae deaers n quors and mat quors w rase revenues
by 1 mon annuay.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
26
. TO CCO PRODUCTS
Te changes mode n the e cse ta es on tobacco are dstrbuted between
sma ( standard and kng szed) cgarettes and snuff, fne-cut, scrap, pug
and twst chewng tobacco as foows:
In mons
ouse
b
Commts
M
Sma cgarettes ( standard and kng szed)
177
0
177
10
Tota .
177
167
No changes are made n the present ta es on cgars and smokng tobacco.
/. Sma cgarettes.
In the case of sma cgarettes, secton 21 of your commttee s b ncreases
the ta provded by secton 2000 of the Code from 3. 0 per thousand to per
thousand. Ths s the same ncrease as s made by the ouse b. In effect,
ths rases the ta on the ordnary package of 20 cgarettes from 7 cents to
cents. The present ta on cgarettes represents about 3 percent of the reta
prce ncudng ta . The ncrease woud rase ths to about 37 percent.
The ncrease provded by both hs s as arge as the combned ncreases made
n ts ta durng and |ust before Word War II. In vew of the mportance of
the saes of tobacco to a arge number of farmers n the country, ths s as arge
an ncrease n ths ta as your commttee beeves t s approprate to make.
It s estmated that n a fu year of operaton ths acton w ncrease rev-
enues by 177 mon a year.
S. (Snuff and fne-cut, scrap, pug, and trcst charng tobacco.
In the case of snuff and fne-cut, scrap, pug, and twst chewng tobacco, sec-
ton 23 of |our commttee s b reduces the ta from 1 cents per pound to
10 cents per pound. In the case of smokng tobacco the ta remans at 1 cents
per pound. No such reducton was provded n the ouse b. Your commttee
beeves that ths reducton s desrabe because the decnng demand for snuff
and chewng tobacco has worked hardshps on the manufacturers, and aso on
te farmers rasng these partcuar types of tobacco. Moreover, these tobacco
products are used prmary by the ower ncome groups and, therefore, the
present ta s beeved to be hghy regressve.
It s estmated that n a fu year of operaton ths acton by your commttee
w decrease revenues by about 10 mon a year.
C. M NUF CTUR RS CIS S
The addtona revenue t s estmated w be derved from manufacturers
e cses s dstrbuted among the varous e cses as foows:
Tn mons
b
Commttee
b
Gasone, and dcse fue used by hghway vehces
Passenger cars, motorcyces, and house traers
utomobe trucks, busses, and truck traers
utomotve parts and accessores - --
Tres on toys, etc
ectrc, gas, and o appances
Navgaton recevers sod to the U. . Government
Refrgeraton equpment
Sortng goods.. - -
Photographc apparatus and Mn -
ectrca enemy --
Fountan pens, ba pont pens, and mechanca wncs
Cgarette, cgar, and ppe ghters
Tota
210
190
1 9
61
61

-
-1
1

None
NODt
0
Neggbe
Neggbe
Negugre
-23
-
-at
-10
21
12
0
1
7

G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
27
1. Gasone and dese fue.
Secton 79 of the b provdes for a one-haf cent Increase In the gasone
ta , rasng the Federa gasone ta , provded by secton 3 12 of the Code, from
1 to 2 cents per gaon. Ths Is the same Increase as s provded by the
ouse b. Snce the ta on gasone s a specfc and not an ad vaorem ta ,
the percentage reatonshp of the ta to the reta prce w vary wth the
varaton n the prce of gasone. Thus, athough n 19 0 the ta was 6 per-
cent of the reta prce, ncudng ta , n 19 0 t was percent of the reta
prce. Ths s accounted for by the rse n the average prce of gasone n
the past 10 years. The average prce n 1939, for e ampe, was 13.3 cents
per gaon before the State ta , whe In 19 0 the average prce was 20 cents
per gaon. The acton by your commttee, whch woud resut n a ta equa
to about percent of the reta prce of gasone ncudng ta , does not qute
restore the reatonshp e stng n 19 0.
The consumpton of gasone has shown one of the most consstent patterns
of ncrease over the ast few decades. The producton of gasone n 19 0,
for e ampe, amounted to 61 mon barres and n 19 0 ths had ncreased
to 1,02 mon barres. The domestc demand for gasone has grown at an
average annua rate of 7 percent snce the end of Word War II and appears
to be ncreasng somewhat more rapdy now. The 19 0 demand for gasone
was 9 percent n e cess of the demand for 19 9 and the ureau of Mnes has
estmated that the demand n 19 1 w be 9 percent n e cess of the demand
In 19 0. Ths substanta Increase can, of course, n arge part be accounted
for by the ncreased numbers of passenger automobes and trucks on the road.
For e ampe, regstraton of automobes and trucks In the perod 19 to 19 0
ncreased over 0 percent. Under these condtons t appears probabe that an
ncrease n the gasone ta of the sze provded by ths b can ready be
passed on to the consumers of gasone. Ths appears especay key n vew
of the fact that, n the case of gasone, demand does not change much wth
varatons n prce.
Despte ths strong demand, the ncrease n the gasone ta s mted to a
haf cent per gaon. Payments for gasone represent costs of dong busness
n the case of gasone consumed by trucks and n the case of an mportant
segment of the gasone used n passenger cars. In addton to ths, your com-
mttee recognzes that the gasone ta represents an mportant source of revenue
to the States. The usua State ta ranges from to cents per gaon but eght
States have a 7 cents per gaon ta and one has a ta of 9 cents per gaon.
Too substanta an ncrease n the gasone ta by the Federa Government
mght affect the use of ths revenue source by the States.
The ouse b adds a new secton 2 0 to the Code mposng a ta of 2 cents
per gaon on dese fue for dese-powered hghway vehces. The ta s
mposed on the retaer seng the dese fue for hghway use and aso on
persons usng the dese fue n hghway vehces f no ta was coected from
the retaer.
Your commttee, athough recognzng that the faure to ta dese fue used
on hghways on the same bass as gasone s dscrmnatory aganst vehces
powered by gasone, does not ncude ths provson n ts b. s provded by
the ouse b, the ta woud be very dffcut to coect. The retaer seng
dese fue for hghway use aso ses the same fue for fue-o furnaces n
homes. Moreover, e perence wth ths ta at the State eve has aso n-
dcated a consderabe amount of evason where the ta s coected from the
persons usng the fue o n the hghway vehces, the second aternatve co-
ecton method provded by the ouse b. ecause of these dffcutes n
the admnstraton of ths ta , your commttee beeves that t s desrabe
to postpone the consderaton of ths probem unt t Is possbe to gve t
further study.
s a resut of not mposng ths ta on dese fue, the estmated revenue
whch t s antcpated w be coected n a fu year of operaton from the
gasone ta s 210 mon nstead of the 220 mon estmated for the
ouse b.
2. Passenger cars and motorcyces.
Secton 71 of the b ncreases the ta , provded by secton 3 03 of the Code,
on passenger cars and motorcyces from 7 to 10 percent of the manufacturers
prce. owever, your commttee s b removes the ta on house traers. The
ncrease provded for passenger automobes and motorcyces s the same as
that provded by the ouse b, but the ouse b eft the ta at 7 percent
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
n the case of house traers nstead of removng t. The present ta on
passenger ears on the average represents percent of the reta prce, ncudng
ta . The ncrease provded by ths b w rase ths to somewhat over 7 percent.
The demand for new passenger cars has contnued at a very hgh eve snce
the end of Word War II not ony because of the backog of demand from the
war perod when new cars were not avaabe, but aso because hgh ncome
eves have made the purchase of cars possbe to many persons not forruery
abe to buy them. The unt output n 19 0, for e ampe, represented 232 per-
cent of the output n 1939. Moreover, the vaue of the 19 0 output was
. bon, or about ve tmes the vaue of the output n 1939.
Despte the recent temporary decne n the saes of passenger cars, t appears
that the demand for them n the year 19 1 as a whoe w be at a very hgh
eve. owever, t appears probabe that the suppy of automobes avaabe
w be cut because of ther substanta use of crtca materas. Twenty per-
cent of the tota stee output, for e ampe, has been gong to the producton
of automobes. Stee aocatons for automobes were reduced n the second
and thrd quarters of 19 1 and at the present tme shortages of copper and
staness stee are affectng automobe producton. The output of passenger
cars n caendar 19 1 w probaby be appro matey the 19 9 eve whch was
sghty over mon, and s e pected to be substantay above the annua
producton n the 10 years pror to Word War II.
Under these condtons t appears probabe that an ncrease n ta of the sze
proposed by your commttee can ready be passed forward to the consumer
wthout any cut n the effectve demand for new passenger cars. Snce 1he ta
s not mposed on second-hand cars, whch n arge measure represent the pur-
chases made by the ower-ncome groups, t appears probabe that the ta
ncrease made by the b w not bear heavy on these groups.
owever, your commttee recognzes that cars represent a necessty to a arge
segment of the popuaton under present condtons and, therefore, deemed t
napproprate to ncrease the rate above 10 percent on the manufacturer s prce,
the rate appyng n the case o most manufacturers e cses. Moreover, the pur-
chase of a car represents a arger outay on the part of the consumer than s
true n the case of most other durabe consumpton tems, wth the resut that
the amount of the ta payment n these cases s arger than n the purchase of
other durabe goods and, therefore, key to be consdered more burdensome.
Your commttee s b removes the ta on house traers because t recognzes
that, durng perods of emergency such as the present, the buk of these house
traers are used for housng by defense workers, mtary personne and others
rather than as a means of transportaton.
It s estmated that n a fu year of operaton ths provson of the h w
ncrease revenues by 1 9 mon.
S. utomobe trucks, busses, and truck traers.
Secton 71 of the b aso ncreases the ta on automobe trucks, busses, and
truck traers, provded by secton 3 03 of the Code, from to percent of the
manufacturer s prce. Ths ncrease s the same as that provded by the ouse
h.
Snce, as prevousy noted, the ta on passenger cars s ncreased to 10 percent,
ths mantans the tradtonay ower ta for the types of automotve transporta-
ton especay desgned for busness. Your commttee beeves that t s desr-
abe to retan a ower ta on trucks and reated types of automotve transporta-
ton because t recognzes that these represent operatng costs to busnesses.
hgh rate of ta n such cases woud be key to be passed on n the prce of com-
modtes generay. owever, t s beeved that the moderate ncrease provded
by the b s desrabe on much the same grounds as the ncrease provded n
the case o passenger nutomobes: namey, the antcpated hgh demand for
ths type of automotve transportaton couped wth the kehood of a curta-
ment n the suppy avaabe.
It s estmated that n a fu year of operaton ths provson w ncrease
revenues by 01 mon.
. utomotve parts and accessores.
Secton 71 of the b aso ncreases the ta on automotve parts and acces-
sores, provded by secton 3 03 of the Code, from to percent of the manu-
facturer s prce. Ths ncrease s the same as that provded by the ouse b.
Snce the ta on automotve trucks, busses, and truck traers kewse s rased
to percent, ths w retan a unform rate of ta for these two types of tems.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
29
as s provded by present aw. ven though new cars are ta ed at 10 percent, the
parts and accessores for them, when not purchased wth the car, are ncuded n
the : ase of ths percent ta , because n many cases the parts for passenger
cars and trucks are nterchangeabe. Moreover, t s aso beeved desrabe to
mpose a ower rate of ta on parts and accessores for passenger cars than on
the new cars themseves, because the buk of the parts and accessores are pur-
chased by owners of od or second-hand cars who are argey n the ower-
ncome groups.
Wth respect to recondtoned or rebut parts, where such saes are sub|ect
to the parts and accessores ta under present aw, secton 71 of both your com-
mttee s b and secton 1 of the ouse b provde an amendment whch
e cudes from the ta base the far market vaue of any ke part traded n for
a recondtoned or rebut part. Where an automotve part s not performng
satsfactory and the car owner cannot afford a new one, he has the choce of
ether havng the od one recondtoned, usuay n a oca shop, or of tradng n
the od part on a smar one whch aready has been recondtoned. The frst
of these aternatves, havng the od part recondtoned, s not sub|ect to the
ta on automotve parts and accessores snce there s no transfer of tte. ow-
ever, ths aternatve s not wdey avaed of because the car owner s not abe
to use hs car durng the recondtonng perod. Under the second aternatve,
tradng n the od part on a smar one whch aready has been recondtoned,
there s a transfer of tte and therefore such saes are sub|ect to ta . The
amount sub|ect to ta n these cases s the charge to the car owner, pus the far
market vaue of the part he trades n. Ths not ony presents the dffcut
admnstratve probem of determnng the far market vaue of the od part,
but aso s nequtabe snce tradng n the od part s a substtute for reparng
the car owner s od part. Ony the vaue added n ths case coud be consdered as
new manufacturng, snce n effect the car owner aready owned the porton of
the recondtoned part representng the vaue of the od part. To ta hm on
the far market vaue of the part he turns n s to ta hm on somethng he
aready owns. The e cuson of the vaue of the trade-n, as provded by your
commttee s amendment, removes ths nequty. Ths aso removes the dffcut
admnstratve probem of determnng the far market vaue of the od part,
snce the ta base w be mted to the cash payment requred.
Secton 71 of your commttee s b, ke the ouse b, aso amends secton
3 3 of the Code to provde for a credt or refund of the ta on automotve parts
and accessores where the parts or accessores are used or resod for the repar
or repacement of farm equpment parts. owever, ths credtng or refund-
ng devce s not made avaabe n the case of spark pugs, storage batteres,
eaf sprngs, cos, tmers, and tre chans.
n e empton s aready provded by e stng reguatons for automotve parts
and accessores sod to manufacturers for use on new farm equpment wth the
e cepton of the tems specfcay sted above. The provson, therefore, merey
appes the same pocy to saes of repar or repacement parts, makng use, n
ths case, of a credtng or refundng procedure. Ths appears desrabe because
t s not beeved that Congress ever ntended to sub|ect farm tractors and
equpment generay to ths ta . Wth the e cepton of the specfc tems noted
above on whch the ta w st appy, t s beeved that these credts or refunds
w present no serous admnstratve probems.
It s estmated that the rate ncrease n the ta on automotve parts and
accessores, taken together wth the changes n the base of the ta , w ncrease
revenues n a fu year of operaton by 6 mon.
. Tres on toys, etc.
Secton 71 of the b aso makes a mnor revson n the -cent-per-pound
manufacturers ta on tres. Secton 3 00 of the Code s amended to e cude
from ths ta tres whch are not more than 20 nches n dameter and one and
three-fourths of an nch n cross secton f the tres are of a-rubber construc-
ton. The b aso e cudes tres wth nterna wre fasteners, rrespectve of
sze. Ths e empton s the same as that provded by the ouse b.
Under present aw, the ta on tres s appcabe to a tres regardess of the
use for whch they are ntended. Consequenty, t appes n the case of tres
for baby bugges, awn mowers, chdren s trcyces, scooters, coaster wagons,
etc. Snce the manufacturer s prce on tres of these typos s generay ow,
the -cent-per-pound tre ta may account for as much as 2 to 0 percent of
the prce of the tres. Thus, the ta on the tres of these toys, etc., appears
unreasonaby hgh n terms of ad vaorem rates. Moreover, t s not beeved
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
30
that It s a prmary purpose of the ta on tres to coect revenue wth respect
to artces of these types.
It s estmated that n a fu year of operaton ths change w resut In a
revenue oss of appro matey 1 mon a year.
G. ectrc, gts, and o apputtces. .
Secton 7 of the b e pands the base of the 10 percent manufacturers ta
on eectrc, gas, and o appances provded by secton 3 06 of the Code to
ncude the foowng househod types of tems not sub|ect to ta uuder present
aw:
1. ectrc vacuum ceaners.
2. ectrc washng machnes.
. octrc garbage dsposa unts.
. haust bowers.
. ectrc bet-drven fans.
6. ectrc or gas cothes drers.
7. ectrc door-chmes.
. ectrc dehumdfers.
). ectrc dshwashers.
10. ectrc foor poshers and wa ers.
11. octrc food choppers and grnder
12. ectrc hedge trmmers.
13. ectrc ce cream freezers.
1 . ectrc manges.
1 . ectrc moton- or st-pcture pro-
|ectors.
1G. ectrc pants pressors.
17. Power awn mowers.
1 . ectrc sheets and spreads.
It aso deetes eectrc heatng pads, ndustra-type drect motor-drven fans
and eectrc heaters of the bower type from the tems presenty sub|ect to ta .
The ouse b dd not mpose a ta on eectrc vacuum ceaners, eectrc washng
machnes, or eectrc garbage dsposa unts, but dd mpose a ta on eectrc
shavers. The ouse b aso dd not deete ndustra-type drect motor-drven
fans from the base of the present ta .
Of the tems added to the base of the ta , by far the most mportant n terms
of revenue are the eectrc washng machnes and vacuum ceaners. Of the re-
manng tems, power awn mowers, eectrc dshwashers, and eectrc and gas
cothes drers are the most mportant revenue producers.
The ta under present aw appes to
1. ectrc, gas, and o water heaters.
2. ectrc, gas, and o appances for cookng or warmng food or bever-
ages for consumpton on the premses.
3. ectrc drect motor-drven fans and ar crcuators.
. ectrc fatrons.
r . ectrc ar heaters (but not furnaces).
6. ectrc mmerson heaters.
7. ectrc heatng pas and bankets.
. ectrc m ers, whppers, and |ucers.
The tems added to the base of ths ta by your commttee are drecty or n-
drecty compettve wth many of the tems now n the base of the ta . n
e ampe of drect competton e sts n the case of the househod-tye drect
motor drven fans sub|ect to ta under present aw and the househod-type bet-
drven fans whch are presenty free of ta . acuum ceaners, washng machnes,
and garbage dsposa unts were added by your commttee because these are
eectrca appances of wde usage whch are at east ndrecty compettve wth
a arge number of the tems aready sub|ect to the appance ta or made so by
the ouse b. owever, your commttee dd not deem t approprate to rase
the rate of ths ta n vew of the fact that a number of tems n ts base are
generay consdered to be necesstes.
s n the case of passenger cars, t s antcpated that wth the current hgh
Income eves the demand for eectrc appances w reman strong, whe the
suppy avaabe s key to decne somewhat as a resut of the shft of crtca
materas from cvan products to products needed for the defense effort. The
stee used n eectrc appances, for e ampe, has been cut back by 30 percent for
the thrd quarter of 19 1. In vew of these fnctors, t appears unkey that
e pandng the base of ths ta to ncude the new tems sted above w have
any apprecabe effect upon the saes of the eectrc appances ndustry.
From the standpont of the consumer aso, ths ta does not appear to be very
burdensome. The data avaabe ndcate that ths ta tends to bear ess heavy
on the ower-ncome groups than most other e cse ta es now mposed. More-
over, ths 10 percent manufacturers ta , when e pressed as a percentage of the
reta prce of the eectrc, gas, and o appances, ncudng ta , represents ony
about a 0 percent ta .
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
31
ectrc heaMng pads wore removed from the base of the ta on eectrc, gag,
and o appances because these pads are e tensvey used for medca purposes,
and your commttee does not beeve that such tems are proper sub|ects for
e cse ta es. ectrc shavers, athough ncuded n the ouse b, are e cuded
from your commttee s b because they are compettve wth safety razors and
bades and straght razors whch are not sub|ect to e cse ta . Industra-type
drect motor-drven fans are e cuded from the base of the ta both because they
are busness cost tems and because they are compettve wth ndustra-type
bet-drven fans whch are not sub|ect to e cse ta .
Under present aw where the manufacturer ses an eectrc, gas, or o app-
ance at reta, on consgnment, or at ess than the far market prce, te Com-
mssoner s requred to determne the compettve far market prce. In the
case of one of the new tems added to the base of ths ta , vacuum ceaners, an-
other type of seng arrangement s foowed whereby the manufacturer negot-
ates the sae on behaf of the retaer. Snce the prce charged n such enses
does not represent a far prce for purposes of a ta base, the Commssoner,
under your commttee s b, s requred to determne such a prce whore these
seng arrangements are used n the same manner as where the manufacturer
ses at reta or on a consgnment bass.
It s estmated that n a fu year of operaton the now tems added to the base
of the eectrc-, gas-, and o-appances ta w ncrease revenues by nbout 71
mon a year, whe the e cuson of eectrc heatng pads, ndustra-type drect
motor-drven fans and eectrc heaters of the bower type w reduce revenues
by 2 mon annuay.
7. Navgaton recevers sod to the Unted States Government.
Secton 72 of the b makes a mnor revson n the base of the 10 percent
manufacturers e cse ta on rado recevng sets, teevson recevng sets, etc.,
mposed by secton 3-10 of the Code. communcaton, detecton, or navga-
ton recever of the type used n commerca, mtary, or marne nstaaton,
s e empted from ths ta under your commttee s b f sod to the Unted States
for ts e cusve use. Ths change s the same as that provded by the ouse b.
Ths e empton s granted to remove compance probems. No revenue s, of
course, nvoved, snce the ta n these cases today s utmatey pad by the
Unted States Government.
. Refrgeraton equpment.
Under present aw, a 10 percent manufacturers ta s mposed on househod
type mechanca refrgerators, quck-freeze unts, and refrgeratng and freezng
apparatus. In the case of refrgeratng and freezng apparatus, present aw pro-
vdes that the ta does not appy n the case of saes of refrgerator components to
manufacturers of refrgerators, quck-freeze unts or refrgeratng or coong ap-
paratus. Ths atter provson prevents the doube mposton of the refrgerator
ta where saes are made from one manufacturer to another. owever, n many
cases refrgeratng apparatus s sod frst to a whoesaer or |obber, who n turn
es the apparatus to a manufacturer. Under present aw, a doube mposton
of the refrgerator ta occurs n such cases uness the whoesaer s specfcay
regstered wth the ureau of Interna Revenue as a vendee of artces for resae
to manufacturers. Moreover, regstraton s mted to whoesaers who rese
to manufacturers of ta abe end products. Your commttee beeves that the
present ta treatment dscrmnates aganst whoesaers and that ths ta n-
terferes wth the norma channes of dstrbuton. For those reasons, your
commttee provdes In secton 73 of the b that, under reguatons prescrbed
by the Secretary, the ta on refrgeratng and freezng apparatus s not to appy
to saes of refrgerator components to whoesaers or |obbers where the compo-
nents are ntended for resae to manufacturers or producers of refrgeraton and
freezng equpment, f the components are actuay resod n ths manner. Ths
s accompshed by amendng secton 3 0 (b) of the Code. No smar provson
s contaned n the ouse b.
It s estmated that the revenue effect of ths provson of your commttee s
b w be neggbe.
9. Sportng goods.
Secton 7 of the b makes two changes n the 10 percent manufacturers ta
mposed on sportng goods by secton 3 06 of the Code.
Under present aw ths ta covers vrtuay a types of sportng equpment
athough toy or chdren-szed tems are e empted from ths ta n the case ot
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
32
certan types of sportng equpment. so, a number of artces sub|ect to the
sportng goods ta are used argey as a part of schoo and coege athetc pro-
grams. Saes for use n the pubc schoos are e empt (as purchases by subdv-
sons of State governments) so that the net revenue from ta ng these artces s
f|ute sma, athough the admnstraton of the e empton mposes a consderabe
burden on the sportng goods deaers. Moreover, the none empt saes of many of
the ta ed artces are made argey to prvate schoos, whch has been ob|ected
to on the grounds that t Is dscrmnatory treatment. For these reasons, the
frst acton of your commttee wth respect to the sportng goods ta s to remove
from the appcaton of the ta specfc types of artces whch are used pre-
domnanty for schoo sports and by chdren. Ths s the same as was provded
n the case of the ouse b wth the foowng e ceptons: your commttee
b e empts basebas and baseba equpment whe the ouse b ta ed them,
and your commttee s b ta es crcket bas and bats, acrosse equpment, skates,
and snow toboggans and seds whe the ouse b e empts these tems.
The second acton of your commttee s to rase the rate of ta from 10 percent
to 1 percent of the manufacturer s prce wth respect to the tems remanng n
the ta base, e cept fshng equpment. In ths case your commttee eft the
rate at 10 percent snce the recepts from ths source are not avaabe for genera
e pendtures. The rate ncrease from 10 to 1 percent provded by your com-
mttee s the same as that provded by the ouse b wth the e cepton that the
ouse b aso rased the ta on fshng equpment to 1 percent. Under present
aw the ta s about 6 percent of the reta prce ncudng ta and under both
bs w be between 10 percent and 11 percent of the reta prce.
It Is estmated that these two actons taken together w not have any effect
on revenue coectons, snce t s beeved that the addtona revenue whch w
be derved from the hgher rate of ta on the Items remanng n the base w be
appro matey equa to the revenue ost wth respect to the tems whch are e -
cuded from the base.
10. Photographc apparatus and fm.
Secton 3 06 of the Code mposes a 2 percent ta on saes at the manufac-
turers eve of photographc apparatus, whch s defned as ncudng cameras
weghng pounds or ess, enses, photographc apparatus and equpment, and
any apparatus or equpment desgned especay for photographc purposes.
1 percent manufacturers ta s aso Imposed on photographc fms (e cept
-ray fms), photographc pates, and senstzed paper. Under present aw. the
ta on fm s about 9 percent, and ta on equpment Is about 13 percent, of the
reta prce.
Secton 76 of your commttee s b reduces the ta on photographc apparatus
from 2 to 1 percent of the manufacturer s prce. No change s made n the
1 percent ta now appyng to fm or In the tems ncuded n the bases of ether
of these ta es. Thus, under your commttee s b, the ta on fm and equpment
w be between about and 9 percent of the reta prce of these tems.
The ouse b decreases the 2 percent ta on photographc apparatus to 20
percent and ncreases the 1 percent ta on fm to 20 percent. The ouse b
aso revses the bases of these ta es so that they are mposed ony on fm, cameras,
and enses whch, nsofar as s admnstratvey possbe, do not represent a cost
of dong busness. In the case of the ouse b, the ta on both fm and equp-
ment woud represent a ta of between 11 nnd 12 percent of the reta prce.
though your commttee s b provdes a 1 percent rate of tu for fm and
photographc equpment rather than Fhe 20 percent provded by the ouse b,
the revenue oss under your commttee s b s much smaer because the busness
cost tems are not deeted from the bases of these ta es. Your commttee beeves
that n vew of present revenue requrements t s not desrabe to reduce the
revenue obtaned from the photographc ta es by as much as woud be necessary
n order to remove a of these busness cost tems from ta .
It s estmated that the combned effect of your commttee s acton wth respect
to these ta es s to reduce revenues n a fu year of operaton by mon. The
changes provded by the ouse b woud reduce revenues by 23 mon annuay.
Your commttee s b aso makes an addtona mnor amendment to the photo-
graphc ta provdng that the ta or coor postve prnt fm s not to be n e cess
of the ta on back nnd whte postve prnt fm. Ths change s made to em-
nate a dscrmnatory compettve probem. In some cases under present aw
coored fm s sub|ect to the photographc ta because the coorng s added to the
fm by the photographc manufacturer. Ths resuts n a reatvey arge ta
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
33
base. In other cases the coorng Is added to the fm after t eaves the hands of
the photographc manufacturer wth the resut that the ta base n ths case s
reatvey sma. Your commttee s b removes ths dscrmnaton by pacng
no hgher ta on coor fm than on back and whte fm.
In the case of photofash bubs, the ouse b provdes foor stock refuuds.
That s, whoesaers, retaers and others havng nventores of photofash bubs
Intended for sae on the date the revson n the ta becomes effectve woud be
credted, or woud receve a refund, wth respect to the ta pad on ther nven-
tores of photofash bubs. No such foor stock refund Is provded n the case of
your commttee s b. Under the ouse b, the ta on these photofash bubs
was decreased from 2 percent to zero. Under your commttee s b, the ta s
decreased from 2 to 1 percent. Your commttee beeves that ths smaer
decrease n ta substantay decreases the hardshp whch woud arse n the
absence of a foor stock refund on these photofash bubs. Ths, combned wth he
admnstratve probems nvoved In makng foor stock refunds, accounts for the
absence of ths provson n your commttee s b.
11. ectrca energy.
Secton 3 11 of the Code Imposes upon vendors of eectrca energy sod to
domestc or commerca consumers a ta equa to 3 percent of the prce charged.
Secton 7 of the b repeas ths ta . Ths ta s aso repeaed by the ouse
b.
ta on eectrca energy Is not beeved to be a desrabe part of the e cse
ta revenue system for severa reasons. Frst, the ta s beeved to be one
of the more burdensome of the e cse ta es wth respect to the ower-ncome
groups, snce amounts pad by consumers for eectrca energy tend to vary
reatvey tte wth varatons n ncome. Thus, the eectrca-energy ta
pad by the hgher-ncome groups does not generay represent as arge a per-
centage of ther ncome as s true of the ower-ncome groups. Second, power
companes have found t dffcut and burdensome to determne whch customers
are domestc or commerca consumers, and therefore ta abe, and whch are
Industra consumers, and therefore e empt. Ths has presented a partcuary
dffcut probem n the case of busnesses engaged In both commerca and
ndustra actvtes. Thrd, the ta under e stng aw does not appy to
pubcy owned eectrc power pants or to systems owned and operated by
cooperatve or nonproft corporatons engaged n rura eectrfcaton. Thus,
snce there s genera agreement that ths ta s passed on to the consumers,
the present ta treatment has the effect of mposng a ta on persons purchasng
eectrca energy from prvate uttes, whe mposng no ta on persons pur-
chasng eectrca energy from muncpates, the Federa Government, or R
cooperatves. To Impose the ta on some consumers and not on others s be-
eved dscrmnatory, and snce your commttee beeved that t was not de-
srabe to e tend ths ta to muncpates, the Federa Government, or R
cooperatves, the b repeas ths ta .
It s estmated that n a fu year of operaton the repea of ths 3 percent
eectrca-energy ta w reduce revenues by 10 mon annuay.
IS. Fountan pens, ha-pont pens, and mechanca pencs.
Secton 77 of your commttee s b adds a new secton 3 0 to the Code
mposng a 10 percent manufacturers ta on fountan pens, ba-pont pens, and
mechanca pencs. The ouse b aso added ths ta but provded a 20
percent rate. t the present tme some pens and pencs are sub|ect to the
20 percent reta ta on |ewery and reated tems where they have nonessenta
parts whch are ornamented wth precous metas. To prevent doube ta aton,
these pens and pencs are not ncuded n the base of the new manufacturer s
ta .
Consderaton was gven to e tendng the ta on |ewery and reated tems to
a fountan pens, ba-pont pens, and mechanca pencs, but ths was dscarded
because the ne pensve types of such tems are frequenty sod n stores whch
are not accustomed to the coecton of the |ewery ta . Moreover, your com-
mttee owered the rate of ta provded by the ouse b to 10 percent snce
an mportant segment of the cheaper pens and pencs are purchased by schoo
chdren.
It s estmated that n a fu year of operaton ths acton by your commttee
w ncrease revenues by 12 mon annuay. The ouse provson woud
have Increased revenues by 2 mon a year.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
13. Cgarette, cgar, and ppe ghters.
Secton 77 of your commttee s b Imposes a manufacturer s ta on a
mechanca ghters for cgarettes, cgars, and ppes whch are not now ta ed
as |ewery. The manufacturer s ta on mechanca ghters s mposed at a
30 percent rate, the genera rate at whch most manufacturers ta es are
mposed. The ouse b provded a 20 percent ta at the reta eve for these
mechanca ghters. In vew of the arge number of reta outets seng
mechanca ghters, your commttee beeves that t Is more desrabe to mpose
ths ta at the manufacturer s eve.
It s estmated that n a fu year of operaton ths acton by your commttee s
b w ncrease revenues by neary 1 mon a year. It s estmated
that the provson n the ouse b woud ncrease revenues by about 2 mon
n a fu year of operaton.
D. T II. CIS S
The revenue effect of the b n a fu year of operaton wth respect to reta
ta es s as foows:
In mons
ouse
bU
Commttee
b
12
to
-7
-
-7
1. Cgarette, cgar, and ppe ghters.
The ouse b e tends the 20 percent ta on |ewery and reated tems to cover
a mechanca ghters for cgarettes, cgars, and ppes. Your commttee s b
appes a manufacturers ta to a mechanca ghters for cgarettes, cgars,
and ppes not now ta ed as |ewery and for that reason the dscusson of the
ta s ncuded above wth the manufacturers e cses.
2. Toet preparatons.
Secton 31 of your commttee s b makes two changes n tb; 20 percent reta
ta on toet preparatons mposed by secton 2 02 of the Code. These are the
same changes as are made by the ouse b.
The frst of these changes e empts from ths ta baby os, powders, otons,
and other toet artces uness they are advertsed or sod as beng usabe by
nduts. Your commttee beeves that these tems fa wthn the category of
necesstes and shoud not be sub|ect to ta .
The second change e empts toet preparatons purchased by barber shops
and beauty parors for use n these estabshments. Under present aw these
tems are sub|ect to ta at the tme they are purchased by the barber shop or
beauty paror. owever, toet preparatons purchased by a barber shop or
beauty paror for resae to customers are not ta abe unt sod to the utmate
user. To dstngush the purchases for resae made by the barber shop or
beauty paror from the purchases for ther own use, the estabshment s requred
to fe a certfcate, f no ta s pad at the tme of purchase, ndcatng that
the tems w not be used n the estabshment. Such certfcates are not
presenty requred n the case of ta -pad purchases for use n the estabshment.
Ths dfference n treatment has resuted n consderabe confuson among the
barber shop and beauty paror operators. Moreover, the ta ng of the tems used
n the estabshment tsef represents the ta ng of busness cost tems. The b
emnates these probems by repeang the ta on toet preparatons purchased
by barber smps, beauty parors, and smar estabshments f ntended for use
n such estabshments. It s aso ntended by the adopton of ths amendment
to emnate the requrement of e empton certfcates n connecton wth saes
of cosmetcs to barber shops and beauty parors ether for professona use theren
or for resae once the busnesses have estabshed ther nonta abe status as
barber shops or beauty parors.
It s estmated that n a fu year of operaton the e cusons from the base of
the ta on toet preparatons made by ths b w reduce revenues by 7 mon
annuay.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
. TR NSPORT TION ND COMMUNIC TION CIS S
The revenue effect of the ouse b and your commttee s b n a fu year
of operaton on the transportaton and communcaton e cses s dstrbuted
among the varous ta es as fuows:
In mons
ouse
b
Commttee
b
Domestc teegraph, cabe, and rado messages
-
- 1
0
Neggbe
Neggbe
Neggbe
Transportaton of persons
Neggbe
3
Transportaton of property L
Tota
-
-1
1. Domestc teegraph, cabe, and rado messages.
Sectons GfO and 3 6 of the Code mpose a 2 percent ta on amounts pad
for domestc teegraph, cabe, or rado dspatches of messages. Secton 1 of
your commttee s b reduces the ta on domestc teegraph, cabe, or rado mes-
sages to 1 percent, nstead of to the 20 percent provded by the ouse b.
Snce Word War II, teegraph servce n the Unted States generay has been
carred on at a defct. In the forepart of ths year, the servce was operated at
n proft, but wage ad|ustments whch have recenty been made have agan paced
teegraph servce n a defct poston. y reducng ths ta on teegraph servce,
your commttee antcpates that t w be possbe to decrease the amount pad
for teegraph messages, and that as a resut the voume of busness done w be
ncreased and the proft poston of the ndustry mproved. Teegraph servce
not ony s essenta to the cvan economy but aso s essenta to natona
securty. The 1 percent rate of ta provded by your commttee s b for
domestc teegraph, cabe, and rado dspatches s the same rate of ta as now
appes to the ma|or porton of the busness done by those corporatons whch
were the chef compettors of corporatons renderng teegranh servce.
In a fu year of operaton t s antcpated that reducng the ta on domestc
teegraph, cabe, and rado messages from 2 to 1 percent of the charge w
reduce revenues by 1 mon, as contrasted to a oss of S mon f the rate
were reduced to ony 20 percent as provded by the ouse b. In the ong run,
however, t s beeved that much of the oss may be offset by an ncreased
voume of teegraph busness.
2. Long-dstance teephone cas to or from members of the rmed Forces n
combat areas.
Secton S2 of your commttee s b provdes that the 2 percent ta on ong-
dstance teephone cas s not to appy to cas from combat zones ntated by
members of the rmed Forces. It has been brought to your commttee s attenton
that the ta n these cases frequenty comprses a very szabe amount. It be-
eves that ths ta shoud be removed n vew of the morae sgnfcance of such
communcatons. The ouse b contans no smar provson.
The revenue oss from ths amendment w be neggbe.
3. Transportaton of persons.
Tour commttee s b makes two changes n the 1 percent ta on amounts
pad for the transportaton of persons provded by sectons 1C 0 and 3 09 of the
Code. One of these e empts certan fshng trps from the ta on the transpor-
taton of persons. Ths provson s the same as that contaned n the ouse
b. Under present aw amounts pad for transportaton n boats where the
transportaton takes pace for the soe purpose of fshng from the boat have
been hed to be ta abe under these sectons. In the case of fshng-boat actv-
tes, t s customary for the operators of such boats to make a ump-sum charge
for a fshng trp, ncudng not ony the charge for the transportaton, but aso
charges for such servces as the use of fshng tacke, a suppy of bat, food
served on the boat, etc. The necessty of breakng down ths ump-sum charge
to determne the proporton of the tota whch represents the ta abe charge for
transportaton has been a dffcut probem both for the fshng boat operators
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
36
and the ureau of Interna Revenue. Moreover, athough fshng trps are
techncay defned as transportaton, they are not generay consdered so by
ymen. s a resut the ta on fshng trps has brought numerous compants
from sportsmen and has aso created troubesome coecton and compance
probems for the Government. Secton 3 of the b e empts from the ta on
the transportaton of persons amounts pad for transportaton by boat for the
purpose of fshng from such boat.
The second change made by your commttee n the ta on the transportaton
of persons e cudes from the appcaton of the ta amounts pad n the case
of certan types of transportaton by vesses. Ths provson s not contaned n
(he ouse b. In 19 7 the ta on the transportaton of persons was amended
to e cude, from the appcaton of (he ta , amounts pad fcr transportaton out-
sde of the northern porton of the Western emsphere. owever, amounts
pad for transportaton partay wthn Unted States, Canada or Me co, and
partay outsde of the northern porton of the Western emsphere, were con-
tnued under the ta wth respect to that part of the transportaton whch s
from any port or staton wthn the Unted States, Canada, or Me co to
any other port or staton wthn the Unted States, Canada, or Me co. Ths
has tended to dscrmnate aganst certan mercan, Canadan, and Me can
ports where vesses, f t were not for ths ta , woud make ntermedate stops
for servcng and refueng, but presenty do not do so because ths woud
Increase the porton of the trave charge on whch ther passengers woud have
to pay ta . For e ampe, under present aw a vesse eavng New York for
London s unkey to stop at oston for servcng or refueng, snce to do so
woud sub|ect a part of the tckets purchased by ther passengers to the trans-
portaton ta . For that reason secton of your commttee s b provdes
that n the case of transportaton by vesses makng ntermedate stops at
ports n Unted States, Canada, or Me co on voyages between Unted States and
a port outsde of the northern porton of the Western emsphere, the charge
for the transportaton between the ntermedate stop and the port n the Unted
States, where the transportaton begns or ends, w not be sub|ect to the
transportaton ta , If the vesses are not authorzed to dscharge or take on
passengers at the ntermedate stops.
It s beeved that the revenue oss from these changes n the ta on the
transportaton of persons w be neggbe.
. Transportaton of property.
Under present aw secton 3 7 of the Code mposes a 3 percent ta on amounts
pad for the transportaton of property (n the case of coa the ta s cents
per short ton). In the case of budng contractors, haung drt, rocks and
other e cavaton matera to some desgnated pace the ureau of Interna
Revenue has hed that a charge s beng made for the transportaton of property
and, therefore, that such haus are sub|ect to ta . (Where e cavaton matera
has been removed wthout desgnatng the pace t s to be taken, no ta has
been apped, snce the ureau has consdered ths to be merey the payment
for remova of waste rather than a charge for the transportaton of property.)
owever, snce March 13, 1931, the ureau of Interna Revenue as foowed
the rue ad down by the Thrd Crcut Court of ppeas n dward . s f
,So s, Inc., v. Unted States that where e cavaton matera has been haued
from one pont on a constructon pro|ect to another pont on the same pro|ect,
no transportaton ta s due. owever, ta st Is Imposed where the e cava-
ton matera s taken off the constructon pro|ect to some desgnated pace, even
though such pace s ad|acent to, or near the constructon pro|ect. Your com-
mttee beeves that the mposton of the ta n such cases, whe no ta s
mposed f the e cavaton matera s not removed from the ste of the con-
structon pro|ect, represents too ne a ne of dstncton to be drawn. For that
reason secton of your commttee s b e empts from ths ta charges made
for the use of motor vehces by contractors for the movement of earth, rock,
or oer e cavated matera from a constructon pro|ect to an ad|acent area.
No such e empton s provded by the ouse b.
Your commttee dd not, however, accept the change made In the ta on the
transportaton of propery by the ouse b. The ouse b e tends the 3
percent ta on the transportaton of property to the far charge where shp-
pers are transportng ther own o and n other cases where the amount pad
for the transportaton of o s ess than a far charge. The ta on the trans-
portaton of property at present appes soey where property s transported
for a charge. The ouse amendment woud represent an e cepton to ths rue,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
37
and your commttee sees no more reason why a ta shoud be mposed where
shppers.are transportng ther own o than where an ndvdua Is transportng
hs own property, by truck. Snce such a genera e tenson of the ta on the
transportaton of property s not admnstratvey feasbe, your commttee be-
eves that t woud be undesrabe to seect the soated case of the transporta-
ton of o by owners for the mposton of a ta .
It s beeved that your commttee s amendment wth respect to the haung
of e cavaton matera w have a neggbe effect on revenues. owever, snce
your commttee s b does not contan the provson of the ouse b mposng
the transportaton ta where shppers are transportng ther own o, t s
estmated that revenue from the ta on the transportaton of property w be
about 3 mon ess per year than under the ouse b, athough there s no
oss under your commttee s b as compared wth present aw.
F. CIS S ON MUS M NTS OR R CR TION
It s estmated that the changes made n the e cses on amusements and
reoreaton under the ouse b and under your commttee s b w resut n
a net oss n revenue n a fu year of operaton as foows:
In mons
ouse
b
Commt tea
b
- 22
Neggbe
1
- 1
Neggbe
0
Cabaret
Occupatona ta on bowng aeys and bard and poo tabes
Tota
-21
-1
1. Genera admssons.
Sectons 16 0 and 1700 of the Code mpose a ta of 1 cent for each cents or
ma|or fracton thereof charged for admsson. oth the ouse b and your
commttee s b make two ehanges n the appcaton of ths ta .
oth your commttee s b and the ouse b provde e emptons from the
admssons ta where the proceeds nure to certan types of organzatons.
The e emptons provded by your commttee s b are, however, more restrctve.
Secton 02 of your commttee s b e empts from ths ta admssons where a
the proceeds nure to
1. Churches or conventons of churches.
2. ducatona organzatons f such organzatons normay mantan
reguar facutes and currcua and normay have reguary organzed
bodes of pups or students n attendance at the paces where ther educa-
tona actvtes are reguary carred on.
3. Chartabe organzatons If such organzatons are supported n whoe
or n part by funds contrbuted by the Unted States or any State or potca
subdvson thereof, or are prmary supported by contrbutons of the
genera pubc.
. Socetes or organzatons conducted for the soe purpose of mantan-
ng symphony orchestras or operas and recevng substanta support from
vountary contrbutons.
. Natona Guard organzatons.
6. Reserve offcers organzatons.
7. eterans organzatons.
. Poce or fre departments, penson or retrement funds set up for the
beneft of ther members and funds set up for the beneft of the hers of
members.
owever, n the case of any of the above types of organzatons, admssons are
not e empt f they are to
1. Moton-pcture e hbtons.
2. Wrestng and bo ng matches.
3. Carnvas, rodeos, or crcuses where professonas partcpate for
compensaton.
. thetc contests uness the proceeds nure e cusvey to the beneft of
eementary or secondary schoos.
eSOS 2 3
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
Your commttee s b aso e empts genera admssons to nonproft agrcuture
fars, admssons to concerts conducted by nonproft cvc assocatons, adms-
sons to swmmng poos and other paces provdng factes for physcs
e ercse operated by a governmenta unt, admssons to a home or garden whch
s temporary opened to the genera pubc as a part of a program conducted
by a socety or organzaton to permt the nspecton of hstorca homes and
gardens If no part of the proceeds nures to the beneft of any prvate person,
and admssons to hstorca stes, .houses, and shrnes, and assocated museums
f operated by an organzaton for the preservaton of such pace and f no
proceeds nure to any prvate person.
The e emptons as descrbed above are smar to the e emptons provded
n the ouse b and the e emptons provded pror to the passage of the
Revenue ct of 19 1. owever, they are more restrctve than ether of these
other two sets of e emptons n order to remove admnstratve probems, and
aso n an attempt to mt the beneft of the e empton to actvtes whch t
appears approprate for the Government to encourage. Most of the actvtes
to whch these e emptons are appcabe are a part of the egtmate functon;
of organzatons or nsttutons whch frequenty are Government-supported or
have been accorded ta e empton on ther own ncome. ecause t appears
nconsstent to ta admssons to actvtes whch are drecty reated to the
egtmate functons of these organzatons or Insttutons, your commttee
renstates these e emptons, mted as provded above. owever, your com-
mttee has attempted to contnue the ta n those cases where the organzatons
are carryng on actvtes whch are In drect competton wth ordnary ta abe
busnesses as s true, for e ampe, n the case of moton pcture e hbtons
and certan types of carnvas, rodeos or crcuses. It s estmated that these
e emptons w resut n a revenue oss of appro matey 12 mon n a fu
year of operaton. It s estmated that the e emptons provded by the ouse
b woud decrease revenues by 16 mon.
The second change n the admssons ta , made by secton 01 of ths b,
deas wth the amount pad for admsson. Ths change s the same as that
made by the ouse b. Under present aw a person admtted free or t
reduced rates s requred to pay the same amount of ta as a person who s
charged the reguar admsson prce, uness he Is an empoyee, a muncpa offcer
on offca busness, a chd under 12, or (f admsson s free) a hosptazed
servceman or veteran. Your commttee beeves that requrng a person to pay
a ta based on a arger admsson prce than the amount actuay charged hm
Is contrary to the genera prncpa of an ad vaorem ta . Moreover, t does
not appear that the admnstraton of the ta s factated by ta ng free
admssons at the estabshed prce, and t represents a source of rrtaton to
the pubc. Secton 01 of your commttee s b, therefore, e empts free ad-
mssons from ta and bases the ta on amounts actuay pad where persons
are admtted at reduced rates.
It s estmated that the revenue oss from ths change In the base on whch
the admssons ta s pad w amount to mon n a fu year of operaton.
S. Cabaeta.
Secton 0 of your commttee s b reates to the appcaton of the 20
percent ta on cabarets to barooms and dancng has. Some courts have
construed the cabaret ta to appy n the case of barooms and dancng has
merey because t was possbe to purchase ncdenta refreshments, servces,
or merchandse In such paces. oth your commttee s b and the ouse b .
amend secton 1700(c) of the Code to provde that the cabaret ta sha not
appy n such cases. It s estmated that the revenue effect of ths provson
w be neggbe.
S. orng art/s and bard and poo tabes.
Secton 320 of the Interna Revenue Code Imposes a speca occupatona
ta on bowng aeys, bard or poo tabes of 20 per year per aey or tabe.
The ouse b rases ths ta from 20 to 2 , but your commttee s b retans
the ta of 20 provded by e stng aw.
It s estmated that the ouse provson woud have ncreased revenues by
1 mon annuay. Your commttee s acton w not change the revenues
derved from ths source under e stng aw.
G. CIS S ON G M LING
The addtona revenue estmated to be derved from the ta es on gambng
In a fu year of operaton s dstrbuted among the varous e cses as foows:
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
39
h mons
Commttee
b
Occupatona ta on con-operated gamng devces
Ta on wagers
Occupatona ta on the busness of acceptng wagers.
7
00
7
MO
Tota
07
Wth respect to the estmate of 00 mon frm the two wagerng ta es, snce
ths s a fed of ta aton wth whch the Federa Government has had no prevous
e perence and because there s uncertanty as to the actua amount of the ta
base, the commttee recognzes that t s dffcut to estmate too cosey the actua
revenue whch these new ta es w yed.
Secton 61 of your commttee s b adds a new chapter 27 to the Code whch
mposes a 10 percent e cse ta upon wages of certan types, prncpay those
paced wth bookmakers and ottery operators, and a 0 per year occupatona
ta both upon persons engaged n acceptng such wagers and upon persons who
receve wagers for the persons so engaged. Ths s the sam as the provson
contaned n the ouse b.
Commercazed gambng hods the unque poston of beng a mut-bon-
doar, Naton-wde busness that has remaned comparatvey free from ta aton
by ether State or Federa Governments. Ths reatve mmunty from ta aton
has perssted n spte of the fact that wagerng has many characterstcs whch
make t partcuary sutabe as a sub|ect for ta aton. Your commttee s
convnced that the contnuance of ths mmunty s nconsstent wth the present
need for ncreased revenue, especay at a tme when many consumer tems of
a semnecessty nature are beng caed upon to bear new or addtona ta
burdens.
The commttee recognzes that, whe Federa aw mposes no genera prohb-
ton upon gambng, varous forms of wagerng are ega under the aws of
most States. s a resut, proposas for a Federa ta on wagerng are sometmes
crtczed as n effect sanctonng the carryng on of gambng actvtes n voa-
ton of such aws. The commttee does not share ths vew. Snce ts ncepton,
the Federa ncome ta has apped wthout dstncton to ncome from ega
ns we as ega sources, and t has never been generay supposed that such
appcaton carred wth t any mped authorzaton to carry on ega actvtes.
Moreover, n the fed of e cse ta es the ta on con-operated gambng devces
has been apped wthout regard to whether or not the operaton of a partcuar
machne s n voaton of State or oca aw. The present b conforms to ths
pattern and mposes ta wthout regard to the egaty or egaty of the
partcuar wager.
The b specfcay provdes that payment of ether the ta on wagers or the
occupatona ta sha not serve to e empt any person from any penates pro-
vded under ether State or Federa aw wth respect to engagng n the ta ed
actvtes.
1. Ta on wagers.
The wagerng ta whch both your commttee s b and the ouse b mposes
Is paced upon wagers, wthout regard to the outcome of ndvdua bets. Ths
method of ta aton s comparabe to State ta aton of par-mutue poos and s
partcuary approprate wth respect to wagerng wth bookmakers and n
otteres, especay of the type commony known as the numbers game. The ta
s mted (1) to wagers on sports events or contests paced wth a person engaged
n the busness of acceptng such wagers, (2) to wagers paced n a wagerng
poo whch nvoves a sports event or contest, f the poo s conducted for proft,
and (3) to wagers paced n a ottery conducted for proft. It s beeved thnt
wagerng transactons of these types make up by far the argest proporton of
the tota gambng busness.
Whe bettng on horse races probaby represents the argest snge category of
gambng actvty, other than n otteres, the ta w e tend to wagers on any
other sport, such as przefghts, basketba, baseba, or footba, ncudng sports
e hbtons and tras. Moreover, the event wagered upon need not be a sports
actvty but can be any type of contest, such as an eecton or the outcome of
prmares and nomnatng conventons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
Wagers on sports events or contests, to be ta abe, must be paced wth a
person engaged In the busness of acceptng such wagers. The purpose of ths
requrement s to e cude from ta the purey soca or frendy type of bet
perst n s consdered to be n the busness of acceptng wagers f be s en-
gaged as a prncpa who, n acceptng wagers, does so on hs own account.
The prncpas n such transactons are commony referred to as bookmakers,
athough t s not ntended that any technca defnton of bookmakor, such
as the mantenance of a handbook or other devce for the recordng of wagers,
be requred. It s ntended that a wager be consdered as paced wth a
prncpa when t has been paced wth another person actng for hm. Pers ns
who receve bets for prncpas are sometmes known as bookmakers agents
or as runners. It s not ntended that to be engaged n the busness of
acceptng such wagers a person must be ether so engaged to the e cuson of
a other actvtes or even prmary so engaged. Thus, for e ampe, an n-
dvdua may be prmary engaged as a saesman, and aso, for the purposes
of ths ta , be engaged n the busness of acceptng wagers.
s prevousy stated, wagers paced n a wagerng poo wth respect to a sports
event or a contest are ta abe f the poo s conducted for proft. The requre-
ment that the poo be operated for proft s desgned to emnate from the
ta base those poos whch are occasonay organzed among frends or other
assocates, a of the contrbutons beng dstrbuted to the wnner or wnners.
poo woud be consdered as beng operated for proft, f, for e ampe, a person
approprated to hmsef a percentage of the amount contrbuted to the poo or
requred a fee for the prvege of contrbutng to the poo.
s n the case of bookmakng transactons, a wager w be consdered as
paced n a poo or n a ottery whether paced drecty wth the person who
conducts the poo or ottery or wth another person actng for such a person.
contrbuton to a ottery w be consdered n ta abe wager ony f the
ottery s conducted for proft, as n the case wth respect to wagerng poos.
though the b does not contan an a-ncusve defnton of the term ottery,
n genera the term Is ntended to mean any scheme for the dstrbuton of
property by cmnce among persons who have pad or have agreed to pay a vauabe
consderaton for te chance, whether caed a ottery, raffe, gft enterprse, or
some other name. The b specfcay provdes that the tPrm Incudes pocy
or the so-caed numbers game and smar types of waterng. 1 ocy, or ts
varous dervatves, s usuay a scheme wheren a payer seects a number,
severa numbers, or a seres of numbers and pays or agrees to pay a certan
amount n consderaton of whch the person to whom the money s pad engages
to pay a prze f the number or numbers seected by the payer nppear or are
pubshed n combnatons whch consttute n wnnng combnaton. (Con-
cevaby the use of etters or other symbos coud be substtuted for numbers,
but ths woud not ater the fundamenta nature of the game as a ottery.)
The wnnng numbers n pocy are usuay based upon some reguary pubshed
scres of numbers such as weeky saes reports of n stock e change or commodty
e chnpge, Unted States Treasury baance reports, or the wnnng horses of a
seres of prevousy numbered horse rnces. The above descrpton s not In-
tended to be restrctve as your commttee s we aware of the possbty that
e stng methods of pay may be changed n an effort to escape the ta whch the
b mposes.
ecause the term ottery s ntended to be broady construed n order to
mt the opportuntes for avodance, yuur commttee has specfcay e cuded
from the term certan types of gambng games whch mght otherwse come
wtn ts technca meanng athough perhaps not commony so consdered.
Thus, both bs e cude from the term ottery any game of a type n whch
the wagers are usuay paced, the wnner or wnners are usuay determned,
and the dstrbuton of przes or other property s usuay made, n the presence
of a persons pacng wagers n the game. mong those games whch are wthn
the scope of the e cuson woud be card games such ns draw poker, stud poker,
and back|ack, rouette games, dce games such as craps, bngo, and keno games,
and te gambng whees frequenty encountered at country fars and charty
bazaars. On the other hand, punchbuurds woud uot normay be e cuded under
ths defnton.
Tour commttee has e cuded the above types of gambng not because of any
beef that they are not sutabe sub|ects for ta aton. owever, the method of
ta aton provded, whe partcuary approprate to bookmakng and to pocy
operaton, does not appear ready adaptabe to these other forms of gambng.
For e ampe, there are obvous practca dffcutes n ascertanng the gross
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
amount of wagers made n the course of a dce game and other games n whch
there s drect and contnuous payer partcpaton. Moreover, wth respect to
card games t s frequenty dffcut to ascertan who, f anybody, s the person
operatng the game and what hs ta abty shoud be. In some cases, a person
may operate the bank drecty. In other cases, he may take a percentage of, or
mpose a fat charge on, each pot or may smpy evy a charge for the use of
factes such as a room. Moreover, many of these types of games are frequenty
engaged n on a frendy or soca bass rather than professonay. df-
ferentaton for ta purposes between frendy and professona games woud
create serous statutory and admnstratve probems. It s not e pected that
ths probem w e st to any serous e tent n the areas wthn whch the b
does mpose ta . For e ampe, nonprofessona bettng on horse races s prob-
aby nsgnfcant n amount. Furthermore, whe wagerng games of the type
e cuded from the ta may represent mportant aspects of commercazed
gambng n certan ocates, they consttute a reatvey sma proporton of
the tota wagerng transactons n the Unted States. Moreover; ony a porton
of such professona games are n fact carred on n gambng casnos or other
permanent estabshments whch mght concevaby be dentfabe for ta pur-
poses. It appears that a substanta and perhaps predomnant part of such
actvtes are n the nature of foatng games. That s, the operators of a
game w estabsh themseves n a ocaty, often n a hote room, for a perod
of tme as short as 1 or 2 days, and then move on to another ocaty. The
transency of such actvtes s not characterstc of the wagerng operatons
upon whch the b does mpose ta . ookmakers and pocy operators both
depend upon an estabshed centee, whch requres a certan permanency of
ocaton. In any event, your commttee beeves that the ta provded w
cover at east GO percent of tota commerca wagerng.
oth bs provde specfcay that the ta sha not appy wth respect to
wagers paced n par-mutue wagerng enterprses censed under State aw.
Such wagerng s presenty sub|ect to substanta State and, n some nstances,
oca ta aton, and to supermpose a Federa ta upon these transactons woud
ony serve to mantan the e stng advantage whch bookmakers en|oy over
par-mutue bettng by reason of ther mmunty from par-mutue ta es.
so e cuded from the ta are wagers paced n con-operated devces wth
respect to whch an occupatona ta s mposed by secton 3207 of the Code.
Your commttee beeves that, for admnstratve reasons, the method of ta a-
ton whch s presenty apped wth respect to such machnes s preferabe to an
e tenson of the wagerng ta nto ths area.
The bs provde that, for the purposes of the ta , the term ottery does
not ncude any drawng conducted by organzatons e empt from ta under
secton 101 of the Code where no part of the net proceeds derved from such
drawng nures to the beneft of any prvate sharehoder or ndvdua. It Is, of
course, contempated that the reguatons w requre the e penses of such a
drawng, such as saares pad to the actua operators, to be reasonabe n
amount f the e empton s to be aowed. Furthermore, any agreement to pay
as compensaton a percentage of the amounts contrbuted woud be a cear nd-
caton that the drawng s not wthn the e empt category.
Labty for the wagerng ta s paced upon the person who s engaged n
the busness of acceptng wagers or who conducts the poo or ottery. Thus,
the ta s to be coected from the bookmaker proper or from the person who
conducts the | oo or ottery as the prncpa. Monthy returns of ta are
requred.
credt s provded n the case of so-caed ay-off money. ookmakers and
pocy operators generay attempt to baance one bet aganst another. per-
fect mathematca bookng of any race woud nsure a proft regardess of the
utmate outcome. owever, horserace bookmakers today sedom set ther own
odds but pay oft wnnng bets upon the bass of the actua par-mutue payoff at
the track concerned. Furthermore, pocy operators normny pay off on the
bass of f ed odds, such as 700 to 1, whch reman constant from day to day,
athough ower odds may be mantaned wth respect to certan heavy payed
numbers.. ecause they are unabe to vary the odds n accordance wth amounts
wagered, bookmakers and pocy operators sometmes fnd that they have
accepted a greater amount of wagers upon a certan horse or number than they
are wng to carry on ther own account. In order to avod the rsk nherent
n acceptng such dsproportonate amounts of wagers, the bookmaker or pocy
operator ays off a porton of hs bets wth another bookmaker or pocy
operator. In such cases t s the person wth whom the bet s ad off who bears

G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
the actua rsk of the wager even though t s the person wth whom the bet was
orgnay paced that the bettor ooks to for hs wnnngs or to whom he pars hs
osses. It s provded wth respect to such ad-off wagers that the bookmaker or
pocy operator who orgnay accepts the wager sha be abe for the 10 percent
ta upon t but may cam a credt or refund for the amount of the ta f the
bet s ad oft wth another person who aso s abe to the wagerng ta . Thus,
f a bookmaker accepts a 100 wager and ays off 60 of the wager wth another
bookmaker, he s ta abe upon the 100 wager but may cam a credt or refund
of ta wth respect to the 60 ad off. In ths manner, mutpe ta aton of
the same wager s avoded. Whe certan tracng dffcutes may be antc-
pated as a resut of ths provson, t s beeved that the credt procedure w
factate ta enforcement by makng avaabe to the coecton agences nfor-
maton of arge bookmakng operatons whch mght not otherwse be ready
obtanabe. It s contempated that the reguatons w requre the mantenance
of records whch w nsure that the person wth whom the wager s ad off s
dentfabe as a person aso sub|ect to the wagerng ta .
The credt w be aowabe ony wth respect to amounts ad off wth persons
aso abe to the ta on wagers. s a resut of ths mtaton, no credt w be
aowabe wth respect to amounts known n bettng parance as come-back
money. Come-back money s essentay a wager whch a bookmaker ays off at
a track rather than wth another bookmaker, and, as prevousy noted, wagers
paced n State-censed pnr-mutue enterprses w not be ta abe. Come-back
money serves the same purpose as a ayoff proper (that Is, It provdes the book-
maker wth a hedge ) and, f mode n arge amounts, may have the addtona
effect of depressng the odds on the partcuar horse or horses wagered upon.
The ta consequences of a combned ayoff and come-back transacton are us-
trated by the foowng e ampe: bettor paces a 1,000 wager wth bookmaker
on horse ; hods 100 of the wager and ays off 900 wth bookmaker ;
hods 200 of the 900 and bets the remanng 700 at the track on the horse .
ookmaker s ta abe wth respect to the entre 1,000 wager but s aowed
a credt wth respect to the ta on the 900 ad off; s ta abe on the entre
900 and s aowed no credt for the 700 he bets at the track. Thus, cumuatve
ta abtes arse of 190 (10 percent of 1,900, the aggregate amount of wagers
and ayoffs) but a credt s aowabe n the amount of 90 (10 percent of 900.
the amount ad oft), eavng a net ta of 100, or 10 percent of the orgna
1,000 wager.
wager s ntended, of course, to be the amount rsked by the person pacng
the bet rather thon the amount whch he stands to wn. Thus, f a person bets
aganst a bookmaker s 7 wth respect to the outcome of a prze fght, the
wager, for the purpose of the ta , s 3.
It s provded that the amount sub|ect to ta w Incude not ony the wager
proper but aso any charge ncdent to the pacng of the wager. n e ampe
of such an addtona charge whch s to be ncuded n the ta abe amount
woud be so-caed nsurance money pad bookmakers. orse-race bookmakers
normay pace an arbtrary ceng on the odds upon whch they are wng to
base ther payoffs, such as, for e ampe, 20 to 1 for wn bets, to 1 for pace bets,
and to 1 for show bets. These cengs are mantaned rrespectve of the
actua par-mutue odds. ookmakers may sometmes be wng to guarantee
the bettor a payoff based on the actua track odds, no matter how great, n con-
sderaton of a sma addtona charge pad by the bettor, usuay 10 percent of
the bet. Ths addtona charge s known as Insurance. nother e ampe of
an amount whch woud be ncuded as part of a ta abe wager woud be a
charge made by a ottery operator for the prvege of contrbutng to the poo
o:- bank. On the other hand, the bs specfcay provde that the ta abe
amount sha not ncude an amount equa to the ta f t has been coected as
a separate charge from the bettor. Ts e cuson conforms to the pattern of the
other e cses and w avod the dffcut admnstratve probems nvoved n
coectng a ta on a ta .
The bs contan provsons desgned to prevent avodance of the ta through
transfer of wagerng actvtes to ponts outsde of the Unted States.
ny person who wfuy fas to pay the ta provded or to make a return or
to keep requred records (ncudng a day record of the gross amount of wagers
receved) s made abe to crmna penates (n addton to the cv penates)
of up to 1 year s mprsonment and a fne up to 10,000. Furthermore, a wfn
attempt to evade or defeat the ta w be a feony punshabe by up to years
mprsonment and up to 10,000 fne.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
2. Occupatona taw.
In addton to the ta on wagers descrbed above, both your commttee s b and
the ouse b mpose an occupatona ta of 0 per year upon any person abe
to the ta on wagers and upon any person engaged n recevng wagers for or on
behaf of such a person.
The commttee conceves of the occupatona ta as an ntegra part of any pan
for the ta aton of wagers and as essenta to the coecton and enforcement of
such a ta . nforcement of a ta on wagers frequenty w necesstate the
tracng of transactons through compe busness reatonshps, thus requrng the
dentfcaton of the varous steps nvoved. For ths reason, the bs provde that
a person who pays the occupatona ta must, as part of hs regstraton, dentfy
those persons who are engaged n recevng wagers for or on hs behaf, and, n
addton, dentfy the persons on whose behaf e s engaged n recevng wafers.
In genera, the provsons of the occupatona ta foow the pattern of the other
occupatona ta es mposed under the Code and requre regstraton, postng of
speca ta stamp by the ta payers, the mantenance by the coector of a st of
t. payers for pubc Inspecton, etc.
Speca penates are mposed for faure to pay the ta or to post or e hbt the
stamp. Furthermore, the penates aready descrbed wth respect to the ta on
wagers w aso appy to wfu faures to pay the occupatona ta . It shoud
aso be ponted out that, under the genera provsons of secton 1001 of Tte 1 of
the Unted States Code, any fase or fcttous statement made knowngy wth
respect to the payment of the occupatona ta , such as the gvng of a fase name
or address, Is sub|ect to a fne of not more than 10,000 or mprsonment of not
more than years, or both.
Past e perence ndcates that the sze of ta coectons s drecty reated to
adequacy of enforcement. Your commttee beeves, wth respect to the wagerng
ta and the occupatona ta on the acceptance of wagers, energetc enforcement
measures durng the perod mmedatey foowng the ntroducton of these ta es
to be partcuary mportant. Tour commttee reazes, of course, that the ntro-
ducton of any new ta es, such as those |ust descrbed, whch depend upon
htherto untapped sources of revenue, nevtaby add to the admnstratve
burden of the ureau of Interna Revenue. Therefore, the ureau shoud revew
the need for any addtona admnstratve requrements n the ght of actua
e perence wth the enforcement of these ta es.
3. Con-operated gamng devces.
Secton 3267 (a) of the Code provdes an occupatona ta of 1 0 per year n the
case of con-operated gamns devces. Secton 3 of the b rases ths to 2 0
per year. Ths s the same change as s provded by the ouse b. It s beeved
that the Imposton of a ta on wagerng generay, from whch con-operated
gamng devces are specfcay e empted, requres an ncrease n ths ta to
provde equaty of treatment. It s estmated that n a fu year of operaton
ths w ncrease revenues by 7 mon annuay.
. FLOOR STOC T S ND R FUNDS,
oth foor stock ta es and foor stock refunds are mposed or granted one tme
ony: a ta when an ncrease n rates occurs and a refund when a decrease n
rates occurs. They are mposed or granted wth respect to nventores of tems
whch are beyond the pont at whch an e cse ta ordnary s mposed at the
tme the ncrease or decrease n rates occurs. They are used ony n the ease of
ta es mposed at the manufacturers eve, snce ony n these cases are there any
nventores of tems hed by persons other than consumers whch have not been
affected by recent changes n the e cse rates. Foor stock ta es and refunds have
tradtonay been mposed n the case of acohoc beverages and occasonay
wth respect to other products.
Foor stock ta es have been mposed for three prmary reasons: (1) To prevent
whoesaers and retaers from avodng a ta ncrease by stockng up on tems
before a ta ncrease or new ta becomes effectve, (2) to make the ncrease or
new ta effectve on tems produced at an earer date and thus ncrease revenues
n the nta year of mposton, and (3) to prevent compettve dscrmnaton n
cases where some whoesaers and retaers have arge stocks of tems where the
new or addtona ta has not been mposed and others do not. In the case of
foor stock refunds the prmary reason for ther provson s to prevent dscrmna-
ton whch woud e st where some retaers and whoesaers have arge ta -pad
nventores, whe ther compettors do not. Ths s partcuary mportant where
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

the ta rate decreases are arge and where, through varous busness arrance-
ments, manufacturers are seng drecty to consumers. owever, n Imposng
foor stock ta es or grantng foor stock refunds t s aso necessary to consder the
arge amount of work whch these ta es or refunds enta both for the ta payer
and the Government. The processng of foor stock returns s an e tensve task
and ther appcaton at both the whoesae and the reta eves affects hundreds
of thousands of deaers. ecause of these admnstratve consderatons your
commttee s b mts foor stock ta es refunds to those cases where there appears
to be a strong need for them.
Under both the ouse b and your commttee s b foor stock ta es are Imposed
wth respect to the ncreases n the ta on dsted sprts, beer, wne, and cg-
arettes. In the case of gasone a foor stock ta s aso mposed but ony wth
respect to stocks of gasone hed by retaers other than at ther reta estabsh-
ments and wth respect to whoesaers. The rates of ta under these foor stock
ta es are the same as the ncreases n ta provded for these tems. It s antc-
pated t at n the fsca year 19 2 these foor stock ta es w ncrease coectons
n that year, but ony that year, by 120 mon. Of ths tota, 9 mon s
accounted for by the foor stock ta es on acohoc beverages, and the buk of ths
Is e pected to be coected from dsted sprts snce nventores are argest n
ths case. bout 22 mon s e pected to be coected from the foor stock ta
on cgarettes, but ony a nomna amount from the foor stock ta on gasone.
In the atter case the foor stock ta s mposed, not wth the e pectaton of
recevng arge revenues from t, but to gve assurance that substanta revenues
w not be ost by an unusuay arge transfer of tte to gasone pror to the
effectve date of the ta ncrease.
Consderaton was aso gven to the mposton of foor stock ta es n the case
of other manufacturers e cses. owever, no acton was taken wth respect
to them argey because the tems are key to be n reatvey short suppy when
the e cse ta es become effectve, makng t dffcut for deaers to avod ta by n-
creasng ther nventores pror to the effectve date of the ta ncrease. so,
the arge number of retaers and tems nvoved n many cases make the mpos-
ton of the ta mpractca n vew of the sze of the rate ncreases or the rates of
the new ta es.
Your commttee s b aso provdes for foor stock refunds at the tme of
the termnaton, anuary 1, 19 , of the e cse ncreases made by ths b.
The refunds are to be mted to the tems on whch foor stock ta es are mposed
at the effectve date of the ncrease; that s, they are mted to dsted sprts,
beer, wne, and cgnrettes and to stocks of gasone hed by retaers at other
than ther reta estabshments. The refunds nre to ho granted ony wth respect
to the Increases mposed by ths b, and ony If the owner of the nventores
can show that for 3 months after the reducton date the prces charged for the
tems refect the ta decreases made.
. Ta Treatment of Iega ctvtes
Severa amendments have been proposed to the commttee whch woud affect
the ta treatment of gambers and other persons who receve ncome from ega
sources. In summary, these amendments woud
(a) Dsaow as a deducton from gross ncome any e penses ncurred
In Iega wagerng and any osses resutng from ega wagerng:
(6) Requre the keepng of more detaed records by wagerng houses:
(e) Requre the keepng of ta payers records for 7 years: and
(d) Requre a Indvduas wth n gross ncome durng the current or
ve precedng ta abe years In e cess of 2, 00 from ega actvtes to
fe a net worth statement.
Your commttee beeves that addtona tme s necessary for detaed study
of these suggestons and therefore beeves that acton on them shoud not be
taken at ths tme. The commttee Is fuy aware of the Importance of a strct
enforcement of the Income ta aws n ths area.
(The detaed dscusson of the technca provsons of the b w be prnted
separatey and w appear as a suppementa report.)
C NG S IN ISTING L W
In the opnon of the commttee, It Is necessary, n order to e pedte the
busness of the Senate, to dspense wth the requrements of subsecton ( )
of rue I of the Standng Rues of the Senate (reatng to the showng of
changes n e stng aw made by the b, as reported).
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

SUPPL M NT L R PORT
Senate Report No. 7 1, Tart 2, ghty-second Congress, Frst Sesson, Caendar No. 737
Mr. George, from the Commttee on Fnance, submtted the foowng suppe-
menta report to accompany . It. 73 :
D T IL D DISCUSSION OF T T C NIC L PRO ISIONS
OF T ILL
TITL I INCR S IN INCOM T R T S
Pabt I Indvdua Income Ta es
S CTION 101. INCR S IN SURT FOR 10 1, 10 2, ND 10 3
Subsecton (a) of secton 101 of the b amends secton 12(b) of the Code,
reatng to rates of surta , to mpose a ta ncrease wth respect to ndvduas
havng as a ta abe year the caendar year 19 1, and to mpose a further ncrease
wth respect to ta abe years begnnng after October 31,19 1, and before anuary
1, 19 . In the case of ta abe years begnnng after October 31,19 1, and before
anuary 1, 19 , the ncrease provded s appro matey 11 percent of ta abty
under present rates or percent of surta net ncome after present tu es, whch-
ever s esser. In the case of the caendar year 19 1, snce the ncrease n rates s
not to e effectve unt November 1, 19 1, the ncrease provded s n the same
proporton to the ncrease for a fu ta abe year as the number of caendar
months after October 31, 19 1, bears to the 12 caendar months n 19 1. that s,
an ncrease of appro matey one-s th of 11 percent of present ta abty,
cr one-s th of percent of surta net ncome after present ta es, whchever s
esser. The amendment of secton 12(b) wth respect to ta abe years begnnng
after October 31, 19 1, s not appcabe to an ndvdua who quafes as the
head of a househod, who w be ta ed as provded by subsecton (c) of secton 12
as amended by secton 301 of the h.
Paragraph (1) of subsecton (b), as amended, contans a tabe whch sets
forth the ncreased ta for the caendar year 19 1 for each eve of surta net
ncome and paragraph (2) contans a smar tabe whch s appcabe to ta abe
years begnnng after October 31, 19 1, and before anuary 1, 19 , ncudng
the caendar years 19 2 and 19 3. Paragraph (3) has a tabe whch sets forth
the rates appcabe under present aw and whch w be appcabe for ta abe
years begnnng after December 31, 19 3. The b provdes no ncrease n the
rates of ta appcabe to ndvduas n the case of a ta abe year endng before
October 31, 19 1, e cept n the case covered by secton 10 of the b of a |ont
return of husband and wfe wth dfferent ta abe years because of the deat
of ether wthn the ta abe year when the ta abe year of the survvng spouse
began before November 1,19 1, and ended after October 31,19 1.
Subsecton (c) of secton 101 amends secton 12(f) of the Code reatng to
mtaton on ta . Under paragraph (1) of subsecton (f), as amended, t s
provded that n the case of the caendar year 19 1, the combned norma ta
and surta sha n no event e ceed 7.2 percent of the net ncome for such
ta abe year. Paragraph (2) reates to ta abe years begnnng after October
31, 19 1, and before anuary 1, 19 , and mts the amount of the combned
norma ta and surta for such ta abe years to .S percent of the net Income.
Under paragraph (3), appcabe to ta abe years begnnng after December 31,
19 3, the correspondng mtaton s 7 percent of net ncome.
S CTION 102. INDI IDU LS WIT D UST D GROSS INCOM OF L SS T N
1 ,000
Secton 102 of the b, whch corresponds to the ke-desgnated secton of the
ouse b, amends secton 00 of the Code to provde three new ta tabes for
the use of ta payers wth ad|usted gross ncome of ess than ,000. Tabe I
s appcabe to the caendar year 19 1 and s for the use of snge persons,
marred persons fng separate returns and marred persons fng |ont returns.
Snce the provsons of tte III of the b, reatng to ta treatment n the
case of a head of a househod, do not appy to the caendar year 19 1, a snge
person wth ad|usted gross ncome of ess than ,000 who mght for subsequent
years quafy for such treatment may use ths tabe n computng ncome abty
for the caendar year 19 1. Tabe II appes to ta abe years begnnng after
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
October 31, 19 1, and before anuary 1,19 , and s for the use of snge person ,
marred persons fng separate returns, marred persons fng |ont returns,
and any snge person who quafes as the head of a househod under tte III
of ths b. The Increases n ta Imposed by ths b are refected n tabes 1
and II for each eve of ad|usted gross ncome. Tabe III s for the use of the
same persons as may use tabe II and s appcabe to ta abe years begnnng
after December 31, 19 3. cept for the computatons appcabe to a ta payer
who quates as the head of a househod, the ncome ta abty refected n
tabe III for each eve of ad|usted gross ncome s the same as under the ta
rates whch are presenty appcabe.
S CTION 103. IN PPLIC ILITY OF C RT IN P N LTI S ND DDITIONS TO
T
Ths secton of the b, whch has no correspondng provson n the b as
passed by the ouse, amends sectons 1 and 29 (d)(2) of the Code. Subsec-
ton (a) amends secton 1 by redesgnatng the present subsecton (f) as sub-
secton (g) and by nsertng a new subsecton (f). The new subsecton (f)
makes certan penates prescrbed by secton 1 nappcabe to a faure to
take nto account the ncreases n rates of ta mposed on ndvduas by ths
b. Smary, the sentence added by subsecton (b) of ths secton to para-
graph (2) of secton 29 (d) makes the provsons of such paragraph reatng
to addtons to ta for substanta underestmate of ta nappcabe to cases
where the faure to meet the prescrbed requrements wth respect to estmated
ta s by reason of the ncreases n rates of ta mposed on ndvduas by
ths b.
S CTION 10 . COMPUT TION OF T IN C S OF C RT IN OINT R TURNS
Secton 10 , whch corresponds to secton 103 of the ouse b and s dentca
e cept for references to appcabe effectve dates, appes to the stuaton where
a ont return of a husband and wfe s fed under the provsons of secton
1(b)(3) of the Interna Revenue Code, the husband and the wfe havng
dfferent ta abe years because of the death of ether, and the ta abe year
of the survvng spouse covered by such |ont return began before November 1,
19 1, and ended after October 31, 19 1. In respect of such a case, secton 10
provdes that the amendments made by part I of tte I of ths b, reatng to
ncome-ta rates, sha be appcabe to the |ont return as If the ta abe years
of both spouses covered by the |ont return ended on the date of the cosng of
the survvng spouse s ta abe year.
Secton 1(b) (3) and ( ) of the Code permt the fng of a |ont return
by a survvng spouse f the ta abe years of each spouse began on the same
day but ended on dfferent days because of the death of ether spouse, or both.
Under the provsons of secton 10 , f one spouse des durng 19 1 am
the survvng spouse eects to fe a |ont return under secton 1(b) (3) of the
Code coverng both hs cnendar year 19 1 and the ta abe year of the deceased
spouse, the ta abty on the |ont return w be computed at the rates
appcabe under ths b to a return for the caendar year 19 1. It s m-
matera, n such a case, whether the ta abe year of the deceased spouse ended
before or after November 1, 19 1. If the ta abe year of the survvng sponse
whch began before November 1, 19 1, and ended after October 31, 1931, s
not a caendar year, the ta abty on a ont return by the survvng spouse
w be computed under the provsons of secton 10 (h) of the Code (as adde
by secton 1111 of ths b), and the computatons.requred theren wth respect
to caendar months n the ta abe year w he made by reference to the caendar
months of the ta abe year of the survvng spouse.
S CTION 10 . FF CTI D T OF P RT I
Ths secton, whch corresponds to secton 10 of the ouse b, provdes that
the amendments made by part I of the b sha be appcabe ony wth res ct
to ta abe years begnnng after October 31, 19 1, and to the caendar year 19 1.
e cept as provded n secton 10 of the b. It aso provdes a cross-reference
to secton 131 of the b for treatment of ta abe years (other than the caendar
year 19 1) begnnng before November 1,19 1, and endng after October 31. 19 1.
The b as passed by the nouse made the ncreases n ndvdua rates provde
theren appcabe to ta abe years begnnng after ugust 31, 19 1.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
Pabt II Corporaton Income Ta es
S CTION 121. INCR S IN R T OP CORPOR TION NORM L T ND SURT
Ths secton, whch corresponds to secton 121 of the b as passed by the
ouse, amends the corporate ta provsons to mpose, n genera, ncreases n
ta on corporate Income appcabe to the caendar year 19 1 and to ta abe
years begnnng after March 31, 19 1, and before anuary 1, 19 .
Subsecton (a) of secton 121 amends subsectons (a) and (b) of secton 13
of the Code, reatng to norma ta on corporatons. s n the b passed by
the ouse, the amendment to subsecton (a) of secton 13 emnates from the
Code provsons whch are appcabe to pror ta abe years, and retans the
defntons of ad|usted gross ncome and norma ta net ncome added by the
Revenue ct of 19 0. The amendment to subsecton (b) of secton 13 ncreases
the present 2 percent norma ta on corporaton norma ta net ncome to 20
percent for the caendar year 19 1, and to 27 percent for ta abe years begnnng
after March 31, 19 1, and before anuary 1, 19 . For ta abe years begnnng
after December 31, 19 3, t s provded that a 2 percent rate sha be effectve.
Subsecton (b) of secton 121 amends subsecton (a) of secton 1 to emnate
from the Code provsons appcabe ony to pror ta abe years and retans
the defnton of corporaton surta net ncome added by the Revenue ct
of 19 0. Ths part of the amendment made by subsecton (b) corresponds to
subsecton (f) (2) of secton 121 of the b as passed by the ouse. Subsecton
(b) aso amends subsecton (b) of secton 1 to mpose ncreases n the surta
rate on corporaton surta net ncome. For the caendar year 19 1 the surta
rate s ncreased from the present 22 percent to 2 percent of the corporaton
surta net ncome n e cess of 2 ,000, and for ta abe years begnnng after
March 31, 19 1, and before anuary 1, 19 , the ncreased rate provded s 2
percent of the corporaton surtn net ncome n e cess of 2 ,000. For ta abe
years begnnng after December 31, 19 3, t s provded that the surta rate
sha be 22 percent of corporaton surta net ncome n e cess of 2 ,000, whch
Is the rate presenty appcabe to ta abe years begnnng after une 30, 19 0.
Subsecton (c) of secton 121, whch corresponds to subsecton (b) of secton
121 of the ouse b, amends secton 30(a) of the Code, as added by secton
101 of the cess Profts Ta ct of 19 0. Secton 30(a) presenty mposes
an e cess profts ta of whchever s the esser of (1) 30 percent of ad|usted
e cess profts net ncome (as defned by secton 31), or (2) an amount equa
to the e cess of 62-percent of the e cess profts net ncome (as defned by
secton 33) over the ta whch woud be mposed for such ta abe year f the
norma ta rate and the surta rate appcabe for the ta abe year were apped
to the corporaton s e cess profts net ncome for the ta abe year. Te
amendment made by ths subsecton makes the 62 percent ceng rate provson
of paragraph (2) of secton 30(a) (2) appcabe ony to ta abe years endng
before pr 1, 19 1, and desgnates such provson as subparagraph ( ) under
paragraph (2). It nso adds to paragraph (2) new subparagraphs ( ) and (C)
whch provde a dfferent method for computng an aternatve amount of ta
whch w be the ma mum ta f ess than the 30 percent ta provded by secton
30(a)(1). Subparagraph ( ), whch s appcabe to the caendar year 19 1,
provdes that the aternatve sha be an amount equa to 16 percent of the
e cess profts net ncome for the ta abe year, e cept that such amount sha n
the case of a consodated return under secton 1 1 be reduced by an amount
whch bears the same rato (but not n e cess of 100 percent) to the ncrease of
2 percent n the surta mposed by reason of secton 1 1(c) as the amount of
the consodated e cess profts net ncome bears to the amount of the consodated
corporaton surta net ncome. Subparagraph (C), whch s appcabe to ta -
abe years begnnng after March 31, 19 1, provdes that the aternatve sha
be an amount equa to 17 percent of e cess profts net ncome and has the same
provson as subparagraph ( ) n respect of the reducton of such amount n
the case of a consodated return.
Subsecton (d) of secton 121, whch corresponds to subsecton (c) of secton
121 of the b as passed by the ouse, amends secton 207(a)(1). reatng to
norma ta and surta on mutua nsurance companes other than fe or marne,
and secton 207(a)(3), reatng to the norma ta and surta on nternsurers
and recproca underwrters. Subsecton (e) of secton 121, whch corresponds
to subsecton (d) of secton 121 of the ouse b, amends secton 302(b), re-
atng to ta on reguated nvestment companes; and subsecton (f), whch
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

corresponds to subsecton (e) of secton 121 of the b as It passed the ouse,
amends secton 21(a) (1), reatng to mposton of ta on busness ncome of
certan secton 101 organzatons. The amendments made by these subsectons
refect for each of these specazed types of corporatons the ncreased norma
ta and surta rates whch w be appcabe to corporatons In genera under
the amendments made to sectons 13(b) and 1 (b) by subsectons (a) and (b)
of ths secton of the b. They aso make provson for the rates of norma ta
and surta whch w be appcabe to such corporatons for ta abe years be-
gnnng after December 31, 19 3, when the rates presenty appcabe w agan
be n effect. It s to be noted that In the amended provsons reatng to mutua
nsurence companes other than fe or marne, to nternsurers or recproca
underwrters, and to reguated Investment companes, a norma ta rate and a
surta rate s provded n each nstance whch w be appcabe generay n
computng the ta for ta abe years whch b gan after December 31. 1930, and
before pr 1, 10 1, and whch end after March 31, 10 1. Thus, feca year
ta payers wth a ta abe year begnnng on ether the 1st day of F bruary or
the 1st day of March 10 1, w be ta ed on ther ncome for such ta abe year
on the same bass as w a caendar year ta payer for Its ta abe year anuary
1 to December 31, 10 1. In ths connecton, the effectve dates for the amend-
ments made by part II of tte I of the b, as provded n secton 12 of ths b,
shoud aso be noted.
Subsecton (g) of bs secton, whch corresponds to subsecton (f) of the h
as t passed the ouse, s a technca amendment whch emnates from the
Code, by repea of secton 1 , the pro vsons reatng to norma ta on speca
casses of corporatons wth norma ta net ncome of ess than 2 ,000. The
varous aternatve rates provded n snch secton were appcabe ony n the case
of a ta abe year begnnng before uy 1, 10 0.
S CTION 122. CR DITS OF CORPOR TIONS
Subsecton (a) of ths secton, whch corresponds to the ke desgnated prov-
son of the b as passed by the ouse, amends secton 20(b), reatng to the
credt for dvdends receved. The ony change n paragraph (1) of subsecton
(b) s technca. Paragraph (2) presenty provdes for a credt of 9 percent
of the amount receved as dvdends on the preferred stock of a pubc utty
sub|ect to ncome (a , n the case of ta abe years begnnng after une 30. 19 0,
and for a credt of 7 perc.nt of such amount In the case of the caendar year
19 0. s amended by subsecton (a) of ths secton, the credt provded In
paragraph (2) Is ( ) 61 ereent of such amount n the case of the caendar
year 19 1, ( ) 02 percent of such amount n the case of ta abe years begnnng
after March 31. 19 1, and before anuary 1, 19 , and (C) 9 percent of such
amount for ta abe years begnnng after December 31, 1 . 3. The present pro-
vsons of parngraph (2) whch are appcabe to pror ta abe years are
emnated.
Under secton 20(b)(2) of the Code, pa amended by the b, the credt for
dvdends receved on the preferred stock of a pubc utty s mted to dvdends
wth respect to whch the credt provded In secton 20 h) (reatng to credt for
dvdends pad on the preferred stock of a pubc utty) s aowabe. Thus, the
fu percent dvdends-receved credt provded In secton 20(b) (1) of the Code
w appy to dvdends receved wth respect to whch the dvdends pad credt
provded n secton 20(h) Is not aowabe.
Subsecton (b) of ths secton, whch corresponds to subsecton (b) of secton
121 of the ouse b, amends the frst sentence of paragraph (1) of secton 20(h),
reatng to the credt for dvdends pad on certan preferred stock of a pubc
utty. In Its present form paragraph (1) provdes for the credt n the case of
the caendar year 10 0 and n the -nse of ta abe years begnnng after une
30, 19 0. The amendment made by ths subsecton emnates these provsons
and mnkes provson n causes desgnated ( ), ( ), and (C) for the credt for
the caendar year 10 1, for ta abe years begnnng after March 31, 19 1, and
before anuary 1, 19 . and for ta abe years begnnng after December 31. 19 3.
Respectvey, the creds provded for such ta abe yeprs are an amount equa to
2 percent, 27 percent, and 30 percent of whchever s the ower of (1) the entre
amount of dvdends pad by the pubc utty durng the ta abe year on ts
preferred stock or (2) the e cess of the pubc utty company s ad|usted net
Income for the tn abe year over the amount of the credt for dvdends receved
determned under secton 20(b) for such year.
Subsecton (c) of ths secton, whch corresponds to subsecton (c) of secton
121 of the ouse b, amends secton 20() wth respect to the credt aowed
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
Western Iemsphere trade corporatons n the determnaton of norma ta net
ncome and surta net ncome. s amended, secton 2G() provdes, n the case
of the caendar year 19 1, that the credt sha he 27percent of the norma ta
net ncome computed wthout regard to ths credt. The percentage provded s
27 percent n the case of ta abe years begnnng after March 31, 1031, and
before anuary 1, 19 , and 30 percent n the case of ta abe years begnnng
after December 31, 19 3. Under the present secton 2C(), the credt s 30
percent of norma ta net ncome - the case of ta abe years begnnng after
une 30, 19 0, and 33 percent n the case of the caendar yea.- 19 0. The corre-
spondng provson n the ouse b provded for a 27 percent credt appcabe to
a ta abe years begnnng after December 31,19 0.
S CTION 123. FILING OF CORPOR TION R TURNS FOR T L Y RS
NDING FT R M RC 31, 19 1, ND FOR OCTO R 1, 10 1
Ths secton, whch has no correspondng secton n the b as passed by the
ouse and whch s not amendatory of the Interna Revenue Code, makes prov-
son for the case n whch the return fed by a corporaton pror to the enactment
of the Itevenue ct of 19 1 w be affected by the amendments made to the Code
by such ct wth respect to computaton of ta abty. It provdes, n effect,
that for ta abe years whch ended after March 31, 19 1, but before October 1,
19 1, corporatons sub|ect to ncome or e cess profts ta sha, after the date of
enactment of the Itevenue ct of 19 1, anc . on or before anuary 1 , 19 2, make
and fe returns for such ta abe years wth respect to the ta mposed by chapter
1 of the Interna Revenue Code (a| amended by ths b) for such ta abe years.
It s further provded that such return, so made and fed, sha consttute the
return for such ta abe year for a purposes of the Code, and that any return
for any of the specfed ta abe years tha may have been fed on or before the
date of enactment of the Revenue ct of 19 1 sha not be consdered a return for
such year for any of the purposes of the Code.
The ncome or e cess profts ta es mposed for any such ta abe year (deter-
mned wth the amendments made by the Revenue ct of 1P 1) are requred by
the secton to be pad on anuary 1 , 19 2, n eu of beng pad on the date
prescrbed by secton 6(a) of the Code. The provsons of secton 0(b) of
the Code (reatng to nstament payments) are, however, not affected and the
ta es for the ta abe year requred by ths secton of the b to be pad on anu-
ary 1 , 19 2, can, at the eecton of the ta payer, be pad n four nstaments
(frst two nstaments, 30 percent of the ta , and ast two nstaments, 20 per-
cent of the ta ). Payments n respect of any ncome or e cess profts ta for
any of the specfed ta abe years made pror to the date of enactment of the
Revenue ct of 19 1, to the e tent not credted or refunded, w, under the pro-
vsons of ths secton, be deemed to have been made at the tme of the fng of
the return requred by the secton on account of the ta for such ta abe year
determned under chapter 1 of th2 Code as amended by the Revenue ct of 19 1.
In treatng such ta es as pad at the tme of the fng of the return requred
by ths secton, such payment (n the event the return s fed before the due
dnte prescrbed by ths secton) w be sub|ect to the provsons of secton
322(b) ( ) of the Code, whch secton provdes speca rues appcabe for
certan purposes where a ta payment s made at the tme of fng a return
whch s fed before ts due date.
S CTION 12 . FF CTI D T
Ths secton, whch corresponds to secton 12 of the b as t passed the
ouse, provdes n genera that the amendments made by part II of tte I of
the b, sha be appcabe ony wth respect to ta abe years begnnng after
March 31, 19 1, and to ta abe years begnnng on anuary 1, 19 1, and endng
on December 31, 19 1. ceptons are provded n the cases of the amendments
made to secton 207 (reatng to certan nsurance companes), to secton 3G2
(reatng to reguated nvestment companes) and to secton 21 (reatng to
ta aton of busness ncome of certan secton 101 organzatons), t beng pro-
vded that such amendments sha be appcabe to ta abe years begnnng after
December 31, 19 0, and endng after March 31, 19 1, that s, the caendar year
19 1, fsca years begnnng on the frst day of February or the frst day of
March 19 1, and ater ta abe years. ccordngy, n the case of such ta payers
the amendments made by ths part are not appcabe to ta abe years whch ended
before anuary 1, 19 1, and fsca ta abe years whch b gan n 19 0 and ended
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
on the ast days of anuary, February, or March of 19 1. nother speca pro-
vson made by the secton s to the effect that In the case of an nsurance company
sub|ect to the ta Imposed by secton 207, the provsons of secton 26(b) of the
Code (reatng to the credt for dvdends receved) appcabe to the caendar
year 19 1 sha aso be appcabe to ta abe years of such an nsurance company
begnnng after December 31, 19 0, and before pr 1, 19 1, and endng after
March 31, 19 1.
The secton aso provdes a cross-reference to secton 131 of the b for pro-
vsons wth respect to ta abe years begnnng before pr 1, 19 1, and endng
after March 31, 19 1.
Part III Fsca Year Ta payers
S CTION 131. FISC L T R T P Y RS
Ths secton, whch corresponds to the ke-desgnated secton of the b as
It passed the ouse, amends secton 10 of the Code, reatng to both corporate
and Indvdua fsca year ta payers, to provde rues for the computaton of
ta n the cases of sca years whch cut across one or more of the effectve dates
of changes n the provsons affectng computaton of ta made by the Revenue
ct of 19 0 and the cess Profts Ta ct of 19 0, and by the provsons of
ths b.
Subsecton (a) of ths secton, whch corresponds to subsecton (a) of secton
121 of the b as t passed the ouse amends secton 10 (f) of the Code to
provde rues for the computaton of the ncome ta of corporatons In the case
of fsca years begnnng before uy 1, 19 0, and endng after une 30, 19 0. In
the case of such a fsca year whch ends before pr 1, 19 1, the amendment
made by the b does not change the computaton of the ta provded under
e stng aw for such a year. If the fsca year (begnnng before uy 1, 19 0)
ends after March 31, 19 1, the amendment does effect a change n the e stng
aw wth regard to the computaton of the ta for such a year under secton
10 (f). In such a case the amendment provdes for the computaton and
proraton of three tentatve ta es.
In computng the tentatve ta es under paragraphs (1), (2), and (3) of
secton 10 (f), the net Income, and the ad|usted net Income, of the corporaton
are not recomputed. owever, n the case of a Western emsphere trade
corporaton, or a pubc utty whch has pad dvdends on ts preferred stock,
or any corporaton whch has receved dvdends on the preferred stock
of a pubc utty wth respect to whch the credt provded n secton 26(h) s
aowed, the amount of the norma ta net Income, and the amount of the
corporaton surta net Income, w be dfferent for each of the three com-
putatons. Western emsphere trade corporaton, for e ampe, w compute
Its tentatve ta under paragraph (1) of secton 10 (f) wthout computng a
surta , and ts norma ta net Income w be computed wthout regard to the
credt provded n secton 26() of the Code; ts tentatve norma ta and
tentatve surta under paragraph (2) of secton 10 (f) w be computed on a
norma ta net ncome and a corporaton surta net ncome determned wth the
aowance of the 31 percent credt provded n secton 260) appcabe to ta abe
years begnnng on uy 1, 19 0 (determned wthout regard to the amendment
of secton 26() made by the cess Profts Ta ct of 19 0) ; and ts tentatve
norma ta and tentatve surta under paragraph (3) of secton 10 (f) w be
computed on a norma ta net ncome and a corporaton surta net ncome de-
termned wth the aowance of the 27 percent credt provded n secton 20(1)
appcabe to ta abe years begnnng on pr 1, 19 1.
Subsecton (a) of ths secton aso amends secton 10 (g) of the Code to
provde for the computaton of the ta of a fsca-year corporaton for a ta abe
year begnnng after une 30, 19 1, and before pr 1, 19 1, and endng after
March 31, 19 1. In the case of such a fsca year t s provded that the ta
Imposed by sectons 13 and 1 sha be an amount equa to the sum of
(1) that porton of a tentatve ta , computed under the ta rates, and
the credts provded n secton 20, appcabe to ta abe years begnnng on
uy 1, 19 0, whch the number of days n the fsca year pror to pr 1,
19 1, bears to the tota number of days In the ta abe year, pus
(2) that porton of a tentatve ta , computed under the ta rates, and
the credts provded n secton 26, appcabe to ta abe years begnnng on
pr 1, 19 1, whch the number of days In the ta abe year after March 31,
19 1, bears to the tota number of Cays In the ta abe year.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
The tentatve ta under cause (1) w consst of a tentatve norma ta
at the rate of 2 percent of the norma ta net ncome, and a tentatve surta of
22 percent of the corporaton surta net ncome n e cess of 2 ,000. The tenta-
tve ta under cause (2) w consst of a tentatve norma ta at the rate of
27 percent of the norma ta net ncome and a tentatve surta of 2 percent of
the corporaton surta net ncome n e cess of 2 ,000. The net ncome of the
corporaton for the ta abe year s not recomputed n determnng the tentatve
ta under ether cause (1) or (2). If the ta payer pad or receved dvdends
on preferred stock descrbed In secton 20(h) of the Code, or f the ta payer
Is a Western emsphere trade corporaton, the amount of the norma ta
net ncome, and the amount of the corporaton surta net ncome, appcabe n
the computaton under cause (1), w dffer from the amount used for the pur-
pose of cause (2).
new subsecton (h) s aso added to secton 10 by ths subsecton of secton
131 of the b. The new subsecton provdes for the computaton of the ta
of a ta payer, other than a corporaton, for a fsca year begnnng before
November 1, 19 1, and endng after October 31, 19 1. In the case of such a
fsca year, the ta mposed by sectons 11 and 12, secton 00, or secton
21(a) (2), sha be an amount equa to the sum of
(1) that porton of a tentatve ta , computed under the provsons of
sectons 11 and 12, or secton 00, appcabe to ta abe years begnnng
on October 1, 19 0, whch the number of months n such ta abe year pror
to November 1, 19 1, bears to the tota number of caendar months n such
ta abe year, pus
(2) that porton of a tentatve ta , computed under the provsons of
sectons 11 and 12, or secton 00, appcabe to years begnnng on November
1, 19 1, as f such provsons (other than the provsons reatng to the head
of a househod) were appcabe to such ta abe year, whch the number of
caendar months n such ta abe year after October 31, 19 1, bears to the
tota number of caendar months n such ta abe year.
The net ncome of the ta payer for the fsca year s not recomputed n deter-
mnng the tentatve ta under ether cause (1) or cause (2). It s further
provded thnt subsecton (h) sha not appy n the case of a trust descrbed n
secton 21(b) (2) f the ta abe year of such trust began before anuary 1, 19 1.
new subsecton () s aso added to secton 10 by subsecton (a) of secton
131. For the purposes of secton 10 , t provdes that a caendar month sha
be dsregarded f ess than 1 days of such month fa wthn the ta abe year,
and that a caendar month sha be ncuded as a fu caendar month wthn
the ta abe year f more than 1 days of such month fa wthn the ta abe year.
new subsecton (|) s added to secton 10 by ths subsecton of secton 131.
Ths provdes for the computaton of ta n the case of ta abe years of ndvd-
uas begnnng n 19 3 and endng n 19 . gan the method of computaton
provded nvoves the computaton and proraton of two tentatve ta es, the frst
computed upon the bass of the provsons of sectons 11 and 12, secton 00, or
secton 21(a)(2), appcabe to years begnnng on anuary 1, 19 3, and the
second computed upon the bass of the provsons of such sectons appcabe
to years begnnng on anuary 1, 19 .
Provson for the computaton of the ta of corporatons n the ease of ta abe
years begnnng n 19 3 and endng n 19 s made n a new subsecton (k)
whch s added to secton 10 by ths subsecton of secton 131 of the b. The
method of computaton provded s agan the computaton and proraton of two
tentatve surta es, the frst computed upon the bass of the provsons of sectons
13 and 1 , or secton 21(a) (1), appcabe to years begnnng on anuary 1,
19 3, the second computed upon the bass of the provsons of such sectons
appcabe to years begnnng on anuary 1, 19 .
Subsecton (b) of secton 131, whch corresponds to a smar provson n
the ouse b, amends secton 30(b) of the Code, reatng to computaton of
the e cess profts ta for ta abe years begnnng before uy 1, 19 0, and endng
after une 30, 19 0. The amendment does not change the computaton under
e stng aw of the e cess profts ta for a ta abe year whch ends before pr
1, 19 1. In the case of a ta abe year begnnng before pr 1, 19 1, whether
begnnng before, on, or after uy 1, 19 0, and endng after March 31, 19 1
(other than the caendar year 19 1), the amendment w not affect the amount
of the e cess profts ta for the fsca year f the e cess profts ta s the ta
computed under secton 30(a) (1), that s, f the e cess prtfts ta s 30 percent
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
of the ad|usted e cess profts net ncome. owever, If the ta payer s e cess
profts ta for such fsca year s the e cess pn fts ta computed wth reference
to the ceng rate provded n secton 30(a)(2), the amendment w resut
n refectng n the e cess profts ta for the ta abe year the effect of the
amendment made by secton 121(c) of the b, changng the method of comput-
ng the ceng rate for ta abe years begnnng after March 31, 19 1.
Under the amendment, n the case of a ta abe year begnnng before pr
1. 19 1, and endng after March 31, 19 1 (other than the caendar year 19 1),
a tentatve e cess profts ta w frst be computed (as provded n secton
30(b)(2)( )) under the provsons of secton 30(a) of the Code appcabe
to ta abe years endng pror to pr 1. 19 1: that s, a ceng rate of 02 percent
s to be apped n the computaton. In determnng under secton 30(a)(2)
the e cess of 02 percent of the e cess profts net ncome over the ncome ta
whch woud be mposed under sectons 13, 1 , and of the Code upon a norma
ta net ncome and corporaton surta net ncome n an amount equa to the
e cess profts net ncome for the ta abe year, such ta must be computed under
the provsons of secton 10 (f) or (g), whchever s appcabe. Such e cess
w be the tentatve ta referred to n secton .30(b) (2) ( ) uness 30 percent
of the ad|usted e cess profts net ncome resuts n a smaer tentatve ta , n
whch case t w be such smaer tentatve ta .
The computaton of a tentatve ta under secton 30(b) (2) ( ) w be made
under the provsons of secton 30(a) appcabe to ta abe years begnnng on
pr 1. 19 1. In computng such a tentatve ta the new method of determnng
the ma mum e cess profts ta provded under secton .30(a) (2) (C), descrbed
above, w be used. The tentatve ta es computed under subparagraphs ( )
and ( ) of secton 30(b) (2) w then be prorated as provded n such secton,
and the e cess profts ta for the ta abe year w be the sum of such prorated
ta es.
If the corporaton s a new corporaton to whch the speca ceng rates pro-
vded n secton 30(a) (3) and 30(e) are appcabe (see secton 01 of the b
whch amends secton 30 of the Code), then the computaton of the tentatve
ta es for the fsca year, n the manner descrbed above, w take nto account
the speca rates provded n subsecton (e) of secton 30 of the Code.
Subsecton (c) of secton 131 provdes a necessary technca amendment to
paragraph (2) of secton 10 (e) of the Code and changes the desgnaton of the
present subsecton (g) of secton 10 to subsecton (1).
TITL II WIT OLDING OF T T SOURC
S CTION 201. P RC NT G M T OD OF WIT OLDING
Secton 201, whch corresponds to secton 221 of the b as t passed the ouse,
amends secton 1022(a) of the Code by changng the percentage rate of wth-
hodng from 1 percent to 20 percent n the case of wages pad ou or after
November 1, 19 1, and before anuary 1, 19 .
S CTION 202. W G R C T WIT OLDING
Ths secton, whch corresponds to secton 222 of the b as passed by the ouse,
amends secton 1022(c)(1), reatng to wage bracket wthhodng, to provde
new tabes whch refect the ncreased ta rates.
S CTION 203. DDITION L WIT OLDING OF T ON W G S UrON
GR M NT Y MPLOY R ND MPLOY
Ths secton of the b, whch s dentca wth that of he ouse b, adds to
secton 1622 of the Code (reatng to ncome ta coected at source on wanes) a
new subsecton numbered (k) and entted ddtona Wthhodng. Ths new
subsecton authorzes the Secretary to provde, by reguatons, for wthhodng
n addton to that otherwse requred under secton 1022 n cases n whch the
empoyer and the empoyee agree to such addtona wthhodng. The Secre-
tary s authorzed to prescrbe by reguatons the form of such agreement and
the condtons under whch and the e tent to whch such an agreement sha be
deemed proper. It s further provded by ths new subsecton that any amount
actuay wthhed pursuant to such an addtona wthhodng agreement entered
nto by and between an empoyer and an empoyee sha, for a purposes, be
consdered a requred to be deducted and wthhed under appcabe wthhodng
provsons.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
S CTION 20 . FF CTI D T
Ths secton, whch corresponds to secton 22 of the ouse b, provdes that
the amendments nude by tte II sha be appcabe ony wth respect to wages
pad on or after November 1, 19 1. It Is mmatera whether the wages wore
earned before or after November 1,19 1. If they are pad on or after November
1, 10 1, the new wthhodng rates w appy.
TITL III MISC LL N OUS INCOM T M NDM NTS
S CTION 301. T TR TM NT IN C S O D OF OUS OLD
Ths secton, whch corresponds to secton 301 of the ouse b, amends secton
12(c) of the Code to provde n speca computaton of surta for a ta payer who
quates as the head of a househod. The effect of the amendment Is that the
combned norma ta and surta of such a ta payer w bo an amount appro -
matey equa to the combned norma ta and surta as computed under sectons
11 and 12(b) reduced by one-quarter (Instead of one-haf as provded n the
ouse b) of the amount by whch such combned tn e ceeds the combned
norma ta and surta that woud be determned If the return of the ta payer
were a ont return to whch secton 12(d) was appcabe. Secton 12(c) s
appcabe ony wth respect to ta abe years begnnng after October 31, 19 1,
nstead of after ugust 31,1901, as In the ouse b.
Paragraph (1) of secton 12(c) contans a speca surta tabe prescrbng
the rates of surta to be used In computng the ta of a bend of a househod
for ta abe years begnnng after October 31,19 1, and before anuary 1,19 , and
paragraph (2) contans a smar tabe prescrbng the rates appcabe to ta abe
years begnnng after December 31, 19 3.
Paragraph (3) defnes a head of a househod as an ndvdua who s not
marred at the cose of s ta abe year and who mantans as hs home a house-
hod whch consttutes for such ta abe year the prncpa pace of abode, as
a member of such househod, of one or more of certan casses of persons reated
to the ta payer and descrbed n subparagraphs ( ) and ( ) of paragraph (3).
In no event, however, sha an ndvdua be consdered as mantanng a house-
hod uness he furnshes over haf of the cost of mantanng such househod
durng the ta abe year. Thus, for purposes of secton 12(c), ony one person
can be consdered as head of a partcuar househod durng a partcuar ta abe
year.
The persons descrbed n subparagraph ( ) ncude ony a son or daughter
of the ta payer, or a descendant of ether and a stepson or stepdaughter of the
ta payer. The persons descrbed n subparagraph ( ) are those persons (other
than those descrbed n subparagraph ( )) who are dependents of the ta payer
and for whom the ta payer s entted to an e empton for the ta abe year under
secton 2 (b). Subparagraph ( ) n the b as passed by the ouse aso ncuded
a descendant of a stepson or stepdaughter of the ta payer. owever, snce
such descendants do not consttute dependents of the ta payer under secton
2 (b) your commttee has emnated them from the cass of persons through
whom the ta payer may quafy as head of househod.
If the person, whose prncpa pace of abode s the borne of the ta payer, s
an unmarred person, as descrbed n subparagraph ( ), that s, a chd or
descendant of a chd of the ta payer, the ta payer may (f the other requre-
ments of secton 12(c) are met) quafy as a head of a househod even though the
ta payer woud not be entted to an e empton for such person as a dependent
under secton 2 (b). Thus, an unmarred ta payer who mantans as hs home
a househod whch ncudes ony hmsef and hs unmarred son, may be the head
of te househod even though the ta payer does not furnsh more than haf the
support of the son and even though the son has gross ncome of 600 or more.
If, however, the son s marred at the cose of the ta abe year of the ta payer,
the ta payer may not quafy as the head of the househod by reason of the fact
that the prncpa pace of abode of te son s such househod uness the ta -
payer s entted to an e empton for the son under secton 2 (b), that s, uness
the son receves more than haf hs support from the ta payer, has gross ncome
of ess than 000 ( 00 under the ouse b) n the caendar year n whch the
ta abe year of the ta payer begns, and does not make a |ont return wt hs
spouse for hs ta abe year begnnng n such caendar year.
0 016 2 36
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

ta payer whose status as head of a househod depends upon the fact that
such a househod Is the prncpa pace of abode of a person descrbed n sub-
paragraph ( ) cannot quafy as the head of a househod uness such person, for
the caendar year n whch the ta abe year of the ta payer begns, receved more
than haf of hs support from the ta payer, had gross ncome of ess than 600
n such caendar year, and, f marred, has not made a |ont return wth hs
spouse for hs ta abe year begnnng n such caendar year. Thus, a ta payer
who mantans a home for hmsef and hs mother does not quafy as head of
a househod even though hs home consttutes the prncpa pace of abode of hs
mother uness he s entted to cam hs mother as a dependent under secton
2 (b).
ta payer w not be consdered as the head of a househod uness such
househod actuay consttutes hs home for the ta abe year and aso consttutes
the prncpa pace of abode for such ta abe year of another member of the
househod who meets the requrements of secton 12(c)(3) ( ) or ( ). If
such other member of the househod des durng the ta abe year, the ta payer
w not be dened the benefts of ths subsecton f the ta payer s househod
consttuted the member s prncpa pace of abode durng the ta abe year up to the
date of hs death. Secton 12(c) s ntended to appy ony where the ta payer
and such other members of the househod ve together n such househod durng
the entre ta abe year (e cept for temporary absences due to speca crcum-
stances). The fact that a chd may be at coege durng the coege term does not
prevent the home of the ta payer from aso consttutng the prncpa pace of
abode of the chd. owever, such home w not be consdered as the prncpa
pace of abode where the chd estabshes a separate habtaton and ony returns
for perodc vsts. Smary, such home w not be consdered as consttutng
the prncpa pace of abode of a dependent of the ta payer who s supported
by the ta payer for a substanta part of the year n odgngs other that those
occuped by the ta payer even though such person may at varous perods ve
n the househod, uness the resdence of the dependent n other odgngs s not
permanent and s due to necessty such as ness. It s aso ntended that the
househod consttute the actua pace of abode of the ta payer and t s not
sufcent that the ta payer mantan the househod wthout beng an occupant
thereof.
Paragraph ( ) contans rues for ascertanng the status of the ta payer and
other persons for the purpose of determnng whether the ta payer s the head of
a househod.
rarngraph ( ) ( ) provdes that a egay adopted chd of a person sha be
consdered a chd of such person by bood.
Paragraph ( )( ) provdes that an ndvdua who s egay separated from
hs spouse under a decree of dvorce or separate mantenance sha not be
consdered as marred.
Paragraph ( ) (C) provdes that a ta payer whose spouse s a nonresdent
aen sha be consdered as not marred at the cose of the ta abe year for the
purposes of consderng whether the ta payer s the head of a househod. Thus,
a ta payer whose spouse s a nonresdent aen (so that such ta payer may not
compute hs ta under the ncome spttng provsons of secton 12(d) ) and
who, f unmarred, woud quafy as a head of a househod may be consdered
as unmarred despte the fact that he has a spouse.
Paragraph ( ) (D) provdes that a ta payer whose spouse (other than a
spouse who was a nonresdent aen) des durng the ta abe year sha be con-
sdered as marred at the cose of hs ta abe year for the purposes of secton
12(c). Such ta payer, accordngy, may not be consdered as a head of a house-
hod for such ta abe year.
ta payer who at any tme durng the ta abe year s a nonresdent aen
sha n no case be consdered as a head of a househod.
Subsecton (b) of ths secton of the b (reatng to computaton of ta by
coector) s added by your commttee and does not appear n the b as passed by
the ouse.
Subsecton (b) (1) of ths secton amends secton 1(f) (1) of the Code, whch
provdes that an ndvdua entted to eect to pay the ta mposed by suppement
T whose gross ncome s ess than ,000, and s entrey from wages, dvdends,
and nterest (wth not more than 100 from sources other than wages) may eect
to have hs ta computed by the coector n eu of makng hs own computaton
on the return. Your commttee s amendment adds a sentence to provde that
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

the coector s computaton sn be made wthout regard to the ta payer s status
as head of a househod.
Subsecton (b)(2) of ths secton of the b mukes a correspondng amend-
ment to secton 02 of the Code (reatng to the manner and effect of an eecton
to pay the ta mposed by suppement T) to provde that If a hend of a househod
eects to have hs ta computed by the coector pursuant to the provsons of
of secton 1(f), and thereby eects under secton 1(f)( ) to pny the ta m-
posed by suppement T, the ta Imposed by secton 00 s to be computed wthout
regard to the status of the ta payer as the head of a househod.
Under these amendments If a person otherwse entted to hnve Is ta com-
puted at the rates provded for a head of househod eects to have hs ta com-
puted by the coector under secton 1(f) (1) the coector w use for purposes
of computng the ta the tabes provded under secton 00 for a snge person.
Such eecton Is made under present practce by ta payers fng Form 10 0 .
Such a person fng Form 10 0 and eectng to have hs ta computed by the
coector w not, of course, be requred to submt any nformaton respectng
hs status as head of a househod as that status w have no sgnfcance n the
coector s computaton of hs ta as a snge person.
S CTION 302. P YM NTS TO N FICI RI S OF D C S D MPLOY S
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 22(b) (1) of the Code (reatng to e cuson of nsurance proceeds
from gross ncome) to provde for a mted e cuson for amounts pad by
an empoyer to the benecares of an empoyee by reason of the empoyee s
death. The amendment, whch Is contaned n a new subparagraph ( ) added
to secton 22(b)(1), woud restrct the appcaton of the provson to cases
where the payments are made pursuant to an e press contract under whch
the empoyer s egay obgated to pay the amounts to the desgnated bene-
fcares of the empoyee. In addton, the aggregate of the amounts to be
e cuded by a the benefcares of the empoyee wth respect to amounts
pad by an empoyer of such empoyee may not e ceed .000. In cases where
payments of the type descrbed n secton 22(b)(2)( ) e ceed ,000 and
are made to more than one benefcary of an empoyee, the e cuson sha
be aocated among the benefcnres n accordance wth such reguatons as
the Secretary may prescrbe.
Where the amounts are hed by the empoyer under an agreement to pay
nterest thereon, the nterest payments (as n the case of nterest payments
where nsurance proceeds are hed by the nsurer) are Incudbe n gross ncome.
The amendment made by ths secton s appcabe wth respect to ta abe
years begnnng after 19 0.
S CTION 303. OINT ND SUR I OR NNUITI S
Ths secton, for whch there s no correspondng provson n the ouse b,
amends sectons 113(a)( ) and 22(b)(2) of the Code to provde that the
bass of a survvor s nterest n a |ont and survvor annuty, the vaue of whch
s requred to be Incuded In the estate of a decedent annutant dyng after
December 31, 19 0, sha be consdered to be acqured by bequest, devse, or
nhertance and that such bass (that s. the vaue of such survvor s Interest
at the tme of the decedent s death) sha be consdered, for purposes of deter-
mnng the amount to be ncuded n the ncome of the survvor, to be the con-
sderaton pad for the survvor s annuty.
Under e stng aw, amounts receved as an annuty purchased by the annutant
are n genera ta ed to the e tent of 3 percent of the aggregate consderaton pad
for the annuty unt the fu consderaton has been recovered ta -free, after
whch the entre amounts receved are ta abe. Secton 22(b)(2)( ). In
the case of an annuty purchased by an empoyer for an empoyee under a
quafed penson or proft-sharng pan for whch the empoyer s contrbuton
s deductbe under secton 23(p)()( ), the consderaton for the annuty
s consdered to be the amount contrbuted by the empoyee so that the empoyee
on recept of the annuty payments s ta ed to the e tent of 3 percent of hs
contrbutons unt he has recovered ta -free the amount of hs contrbutons
after whch the fu amount of the annuty payments consttute ta abe ncome,
(Where the empoyer s contrbutons are ncuded In the Income of the empoyee
n the year when made, that s, where the penson or proft-sharng pan does
not meet the requrements of secton 160(a) (3), ( ), ( ), and (6) and the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
empoyee s rghts under the contract are nonforfetabe, the amount of the
empoyer s contrbutons s aso consdered to consttute part of the consderaton
pad.) Secton 22(b)(2)( ). In the case of a |ont and survvor annuty,
the aggregate consderaton pad under the foregong rues s consdered to be
the fu amount pad for the entre annuty wth the effect of ta ng to the
survvor annutant 3 percent of such consderaton (the amount pad for the
annuty n cases under secton 22(b)(2)( ) and the contrbutons by the em-
poyee, or the empoyee and empoyer, n the case descrbed n secton 22(b) (2)
( )) and wth the further effect that where the consderaton has been e cuded
from the ncome of the prmary annutant, the survvor s ta ed on te fu
amount of payments receved by hm.
Under your commttee s amendment to secton 113(a)( ), f the vaue of
the survvor s nterest s requred to be ncuded under appcabe prncpes
of aw n the gross estate of the decedent annutant (whether or not such estate
e ceeds 00,000 so as to requre the tng of an estate ta return under secton
21(a)(1)), the bass of such nterest to the survvor annutant s consdered
(e cept to the e tent to whch secton S(|), reatng to optona vauaton, s
appcabe) to be the vaue at the tme of the decedent s death and, under your
commttee s amendment to secton 22(b) (2), such bass s consdered to consttute
the consderaton pad for the survvor s annuty for purposes of determnng
the ta abe amounts of the annuty payments receved by her. Thus, f a
survvor annutant s to receve an annuty of doars annuay, and f the
vaue of such annuty woud be requred to be ncuded n the gross estate of
the decedent annutant and f the bass of such annuty under secton 113(a) ( )
woud be ,000, the survvor s to ncude n hs ncome each year an amount
not n e cess of 1 0 (3 percent of ,000) and may e cude the baance of
the amounts receved unt the amount of ,000 has been recovered ta -free.
S CTION 30 . INCOM FROM DISC RG OF IND T DN SS
Secton 30 corresponds to sectons 1 and 2 of . R. 2 10 as recenty passed
by the ouse of Representatves and provdes for the permanent enactment
of secton 22(b) (9) of the Interna Revenue Code and for the e tenson of
secton 22(b) (10) of the Code for a 3-year perod. dscusson of these
provsons s contaned n part 1 of ths report, pages 00 and 01.
S CTION 30 . COMP NS TION OF C RT IN M M RS OF T RM D FORC S
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 22(b) (13) of he Interna Revenue Code, reatng to the
addtona aowance for certan members of the rmed Forces.
Secton 22(b) (13) of e stng aw e cudes from gross ncome certan com-
pensaton receved for actve servce n the rmed Forces of the Unted States
for any month durng any part of whch the recpent served n a combat zone
after une 2 ,19 0, and pror to anuary 1,19 2. Subsecton (a) of ths secton
e tends ths atter date from anuary 1, 19 2, to anuary 1, 19 .
Subsecton (a) of ths secton aso e tends the e cuson to cortnn com-
pensaton receved for actve servce n the rmed Forces of the Unted States
for any month durng any part of whch the recpent was hosptazed at any
pace as a resut of wounds, dsease, or n|ury ncurred whe servng n a
combat zone after une 2 , 19 0, and pror to anuary 1, 19 , provded that
durng a of such month there are combatant actvtes n some combat zone.
Subsecton (b) of ths secton amends secton 22(b) (13) (C) () (reatng
to when servce s performed n a combat zone) to provde that une 2 , 19 0,
sha be consdered the date of the commencng of combatant actvtes n the
combat zone ( orea) desgnated n ecutve Order 1019 . The date une 2 .
19 0, used n ths amendment refers to the date une 2 , 19 0, n the combat
zone.
Subsecton (c) of ths secton makes conformng amendments to secton
1021(a)(1) of the Interna Revenue Code, reatng to the defnton of the
term wages.
Subsecton (d) of ths secton provdes that the amendments made by sub-
sectons (a) and (b) sha be appcabe to ta abe years endng after une 2 .
19 0, and that the amendment made by subsecton (c) sha be appcabe wth
respect to wages pad after the tenth day foowng the date of enactment of the
ct.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
S CTION 306. IN OLUNT RY LI UID TION ND R PL C M NT OF
IN NTORI S
Ths secton of the b, for whch there s no correspondng provson n the
ouse b, amends secton 22(d) (G) (F) () (reatng to the appcaton of the
rue wth respect to repacements to qudatons of nventores occurrng n ta -
abe years endng after une 30, 10 0, and pror to anuary 1,19 ) so as to vary
the appcaton of that rue n certan cases nsofar as repacements made wthn
ta abe years endng pror to anuary 1,19 3, are concerned. In genera, secton
22(d) (6) (C) provdes that, for the purpose of secton 22(d) (0), goods refectng
an ncrease n nventory for a ta abe year are consdered, n the order of ther
acquston, as havng been acqured n repacement of the goods most recenty
qudated and not prevousy repaced, whether or not the qudaton of such
goods was nvountary. To the e tent that the qudaton was nvountary, the
benefts of the subsecton are appcabe. Under subparagraph ( ) of secton
22(d) (6), ta benefts are granted wth respect to the repacement of goods whch
were nvountary qudated n ta abe years begnnng after December 31,
19 0, and pror to anuary 1, 19-1 . where such goods are repaced n a ta abe
year endng pror to anuary 1, 19 3. Under subparagraph (F), smar benefts
are provded wth respect to goods whch were nvountary qudated n ta abe
years endng after une 30, 19 0, and pror to anuary 1, 19 , where repacement
of such goods s made In a ta abe year endng pror to anuary 1, 19 0.
The operaton under present aw of the provsons of subparagraph (C), dea-
ng wth repacements, nsofar as nvountary qudatons of goods of the same
cass sub|ect to the provsons of both subparagraphs ( ) and (F) are concerned,
s that the nvountary qudatons sub|ect to the provsons of subparagraph (F)
must be repaced before the nvountary qudatons sub|ect to the provsons of
subparagraph ( ). To the e tent, therefore, that goods of the same cass as those
whch were qudated n the earer perod are nvountary qudated n the
ater perod, t s apparent that the operaton of the present repacement rue
requres that the repacement of a such qudatons must be made n ta abe
years endng pror to anuary 1, 19 3, n order that the ta benefts of subpara-
graph ( ) may be avaabe wth respect to the earer qudatons.
Under the amendment made by ths secton of the b, the appcaton of the
genera repacement rue provded n subparagraph (C) s modfed n suc a way
that, In any case nvovng nvountary qudatons of goods of the same cass
sub|ect to the provsons of both subparagraphs ( ) and (F), the nvountary
qudatons of such goods sub|ect to the provsons of subparagraph (F) sha,
for the purpose of repacements made n ta abe years endng pror to anuary 1,
19 3, be consdered as havng occurred pror to the nvountary qudatons of
such goods sub|ect to the provsons of subparagraph ( ).
The amendment made by ths secton s not appcabe to vountary quda-
tons occurrng n the perod to whch subparagraph (F) s appcabe.
The amendment of secton 22(d) (0) (F) () made by ths secton aso corrects
an error n cross-reference whch was prevousy contaned n that cause.
Subsecton (b) of the secton provdes that the amendment made by the secton
sha be appcabe wth respect to ta abe years endng after une 30, 19 0.
S CTION 307. M DIC L I NS S
Ths secton of the b, for whch there s no correspondng provson n the
ouse b, amends secton 23( ), reatng to the deducton of medca, denta,
etc., e penses. The effect of the amendment s to remove the percent mtaton
wth respect to medca e penses pad durng the ta abe year, not compensated
for by nsurance or oterw.se, for the care of a ta payer or hs spouse f ether
the ta payer or hs spouse has attaned the age of 0 before the cose of the
ta abe year. The mtaton wth respect to the ma mum deducton aowabe
under secton 23( ) remans unchanged.
The determnaton of whether an ndvdua s marred at any tme durng the
ta abe year sha be made n accordance wth the provsons of secton 1(b) ( ).
ppcaton of secton 23( ) as amended to the foowng e ampes ustrates
the effect of the amendment.
ampe 1. , who s 70 years of age on February 22, 19 1, fes hs ncome
ta return on March 1 , 19 2 (caendar-year bass). Durng the caendar year
19 1, pays the foowng percentages of hs ad|usted gross ncome as specfed:
(a) 3 percent for the medca care of hmsef and hs spouse, and (6) 2 percent
for the medca care of hs dependent son. woud be aowed to deduct an
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

amount equa to 3 percent of hs ad|usted gross ncome, sub|ect, however, to
the ma mum aowabe under secton 23 ( ). Under e stng aw, woud not
be aowed any deducton n ths case.
ampe 2. ssumng the percentages for medca care specfed In (1) are,
respectvey, and , woud be aowed to deduct an amount equa to percent
of hs ad|usted gross ncome, sub|ect, however, to the ma mum aowabe under
secton 23( ). Under e stng aw, woud be aowed to deduct an amount
equa to percent of hs ad|usted gross ncome, sub|ect to the same ma mum.
In determnng the amount of medca e penses deductbe under secton
23( )(2)( ), the amount deductbe under secton 23( )(2)( ) sha not be
ncuded for the purpose of meetng the percent mtaton.
Ths amendment s appcabe to ta abe years begnnng after December 31,
19 0.
S CTION 30 . ST ND RD D DUCTION
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 23(aa) of the Interna Revenue Code, reatng to the optona
standard deducton for ndvduas.
Under e stng aw, an eecton to take or not to take the standard deducton
for any ta abe year s rrevocabe after the tme prescrbed for fng the return
for such year. Subsecton (b) of ths sectpn adds paragraph (7) to secton
23(aa) to e pressy provde that, under reguatons prescrbed by the Secretary,
an eecton to take or not to take the standard deducton for any ta abe year
may be changed after the tme prescrbed for fng the return for such year.
If, however, the spouse of the ta payer fed a separate return for any ta abe
yenr that corresponds, for the purpose of paragraph ( ) of secton 23(an), to
the ta abe year of the ta payer, the change may not be made uness, under
reguatons prescrbed by the Secretary, (1) the spouse makes a change of eecton
n such separate return wth respect to the standard deducton consstent wth
the change of eecton sought by the ta payer, and (2) the ta payer and hs
spouse fe wth the Secretary a consent In wrtng to the assessment, wthn
suc perod as may be agreed upon wth the Secretary, of any defcency of ether,
to the e tent attrbutabe to such change of eecton even though at the tme of
the fng of such consent the assessment of such defcency woud otherwse
be prevented by the operaton of any aw or rue of aw.
change of eecton for any ta abe year sha not be permtted, however, f
the ta abty of the ta payer for the ta abe year, or of the ta payer s spouse
for the ta abe year correspondng, for the purposes of secton 23(aa) ( ), to
the ta abe year of the ta payer, has been compromsed under the provsons
of secton 3761.
though t s not e pressy so stated, the change for any ta abe year must
be made wthn the perod of tme when a cam for credt or refund must be
fed for such year n order for the ta payer to receve a credt or refund attrb-
utabe to such change snce such perod s not e tended by ths secton.
Subsecton (a) of ths secton amends paragraph (3) of secton 23(aa) to
conform that paragraph to paragraph (7) of such secton as added by subsecton
(b) of ths secton of the b.
Subsecton (c) of ths secton provdes that the amendments made by ths
secton sha be appcabe ony wth respect to ta abe years begnnng after
December 31,19 9.
S CTION 309. P NDITUR S IN T D LOPM NT OF MIN S
Ths secton corresponds to secton 302 of the b as passed by the ouse.
Your commttee has added a provson aowng the ta payer an eecton to
deduct certan e pendtures for the deveopment of a mne or other natura
depost (other than an o or gas we) ether n the ta abe year pad or ncurred
or rataby durng the ta abe years n whch the produced ores or mneras are
sod. Your commttee has aso made technca changes n the secton.
Under e stng aw a e pendtures n e cess of net recepts from ores or
mneras sod are requred to be charged to capta account whe a mne s n
the deveopment stage and are to be recovered through depeton. owever,
after a mne has reached the producng status, deveopment costs, whether or not
n e cess of net recepts from ores or mneras sod, are not treated as capta
charges recoverabe through depeton but as operatng e penses deductbe n
the year n whch the produced ores or mneras benefted thereby are sod.
Secton 309 of the b amends secton 23 of the Code by addng a new sub-
secton (cc). The correspondng provsons of the ouse b woud have n-
serted a new subparagraph (D) to secton 23(a) (1).
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
Paragraph (1) of subsecton (cc) provdes that a e pendtures for the
deveopment of a mne or other natura depost (other than an o or gas we)
pad or ncurred after December 31,19 0, and after the e stence of ores or mn-
eras n commercay marketabe quanttes has been dscosed sha be deductbe,
e cept as otherwse provded n paragraph (2) of ths subsecton. These e -
pendtures sha be deducted whether pad or ncurred by the ta payer whe
the mne or depost s n the deveopment or whe n the producng status.
Paragraph (1) further provdes that ths new subsecton sha have no app-
caton to e pendtures for the acquston or mprovement of property of a
character whch s sub|ect to the aowance for deprecaton provded n secton
23(1). owever, aowances for deprecaton sha be consdered for the pur-
pose of ths new subsecton as e pendtures.
Durng the deveopment stage, ths new subsecton Is appcabe to a e pend-
tures of the ta payer, uness otherwse e cuded heren. owever, after the
producng status s reached, t s ony those e traordnary e pendtures whch
under e stng aw must be deferred and deducted rataby as the produced ores
or mneras benefted thereby are sod whch are affected by ths subsecton.
The determnaton of when a mne or depost passes from one stage nto another
sha be made under e stng aw.
Paragraph (2) of subsecton (cc) aows the ta payer to eect, n accordance
wth reguatons, to treat such e pendtures, whether pad or ncurred durng
or after the deveopment stage, n the same manner as such e pendtures are
now treated after the mne or depost has reached the producng status. That
s, such e pendtures may be treated as deferred e penses and sha be deductbe
on a ratabe bass as the unts of produced ores or mneras benefted by such
e pendtures are sod. Whe the mne or depost s n the deveopment stage
the eecton under paragraph (2) appes ony to e pendtures whch are n
e cess of the net recepts durng the ta abe year from the ores or mneras
produced from the mne or depost. ccordngy, the amount of such e pend-
tures whch s not n e cess of such net recepts for the ta abe year whe the
mne or depost s n the deveopment stage sha be deductbe n fu. The
eecton under ths paragraph sha be appcabe to the tota amount of such
e pendtures, or of such e cess, as the case may be, wth respect to each mne
or depost and sha be rrevocabe for the ta abe year for whch t s made.
Ths amendment s appcabe to a ta payer who has pad or ncurred e pend-
tures of the type descrbed theren and accordngy has no appcaton to that
part of the cost of a mne or depost attrbutabe to such e pendtures when
acqured by purchase. Where a ta payer has pad or ncurred e pendtures
descrbed n subsecton (cc), has made an eecton under paragraph (2), and
has thereafter eased the deveoped property retanng a royaty nterest theren,
such a ta payer sha be aowed the ratabe deducton provded n paragraph (2).
In order to determne the amount of the annua deducton aowabe under
paragraph (2), t w be necessary to estmate the number of unts, benefted by
such e pendtures, n the reserve of the mne or depost at the cose of the ta -
abe year for whch an eecton s made. Ths estmate s, of course, sub|ect to
revson n the event t s ascertaned as the resut of operaton or deveopment
work that the remanng recoverabe unts are materay greater or ess than
the number remanng from a pror estmate. s these unts are produced and
sod, the amount of the deveopment costs to be deducted w be an amount whch
s n the same proporton to the tota of such costs whch are treated as deferred
e penses as the number of unts sod s to the number of unts n the reserve.
In computng the amount of percentage depeton aowabe for any ta abe
year, the deductons aowabe for such year under paragraph (1) or (2) of
subsecton (cc) sha be taken nto account n determnng the ta payer s net
ncome for the purpose of the 0 percent mtaton provded n secton 11 (b) ( )
( ) of the Code.
Paragraph (3) provdes that the amount of the e pendtures whch are to be
deferred and deducted rataby under the eecton provded n paragraph (2)
sha be taken Into account n determnng the cost of the mne or depost for
the purpose of sectons 111, 112, and 113. owever, no amount of such deferred
e pense sha be ncuded n the ad|usted bass of the property for the purpose
of computng a deducton for cost depeton under secton 11 .
Subsecton (b) of secton 309 of the b adds a new subparagraph ( ) to
secton 113(b)(1) (reatng to ad|usted bass of property) whch provdes that
the bass of mnes or natura deposts sha be ad|usted for amounts aowed as
deductons under secton 23(cc)(2) and resutng n a reducton of the ta -
payer s ta es under chapter 1 of the Code, but not ess than the amounts aow-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
60
abe under such secton for the ta abe year and pror years. ccordngy, f a
ta payer purchases undeveoped mnng property for 1,000,000 and at the cose
of the deveopment stage hns ncurred deveopment costs n e cess of net recepts
of 9,000,000, and has made the eecton wth respect to such costs under secton
23(cc)(2) the bass of such property at such tme for computng gan or oss
w be 10,000,000. ssumng that the ta payer n ths e ampe has operated
the mne for severa years and has deducted aowabe percentage depeton n
the amount of 2,000,000 and has deducted, pursuant to an eecton under secton
2. (cc) (2), aowabe deferred deveopment e pendtures of 2,000,000, the bass
of the property n the ta payer s hands for purposes of determnng gan or oss
f sod w be 0,000,000.
Subsecton (c) of secton 309 makes a technca amendment to secton 2 (a) (2)
of the Code (reatng to tems not deductbe) n order to remove any doubt as to
the deductbty under secton 23(cc) of the e pendtures ncurred n the de-
veopment of a mne or depost.
The amendments made by ths secton of the b sha be appcabe to ta abe
years endng after December 31, 19 0.
S CTION 310. GROSS INCOM OF D P ND NTS OF T P r R
Under present aw the 600 e empton for a dependent of the ta payer may
not be aowed f the gross ncome of the dependent for the caendar year n
whch the ta abe year of the ta payer begns s 00 or more. Secton 310(a)
of the b, for whch there s no correspondng provson n the ouse b,
amends secton 2 (b) (1) (D) of the Interna Revenue Code to provde that the
e empton may be aowed f the gross ncome of the dependent s ess than 000.
nstead of 00, as under present aw. The amendment made by secton 310(a)
s to be appcabe wth respect to ta abe years begnnng after December 31,
19 0.
S CTION 311. CR DIT FOR DI ID NDS R C I D
Ths secton, for whch there s no correspondng provson n the Iouse b,
amends secton 26(b) and secton 119(a)(2)( ) of the Interna Revenue Code.
Under e stng aw the credt aowed corporatons for dvdends receved s
not permtted wth respect to dvdends receved from n foregn corporaton,
whether or not such foregn corporaton has been sub|ected to Unted States
ncome ta on ts earnngs or.profts.
Ths secton amends secton 26(b) of the Code so as to provde for a dvdends
receved credt n the case of dvdends receved from a foregn corporaton whch
s sub|ect to ncome ta under chapter 1 of the Code f, for an unnterrupted
perod of not ess than 36 months endng wth the cose of the foregn corpora-
ton s ta abe year precedng the decaraton of the dvdends, the foregn cor-
poraton has been engaged n trade or busness wthn the Unted States and f,
durng such perod, 0 percent or more of the gross ncome of the foregn
corporaton has been derved from sources wthn the Unted States. If the
foregn corporaton has been n e stence ess than 36 months at the cose of
the ta abe year precedng the decaraton of the dvdends, then the appcabe
perod to be taken nto consderaton n eu of the unnterrupted perod of 36
or more months Is the entre perod the foregn corporaton has been n e stence.
The dvdends receved credt here provded w not be aowed n the case of
dvdends receved from a foregn persona hodng company amounts ncuded
n gross ncome under secton 337 as dvdends from a foregn persona hodng
company (as defned n secton 331 of the Code).
n unnterrupted perod whch meets the two tests (gross ncome and carry-
ng on trade or busness) may start at a date ater than the date on whch the
company frst commenced an unnterrupted perod of dong busness n the
Unted States. If a corporaton has carred on busness n the Unted States
for an unnterrupted perod of 20 years pror to the cose of the ta abe year
precedng the decaraton of the dvdend, and ts gross ncome from Unted
States sources durng suc perod was ony 0 percent of ts tota gross ncome
durng the 20-year perod, but durng the ast 1 years of the 20-year perod
the gross ncome from Unted States sources consttuted 0 percent of ts tota
gross ncome durng such ast 1 years, the unnterrupted perod whch meets
both tests woud begn at the begnnng of the 1 -year perod.
The amount of the credt to be aowed s percent of the amount receved
as dvdends from earnngs or profts accumuated by the foregn corporaton
durng the appcabe perod, that s, the unnterrupted perod of 36 or more
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
2

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
61
months (or the perod permtted n eu thereof when such corporaton has been
n e stence ess than 36 months) throughout whch t has met the prescrbed
trade or busness and percentage of gross ncome tests. In no case, however,
w the amount of credt aowed be n e cess of an amount whch bears the
same rato to percent of the amount receved as dvdends from earnngs or
profts accumuated by the foregn corporatons durng the appcabe perod as
the norma-ta net ncome of the foregn corporaton for such appcabe perod
from sources wthn the Unted States bears to ts entre norua-ta net ncome
for such appcabe perod.
Snce secton 119(a) (2) ( ) of the Code now provdes that, for the purpose
of secton 131, dvdends from a foregn corporaton sha be treated as Income
from sources wthout the Unted States, a doube beneft woud (n the absence
of an approprate amendment to secton 119) be avaabe n some nstances
to a domestc corporaton recevng dvdends from a foregn corporaton, n
that the substantve amendment made by ths secton to secton 26(b) of the
Code woud permt a dvdends receved credt to the domestc corporaton wth
respect to the same dvdends through the recept of whch under secton 131
of the Code the domestc corporaton Is entted to a foregn ta credt.
In order to restrct the amount of foregn ta credt aowabe wth respect
to dvdends of foregn corporatons aocabe to ncome from sources outsde
the Unted States, ths secton ame nds secton 119(a) (2) ( ) of the Code so
as to provde that, for the purpose of secton 131, dvdends from a foregn cor-
poraton sha be treated as ncome from sources wthout the Unted States
ony to the e tent such dvdends e ceed the amount whch s one hundred
eghty-ffths of the amount of the credt aowabe under secton 26(b)(3) n
respect of such dvdends. Under ths formua, therefore, the porton of the
dvdends pad from earnngs or profts derved from sources wtbn the Unted
States cannot be used as the bass of a foregn ta credt f such porton s
sub|ect to the dvdends receved credt rue of secton 26(b) (3).
The cosng provsons of secton 20(b) of the Code, whch now foow mme-
datey after paragraph (2) thereof, w be equay appcabe to the provsons
of paragraph (3), as added by ths secton. The amendments made by ths
secton sha be appcabe ony wth respect to ta abe years begnnng after
December 31, 19 0.
S CTION 312. OINT R TURN FT R FILING S P R T R TURN
Ths secton, for whch there s no correspondng provson n the ouse b,
adds new subsecton (g) to secton 1 of the Code to permt the fng of a |ont
return by a husband and wfe n certan cases even though separate returns have
aready been fed for the ta abe year.
Paragraph (1) of secton 1(g) provdes that an ndvdua who has fed
a separate return for a ta abe year for whch a |ont return coud have been
made by hm and hs spouse under secton 1(b) may make a |ont return wth
hs spouse for such ta abe year even though the tme prescrbed by aw for
fng the return for the ta abe year has e pred. The |ont return fed pur-
suant to secton 1(g) sha consttute the return of the husband and wfe for
such year, and a payments, credts, refunds, or other repayments, made or
aowed wth respect to the separate return of ether spouse prevousy fed,
are to be taken nto account n determnng the e tent to whch the ta on the
|ont return has been pad.
For the purpose of secton 1(g), the determnaton of whether an ndvdua
s marred at any tme durng a ta abe year sha be made n accordance wt
the provsons of secton 1(b) ( ). The fact that the ta payer and hs spouse
are egay separated after the fng of separate returns for the ta abe year
sha not deprve them of ther rght to fe a |ont return for the ta abe year
pursuant to secton 1 (g).
Paragraph (2) of secton 1(g) provdes that the foowng payments must
be made at or before the tme of the fng of the |ont return f a |ont return
s to be fed pursuant to such subsecton:
( ) amounts prevousy assessed wth respect to ether spouse for
such ta abe year;
( ) amounts shown as the ta by ether spouse upon hs separate
return for such ta abe year ; and
(C) ny amount determned by the Commssoner, at the tme of the
fng of the |ont return, as a defcency wth respect to ether sp;,use for
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
62
such ta abe year f, pror to the fng of the ont return, a notce under
secton 272(a) of such defcency has been maed.
Paragraph (3) of secton 1(g) provdes that a |ont return cannot be made
pursuant to such subsecton
( ) fter the e praton of 3 years from the ast day prescrbed by aw
for fng the return for such ta abe year determned wthout regard to
any e tenson of tme granted to ether spouse;
( ) fter a notce of defcency under secton 272(a), wth respect to
the ta abe year, has been maed to ether spouse f the spouse fes a
petton wth respect to such notce wth the Ta Court wthn the tme
prescrbed n secton 272(a), that s, wthn the 90-day perod after the
mang of the notce;
(C) fter cther spouse has commenced a sut n any court for the re-
covery of any part of the ta for such ta abe year ; or
(D) fter ether spouse has entered nto a cosng agreement under sec-
ton 3760 wth respect to such ta abe year, cr after any cv or crmna
case arsng aganst ether spouse wth respect to such ta abe year has
been compromsed under secton 3761.
Paragraph ( ) of secton 1(g) provdes that f a |ont return s made under
such secton, any eecton (other than the eecton to fe a separate return) made
by ether spouse n hs separate return for the ta abe year wth respect to the
treatment of any ncome, deducton, or credt of such spouse sha not be changed
n the makng of the |ont return where such eecton woud have been rrevocabe
f the |ont return had not been made. Thus, f one spouse has made an r-
revocabe eecton to adopt and use the eectve nventory method under secton
22(d), ths eecton may not be changed upon makng the |ont return under
secton 1(g).
Paragraph ( ) of secton 1(g) provdes that, f a |ont return s made under
such secton after the death of ether spouse, such return wth respect to the
decedent can be made ony by hs e ecutor or admnstrator. Thus, n the
case where no e ecutor or admnstrator s apponted no |ont return can be
made under secton 1(g).
Paragraph (6) of secton 1(g) provdes for addtons to the ta n certan
cases where the amount shown as the ta by the ta payer and hs spouse on
the |ont return made under such subsecton e ceeds the aggregate of the
amounts shown as ta on the separate returns of the spouses. If any part of
such e cess s attrbutabe to neggence, or ntentona dsregard of rues and
reguatons, at the tme of the makng of such separate return, but wthout
any ntent to defraud, percent of such e cess s to be assessed, coected, and
pad n the same manner as f t were a defcency. If any part of such e cess
s attrbutabe to fraud at the tme of the makng of such separate return wth
ntent to evade ta , 0 percent of such e cess shn be assessed, coected, and
pad n the same manner as f t were a defcency. Ths addton s n eu
of the 0 percent addton to the ta provded n secton 3612(d) (2).
Paragraph (7) of secton 1(g) provdes the rues for the appcaton of sec-
tons 27 and 291, reatng, respectvey, to the perod of mtatons upon assess-
ment and coecton, and to denquent returns. Under such rues, a |ont return
made under such secton sha be deemed to have been fed
( ) On the date the ast separate return of ether spouse was fed for
the ta abe y ar, but not earer than the ast date prescrbed by aw for
fng the return of ether spouse, where both spouses fed separate returns
pror to makng the |ont return under secton 1 (g) ;
( ) On the date of the fng of the separate return, but not earer than
the ast day prescrbed by aw for the fng of such return , where ony one
spouse s requred to fe a return pror to the makng of the |ont return
under secton 1(g) ; or
(C) On the date of the fng of the |ont return under secton 1(g),
where ony one spouse fed a separate return pror to the makng of the
|ont return under such subsecton and the other spouse had gross ncome
of C0O or more for the ta abe year.
For the purpose of secton 1(g) (7), the ast date prescrbed by aw for fng
the return for the ta abe year sha ncude any e tenson of tme granted to
ether spouse.
Paragraph ( ) of secton 1(g) provdes that, for the purpose of secton 322,
reatng to refunds and credts, a |ont return made under secton 1(g) sha
be deemed to have been fed on the ast date prescrbed by aw for fng the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
63
return for such ta abe year and that such date s to be determned wthout
regard to any e tenson of tme granted to ether spouse.
Paragraph (9) of secton 1(g) provdes that, n the case of a |ont return
made under such secton, the perod of mtatons provded n sectons 27 and
276 sha ncude 1 year mmedatey after the date of the fng of such |ont
return. The e praton of the 1 year Is to be determned wthout regard to the
rues provded n secton 1(g) (7), reatng to the appcaton of secton 27 and
291 wth respect to a ont return made under secton 1(g).
Paragraph (10) of secton 1(g) provdes that, for the purposes of secton
3 09(a), reatng to crmna penates n the case of a frauduent return, the
term return ncudes a separate return fed by a spouse for the ta abe year
for whch a |ont return s subsequenty made under secton 1(g).
Subsecton (b) of secton 312 of the b provdes that secton 1(g), as added
by subsecton (a) of secton 312, sha be appcabe ony wth respect to ta abe
years begnnng after December 31, 19 0.
S CTION 313. MUTU L S INGS N S, UILDING ND LO N SSOCI TIONS,
ND COOP R TI N S
Secton .313, for whch there Is no correspondng provson n the ouse b,
reates to ncome ta treatment of mutua savngs banks, budng and oan
assocatons, and cooperatve banks, and s appcabe ony wth respect to
ta abe years begnnng after December 31, 19 1.
Subsecton (a) repeas secton 101(2) of the Code (reatng to e empton from
ta of mutua savngs banks).
Subsecton (b) amends secton 101( ) of the Code to repea the e empton
from ta of budng and oan assocatons and cooperatve banks. Credt unons
wthout capta stock organzed and operated for mutua purposes and wthout
proft w reman ta -e empt under secton 101( ) of the Code.
Subsecton (c) amends secton (h) of the ome Owners Loan ct of 1933
( Stat. 132; 12 U. S. C, secton 1 6 (h)), to repea the e empton of Federa
savngs and oan assocatons from Federa ncome ta In the case of ta abe
years begnnng after December 31, 19 1.
Subsecton (d) amends secton 23(k)() (reatng to deducton from gross
ncome of bad debts) to provde n the case of certan organzatons heretofore
ta -e empt that the reasonabe addton to a reserve for bad debts provded for
under such paragraph sha be determned wth due regard to the amount of
the ta payer s surpus or bad debt reserve e stng at the cose of December 31,
19 1. Ths provson appes ony to those organzatons heretofore ta -e empt
under secton 101 (2), ( ), and (1 ) who are dened e empton by the amend-
ments made by ths secton of the b; that s, t appes to a mutua savngs
bank not havng capta stock represented by shares, a domestc budng and
oan assocaton (see subsecton (h) for defnton), and a cooperatve bank
wthout capta stock organzed and operated for mutua purposes and wthout
proft These organzatons w a be ncuded n the defnton of the term
bank under secton 10 (a) of the Code after ts amendment by subsecton (g).
ach of these organzatons may, sub|ect to approva by the Secretary, seect
ether the deducton method or the reserve method for bad debts on ts frst
return of Income. If the method seected s approved, It must be foowed In
returns for subsequent years, e cept as permsson may be granted by the
Secretary to change to another method. It s contempated that n f ng rues
for the determnaton of reasonabe addtons to a reserve for bad debts, a
approprate factors w be taken Into account ncudng the amount of the
ta payer s surpus and bad debt reserves at the cose of December 31, 19 1,
reserve requrements of the Federa Depost Insurance Corporaton, and, f a
movng average e perence factor s used n determnng the rato of osses
to outstandng oans, an approprate perod of e perence. In the atter con-
necton ths w be an e tended perod of e perence smar to that used In the
case of commerca banks. Your commttee beeves a 2 -year perod shoud be
used, n eu of the 20-year perod used for commerca banks, If such a perod
shows that arger bad debt reserves are requred.
Subsecton (e) amends secton 23(r) (reatng to the deducton from gross
ncome of certan dvdends pad by bankng corporatons) to provde that n
the case of mutua savngs banks, cooperatve banks, and domestc budng and
oan assocatons (for defnton of domestc budng and oan assocatons see
secton 3797(a) (19) as added by secton 313(h) of the b), there sha be
aowed as deductons n computng net ncome any amounts pad to depostors
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
or credted to the accounts of depostors as dvdends on ther deposts or wth-
drawabe accounts.
Subsecton (f) amends secton 23 of the Code (reatng to deductons from
gross ncome) to provde a deducton for repayment to the Unted States of
certan oans made by the Unted States pror to September 1, 19 1, by a mutua
savngs bank not havng capta stock represented by shares. It provdes that
amounts pad by the ta payer durng the ta abe year n repayment of oans
made pror to September 1, 19 1, by the Unted States or any agency or nstru-
mentaty thereof whch s whoy owned by the Unted States sha be aowed
as a deducton n computng net ncome of the ta payer. n e ampe for ths
purpose of an agency or nstrumentaty whoy owned by the Unted States
woud be the Reconstructon Fnance Corporaton.
Subsecton (g) amends secton 10 (a) of the Code (defnng the term bank)
to ncude, wthn the defnton of bank, a domestc budng and oan assocaton.
Subsecton (h) amends secton 3797(a) of the Code (reatng to defntons for
the purpose of the Interna Revenue Code) to defne the term domestc budng
and oan assocaton to mean a domestc budng and oan assocaton, a do-
mestc savngs and oan assocaton, and a Federa savngs and oan assocaton,
substantay a the busness of whch s confned to makng oans to members.
Ths amendment s of a carfyng nature and s not ntended to change the
e stng meanng of a domestc budng and oan assocaton.
S CTION 31 . INCOM T T TM NT OF MPT COOP R TI S
Subsecton (a) of secton 31 , for whch there s no correspondng provson
n the ouse b, reates to the ncome ta treatment of cooperatves. Sub-
secton (a) of secton 31 deas ony wth ta -e empt cooperatves and s ap-
pcabe ony wth respect to ta abe years begnnng after December 31, 19 1.
Subsecton (a) amends secton 101(12) of the Code to brng the provsons
presenty contaned theren under a subparagraph numbered ( ) and to add
after such subparagraph a new subparagraph numbered ( ). Subparagraph
( ) of secton 101(12) provdes that an organzaton e empt from ta aton under
the provsons of subparagraph ( ) sha be sub|ect to the norma ta mposed
on corporatons by secton 13 and to the surta mposed on corporatons by
secton 1 of the Code, or to the aternatve ta provded by secton 117(c) (1).
owever, n computng the net ncome of such an e empt cooperatve for the
purpose of such ta es there s aowed (n addton to the other deductons
aowabe under secton 23 of the Code) as deductons from gross ncome
() amounts pad as dvdends durng the ta abe year upon capta stock, and
) amounts aocated durng the ta abe year to patrons wth respect to n-
come not derved from patronage (whether or not such ncome was derved
durng such ta abe year ) whether pad n cash, merchandse, capta stock,
revovng fund certfcates, retan certfcates, certfcates of ndebtedness, etters
of advce, or n some other manner that dscoses to each patron the doar
amount aocated to hm. y the terms of secton 101 (12) ( ), the amount whch
may be pad on capta stock s mted to the ega rate of nterest n the State
of ncorporaton of the cooperatve or percent per annum, whchever s greater,
on the vaue of the consderaton for whch the stock was ssued. The amounts
covered n (), a bove, refer to tems of ncdenta ncome whch a cooperatve
may reaze and st retan ts e empton, such as renta ncome from ease of
premses to the Unted States Government. Snce such ncome s not derved
from patronage, aocaton thereof to members, though based on patronage, are
not true patronage dvdends. owever, a deducton s aowed for amounts of
such nonpatronage ncome, f aocated and pad to patrons on the bass of pa-
tronage. Such payments do not have to be made n cash but may be made n any
manner that dscoses to each patron the doar amount aocated to hm. If
nonpatronage ncome s not aocated and pad to patrons accordng to patronage,
the aocaton or payment of such ncome to members or patrons woud not be
deductbe under ().
The amounts for whch deductons are aowed under secton 101(12) ( ) ()
and (), as aready ndcated, are not patronage dvdends as such term s
commony understood. Patronage dvdends, rebates, or refunds are taken nto
account n computng the net ncome of a cooperatve sub|ect to 101(12) ( ) n
the same manner as n the case of a cooperatve organzaton not e empt under
secton 101(12) ( ). Patronage dvdends, rebates, or refunds made after the
cose of the ta abe year and on or before the 1 th day of the thrd month
foowng the cose of such year are to be consdered as made on the ast day of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
ta abe year to the e tent they are attrbutabe to patronage occurrng before
the cose of such year.
It s to be noted that n computng (under secton 122 of the Code) the net
operatng oss deducton provded by secton 23(s) of the Code, not ony w the
amounts aowabe as deductons under secton 101(12) ( ) () and () of the
Code as amended by the b be taken nto account but suh computaton w aso
refect the patronage dvdends, refunds, and rebates made by the cooperatve
whch are taken nto account n computng net ncome.
Subsecton (b) of secton 31 amends secton 101 of the Interna Revenue Code
to provde that organzatons descrbed theren are e empt from ta e cept to the
e tent provded n paragraph (12) ( ) of such secton, and that, notwthstandng
the fact that such organzatons are sub|ect to ta under paragraph (12) ( ) of
such secton, they are st to be consdered e empt from ncome ta for the
purpose of any aws whch refer to an organzaton e empt from ncome tu .
ccordngy, such Code provsons as secton 20(b) (credts for dvdends re-
ceved from a domestc corporaton whch s sub|ect to ta ) and secton 1 1
(deang wth consodated returns) do not appy to cooperatves ta abe under
secton 101(12) ( ).
Subsecton (c) of secton 31 amends secton 1 of the Code (reatng to
return of nformaton by corporatons) to add at the end thereof a new subsecton
(f) entted Patronage Dvdends. Such subsecton provdes that any cor-
poraton (whether or not e empt from ta ) aocatng amounts as patronage
dvdends, rebates, or refunds (whether n cash, merchandse, capta stock,
revovng-fund certfcates, retan certfcates, certfcates of ndebtedness, etters
of advce, or n some other manner that dscoses to each patron the amount of
such dvdend, refund, or rebate) sha render a correct return statng (1) the
name and address of each patron to whom t has made such aocatons amountng
to 100 or more durng the caendar year, and (2) the amount of such aocatons
to each patron. If requred by the Secretary, any such corporaton (whether or
not ta -e empt) sha render a ccrrect return of a patronage dvdends, rebates,
or refunds made durng the caendar year to ts patrons, regardess of the
amount or form thereof. The amendments made by subsecton (c) of secton
31 appy wth respect to the caendar year 19 1 and subsequent caendar years.
Subsecton (d) of secton 31 provdes that In the event any aw (other than
sectons 1 3 and 1 of the Interna Revenue Code) enacted by Congress requres
the wthhodng at source of ta on corporate dvdends pad n cash, the requre-
ment of wthhodng and the provsons of such aw sha e tend to patronage
dvdends, rebates, and refunds (whether pad n cash, merchandse, capta stock,
revovng-fund certfcates, retan certfcates, or otherwse) n the same manner
and to the same e tent ns s provded n such aw wth respect to corporate
dvdends pad n cash.
S C. 31 . SURT ON CORPOR TIONS IMPROP RLY CCUMUL TING SURT-LUS
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 102(d)(1), whch defnes the term secton 102 net ncome.
The amendment adds a new subparagraph (D) whch provdes that the e cess
of the net ong-term capta gan for the ta abe year over the net short-term
capta oss for such year, mnus the ta es mposed by chapter 1 of the Code
attrbutabe to such e cess, sha be deducted from net ncome n computng
secton 102 net Income. The ta es attrbutabe to the e cess of the net ong-
term capta gan over the net short-term capta oss sha be an amount equa to
the dfference between (1) the ta es mposed by chapter 1 of the Code, e cept
secton 102, and (2) such ta es computed wthout ncudng such e cess n net
Income. The amendment made by ths secton s appcabe ony wth respect to
ta abe years begnnng after December 31, 1930.
S CTION 316. L CTION S TO R COGNITION OF G IN IN C RT IN
CORPOR T LI UID TIONS
Ths secton, for whch there s no correspondng provson n the ouse b,
nmends secton 112(b) (7) of the Code (reatng to eecton as to recognton of
gan n certan corporate qudatons), whch secton s appcabe under e stng
aw ony n cases n whch the qudaton was pursuant to a pan adopted after
December 31, 19 0, and the transfer of a the property under the qudaton
occurred wthn one caendar month n 1 61. The amendment made by ths
secton e tends secton 112(b) (7) for an addtona year and makes t appcabe
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
66
to cases n whch the qudaton Is pursuant to a pan adopted after December
31, 1900, and the transfer of a the property under the qudaton occurs wthn
one caendar month n 19 1 or 19 2. The effect of the secton s, n genera, to
postpone the recognton of that porton of a quafed eectng sharehoder s gan
on the qudaton whch woud otherwse be recognzed and whch s attrbutabe
to apprecaton n the vaue of certan corporate assets unreazed by the cor-
poraton at the tme such assets are dstrbuted n compete qudaton.
Snce the ony amendment made by your commttee to secton 112(b) (7) s
the nserton of the date 19 2 after the date 19 1 where t now appears n sub-
paragraph ( ) (), the date ugust 1 , 19 0, s st appcabe n subparagraphs
( ), ( ), and (F) of that secton (reatng to the defnton of e cuded corpora-
tons and reatng to the recognton of gan to the sharehoders from the recept
of money or of stock or securtes acqured by the qudatng corporaton after
such date).
Ths secton aso mnkes a technca amendment to secton 113(a) (1 ) of the
Code, n order to make that secton appcabe to property acqured by an eectng
sharehoder n a qudaton carred out under the provsons of secton 112(b)
(7), whether before or after ts amendment by ths secton.
The amendments made by ths secton are appcabe to ta abe years endng
after December 31, 19 1.
S CTION 317. C RT IN DISTRI UTIONS OF STOC ON R ORG NIZ TION
Ths secton amends sectons 112(b) and 113(a) of the Code to provde for the
ta treatment of certan dstrbutons of stock on reorganzaton. For dscusson
of these provsons, see page 99 n part 1 of ths report.
S CTION 31 . G IN FROM S L OR C NG OF T P Y R S R SID NC
Ths secton, whch corresponds to secton 303 of the b as passed by the ouse,
adds a new subsecton (n) to secton 112 of the Code, whch reates to the recogn-
ton of gan or oss. Paragraph (1) of the new subsecton provdes, n genera,
that any gan from a sae of property used by the ta payer as hs prncpa res-
dence (referred to herenafter as the od resdence ) w not be recognzed f the
ta payer wthn a perod begnnng 1 year pror to the date of such sae and
endng 1 year after such date purchases property and uses t as hs prncpa
resdence (referred to herenafter as the new resdence ) e cept to the e tent
that the ta payer s seng prce of the od resdence e ceeds the ta payer s cost
of purchasng the new resdence. Such nonrecognton of gan s mandatory.
The new subsecton does not change the treatment under e stng aw of oss from
the sae or e change of the ta payer s resdence.
Whether or not property s used by the ta payer as hs resdence, and whether
or not property s use by the ta payer as hs prncpa resdence (n the case of
a ta payer usng more than one pace of resdence), depends upon a of the facts
and crcumstances n each ndvdua case, ncudng the bona fdes of the ta -
payer. The term resdence s used n contradstncton to property used n
trade or busness and property hed for the producton of ncome. Nevertheess,
the mere fact that the ta payer temporary rents out ether the od or the new
resdence may not, n the ght of a of the facts and crcumstances n the case,
prevent the gan from beng not recognzed. For e ampe, f the ta payer pur-
chases hs new resdence before he ses hs od resdence, the fact that he rents out
the new resdence durng the perod before he vacates the od resdence w not
prevent the appcaton of ths subsecton.
Where part of a property s used by the ta payer as hs prncpa resdence and
part s used for busness purposes or n the producton of ncome (as n the case
where a part of the budng n whch the ta payer resdes s used as a store or
offce or s rented or n the case of a farm property) aocaton must be made to
determne the e tent to whch the new subsecton appes If the od resdence
s used ony partay for resdenta purposes, a proper aocaton of the gan and
of the seng prce s necessary; ony that part of the gan aocabe to the
resdenta porton may be not recognzed under the new subsecton and ony so
much of the seng prce as s aocabe to such part of the property need be ren-
vested n the new resdence. If the new resdence s used ony partay for
resdenta purposes, then ony so much of ts cost as s aocabe to the resdenta
porton s counted as renvestment for the purpose of the new subsecton.
Property used by the ta payer as hs prncpa resdence may ncude a house-
boat or a house traer. Paragraph ( ) provdes that the ta payer s prncpa
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
67
resdence may aso Incude stock hed by a tenant-stockhoder In a cooperatve
apartment corporaton as those terms are defned In secton 23(z)(2) of the Code,
If the apartment whch the ta payer Is entted to occupy as such stockhoder s
used by hm as hs prncpa resdence. Property used by the ta payer as hs
prncpa resdence does not Incude persona property such as a pece of furnture,
a rado, etc., whch, n accordance wth the appcabe oca aw, s not a f ture.
Paragraph (2) ( ) provdes thr.t an e change by the ta payer of hs resdence
for other property sha be consdered, for the purposes of the new subsecton, to
be a sae. Paragraph (2) ( ) provdes that where the ta payer s resdence (as
a resut of ts destructon n whoe or In part, theft or sezure) s compusory or
nvountary converted nto property or money, the destructon, theft or sezure
sha aso be consdered as a sae. though paragraph (2) ( ) does not specf-
cay provde that an e ercse of the power of requston or condemnaton sha
be consdered a sae, such events are nevertheess saes under the prncpe of
awaan as Products, Ltd. v. Commssoner (120 Fed., (2d) , cert, dened,
317 U. 3. 6 3).
For the purposes of ths subsecton, the acquston of property whch s used
as the ta payer s prncpa resdence upon an e change of property by the ta payer
(under paragraph (2) ( )), or upon the compusory or nvountary converson
of property used by the ta payer as hs prncpa resdence as the resut of ts
destructon, n whoe or In part, theft, sezure, requston, or condemnaton
(under paragraph (2) ( ) ), and the constructon or reconstructon of a resdence
(under paragraph (2)(D)), sha be consdered to be a purchase. The mere
mprovement of a resdence, not amountng to reconstructon, does not consttute
a purchase of such resdence.
The words ta payer s seng prce of the od resdence ncude the amount
of any mortgage, trust deed, or any other ndebtedness to whch such property
t sub|ect n the hands of the purchaser whether or not the purchaser assumes
such ndebtedness. Such words aso ncude the face amount of any abtes
of the purchaser whch are part of the consderaton for the sae. Commssons
and other seng e penses pad or ncurred by the ta payer on the sae of the od
resdence are not to be deducted or taken nto account n determnng the ta -
payer s seng prce of the od resdence. In the case of an e change or conver-
son whch s consdered as a sae under ths subsecton, the amount reazed by
the ta payer upon such e change or converson sha be consdered (under para-
graph (2) (C)), to be the ta payer s seng prce of the od resdence.
The words ta payer s cost of purchasng the new resdence aso ncude
snch ndebtedness to whch the property purchased s sub|ect at the tme of pur-
chase whether or not assumed by the ta payer (ncudng purchase-money mort-
gages, etc.) and the face amount of any abtes of the ta payer whch are part
of the consderaton for the purchase. Commssons and other purchasng e -
penses pad or ncurred by the ta payer on the purchase of the new resdence are
to be ncuded n determnng the ta payer s cost of purchasng the new res-
dence. In the case of an acquston of a resdence upon an e change or con-
verson whch s consdered as a purchase under ths subsecton, the far market
vaue of the new resdence sha be consdered as the ta payer s cost of pur-
chasng the new resdence.
Ths secton of the b as passed by the ouse ncuded n the ta payer s cost
of purchasng the new resdence ony so much of the cost as s attrbutabe to
acquston, constructon, reconstructon, or mprovements made wthn the 2-year
perod of tme n whch the purchase of the new resdence must be made n order to
have gan . t recognzed under the amendment and whch s propery chargeabe
to capta account rather than to current e pense. Your commttee has added a
new subparagraph (G) to the proposed secton 112(n) (2) to e tend from 1 year to
1 months the tme after the sae of the od resdence wthn whch the ta payer
must US2 a new resdence, the constructon of whch was commenced by the ta -
ayer pror to the e praton of 1 year after the date of such sae, n order to
have any of the gan on such sae not recognzed, and wthn whch the costs of
constructng such a new resdence w be consdered as the cost of purchasng
the new resdence.
Where any part of the new resdence Is acqured by the ta payer, for e ampe,
by gft, the vaue of such part s not to be ncuded n determnng the ta payer s
cost of the new resdence. If the ta payer acqures a resdence by gft or n-
hertance, and spends 10,000 n reconstructng the resdence, ony 10,000 may
be treated under paragraph (1) as the ta payer s cost of purchasng the new
resdence.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
GS
Paragraph (C) of the proposed subsecton provdes that, If the ta payer and
hs spouse, n accordance wth the reguatons whch the Secretary sha prescrbe
pursuant to snch paragraph, consent to the appcaton of subparagraph ( ) of
such paragraph, the words ta payer s seng prce of the od resdence sha
mean the ta payer s or the ta payer and hs spouse s seng prce of the od
resdence, and the words ta payer s cost of purchasng the new resdence
sha mean the cost to the ta payer, or to hs spouse, or to both of them, of pur-
chasng the new resdence, whether such new resdence s hed by the ta payer,
or hs spouse, or both. Such subparagraph ( ) provdes that so much of the
gan upon the sae of the od resdence as s not recognzed soey by reason of
paragraph (6) and so much of the ad|ustment to bass of the new resdence
under paragraph ( ) of the new subsecton as resuts soey by reason of para-
graph (6) sha be aocated between the ta payer and hs spouse as provded
for n the reguatons whch the Secretary sha prescrbe. Paragraph (6) s
appcabe ony f the od resdence and the new resdence are each used by the
ta payer and hs spouse as ther prncpa resdence. If the ta payer and hs
spouse do not consent to the appcaton of subparagraph ( ), the recognton
of gan upon the od resdence sha be determned under the proposed subsecton
wthout regard to paragraph (6). The foowng e ampes w ustrate the
appcaton of paragraph (6) :
ampe (I).- ta payer, n 19 1, ses for 10,000 the prncpa res-
dence of hmsef and hs wfe, whch he owns ndvduay and whch has an
ad|usted brss to hm of ,000. Wthn a year after such sae he and hs
wfe contrbute - ,000 each from ther separate funds for the purchase
of ther new prncpa resdence whch they hod as tenants n common,
each ownng an undvded one-haf nterest theren. If the ta payer and
hs wfe consent to the appcaton of secton 112(n) (6) ( ), t s antc-
pated that the reguatons whch the Secretary sha prescrbe under such
secton w provde that the gan of ,000 upon the sae of the od resdence
w not be recognzed to the ta payer, and the ad|usted bass of the ta -
payer s nterest n the new resdence w be 2, 00 and the ad|usted bass
of the ta payer s wfe s nterest n such property w be 2, 00.
ampe (2). ta payer and hs wfe, n 19 1, se for 10,000 ther
prncpa resdence, whch they own as |ont tenants and whch has an
ad|usted bass of 2, 00 to each of them ( ,000 together). Wthn a year
after such sae, the wfe spends 10,000 of her own funds n the purchase
of a new prncpa resdence for hersef and the ta payer and takes tte
n her name ony. If the ta payer and hs wfe consent to the appcaton
of secton 112(n) (0) ( ), t s antcpated that the reguatons whch the
Secretary sha prescrbe under such secton w provde that the ad|usted
bass to the wfe of the new resdence sha be ,000, and the gan of the
ta payer of 2, 00 upon the sae of the od resdence w not be recognzed.
The wfe, as a ta payer hersef, w have her gan of 2, 00 on the sae of
the od resdence not recognzed under paragraph (1) of secton 112 (n).
If the ta payer ses or otherwse dsposes of a new resdence pror to the
date of the sae of the od resdence, paragraph (2) ( ) provdes that such new
resdence w not be consdered as a new resdence for the purposes of ths sub-
secton. nd, f the ta payer, wthn the specfed perod, purchases more than
one property whch s used by hm as hs prncpa resdence durng the 1 year
succeedng the date of the sae of the od resdence, paragraph (2) (F) provdes
that ony the ast of such resdences so used by hm sha be consdered a new
resdence for the purposes of ths subsecton. owever, f the ta payer s new
resdence s destroyed, stoen, sezed, requstoned, condemned, or sod or
e changed under the threat or mmnence of requston or condemnaton wthn
the year succeedng the date of the sae of the od resdence, then, for the pur-
pose of the precedng sentence, such year s deemed to end on the date of the
destructon, theft, sezure, requston, condemnaton, sae, or e change. If
wthn 1 year pror to the sae of the od resdence, the ta payer sod other
property used by hm as hs prncpa resdence at a gan, and any part of such
gan was not recognzed under ths subsecton, paragraph (3) provdes that the
subsecton sha not appy wth respect to the sae of the od resdence. For the
purposes of the precedng sentence, however, the destructon, theft, sezure,
requston, condemnaton, or the sae or e change under the threat or mmnence
of requston or condemnaton sha not be consdered as a sae. The foowng
e ampe w ustrate ths paragraph:
ta payer ses hs od resdence on anunry 1 , 19 1, and purchases a
new resdence on February 1 , 19 1. On March 1 , 19 1, he ses the new
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
69
resdence and purchases n second new resdence on pr 1 , 10 1. The
gan on the sae of the od resdence on anuary 1 , 19 1, w not be recog-
nzed e cept to the e tent to whch the ta payer s seng prce of the od res-
dence e ceeds hs cost of purchasng the second new resdence purchased on
pr 1 ,10 1. Gan on the sae of the frst new resdence on March 1 ,10 1,
w be recognzed. If, nstead of seng the frst new resdence on March 1 ,
10 1, such resdence had been destroyed by fre on that date and Insurance
proceeds n cash had been receved as a resut thereof, the gan on the
sae of the od resdence on anuary 1 , 10 1, w not be recognzed e cept
to the e tent to whch the ta payer s seng prce of the od resdence
e ceeds hs cost of purchasng the new resdence purchased on February
. . 10 1. nd. gan on the nvountary converson by tre of the frst new
resdence on March 1 , 10 1, w not be recognzed e cept to the e tent to
whch the amount reazed from such converson e ceeds the ta payer s cost
of purchasng the second new resdence purchased on pr 1 , 10 1.
Paragraph ( ) 0f the new subsecton provdes that where the purchase of
a new resdence resuts n the nonrecognton, under that subsecton, of any part
of the gan reazed u on the sae of an od resdence, then, n determnng the
ad|usted bass of the new resdence ns of any tme foowng the date of the sae
of the od resdence, the ad|ustments to bass sha ncude a reducton by an
amount equa to the amount of the gan whch was not recognzed upon the sae
of the od resdence. Such a reducton s not to be made for the purpose of
determnng the ad|usted bass of the new resdence as of any tme precedng
the sae of the od resdence. For ths purpose the amount of the gnn not
recognzed under ths subsecton upon the sae of the od resdence Incudes
ony so much of the gan as s not recognzed because of the ta payer s cost,
up to the dnte of the determnaton of the ad|usted bass, of purchasng the
new resdence. The foowng e ampe w ustrate ths paragraph :
On anuary 1, 10 1, the ta payer buys a new resdence for 10,000. On
March 1, 19 1, he ses for 1 ,000 hs od resdence whch has an ad|usted
bass to hm of ,000. Durng pr a wng s constructed on the new house
nt a cost of ,000 and n May he buds a garage at a cost of 2,000. The
nd|usted bass of the new resdence s 10,000 durng anuary and February,
,000 durng March and pr, and 7,000 foowng the competon of the
constructon n May.
Whenever a ta payer ses property used as hs prncpa resdence at a gnn
the statutory perod prescrbed n secton 27 of the Code for the assessment of
any defcency attrbutabe to any part of such gan w not e pre pror to the
e praton of 3 years from the date the Secretary s notfed by the ta payer, n
accordance wth such reguatons as the Secretary may prescrbe, of the cost of
purchasng the new resdence whch the ta payer cams resuts n the nonrecog-
nton of any port of such gan, or of the ta payer s ntenton not to, or fure
to, purchase a new resdence wthn the perod when such a purchase w resut
n the nonrecognton of any part of such gan. Such a defcency may be assessed
pror to the e praton of such 3-year perod notwthstandng the provsons of
any other aw or rue of aw whch mght otherwse bar such assessment.
Subsecton (b) of the b makes o number of technca amendments to other
sectons of the Code whch are necesstated by the addton of subsecton (n)
to secton 112. The frst such amendment provdes that secton 112(f), reatng
to nvountary conversons, sha not appy n the case of property used b| the
ta payer as hs prncpa resdence f the destructon, theft, sezure, requston,
condemnaton, or sae or e change under the threat or mmnence of requston
or condemnaton of such property occurred after December 31, 19 0. The second
such amendment provdes that secton 113(a)(9), rentng to bass of property
acqured as a resut of an nvountnry converson, sha not be appcabe to
property acqured ns a resut of n compusory or nvountary converson of prop-
erty used by the ta payer as hs prncpa resence f the destructon, theft,
sezure, requston, condemnaton, or sae or e change under the threat or
mmnence of requston or condemnaton of such property occurred after Decem-
ber 31, 19 0. These sectons are superseded n ths stuaton by the new secton
112(n) and the new secton 113(b) (1) ( ). The thrd such amendment adds a
new subparagraph ( ) to secton 113(b) (1), reatng to ad|usted bass of prop-
erty, whch provdes a cross-reference from such secton to secton 112(n) ( ).
The fourth such amendment adds a new paragraph (7) to secton 117(h), reat-
ng to the determnaton of the hodng perod, to provde that n determnng the
9 010 02 37
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
70
perod for whch the ta payer has hed a resdence the acquston of whch
resuted under secton 112(n) In the nonrecognton of any part of the gam
reazed on the sae, e change, or nvountary or compusory converson of
another resdence, there sha be ncuded the perod for whch such other res-
dence had been hed as of the date of such sae, e change, or Invountary con-
verson. The ast of such amendments adds a new subsecton (c) to secton 276,
reatng to the perod of mtaton upon assessment and coecton, whch provdes
a cross-reference from such secton to secton 112(n) (7).
Subsecton (c) of the b contans the effectve date of the amendments made
by ths secton of the b. Such amendments are to be appcabe to ta abe
years endng after December 31,19 0, but the provsons of the proposed secton
112(n) (1) and (6) sha appy ony wth respect to resdences sod, wthn the
meanng of such secton, after such date. purchase of a new resdence pror to
December 31, 19 0, or n a ta abe year endng before anuary 1, 1931, sha, f
otherwse quafed, be consdered a new resdence for the purpose of secton
112(n) (1) and (6).
S CTION 319. P RC NT G D PL TION
Ths secton corresponds to secton 30 of the b as passed by the Iouse. The
ouse b granted a percentage depeton aowance at the rate of percent n the-
case of deposts of asbestos, sand, grave, stone (ncudng pumce, scora, and
sate), brck cay, te cay, shae, oyster she, cam she, grante, and marbe.
Your commttee has granted percentage depeton n the case of asbestos at the
rate of 10 percent and has added to the above st sodum chorde and, f pro-
duced from brne wes, cacum chorde, magnesum chorde, potassum cho-
rde, and bromne. Your commttee has removed sate from the parenthetca
cause foowng stone and has ncuded t as a separate tem n ths percent
category. The ouse b Increased the percent rate of percentage depeton
now aowed for coa to 10 percent. Your commttee has foowed ths treat-
ment n the case of coa and has ncuded n ths new 10 percent category those
mneras whch the ouse b woud have aowed percentage depeton at a
rate of 1 percent. These mneras are bora , fuer s earth, trpo, refractory
and fre cay, quartzte, perte, datomaceous earth, metaurgca grade me-
stone, and chemca grade mestone. Your commttee has aso added woa-
stonte, magneste, doomte, and bructe to ths 10 percent st, and has added
apte to the sted materas now aowed percentage depeton at the 1 percent
rate.
Subsecton (b) of ths secton makes a technca amendment to paragraph (2)
of secton 11 (b) of the Code n order to emnate the necessty of stng by
name those mnes for whch depeton based on dscovery vaue s dened by
reason of the aowance of percentage depeton.
Your commttee has made technca amendments to secton 11 (b)( )( )
whch do not ater ts substance. The ouse b changed the parenthetca
cause, statng that thenardte produced from brnes or m tures of brne woud
be aowed percentage depeton, to state that thenardte, ncudng thenardte
from brnes or m tures of brne, woud be permtted such aowance. Your
commttee beeves that the same effect can be acheved by strkng the paren-
thetca cause.
The amendments made by ths secton sha be appcabe ouy wth respect
to ta abe years begnnng after December 31, 19 0.
S CTION 320. R D MPTION OF STOC TO P T D T T S
Ths secton, for whch there Is no correspondng provson n the mse b,
amends secton 11 (g)(3) of the Code, reatng to the redempton of stock to
pay death ta es. Under that secton, secton 11 (g)(1), reatng to the treat-
ment as dvdends of amounts dstrbuted n redempton of stock. Is made nap-
pcabe to amounts dstrbuted n redempton of stock the vaue of whch s
ncuded n determnng the vaue of the gross estate of a decedent provded,
among other mtatons, that the vaue of the stock In such corporaton comprses
more than 0 percent of the vaue of the net estate of the decedent. Under your
commttee s amendment ths 0 percent mtaton Is reduced to 2 percent.
The amendment made by ths secton s appcabe ony wth resqect to ta abe
years endng on or after the date of enactment of ths ct but sha appy ony
to amounts dstrbuted on or after such date.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
71
S CTION 321. RN D INCOM FROM SOURC S WIT OUT T UNIT D ST T S
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 116(a) (1) and (2), and secton 1621(a) ( ) ( ), of the Interna
Revenue Code.
Under e stng aw an ndvdua ctzen of the Unted States s permtted
to e cude from gross ncome a amounts receved from sources wthout the
Unted States f (1) the ta payer estabshes to the satsfacton of the Com-
mssoner that he has been a bona fde resdent of a foregn country or countres
throughout the entre ta abe year and (2) such amounts consttute earned n-
come as specfcay defned. mounts pad by the Unted States or any agency
thereof do not come wthn the e cuson prvege.
If a ctzen has been a bona fde resdent of a foregn country or countres
for a perod of at east 2 years before the date on whch he changes hs resdence
from the foregn country to the Unted States, he s aso permtted under secton
110(a) (2), reatng to ta abe year of change of resdence to the Unted States,
tc e cude from gross ncome earned ncome (as specfcay defned) from
sources wthout the Unted States whch s attrbutabe to that part of the
perod before the date of change n resdence. Ths e cuson s aso not per-
mtted wth respect to amounts pad by the Unted States or any agency thereof.
Two dsadvantages of secton 116(a) (1) and (2), as now wrtten, are (1)
that the ctzen who assumes bona fde resdence n a foregn country n a gven
ta abe year after a porton of such year has e pred s n no case permtted
the e cuson wth respect to that year rrespectve of the duraton of the pe-
rod of bona fde foregn resdence n years subsequent to that n whch such
resdence has been tnken up, and (2) the resdence requrement operates to
deny the e cuson prvege to ndvdua ctzens of the Unted States who
are empoyed n foregn countres for e tended perods of tme and have not
n fact or aw become a bona fde resdent of a foregn country.
Ths secton amends secton 116(a) (1) to provde that nn ndvdua ctzen
of the Unted States w be permtted to e cude from gross ncome a such
earned ncome to whch the secton now reates whch s attrbutabe to an
unnterrupted perod cf foregn resdence, f the ta payer estabshes to the
satsfacton of the Secretary that he has been a bona fde resdent of a foregn
country or countres for such unnterrupted perod whch ncudes an entre
ta abe year. Ths w permt the e cuson wth respect to the part of the
ta abe year subsequent to the ta payer s becomng a bona fde resdent, f the
ta payer eventuay comes wthn the other requrements of secton 116(a) (1).
The quafyng perod of bona fde foregn resdence must be contnuous and
unnterrupted; however, trps to the Unted States for purposes of busness
or vacaton w not dsquafy the ta payer from satsfyng bona fde resdence
requrements. The bona fde resdence rue s the same as the present aw.
Present secton 116(a) (2), reatng to the ta abe year of change of resdence
to the Unted States, s consdered no onger to be necessary and s, therefore,
deeted.
Ths secton aso adds a new secton 116(a) (2) under the provsons of whch
an ndvdua ctzen of the Unted States w be p rmtted to e cude from
gross ncome a amounts receved from sources wthout the Unted States
whch consttute earned ncome (as specfcay defned) attrbutabe to any
perod of 1 consecutve months durng whch the ta payer s physcay present
n a foregn country or countres for a tota of at east 10 fu days. Thus,
f a ctzen s unabe to satsfy the bona ue resdence requrement of secton
116(a)(1), he has the aternatve of satsfyng the physca-presence test pre-
scrbed by secton 116(a) (2). In computng the mnmum of 10 fu days
of physca presence n a foregn country or countres, n separate perods of
such presence durng the perod of 1 consecutve months are to be aggregated.
mounts pad by the Unted States or any agency thereof do not come wthn
ths e cuson prvege.
Ths secton aso amends secton 1621(a)( )( ) of the Interna Revenue
Code n order (1) to adapt provsons respectng coecton of ncome ta at
source on wages to the substantve chnnges made by ths secton of your com-
mttee s b and (2) to emnate doube wthhodng of ncome ta from wages
n certan crcumstances. y vrtue of ths amendment, coecton of ncome
ta at source on wages w not be requred n the case of wages pad by any
empoyer (other than the Unted States or nny agency thereof) for servces per-
formed n a foregn country by a Unted States ctzen, f t s reasonabe to
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
72
beeve that such remuneraton w be e cuded from gross Income under the
provsons of secton 116(a) (1) or (2). owever, wages pad to a ctzen of
the Unted States by a prvate empoyer for servces performed n the Unted
States w be sub|ect to wthhodng, even though such ctzen s a bona fde
resdent of a foregn country. In addton, secton 1021(a) ( ) ( ) s so amended
by ths secton that coecton of ncome ta at source on wages w not be re-
qured n the case of wages pad by any empoyer (other than the Unted States
or any agency thereof) for servces performed n a foregn country by a Unted
States ctzen f, at the tme of payment of the wages, the empoyer s requred
by the aw of such foregn country to wthhod Income ta upon such wages.
The amendment made to secton 116 of the Code w be appcabe to ta abe
years begnnng after December 31, 19 0. The amendment made to secton 1( 21
thereof w be appcabe wth respect to wages pad on or after anuary 1,
19 2.
S CTION 322. C PIT L G INS ND LOSS S
Ths secton, whch corresponds to secton 30 of the b as passed by the
ouse, revses the ta treatment of capta gans and osses In the case of a ta -
payer other than a corporaton.
Under present aw, n the case of a ta payer other than a corporaton, gan
or oss from the sae or e change of a capta asset hed for more than 6 months
(ong-term capta gan or oss) s ony 0 percent taken Into account n com-
putng net ncome, and gan or oss from the sae or e change of a capta asset
hed for 6 months or ess (short-term capta gan or oss) Is 100 percent taken
nto account n computng net ncome. ence 1 of short-term capta oss may
offset 2 of ong-term capta gan. For e ampe, an ndvdua havng a short-
term capta oss of 1 mon woud pay no ta upon a ong-term capta gan
of 2 mon.
In the case of a corporaton present aw requres that short-term capta oss
(or gan) offset ong-term capta gan (or oss) doar for doar nstead of at the
2-to- rato |ust descrbed. Under the amendments made by ths secton of the
b, short-term capta oss (or gan) and ong-term capta gan (or oss) w
aso offset each other doar for doar n the case of a ta payer other than a
corporaton.
The essentas of the new treatment of ta payers other than corporatons are
as foows:
1. Capta gans (whether ong-term or short-term) w be 100 percent taken
Into account n computng gross ncome.
2. Capta osses (whether ong-term or short-term) w be 100 percent taken
nto account as deductons n computng net ncome; e cept that (as under pres-
ent aw) such osses may be aowed ony to the e tent of capta gans pus the
smaer of (a) 1,000 or (b) the net ncome (or ad|usted gross ncome n case
suppement T s used) of the ta payer computed wthout regard to capta gans
and osses.
3. new deducton from gross ncome s provded, to be computed as foows:
s under present aw, the ta payer w merge hs short term capta gans and
osses to obtan hs net short-term capta gan or oss, as the case may be; and
w merge hs ong-term capta gans and osses (taken Into account 100 per-
cent) to obtan hs net ong-term capta gan or oss, as the case may be.
ta payer havng a net ong-term capta gan w then reduce t by any net
short-term capta oss and w take as a deducton one-haf of any remanng
e cess. Ths new 0 percent deducton for the e cess of net ong-term capta
gan over net short-term capta oss supersedes the 0 percent ncuson of ong-
term capta gans and osses provded by present aw.
. s under present aw, a ta payer havng an e cess of net ong-term capta
gan over net short-term capta oss s permtted to compute an aternatve ta
by combnng a fat percentage of such e cess wth a parta ta computed n the
reguar manner upon the baance of hs net ncome.
Subsecton (a) of ths secton adds a new subsecton (ee) to secton 23 of the
Code and amends secton 117(b) of the Code (whch heretofore has prescrbed
the percentages of gan or oss taken Into account), so as to provde the new
deducton for 0 percent of the e cess of net ong-term capta gan over net
short-term capta oss. n estate or trust s requred to e cude, n computng
ths deducton, capta gan whch under secton 102 (b) or (c) s ncudbe as
such by ts Income benefcares.
The foowng e ampes w ustrate the dfferences In the computaton of
net ncome under present aw and under the new treatment n the case of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
73
.m ndvdua who. It Is assumed, hns net Income of ,000 computed wthout re-
gard to cn ta gans and osses:
ampe (/). ssume that the Indvdua reazes 2,000 of Ions-term capta
gan and 1, 00 of short-term capta oss durng the ta abe year. Under present
aw one-haf of the gan ( 1,000) s ncudbe n gross Income, the 1, 00 oss
s aowabe, and the net ncome s 7,.100. Under the new treatment the entre
2,000 of the gan s Incudbe n gross ncome, the 1, 00 oss s aowabe, a
deducton under secton 23(ee) s aso aowed n the amount of 2 0 (one-haf
of the e cess of the gan over the oss), and the net ncome s ,2 0.
ampe (2), ssume that the ndvdua reazes 3,000 of ong-term capta
oss and 2,000 of short-term capta gan durng the ta abe year. Under pres-
ent nw the 2,000 gan s ncudbe In gross ncome, the one-haf of the oss
( 1, 00) taken nto account s aowabe, nnd net Income s -, 00. Under the
new treatment the 2,000 gan s Incudbe In gross ncome, the 3,000 oss s
aowabe, am net ncome s 7,000.
ampe (3). ssume that the ndvdua reazes 3,000 of ong-term capta
oss and 2,000 of short-term capta oss durng the ta abe year. Under pres-
ent aw net ncome s 7,000, and the ta payer may carry forward, to be used as
short-term capta oss n the fve succeedng years, 2, 00 (the short-term capta
oss, 2,000, pus one-haf of the ong-term capta oss, 1, 00, ess the oss aowed
n the current year, 1,000). Under the new treatment net ncome s aso 7,00:),
but the ta payer may carry forward, to be used as a short-term capta oss n
the fve succeedng years, ,0u0 (the aggregate osses of ,000 ess than 1,000
aowed n the current year).
Subsecton (h) of ths secton amends secton 117(c) (2) of the Code (reatng
to aternatve ta n the case of a ta payer other than a corporaton). The
purpose of ths amendment s to conform the computaton of the aternatve
ta to the new treatment of capta gans and osses. ecause of the deducton
provded by sectons 23 (ee) and 117(b), as amended, net ncona under the new
treatment w Incude ony 0 percent of the e cess of net ong-term capta gan
over net scrt-term capta oss. ence t has been necessary to provde that
the parta ta , to be computed at the rates and n the manner as f secton 117(c)
bad not been enacted, sha be computed upon the net ncome reduced by ony
such 0 percent of the e cess. The amount to be added to the parta ta , to
arrve at the tota ta , s computed by takng 2 percent of the whoe e cess of
net ons-term capta Ran over net short-term capta oss.
The appcaton of secton 117(c)(2), as amended, may be thus ustrated:
ssume that for the caendar year 10 2 an Indvdua has net ncome of 00,000
computed as foows: 0,000 of ordnary net ncome, and an 0,000 e cess of
net ong-term capta gan over net short-term capta oss, wth a deducton of
10,000 aowabe under secton 23 (ee) wth respect to such e cess. The frst
step s to compute a parta ta upon . 0,000 under the provsons of sectons 11
and 12; ths parta ta s 2 ,072. The second step s to take 2 percent of
SS0.000 (e cess of net ong-term capta gan over net short-term capta oss),
whch Is 20,000. The aternatve ta s, therefore, 1 ,672.
Subsecton (c)(1) of ths secton amends secton 22(n) to provde that the
new deducton aowed by secton 23(ce) sha be taken n computng ad|usted
gross Income.
Subsectons (c) (2) and (3) make conformng amendments to sectons 117
(a)(2), 117(a)( ), and 117(|) (2) ( ). s amended, these sectons dea wth
spec- ed types of gans f and to the e tent taken nto account n computng
gross ncom . though the percentage ncuson provsons have been em-
nated from secton 117(b), ths mtng e presson s necessary n order to
emnate any gan whch for any reason Is not ncudbe n gross ncome for
the ta abe year.
Subsecton (c) ( ) of ths secton makes a conformng amendment to secton
122(d) ( ) of the Code (reatng to computaton of the net operatng oss de-
ducton). The prncpe enuncated by the Supreme Court n the Rco Motors,
Inc. v. Commssoner (33 U. S. 2), (whch dsapproved the decson n Com-
mssoner v. Moore. Inc. (1 1 Fed. (2d) 27)) w govern n appyng the effec-
tve date provsons wth respect to ths amendment.
Subsecton (c) ( ) of ths secton amends secton 102(a) of the Code (reatng
to deductons of a trust or estate). Ths amendment merey makes certan that
the prncpe of Unted States v. enedct, ct a. (33 U. S. 692) and reated
cases w contnue under the b as under e stng aw, namey, that approprate
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
ad|ustment of the deductons under secton 162(a) s to be made on account of
the appcabe treatment of capta gans and osses.
Subsecton (d) of ths secton provdes that the amendments made by the
secton sha be appcabe ony wth respect to ta abe years begnnng on or
after the date of enactment of the b. The treatment of capta gans and
osses of years begnnng before such date s not affected by these amendments
for any purpose, ncudng the determnaton under secton 117(e) of the amount
of the capta oss or of the net capta gan for any ta abe year begnnng
before such date. Thus, n the case of a ta payer whose ta abe year s a ca-
endar year, a net capta oss for the caendnr year 19 0, and the net capta
gan for 19 1. woud be computed wthout regard to the amendments even though
the oss s carred forward under 117(e) of the Code to the caendar year 19 2,
a year to whch the amendments w be appcabe. In determnng the amount
of the net capta oss for 19 0 whch can be carred over under secton 117(c)
to 19 . , the computaton of the net capta gan for 19 2 woud, of coarse, be
computed wth regard to the amendments made by ths secton.
S CTION 323. S L OF L ND WIT UN R ST D CROP
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 117(|) of the Code (reatng to sae, e change, or converson of
property used n the trade or busness) to provde that, under certan condtons,
an unhnrvested crop sha be consdered as property used In the trade or busness.
Whether gan or oss from the sae, e change, or converson of such a crop w,
as a resut of ths amendment, be treated as gan or oss from the sae or e -
change of a capta asset hed for more than 6 months w depend npon the
appcaton of secton 117(|) to that and other transactons of the ta payer.
Subsecton (a)(1) of ths secton amends secton 117(|)() to provde that
the term property used In the trade or busness ncudes an unharvested crop
to whch paragraph (3) of secton 7(|) s appcabe.
Subsecton (a)(2) adds a new paragraph (3) to secton 117(|) to provde
that when an unharvested crop on and used In the trade or busness and hed
for more than 6 months s sod or e changed (or compusory or nvountary
converted as a resut of destructon n whoe or n part, theft or sezure, or an
e ercse of the power of requston or condemnaton or the threat or mmnence
thereof) wth such and and at the same tme and to the same person, such crop
sha be consdered as property used n the trade or busness. The ength of
tme for whch the crop, as dstngushed from the and, has been hed s
mmatera.
Subsecton (b) of ths secton amends secton 2 of the Code to add a new
subsecton (f) thereto and nmends secton 113(h) (1) of the Code to add a new
subparagraph (L) thereto, so as to provde that deductons attrbutabe to the
producton of an unharvested crop, whch s consdered as property used In the
trade or busness under secton 117( ) (3), sha not be aowed n computng net
ncome but must be captazed by makng an approprate ad|ustment to bass.
Such deductons sha be so treated whether or not the ta abe year nvoved s
that of the sae, e change, or converson of such crop and whether they are for
e penses, deprecaton, or other Items.
Suhsecton (c) of ths secton provdes that the amendments made by ths
secton sha be appcabe ony wth respect to saes, e changes, or conversons
occurrng n ta abe years begnnng after December 31,19 0.
S CTION 32 . S L S OF LI STOC
Ths secton amends secton 117(|) of the Code to provde for the ta treat-
ment of vestock. See page 7 of part 1 of ths report for the dscusson of ths
amendment.
S CTION 32 . T TR TM NT OF CO L ROY LTI S
Ths secton corresponds to secton 307 of the ouse b. Your commttee,
however, has made severa changes.
Subsectons (a), (b), and (c) of ths secton of the b amend sectons 117
( )() and 117(k)(2) of the Code, whch reate, respectvey, to the defnton
of property used n the ta payer s trade or busness and to gan or oss upon the
cuttng of tmber.
The amendment to secton 117(k)(2) provdes that If coa whch has been
owned by the ta payer for more than 0 mouths s dsposed of by hm under any
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
|rm or type of contract by vrtue of whch he retans an economc nterest n
e coa, the dfference between the amount receved for the coa and the ad|usted
epeton bass thereof under secton 11 (b)(1) sha be treat M as a gan or
ss, as the case may be, upon the sae of the coa. The amendment to secton
17(|)() ncudes wthn the term property used In the trade or busness
Da to whch secton 117(k)(2) s appcabe. The net effect of these two
uendments s to treat the dfference between the amount receved for the coa
nd the ad|usted depeton bass thereof as gan or oss to whch secton 117( )
appcabe; whether such gan or oss w be deemed to be gan or oss from
e sae of a capta asset hed more than 6 months w depend upon the appca-
on of secton 117(|) to these and other transactons of the ta payer.
n owner sha not be entted to the aowance for percentage depeton
rovded for n secton 11 (b)( ) wth respect to amounts receved any part
f whch are consdered to be receved from the sae of coa under secton
17(k)(2), as amended by ths secton. The ad|usted depeton bass under
poton 11 (b)(1) sha, for the purposes of secton 117(k)(2), as amended
y ths secton, ncude ad|ustments for deveopment and e poraton e pend-
ures and for deductons under secton 113(b)(1) ( ) and (M), as added by
ectons 309 and 3 1 of ths b.
Your commttee has e pressy provded n ths secton that the term coa
ncudes gnte.
Under the ouse b t was provded that the amendment made by ths
ecton woud not appy n any case where the ta payer was personay ob-
;ated to pay any part of the cost of operatons after the dsposa of the coa
vth respect to the mnng thereof. In eu of ths provson, t has been pro-
ded that the amendment made by ths secton sha not appy wth respect
o any of the ncome reazed by the ta payer as a co-adventurer, partner, or
rncpa n the busness of cuttng the tmber or mnng the coa.
Your commttee has added a provson to secton 117(k) (2) to the effect that
he date of the dsposa of the coa or tmber sha be deemed to be the date
uch coa s mned or such tmber s cut, rather than the date of the royaty
ontract as t was hed n Sprnofed Pywood Corporaton (1 T. C. No.
II (19 0)).
For the purpose of carfcaton, your commttee has aso e pressy provded
hat, n determnng the gross ncome, the ad|usted gross ncome, or the net
ncome of the essee, the deductons aowabe wth respect to rents and royates
ha be determned wthout regard to the provsons of secton 117(k)(2),
s amended by ths secton.
Subsecton (d) of ths secton makes a technca amendment to secton
IS(a) ( ) of the Code so as to e cude gan or oss from the dsposa of coa
o whch secton 117(|) s appcabe n determnng the net earnngs of an
ndvdua from sef-empoyment.
Subsecton (e) of ths secton of the b, for whch there s no correspondng
rovson n the ouse b, contans amendments desgned to conform secton
.33 (reatng to computaton of e cess profts net ncome) and secton 0(a) (1)
reatng to defnton of nadmssbe nssets) to the prncpes of the amend-
nents made to sectons 117(|) (1) and 117(k) (2).
new subsecton (d) s added to secton .33 to provde n substance that
cess profts net ncome for ta abe years n the base perod sha be computed
s f the provsons of sectons 117(|) (1) and 117(k)(2) whch reate to
sposas of coa, were a part of the aw appcabe to the ta abe year n the
ase perod for whch the e cess profts net ncome s beng computed. The
feet of ths amendment s to treat the dfference between amounts receved
pon the dsposa of coa n the base perod and the ad|usted depeton bass
hereof as gan or oss to whch secton 117(|) s appcabe f such woud
mve been the effect of the transacton under secton 117(k) (2) f such secton,
s amended, had been appcabe to the ta abe year n whch the amounts were
eceved. Smary, n the case of such a dsposa of coa n a base perod
ear, a further ad|ustment s to be made to emnate any aowance for per-
centage depeton (to the e tent such aowance e ceeds the amount aowabe
or cost depeton) wth respect to amounts receved any part of whch woud
e consdered to be receved from the sae of coa under secton 117(k)(2).
The nmendment to secton 0(a)(1) woud add a new subparagraph (C)
:o as to treat as an nadmssbe asset the economc nterest n the coa prop-
rtes referred to n secton 117(k) (2), f the ta payer s sub|ect to the prov-
ons of secton 117(k) (2) wth respect to the ncome from such coa.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
76
cept as provded n subsecton (e), the amendments made by ths secton
sha be appcabe ony wth respect to ta abe years endng after December
31, 19.r 0 (whether the contract was made on, before, or after such date), but
sha appy ony wth respect to amounts receved or accrued after such date.
The amendments made by subsecton (e) sha be appcabe for a purposes
n computng the e cess profts ta for ta abe years endng after December SI.
19 0. For e ampe, n computng such ta for 19 1 n the case of a ta payer
on the caendar-year bass, the new defnton of nadmssbe assets Is ap-
pcabe n computng yeary base perod capta under secton 3 (f), orgna
nadmssbe assets under secton 3 (g), and tota assets under secton 2(f .
S CTION 320. COLL PSI L CORPOR TIONS
Ths secton corresponds to secton 30S of the ouse b. Tour commttee,
however, has made the amendments made by ths secton appcabe to ta abe
years endng after ugust 31, 19 1 (but ony wth respect to gan reazed after
such date), rather than to ta abe years begnnng after December 31, 19 0.
Ths secton of the b amends secton 117(m) of the Code, reatng to co-
apsbe corporatons. Secton 117(m) (2) ( ) defnes the term coapsbe cor-
poraton. Such a corporaton s presenty defned as a corporaton formed
or avaed of prncpay for the manufacture, constructon, or producton of
property, or for the hodng of stock In a corporaton so formed or avaed of,
wth a vew to () the sae or e change of stock by ts sharehoders (whether
n qudaton or otherwse), or a dstrbuton to Its sharehoders, pror to the
reazaton by the corporaton manufacturng, constructng, or producng the
property of a substanta part of the net ncome to be derved from such
property, and () the reazaton by such sharehoders of gan attrbutabe to
such property. Ths secton of the b adds to such defnton the case of a
corporaton formed or avaed of prncpay for the purchase of property whch
(n the hands of the corporaton) s property descrbed n secton
117(a) (1) ( ) (stock n trade, etc.), or for the hodng of stock n a corporaton
so formed or avaed of, wth a vew to (1) the sae or e change of stock by ts
sharehoders (whether n qudaton or otherwse), or a dstrbuton to ts
sharehoders, pror to the reazaton by the corporaton purchasng the prop-
erty of a substanta part of the net ncome to be derved from such property,
and () the reazaton by such sharehoders of gan attrbutabe to such
property.
It s mmatera, for the purpose of the amendment made by ths secton of
the b, whether the purchase of the property n queston s made from the
sharehoders of the corporaton or from persons other than the sharehoders of
the corporaton. The property, however, must be property whch, n the hands
of the corporaton. Is property of a knd descrbed n secton 117(a)(1)( ).
Secton 117(a) (1) ( ) e cudes from the defnton of capta assets set forth
n secton 117(a)(1), stock n trade of the ta payer or other property of a
knd whch woud propery be ncuded n the nventory of the ta payer f on
hand at the cose of the ta abe year, or property hed by the ta payer prmary
for sae to customers n the ordnary course of hs trade or busness. It s
assumed that property whch, n the hands of an ordnary corporaton, woud
be property of a knd descrbed n secton 117(a)(1)( ) woud aso be such
property n the hands of a corporaton, formed or avaed of wthn the meanng
of secton 117(m).
In order to conform the other provsons of secton 117(m) to the above
amendment, necessary changes have been mnde theren.
The amendments made by ths secton are appcabe to ta abe years endng
after ugust 31, 11 1, but ony wth respect to gans reazed after such date,
but t s specfcay provded that the determnaton of the ta treatment of
gans reazed pror to September 1, 19 1, sha be made s f ths secton had
not been enacted and wthout nferences drawn from the fact that the amend-
ments made by ths secton to secLon 117(n) are not made appcabe to such
gans and wthout nferences drawn from the mtatons contaned n secton
117(m), as amended by ths secton.
S CTION 327. D L RS IN S CURITI S C PIT L G INS ND ORDIN RY
LOSS S
Ths secton adds a new subsecton (n), rentng to the treatment of capta
gans and ordnary osses by deaers n securtes, to secton 117 of the Code.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
77
The secton s the same ns secton 309 of the ouse b e cept that the treatment
of osses n the case of a bank s quafed so as to be consstent wth the treat-
ment provded In secton 117().
Under e stng aw, a ta payer may be consdered as a deaer wth respect
to certan securtes and as an nvestor wth respect to other bocks of securtes.
Under present court decsons, t s possbe for a deaer to shft securtes from
an nvestment account to an nventory account or vce versa, thereby affordng
an opportunty for convertng what shoud be ordnary gan nto capta gan and
what shoud be capta oss nto an ordnary oss. Secton 117(h), as added by
ths secton of the b, provdes rues desgned to prevent a deaer from obtanng
the most benefca ta resut by a shft n securtes from one account to auother,
or by nsuffcent dentfcaton of the securtes aeged to be wthn a partcuar
account.
Paragraph (1) of subsecton (n) provdes rues for the treatment of capta
gans by a deaer n securtes, tnder ths paragraph, gan by such a deaer
from the sae or e change of a securty sha n no event be consdered as gan
from the sae or e change of a capta asset uness ( ) the securty s, pror
to the e praton of the thrteth day after ts acquston or after the date of
enactment of ths ct (whchever s ater), ceary Identfed n the deaer s
records as a securty hed for nvestment; and ( ) the securty s not, at any
tme after the e praton of such thrteth day. hed by the deaer prmary
for sae to customers n the ordnary course of the trade or busness. It s
contempated that the reguatons may prescrbe the methods of dentfcaton
whch w adequatey earmark the securty as one hed for nvestment.
The provsons of secton 117(n) (1) are ntended to operate ony n the case
where gan from the sae of a securty woud, but for the provsons of such
paragraph, be consdered to consttute capta gan. Thus, f a securty sod by
a deser woud be consdered, but for secton 117(n)(), to consttute e sae
of a securty hed for nvestment, gan from the sae of such securty w none-
theess not be consdered as capta gan uness the securty as been propery
dentfed wthn the 30-day perod n the deaer s records as hed for nvestment
and s at no other tme thereafter hed for sae to customers n the ordnary
course of the trade or busness. owever, the mere fact that a securty, whch
s actuay hed by the deaer for sae to customers n the ordnary course of
the trade or busness, s dentfed as requred by ths secton as a securty
hed for nvestment, w not cause the gan from the sae of the securty to be
treated as capta gan.
Secton 117(n)(2) provdes e rue for treatment of ordnary osses by a
deaer n securtes. Ths rue s that a oss from the sae or e change of a
securty sha he consdered as a capta oss f at any tme after the thrteth
day foowng the date of enactment of ths ct the securty was ceary dentfed
n the deaer s records as a securty hed for nvestment. The effect of secton
117(n) (2) s that, f a securty has once been dentfed ns hed for nvestment,
a oss on the subsequent dsposton of such securty sha n no event be con-
sdered as a oss from the sae or e change of property whch s not a capta
asset. Your commttee as added a quafcaton not specfcay contaned n
the ouse b whch e cepts from the appcaton of secton f(n) (2) trans-
actons descrbed n secton 117(), provdng n substance that, n the case of a
bank, f osses from saes or e changes of certan types of obgatons e ceed the
gans from such saes or e changes, the e cess of such osses are consdered as
ordnary osses. Under your commttee s amendment, the provsons of secton
117(n) (2) w not appy f secton 117() s appcabe.
For the purposes of secton 117(n) the term securty means any share of
stock n any corporaton, any certfcate of stock or nterest n any corporaton,
a note, bond, debenture, or evdence of ndebtedness, or any evdence of an
nterest n or rght to subscrbe to any of the foregong.
The amendment made by ths secton s appcabe ony wth respect to saes
or e changes made after the e praton of the thrteth day after the date of
enactment of ths ct.
S CTION 32S. R C IPTS OF C RT IN T RMIN TION P YM NTS Y MPLOY
Ths secton, for whch there Is no correspondng provson n the ouse b,
adds a new subsecton (o) to secton 117 of the Code, to provde that certan
payments receved by an empoyee after the termnaton of hs empoyment,
whch under e stng aw are ta abe as ordnary ncome, sha be treated as
gans from the sae or e change of a capta asset hed for more than (1 months.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
7
The provsons of secton 117(o) are appcabe soey to amounts receved
from the assgnment or reease by an empoyee of a hs rghts to receve, after
termnaton of hs empoyment, a percentage of future profts or recept of bs
empoyer. ( y future profts and recepts s meant ony such as are attrbutabe
to a perod subsequent to the termnaton of empoyment.) Under ths secton,
capta gan treatment s accorded to such amounts provded that the foowng
condtons are met:
(1) the empoyee must have been an empoyee of the empoyer whose
future profts or recepts are nvoved for a perod of at east 20 years pror
to the assgnment or reease;
(2) the fu rghts to the percentage of the future profts or recepts
whch are the sub|ect of the assgnment or reease must have been Im|rpo-
rated n the terms of the empoyment of the empoyee for a perod of at
east 12 years;
(3) the assgnment or reease must be made after a compete and bona
fde termnaton of the empoyment and must convey a the rghts of the
empoyee to such future earnngs and profts, and must convey no other
rghts of the empoyee; and
( ) the tota of the amounts receved for the assgnment or reease must
be receved after such bona fde termnaton of empoyment and n one
ta abe year of the empoyee.
The provsons of secton 117 (o) are appcabe to ta abe years begnnng
after 1900.
S CTION 329. N T OP R TING LOSS C RRY-O R
Ths secton, for whch there s no correspondng secton n the b as passed
by the ouse, amends secton 122(b) (2) reatng to the amount of net operatng
oss enrry-overs. Subsecton (a) of the secton amends subparagraph ( ) of
paragraph (2) whch n Its present form provdes that the net operatng oss
for a ta abe year begnnng before anuary 1, 19 0, may (to the e tent not
absorbed as a carry-back) be carred forward to the ne t two succeedng ta abe
years. Under the amendment tha provson for the 2-year carry-over s restrcted
to ta abe years begnnng before anuary 1, 19 , wth a cross-reference to new
subparagraph (D), added by subsecton (b) of ths secton, whch provdes an
e cepton to the provsons of subparagraph ( ) as amended.
Subsecton (b) of ths secton amends secton 122(b) (2) by addng, after sub-
paragraph ( ) thereof, two new subparagraphs, (C) and (D). Subparagraph
(C) provdes that a net operatng oss for an/ ta abe year begnnng after
December 31, 19 7, and before anuary 1, 19 0, may (to the e tent that t s
not absorbed as a carry-back) be carred forward to the four succeedng ta abe
years. Under the terms of the amendment ths provson s appcabe to cor-
porate and noncorporate ta payers ake and wthout regard to when such ta -
payers commenced busness. The added subparagraph (D), however, s made
appcabe ony to corporatons whch commenced busness after December 31,
19 , and provdes that a net operatng oss of any such corporaton for a ta -
abe year begnnng after December 31, 19 , and before anuary 1, 19 , may
aso be carred forward to the four succeedng ta abe years.
It w bo noted, of course, tbat a corporaton whch began busness n any
of the years n the perod 19 0 through 19 9, s covered under subparagraph (D)
n respect of 19 6 or 19 7 net operatng osses and under subparagraph (C),
whch appes to a ta payers, for 19 or 19 9 osses.
Ths secton of the b does not change the 2-year carry-back provsons of
e stng aw In respect of ta abe years begnnng before anuary 1, 19 0, nor
does t change the provsons of e stng aw for a 1-year carry-back and years
curry-over, appcabe to ta abe years begnnng after December 31, 19 9.
The amendments made by ts secton are not appcabe n computng the
net operatng oss deducton for any ta abe year begnnng before anuary ,
19 9, but appy ony to the computaton of such deducton for ta abe years
begnnng after December 31, 19 .
S CTION 330. STOC OPTIONS
Ths secton of the b, for whch there s no correspondng secton n the b
as passed by the ouse, amends subsecton (d) of secton 130 , reatng to def-
nton of the term restrcted stock opton. The ntroductory phrase s
ned In ths secton, mmedatey after the headng of subsecton (d), s changed
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
79
by the amendment to read For the purposes of ths secton and a new para-
graph ( ) s added whch provdes that If the grant of an opton s sub|ect to
stockhoder approva, the date of the grant of the opton sha be determned
as f the opton had not been sub|ect to stockhoder approva. The amendment
reates soey to stockhoder approva, and ts effect s to emnate stockhoder
approva as a factor to be consdered n determnng, for the purpose of secton
130 , the tme or date of the grant of an opton made sub|ect to such approva.
The amendment appes ake to condtons for stockhoder approva that are
e press and those that may be mped from some pertnent provson of the
corporaton s artces of ncorporaton or byaws or from appcabe corporate
aw or reguaton, and aso appes to the stuaton where the grant of an opton
Is vountary submtted to stockhoders for approva notwthstandng the ab-
sence of any e press or mped requrement that such approva be obtaned.
The amendment appes not ony to the orgna grant of an opton sub|ect
to stockhoder approva but to any modfcaton, e tenson, or renewa of the
terms of such an opton whch requres stockhoder approva.
The amendment s made effectve as f t had been enacted as a part of secton
21 of the Revenue ct of 19 0.
S CTION 331. CR DIT FOR T S OF FOR IGN CORPOR TIONS
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 131(f) (1) and (2) of the Interna Revenue Code.
Under the e stng provsons of secton 131(f)(1) a domestc corporaton
whch owns a ma|orty of the votng stock of a foregn corporaton from whch
t receves dvdends n any ta abe year w, for the purpose of secton 131
under whch a ta credt s aowed for ta es pad or accrued durng the ta abe
year to any foregn country or possesson of the Unted States, be deemed to have
pad a specfed proporton of any ncome, war profts, or e cess profts ta es
pad, or deemed to be pad, by such foregn corporaton to any foregn country
or possesson of the Unted States upon or wth respect to the accumuated profts
(as specfcay defned) from whch the dvdends were pad. Thus, the domes-
tc corporaton s aowed a credt, not ony wth respect to the foregn ta es
actuay pad or accrued by t, but aso wth respect to such ta es deemed to
have been pad by t under the provsons of secton 131(f) (1).
If the foregn corporaton (herenafter referred to as the foregn parent) so
controed by the domestc parent corporaton owns a the votng stock (e cept
quafyng shares) of another foregn corporaton (herenafter referred to as
the foregn subsdary) from whch t receves dvdends n any ta abe
year, t n turn w, under current provsons of secton 131(f) (2), be deemed
for the purpose of secton 131(f)(1) to have pad a specfed proporton of
any ncome, war profts, or e cess profts ta es pad by the foregn subsdary
to any foregn country or possesson of the Unted States upon or wth respect
to the accumuated profts (as defned) from whch the dvdends were pad.
Such ta s then taken nto consderaton n the determnaton under secton
131(f)(1) of the amount of ncome, war profts, and e cess profts ta es pad,
or deemed to have been pad, by the foregn parent upon or wth respect to Its
own accumuated profts from whch dvdends were pad by such foregn parent
to ts domestc parent corporaton.
Your commttee proposes to beraze the stock-ownershp requrements of
secton 131(f) (1) and (2), wthout makng any change n the e stng procedure
for computng the specfed proporton of ncome, wnr profts, or e cess profts
ta es deemed to have been pad. ccordngy, ths secton so amends secton
131(f) (1) of the Code that, effectve wth respect to dvdends receved by a do-
mestc corporaton from a foregn corporaton durng ta abe years begnnng
after December 31, 19 0, any domestc corporaton whch owns 10 percent or
more of the votng stock (rather than a ma|orty) of a foregn corporaton from
whch t receves dvdends n any ta abe year w be deemed to have pad the
specfed proporton of ta es pad, or deemed to be pad, by such foregn corpora-
ton. In addton, ths secton so amends secton 131(f)(2) of the Code that,
effectve wth respect to dvdends receved by a foregn corporaton from another
foregn corporaton n ta abe years begnnng after December 31, 19 0, any
foregn corporaton (10 percent or more of whose votng stock s owned by the
domestc corporaton) whch owns a ma|orty of the votng stock of another
foregn corporaton (rather than a e cept quafyng shares) from whch t
receves dvdends n any ta abe year w be deemed for the purpose of secton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0
131(f)(1) to have pad the specfed proporton of ta es pad by such other
foregn corporaton.
S CTION 32. INFORM TION T SOURC ON P YM NTS OF INT R ST
Under e stng aw, e cept n the case of payments of nterest upon bonds,
mortgages, deeds of trust, or other smar obgatons of corporatons and upon
obgatons of the Unted States or any agency or nstrumentaty thereof, per-
sons makng payment of Interest may not be requred to fnrnsh an nformaton
return uness the payment of nterest s . GO0 or more. Ths secton of the b
amends secton 1 7 to gve the Secretary the authorty to requre Informaton
returns dscosng payments of Interest, regardess of amounts. Such returns
may be requred to be fed under reguatons prescrbed by the Secretary by any
Indvdua, partnershp, corporaton, nsurance company, bank, mutua savngs
bank, budng and oan assocaton, cooperatve bank, homestead assocaton.
Federa savngs and oan assocaton, credt unon, or any other payor of Interest,
Irrespectve of the type of obgaton on whch such nterest s payabe. Informa-
ton returns may be requred under ths amendment n the case of constructve
payments of nterest, as we as actua payments.
S CTION 333. T M NT OF INCOM T FOR C RT IN M M RS OF RM D
FORC S UPON D T
Ths secton, for whch there s no correspondng provson n the ouse b,
amends suppement D of chapter 1 of the Interna Revenue Code (reatng to
returns and payment of ta es) by addng a new secton 1 thereto.
Such secton 1 provdes that, where any Indvdua des after une 2 , 19 1,
and pror to anuary 1, 19 , whe n actve servce as a member of the rmed
Forces of the Unted States, If hs death occurred whe servng In a combat
zone, as determned under secton 22(b) (13) of the Code, or at any pace as
a resut of wounds, dsease, or n|ury Incurred whe so servng, (1) the ta
mposed by chapter 1 of the Code w not appy wth respect to the ta abe year
In whch fas the date of hs death, or wth respect to any pror ta abe year
whch ended on or after the frst day he was so servng n a combat one after
une 2 , 19 0, and (2) the ta (ncudng nterest, addtons to the ta , and
addtona amounts) mposed by chapter 1 of the Code and under the correspond-
ng tte of each pror revenue aw for a ta abe years precedng those specfed
n (1) above, whch s unpad at the date of hs death sha not be assessed, and
f assessed the assessment sha be abated, and If coected sha be credted or
refunded as an overpayment.
S CTION 33 . MPLOY S TRUSTS
Ths secton, for whch there Is no correspondng provson n the ouse b,
amends secton 16 (b) (2) of the Code, reatng to dstrbutons to an empoyee
by a trust whch quafes for e empton under secton 16 (a).
Under secton 16 (b), amounts dstrbuted or made avaabe to an empoyee
by such a trust (n e cess of the empoyee s contrbutons) are ta ed to the
empoyee ony n the years n whch dstrbuted or made avaabe and, If the
tota dstrbutons are pad to the empoyee n one ta abe year on account of
the empoyee s separaton from the servce, the amount of the dstrbuton (to the
e tent e ceedng the empoyee s contrbuton) s ta ed at capta gan rates (as
from sae or e change of a capta asset hed for more than 6 months).
Under your commttee s amendment, where such a tota dstrbuton occurs,
and conssts n whoe or In part of securtes of the empoyer corporaton, that
part of the e cess (of the amounts dstrbuted over the nmount of the empoyee s
contrbutons) as conssts of net unreazed apprecaton attrbutabe to that part
of the tota dstrbutons made n securtes of such empoyer corporaton sha
be e cuded from ncome n the year of dstrbuton, and sha be sub|ect to ta
ony when the securtes are sod (or otherwse dsposed of n a ta abe trans-
acton). Te amount of the net unreazed apprecaton whch Is e cuded
sha In the hands of the recpent not be Incuded n the bass of the stock or
other securtes dstrbuted.
The amount of the net unreazed apprecaton whch s to be e cuded sha
be determned n accordance wth reguatons, and the resutng ad|ustments to
bass sha aso be aocated to the securtes dstrbuted u accordance wth
reguatons.
The postponement of ta provded by the amendment made to secton 16 (b)
by ths secton appes ony to the net unreazed apprecaton n stock of the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
1
empoyer corporaton or bonds or debentures ssued by such corporaton wth
nterest coupons or n regstered form. The amendment s appcabe ony wth
respect to dstrbutons made after December 31, 19 0.
S CTION 33 . LIF INSUR NC COMP NI S
Under secton 311 of the ouse b, the speca rue for 19 9 and 19 0, set
forth n secton 202(b) (2) of the Code for use n determnng the reserve and
other pocy abty credt of fe nsurance companes, woud have been e tended
to appy to ta abe years begnnng n 19 1. Under your commttee s amendment
there s substtuted for ths provson a system for ta ng such companes, for
ta abe years begnnng n 19 1, whch s dfferent from that contaned n present
aw. Under ths system, n eu of aowng fe nsurance companes an ad|ust-
ment of ther norma ta net ncome and of ther corporaton surta net ncome,
by means of the reserve and other pocy abty credt, for purposes of a ta
mposed at the reguar corporate rates, a ow-rate ta s mposed on the norma
ta net ncome of such companes wthout aowance of any such credt. Tms,
under subsecton (a) of ths secton, secton 201(a) (1) of the Code, reatng to
the mposton of ta on fe nsurance companes, s amended to provde for the
evy, coecton and payment, for ta abe years begnnng n 19 1, of a ta equa
to 3 percent of the frst 200,000 of 19 1 ad|usted norma ta net ncome and
Y percent of the amount n e cess thereof.
Under subsecton (b) of ths secton, a new secton 203 s added to the Code,
foowng secton 203, subsecton (a) o whch defnes the term 19 1 ad|usted
norma ta net ncome as the norma ta net ncome (as defned under present
aw) pus eght tmes the amount of the ad|ustment for certan reserves provded
for n secton 202(c) and mnus the reserve nterest credt, f any, as defned n
secton 203 (b).
The addton to the norma ta net ncome under secton 20.3 of eght tmes the
amount of the ad|ustment for certan reserves provded for n secton 202(e)
(an ad|ustment reatng to the non-fe-nsurnnce busness, f any, done by a fe
nsurance company) s made so as fo contnue n effect essentay the same rate
of ta wth respect to that ad|ustment as s now mposed under present aw. The
fgure eght s used under secton 203 snce a 0 percent ta as provded for
by the amendment made to secton 201(a)(1) s e acty one-eghth of a 2
percent tota corporate rate of ta as provded for wth respect to corporatons
generay by the amendments made to sectons 13(b) and 1 (b) of the Code by
secton 121 cf ths b.
The reserve nterest credt provded for n subsecton (1)) of secton 203 s a
feature whch has no precedent n present aw and s desgned to gve reef from
the ta mposed by your commttee s amendment, to the e tent of a ma mum of
0 percent of such ta . n the case of companes the ad|usted net ncome of
whch, as defned n subsecton (c) of secton 203 , s ess than 10 percent of
ther requred nterer:, as defned n subsecton (d) of that secton.
d|usted net ncome s defned under subsecton (c) as, n effect, the amounts
of nterest, dvdends, and rents receved by the companes, net after the deduc-
tons provded for under present aw under secton 201(c)(7), but wthout a
deducton for ta -free nterest, and, n the case of a company dong a non-fe-
nsurance busness, ess an amount equa to one-haf of the amount of the ad|ust-
ment wth respect to that busness provded for n secton 202(c). In permttng
n deducton of ony one-haf of the amount of that ad|ustment, recognton s
gven to the fact that that ad|ustment, as frst enacted In 19 2, was recognzed at
the tme as not refectng the actua nterest, dvdends, and rents receved by fe
nsurance companes wth respect to ther non-fe-nsurance busness.
The term requred nterest as defned n subsecton (d) of secton 203 takes
nto account the nterest and pocy commtments of the companes wth respect
o ther fe nsurance busness whch are recognzed under present aw, as
amended for the years 19 9 and 19 0 by the above referred to speca rue, n
determnng the ta base under that aw for the purposes of an mposton of a
ta at the reguar corporate rates provded for n sectons 13(b) and 1 (b) of
the Code.
Uased upon the above factors, the reserve nterest credt s made avaabe to
companes where the reatonshp between ther ad|usted net ncome and ther
requred nterest s such that the ad|usted net ncome s ess than 10 percent of
the requred nterest. Where ad|usted net ncome s 100 percent or ess of the
requred nterest, the reserve nterest credt s determned as an amount equa
to 0 percent of the norma ta net ncome. Where ad|usted net ncome s 10
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
2
percent or more of the requred nterest, the reserve nterest credt Is stated as
beng zero. Where ad|usted net ncome s more than 100 percent but ess than
10 percent of the requred nterest, the reserve nterest credt s computed by
mutpyng the norma ta net ncome by 10 tmes the dfference between 10
percent and the actua percentage estabshed. Thus, n a case where ad|usted
net ncome s 103 percent of the requred nterest, the dfference between 10
percent and 103 percent woud be 2 and the reserve nterest credt woud be the
norma ta net ncome mutped by 20 percent. It s contempated that the
percentage estabshed by comparng ad|usted net ncome to the requred nterest
must be carred to at east the nearest one-tenth of a percentage pont wth the
resut that the mutpcaton by 10 of the dfference between 10 percent and
such percentage w be productve of a more accuratey graduated fgure than
woud be possbe were no such fractona percentage to be aowed.
Snce a 6 percent ta on 19 1 ad|usted norma ta net ncome s e pected
to be productve for 19 1 of appro matey the same ta n the case of any one
company as a ta at the reguar corporate rates on the ta base provded under
present aw, t s apparent that the factors enterng nto the determnaton of
the reserve and other abty credt ad|ustment under present aw can be con-
sdered as taken nto account under your commttee s amendment, through the
partcuar ow rate seected, to the same e tent that they are operatve unt er
present aw. Thus, the fgure used by every fe nsurance company n determn-
ng ts reserve and other abty credt s determned after, n effect, reuovn;
from the ta base for the ndustry as a whoe the ndustry s ad|ustment for
certan reserves wth respect to a non-fe-nsurance type of busness. Undrr
the crcumstances, therefore, n defnng 19 1 ad|usted norma ta net ncome
under secton 203 (a) as the company s tota norma ta net ncome pus an
ad|ustment for such reserves, the operaton of the system s such, by reason of
the effectve rate of the ta , that, n effect, the norma ta net ncome can be
consdered as havng been frst ad|usted on an ndustry-wde bass by the remova
of ncome attrbutabe to su h non-fe-nsurance busness.
In the same manner, the treatment under present aw of ta -free nterest
nsofar as the companes pocy obgatons are concerned can be consdered
as carred over nto the system estabshed by ths secton.
Under present aw, the norma ta on corporatons s mposed, for ta abe
years begnnng after une 30, 10 0, at a rate of 2 percent of the norma ta
net ncome and the surta on corporatons for such years s mposed at a rate
of 22 percent on that amount of the corporaton s surta net ncome as s n
e cess of 2 ,000. The e empton granted under the surta on corporaton
to the frst 2 ,000 of corporaton surta net ncome s refected under your
commttee s amendment by the mposton of a ta on the frst 200,000 of
19 1 ad|usted norma ta net ncome of ony 3 p rcent- Ths owers per-
centage of that amount of 19 1 ad|usted norma ta net ncome s desgned to
produce the same effect under a 6 / percent ta as the e empton granted under
the norma corporate rates to the frst 2 ,000 of corporaton surta net ncome.
Thus, takng nto account the amendments of sectons 13 aud 1 of the Code
whch woud be made by secton 121 of the b, t w e noted that 3 percent
of 200,000 w produce appro matey the same amount of ta as the 27 per-
cent norma ta rate proposed under secton 121 woud produce on 2 ,000.
Subsecton (c) of secton 33 as added to the b by your commttee s amend-
ment makes severa technca amendments to the Code requred n order to adapt
certan provsons of the Code to the smpfed system estabshed by your com-
mttee s amendment. Thus, for purposes of subchapter D, reatng to the e cess
profts ta , the e cess profts ta net ncome of fe nsurance companes for
ta abe years begnnng n 19 1 s defned n the mamer provded under present
aw usng, n eu of the fgure used under present aw, n connecton wth the
determnaton of the reserve and other pocy abty credt, the fgure 0.S7.
Ths fgure s used snce the 6 percent ta was computed n the frst nstance
on the assumpton that such a fgure woud appro mate the fgure whch, under
the ouse b, woud be procamed by the Secretary for 19 1.
S CTION 336. T TR TM NT OF C RT IN IN STM NT COMP NI S
Ths secton, whch corresponds to secton 312 of the ouse b, adds a new
subsecton (c) to secton 361 of the Code, whch contans certan requrements
appcabe to reguated nvestment companes under suppement of chapter 1.
Subsecton (b) of secton 3(11 provdes certan mtatons on the types and
amounts of securtes whch may be hed by a reguated nvestment company
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
3
f the company s to quafy for the ta treatment under suppement . mong
such mtatons s a requrement that at the cose of each quarter of the ta abe
year of a company, at east 0 percent of the vaue of ts tota assets be repre-
sented by cash and cash tems, Government securtes, securtes bf other regu-
ated nvestment companes, or securtes n other companes mted n respect
of any one ssuer (1) to an amount not n e cess of percent of the vaue of
the assets of the nvestment company, and (2) to not more than 10 percent of
the outstandng votng securtes of such ssuer.
Secton 361(c), as added by ths secton of the b, provdes that n the case
of a regstered management nvestment company whch s certfed by the Se-
curtes and change Commsson as prncpay engaged n suppyng capta
to other corporatons whch are prncpay engaged n the deveopment or e -
potaton of nventons, technoogca mprovements, new processes or products
not prevousy avaabe, the nvestment company, notwthstandng the 10 per-
cent stock ownershp mtaton n secton 361(b), may ncude, n the 0 per-
cent of ts assets restrcted under secton 301(b), the vaue of any securtes
of an ssuer, even though the nvestment company hods more than 10 percent
of the stock of such ssuer; but ony f the nvestment company has not con-
tnuousy hed any securtes of such ssuer (or of any predecessor company
as determned under reguatons prescrbed by the Secretary) for 10 or more
precedng years. owever, ths provson does not modfy the percent mta-
ton wth respect to the amount of assets whch may be nvested In securtes
of any one ssuer. Secton 301(c) does not appy n any ta abe year f at the
cose of any quarter of the ta abe year more than 2 percent of the tota assets
of the nvestment company s represented by securtes of ssuers as to whch
(1) the nvestment company hods more than 10 percent of the outstandng
votng stock and (2) the nvestment company has contnuousy hed any securty
(or any securty of a predecessor of such ssuer) for 10 or more years, uness
wthn 30 days after the cose of such quarter the vaue of the tota assets repre-
sented by such securtes s reduced to 2 percent or ess of the vaue of the tota
assets of the nvestment company.
In the determnaton by the Securtes nnd change Commsson, consdera-
ton s to be gven to the purpose and functon of the nvestment company and to
ts contnung over-a operaton. Ordnary, for e ampe, t woud be requste
that a ma|or porton of the assets of the nvestment company represent secur-
tes n operatng companes deveopng and e potng new processes and prod-
ucts. It s recognzed, however, that such an nvestment company may fnd t
desrabe to nvest a porton of ts assets n other securtes, such as Government
bonds, whch w provde operatng ncome to meet the e panses ncurred n
makng nvestments n companes deveopng new products, and so forth. n
nvestment company woud not quafy under subsecton (c) f ts prncpa
purpose or actvty s to estabsh and mantan contro, as a hodng company,
over the operatng companes and not merey to foster the nta deveopment of
such companes. Retenton of an nvestment n one or more operatng com-
panes, however, woud not necessary mpy hodng-company status f the
operatons of the nvestment oompany, vewed as a whoe, ndcated that the
retenton of such securtes s ncdenta to ts prncpa actvtes.
n operatng company w not be consdered to be engaged n the deveopment
of new processes or products merey because the process or product s new to
the company. It s essenta that the process or product represent a substan-
ta technoogca mprovement. or be dfferent to a matera degree from a process
or product prevousy avaabe. Thus, a change n stye, a new mode, an
adaptaton of an e stng product, or such mprovements as are customary
made n the trade woud not quafy.
For the purposes of subsecton (c), a corporaton whch was, at the tme of the
frst acquston of ts securtes by the nvestment company, prncpay engaged
n the deveopment or e potaton of nventons, technoogca mprovements,
new processes, and so forth, w, ordnary, be consdered to be so engaged for at
east 10 years after the date of such acquston. ccordngy, an nvestment
company whch acqures the secrtes of another company whch s then prnc-
pay engaged n deveopng a new product may contnue, for the purposes of
subsecton (c), to hod such securtes even though durng such perod the sub-
sdary company may be actvey marketng the product whch t has deveoped.
The amendments made by your commttee to the provson contaned n the
ouse b are many of a technca or carfyng nature. Thus, for e ampe, t
s provded that an nvestment company w be consdered, for purposes of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

the secton, to be engaged n furnshng capta to any company whose securtes
It hods f such securtes, or securtes surrendered therefor, were acqured from
the company wthn the 10 precedng years. The Securtes and change Com-
msson may, however, n such cases as t consders approprate, nevertheess
determne that the nvestment company s not so engaged. Smary the pre-
sumpton wth respect to the actvtes of the operatng companes may be re-
butted f a contrary determnaton s made by the Securtes and change
Commsson.
It s provded that the terms used n secton 301(c) sha have the same
meanng as n secton 361(b) (3). For e ampe, the term vaue as used n
secton 301(c) means, wth respect to securtes (other than those of ma|orty-
owned subsdares) for whch market quotatons are ready avaabe, the mar-
ket vaue of such securtes; and wth respect to other securtes and assets, the
far vaue as determned n good fath by the board of drectors sub|ect to the
e cepton that the vaue of securtes of ma|orty-owned subsdares whch are
nvestment companes sha not e ceed the hgher of market vaue or asset vaue
Secton 301(c) does not, e cept wth respect to waver of the 10 percent m-
taton on votng stock under the crcumstances ndcated, affect any of the
requrements under secton 361 or 302 whch woud otherwse be appcabe to the
nvestment company for purposes of the ta treatment under suppement .
Subsecton (b) of secton 312 provdes a technca amendment to secton
301(b)(3)( ) of the Code.
The amendments made by ths secton of the b are appcabe to ta abe
years begnnng after December 31, 19 0.
S CTION 337. C NG S ND DISTRI UTIONS IN O DI NC TO ORD RS OF
S CURITI S ND C NG COMMISSION
Ths secton amends the defnton of the term system group contaned n
secton 373(d) of the Interna Revenue Code. In order to secure the treatment
accorded by suppement R to e changes and dstrbutons made n obedence to
orders of the Securtes and change Commsson certan e changes and dstr-
butons must be made by or to members of the same system group. Under
e stng aw system group s defned as one or more chans of corporatons
connected through stock ownershp wth a common parent corporaton, provded
a three of the foowng condtons are met:
(1) t east 00 percent of each cass of the stock (other than stock whch
s preferred as to both dvdends and assets) of each of the corporatons (e -
cept the common parent corporaton) s owned drecty by one or more of
the other corporatons; .
(2) The common parent corporaton owns drecty at east 90 percent of
each cass of the stock (other than stock whch s preferred as to both dv-
dends and assets) of at east one of the other corporatons; and
(3) ach of the corporatons s ether a regstered hodng company or a
ma|orty-owned subsdary company.
Secton 337 amends ony the frst condton of the e stng defnton. Under
ths secton n determnng whether one or more of the corporatons n the
chan owns at east 90 percent of each cass of the stock of another corporaton
n the chan there s e cuded nut ony stock whch s preferred as to both dv-
dends and assets but stock whch s mted and preferred as to dvdends but Is
not preferred as to assets, provded that the tota vaue of the entre cass of
such stock consttutes ess than 1 percent of the aggregate vaue of a casses of
stock whch are not preferred as to both dvdends and assets. Ths secton
makes no change n condtons (2) and (3) of the e stng defnton of system
group contaned n secton 373(d). The amendment made by ths secton s
appcabe to a ta abe years affected by e changes and dstrbutons made after
December 31, 19 7.
S CTION 33 . T TION OF USIN SS INCOM OF ST T COLL G S ND
UNI RSITI S
Ths secton, for whch there s no correspondng provson n the ouse b,
deas wth ta aton of busness Income of governmenta coeges and unverstes.
t present, Suppement U of chapter 1 of the Interna Revenue Code deas wth
ta aton of busness ncome of certan secton 101 organzatons. mong the
organzatons sub|ect to Suppement U ta are prvate coeges and unverstes
e empt under secton 101 (0) of the Code. t present, the Suppement U ta does
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

not appy to State coeges and unverstes, snce such organzatons are not
e empt under secton 101 of the Code. Ths secton of your commttee s b,
n effect, sub|ects coeges and unverstes run by governments to smar ta
treatment under Suppement U wth respect to ther unreated busness actvtes
as s now provded under Suppement U n the case of prvate coeges and un-
verstes e empt under secton 101(6) of the Code. The amendments made by
ths secton are to be appcabe ony wth respect to ta abe years begnnng
after December 31, 10 1.
Subsecton (a) of ths secton amends secton 21(b) (1) of the Code (reatng
to organzatons e empt under secton 101 (1), (6), (7), and (1 ) whch are
ta abe under secton 21(a) (1) at corporate rates on ther unreated busness
net ncome) to brng the provsons presenty contaned theren under a subpara-
graph numbered ( ) and to add after such subparagraph a new subparagraph
numbered ( ). Secton 21(b)(1)( ) appes the ta es mposed by secton
21(a) (1) to any coege or unversty whch s an agency or nstrumentaty of
any government or any potca subdvson thereof, or whch s owned or
operated by a government or any potca subdvson thereof or by any agency
or nstrumentaty of any one or more governments or potca subdvsons. s
here used, the word government ncudes any foregn government (to the e tent
not contrary to any treaty obgaton of the Unted States) and a domestc
governments (the Unted States and any of ts Terrtores or possessons, any
State, and the Dstrct of Coumba). In other words, any natona. State,
muncpa or cty coege or unversty s brought wthn the scope of the Suppe-
ment U ta , but secondary schoos run by such governments are outsde such ta .
Secton 21(b) (1) ( ) aso appes the Suppement U ta to any corporaton
whoy owned by one or more governmenta coeges or unverstes. Such a
corporaton woud be sub|ect to the ta mposed under Suppement U on ncome
derved from an unreated trade or busness, ncudng rents derved under a
Suppement U ease.
Subsecton (b) of ths secton amends secton 22(b), for the purpose of deter-
mnng the unreated busness net ncome sub|ect to the Suppement U ta , to
defne unreated trade or busness to mean, n the case of an organzaton de-
scrbed n secton 21(b) (1) ( ), any trade or busness the conduct of whch s
not substantay reated (asde from the need of such organzaton for ncome
or funds or the use t makes of the profts derved) to the e ercse or performance
of any purpose or functon descrbed n secton 101(6) of the Code. The pur-
poses or functons descrbed n secton 101(6) are regous, chartabe, scentfc,
terary, educatona, and the preventon of cruety to chdren or anmas.
Subsecton (b) of ths secton aso amends secton 22(b)(2) to provde that
the term unreated trade or busness does not ncude any trade or busness
whch s carred on, n the case of a coege or unversty descrbed n secton
21(b) (1) ( ), by the organzaton prmary for the convenence of ts members,
students, patents, offcers, or empoyees.
S CTION 339. F MILY P RTN RS IPS
Subsectons (a) and (b) of ths secton amend secton 3797(a) (2) of, and add
a new secton 191 to, the Code to provde for the ta treatment of famy partner-
shps as e paned begnnng on page n part 1 of ths report.
Subsecton (c) (1) provdes that, n genera, the amendments made by secton
339 (a) and (b) are to be appcabe ony wth respect to ta abe years begnnng
after December 31,19 0. Secton 339(c) (2), however, provdes that such amend-
ments, at the eecton of the ta payer made n accordance wth reguatons pre-
scrbed by the Secretary of the Treasury, sha aso be appcabe to ta abe years
begnnng after December 31, 193 , and before anuary 1,19 1. The eecton does
not have to be wth respect to a such ta abe years but w be appcabe ony
to such years as are specfed by the ta payer n makng the eecton. The eec-
ton for any ta abe year w not be vad uness, pror to the e praton of 90
days after the fng of the eecton (or such onger perod as the Secretary may
by reguatons prescrbe) each famy partner of the ta payer fes, n accordance
wth the reguatons, a wrtten consent to have the amendments appy to hs
ta abe years whch corresponds to the ta abe years for whch the eecton s
made by the ta payer. In eu of such consent by any famy partner, however,
there may be pad, under reguatons prescrbed by the Secretary and wthn the
tme provded for fng such consent, an amount equa to the defcency and
Interest whch woud be assessed wth respect to such famy partner f he fed
9 016 2 3
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
such consent. The eecton and any consent fed In respect of the eecton sha
be appcabe ony to such partnershps as are specfed n the eecton. The
perod of mtatons provded n sectons 27 and 276 of the Interna Revenue
Code on the makng of assessments and the begnnng of dstrant or a proceedng
n court for coecton sha, wth respect to any defcency and nterest thereon
resutng from such eecton or consent, ncude one year foowng the date such
eecton or consent s fed f such perod of mtatons otherwse woud e pre
pror to the end of such 1 year perod; such assessment and coecton may be
made notwthstandng any provson of aw or any rue of aw whch otherwse
woud prevent such assessment and coecton. If an eecton by a ta payer s
fed for a ta abe year for whch aowance of credt or refund of an overpay-
ment of ta s barred, at the tme of fng such eecton, by any aw or rue
of aw, then any consent fed by a famy partner of a ta payer wth respect to
such year sha be vod.
Secton 339(c)(3) provdes speca rues for appyng the amendments made
by secton 339 (a) and (b) n certan cases where the ta abe year of the ta -
payer or a famy partner s dfferent from the ta abe year of the partnershp.
If a ta abe year of a partnershp whch ends n 19 1 ends wthn or wth a
ta abe year of the ta payer or a famy partner whch began before anuary 1,
19 1, the amendments made by secton 339 (a) and (b) sha be appcabe, wth
respect to the dstrbutve shares of Income derved by the ta payer and the
famy partners from such ta abe year of the partnershp, ony pursuant to the
provsons of secton 339(c) (2), notwthstandng the fact that the genera rue
provded n secton 339(c) (1) mght otherwse be appcabe to some of the part-
ners. Smary, f a ta abe year of a partnershp whch ended n 1939 ended
wthn or wth a ta abe year of a ta payer or a famy partner whch began
before anuary 1, 1939, the amendments made by secton 339 (a) and (b) sha
not be appcabe wth respect to any of the dstrbutve shares of ncome derved
by the ta payer and the famy partners from such ta abe year of the partner-
shp, notwthstandng the fact that the provsons of secton 339, reatve to the
retroactve appcaton of the amendments made by secton 339 (a) and (b),
mght otherwse be appcabe to some of the partners.
The term famy partner, for purposes of secton 339(c), means any person
who. upon the fng of the consent descrbed above, woud be abe for a defcency
attrbutabe to ncome whch, but for the appcaton of the amendents made by
secton 339 (a) and (b), woud be consdered as ncome of the ta payer.
S CTION 3 0. W R LOSS S
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 127 (c) and (d) of the Code to provde an aternasve treatment
of war oss recoveres, n eu of the rues stated n the present secton, f the
ta payer eects to have such aternatve method appy.
Subsecton (a) amends secton 127(c), reatng to recoveres ncuded n gross
ncome. Paragraph (1) of amended subsecton (c) provdes that upon the
recovery n the ta abe year of any money or property n respect of property
consdered under subsecton (a) as destroyed or sezed n any pror ta abe
year the amount of such recovery sha be ncuded n gross ncome to the
e tent provded n paragraph (2), whch retans the e stng aw, uness the
ta payer eects under the provsons of paragraph ( ) to have such recovery
treated n accordance wth the provsons of paragraph (3), whch embodes the
new eectve treatment.
Paragraph (3) provdes new rues for determnng (a) the amount of a war
oss recovery; (b) the amount of the ad|ustment to be made to the ta for the
ta abe year of the recovery n respect of pror deductons on account of property
consdered under subsecton (a) as destroyed or sezed; (c) the treatment of that
part of the recovery whch s n e cess of aowabe deductons n pror ta abe
years; and (d) a speca rue for the ncuson of recoveres n gross ncome for
certan purposes. Subparagraph ( ) states the rue for vaung the amount of
the recovery n the ta abe year. If the same property or nterest consdered
under subsecton (a) as destroyed or sezed s recovered, the far mnrket vaue of
such property or nterest sha not e ceed the ad|usted bass (for determnng
oss) of such property or nterest n the hands of the ta payer on the date of the
oss. For e ampe, the ta payer on December 11.19 1, owned ackacre. a prop-
erty ocated n Germany. The ad|usted bass of such property n the hands of
the ta payer on such date was 1,000,000. Under secton 127(a) such property
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
S7
was deemed destroyed or sezed In the year 10 1 and the ta payer s oss of
,000,000 was an aowabe deducton for such year whether or not the ta payer
camed such deducton. recovery n respect to such oss Ik, under secton
127(c). requred to be taken nto account. ssume that n IMC the ta payer
recovers ths property and tmt on the date of recovery t has a far market vaue
of 2,000,000. If the ta payer eects to proceed under the provsons of paragraph
13), the amount of the recovery respectng ths property woud be the amount of
the adusted bass as of the date of oss, 1,000,000. If In eu of reco erng the
partcuar property whch was deemed destroyed or se zod the ta payer receves
another property n ndemnty or substtuton therefor and such ether property
has a far market vaue o the date of the recovery of 2,000,000, tmt amount s
to be consdered the amount of the recovery n respect of the pr perty deemed
destroyed or sezed, snce the pro erty recovered was not the pro, ey whch
was actuay ost.
Subparagraph (It) provdes the ad|ustment whch Is to be made to the ta In
the ta abe year of a recovery to whch paragraph (3) s made appcabe pur-
suant to the ta payer s eecton. That part of the amount of the recovery whch
Is not In e ess of the aowane deductons n pror ta abe years on account of
the destructon or se zure of the property n res ect of whch the recovery Is
receved, mnus the atsregute apount of any pror recovery n respect of the same
property, s not ncuded n gross Income for the ta abe year of the recovery. In
er of ncudng nny amount n gross Income there s to be added to. and assessed
and coected as part of, the ta m osed by chapter 1 for the ta abe year (f the
recovery, the aggregate ncrease n the a under chapter 1 and chapter 2 for n
ta abe years wnch woud resut from a decrease n such aowabe deductons :n
pror ta abe years by an amount equa to such part of the recovery. The ncrease
n the ta for ea-h ta abe year resutng from a determnaton of the amounts
resutng from ad|ustment n the amount of the aowabe deductons n the pror
ta abe years s to be computed n accordance wth reguatons pr-scrbed by the
Secretary.
Subparagraph ( ) provdes that the reguatons sha gve effect to prevous
recoveres of any knd wth res ect to any pror year, and sha provde for the
case where there was no ta for the pror year, but sha otherwse treat the ta
prevousy determned for any year accordance wth the prncpes set forth n
secton 3 01(d) of the Code. credts aowabe aganst the ta for any year
and a carry-overs and carry backs affected by so decreasng the aowabe deduc-
tons sha be taken Into account n computng the ncrease n the ta for the year
n whch the property was recovered. It contempated tnt the reguatons w
provde rues appcabe to the dverse stuatons whch can arse n those cases
where an eecton made by the ta payer for the appcaton of angraph (3)
w appy to some, but not a, of the ta abe years durng whch recoveres were
had by the ta payer.
Subparagraph (C) provdes that to the e tent the amount of any recovery n
respect of property consdered under subsecton (a) as destroyed or sezed s not
sub|ect to the provsons of sub aragraph ( ) su h amount sha be consdered
for the ta abe year of the recovery as |an on the nvountary converson of
property as the resut of ts destructon or sezure and sha be recognzed or not
recognzed as provded n secton 112(f). Ths rue s appcabe where the
amount of the recovery as determned under subparagraph ( ) e ceeds the
aowabe deductons n pror ta abe years on account of the destructon or
sezure of the property.
Subparagraph (D) contans a speca rue whch provdes that for the purposes
of secton 1, reatng to the requrement of ndvdua returns, secton 2,
reatng to the requrement of corporaton returns, and secton 3 01(b), reatng
to ncusons and e cusons from gross ncome n makng the ad|ustments re-
qured by such secton, the recovery n the ta abe year of any money or property
n respect of property consdered under subsecton (a) as destroyed or sezed n
any pror ta abe yenr sha be deemed to be an tem ncudbe n gross ncome
for the ta abe year n whch the recovery s made.
Paragraph ( ) of secton 127(c) provdes that for the purpose of subsecton
(c) the restoraton n whoe or n part of the vaue of any nterest descrbed n
subsecton (a) (3), reatng to nvestments referrabe to destroyed or sezed
property, by reason of any recovery of money or property n respect of property
to v h ch stc nterest rented nnd wh-b was consdered under subsecton (a) as
destroyed or sezed ., he deemed a recovery of property n respect of property
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e

consdered under subsecton (a) as destroyed or sezed. Ths Is the same rue
contaned n secton 121(c) (3) of e stng aw. Ths secton of the b, however,
adds a sentence whch provdes that n appyng paragraph (3) such restoraton
shn be treated as a recovery of the same nterest consdered under subsecton
(a) as destroyed or sezed.
Paragraph ( ) provdes for the eecton by the ta payer for the appcaton of
the provsons of paragraph (3). Such eecton s to be made n accordance wth
reguatons prescrbed by the Secretary. If the ta payer eects to have the
provsons of paragraph (3) appcabe to any ta abe year n whch he recovered
any money or property In respect of property consdered under subsecton (a) as
destroyed or sezed, the provsons of paragraph (3) sha be appcabe to a
ta abe years of the ta payer begnnng after December 31, 10 0, other than a
ta abe year for whch at the tme of makng such eecton a refund or credt
of the entre amount of any overpayment (resutng from an appcaton of
paragraph (3) to such year) woud be prevented by secton 322 or by the pro-
vsons of any other aw or rue of aw. Thus, f the appcaton of paragraph
(3) to a ta abe year woud resut n an overpayment of 10,000, and by reason of
the mtatons contaned n secton 322(b) (2) () of the Code ony ,000 of the
overpayment coud be refunded upon the fng (at the me of the makng of the
eecton) of a cam for refund, the provsons of paragraph (3) woud not appy
to such year, and the bass of the property recovered In that year von contnue
to be determned under the e stng provsons of secton 127(d) of the Code.
Paragraph ( ) further provdes that f the provsons of paragraph (3) are
appcabe to any ta abe year pursuant-to the ta payer s eecton, the tme for
the assessment and coecton of
(a) the amount to be added to the ta for such year under the provsons
of paragraph (3), and
(b) any defcency for such year or for any other ta abe year, f and to
the e tent such defcency s attrbutabe to the redetermnaton of the bass
of the recovered property under the provsons of subsecton (d) (2) as
nmended by ths secton,
sha not e pre pror to the e praton of 2 years foowng the tme of the
makng of such eecton. Such amount and such defcency may be assessed, at
any tme pror to the e praton of such perod, notwthstandng any aw or rue
of aw whch woud otherwse prevent such assessment. No nterest sha be as-
sessed or coected wth respect to the amount specfed n cause (a) or wth re-
spect to any defcences specfed n cause (b) for any perod pror to the e pra-
ton of G months foowng the date of the makng cf the eecton by the ta payer;
nor sha nterest he pad or, nny overpayment resutng from te makng of such
eecton, n the case of any ta ab .e year endng before the d:tte of the makng
of such eecton, for any perod pror to the e praton of suc t-uo t perod.
Subsecton (b) of ths secton amends secton 127(d), reatng to the bass of
recovered property. Subsecton (d)(1) as amended provdes that the ad|usted
bass of property recoverfd n respect of property consdered as destroyed or
sezed under subsecton (a) sha be determned undo.- subsecton (d). The rue
contaned n paragraph (1) for the determnaton of the unad|uste bass of
property s the same as that provded by e stng aw. Paragraph (2) provdes
a new and dfferent rue f propery s recovered n a ta abe year to whch the
provsons of secton 127(c)(3) are appcabe pursuant to an eecton made
under the provsons of secton 127(c) (. ). In such case, n eu of the amount
determned under paragraph (1) (whch sates the rue of e stng aw), the
bass of the property shn be an amount equa to the vaue at whch such prop-
erty s ncuded n the amount of the recovery under secton 127(f)(3)( ),
reduced by such part of the gan under secton 127(c)(3)(C) whch s not
recognzed under secton 112(f).
Subsecton (c) of ths secton amends secton 131(a), reatng to the aow-
ance of credt for ta es of foregn countres and possessons o the Unted States,
to provde that the foregn tn credt sha not be aowed aganst the addtona
ta mposed for the ta abe year under the provsons of secton 127(c) (3) (t),
as amended. Thus, f such provsons are appcabe to a ta abe year and
pursuant thereto an ncrease n the ta mposed for such year s to be added to
the ta , a foregn ta credt may not be aowed nganst the amount of such
ncrease.
The amendments made by ths secton are appcabe to ta abe years begnnng
after December 31, 10 0.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
S CTION 3 1. D DUCTION OF P NDITUR S FOR MIN PLOR TION
Ths secton, for whch there a no correspondng provson n the ouse b,
amends secton 23 of the Interna Revenue Code (reatng to deductons from
gross Income) by addng a new subsecton ( I) thereto.
Paragraph (1) of such subsecton provdes that e pendtures pad or ncurred
durng the ta abe year for the purpose of ascertanng the e stence, ocaton,
e tent, or quaty of any depost of ore or mnera, and pad or ncurred pror to
the begnnng of the deveopment stage of the mne or depost, sha be aowed as
deductons n computng net ncome for the ta abe year e cept to the e tent that
such e pendtures e ceed 73,0(10. The yeary mtaton of 7 ,000 appes to a
such descrbed e pendtures of the ta payer and Is not a tota amount aowabe
wth respect to each separate mne or depost. -year mtaton s appcabe,
as descrbed herenafter.
Ths subsecton, howev r, Is appcabe ony to e pendtures descrbed and
whch, but for ths subsecton, woud not be aowabe as a deducton for the ta -
abe year. Those e pendtures that woud be aowabe wthout reference to
ths subsecton contnue to be aowabe to the same e tent as under e stng
aw and are not to be taken nto account n computng the 7 ,000 mtaton.
Ths subsecton, aso, Is appcabe ony to e pendtures pad or ncurred pror
to the begnnng of the deveopment stage of the depost, or mne reatng to
such depost The determnaton of the begnnng of the deveopment stage s to
be made, as under e stng aw, by reference to the tme when the e stence of
ores or mneras In commercay marketabe quanttes s dscosed.
Ths subsecton does not appy to e pendtures for the acquston or mprove-
ment of property of a character whch s sub|ect to the aowance for deprecaton
provded In secton 23(1) of the Code, but aowances for deprecaton sha be
consdered, for the purposes of ths subsecton, as e pendtures pad or ncurred.
Ths subsecton, aso, does not appy to e pendtures for the purpose of ascertan-
ng the e stence, ocaton, e tent, or quaty of any depost of o or gas.
Paragraph (2) of the subsecton provdes that, at the eecton of the ta payer
n accordance wth reguatons prescrbed by the Secretary, he may treat as
deferred e penses any porton of the amount deductbe under paragraph (1).
Such porton so treated sha not be deductbe under pargraph (1) but sha be
deductbe on a ratabe bass as the unts of produced ores or mneras dscovered
or e pored by reason of such e pendtures are sod. n eecton made under
ths paragraph for any ta abe year sha be bndng for such year.
In order to determne the amount of the deducton aowabe for any ta abe
year under paragraph (2), t w be necessary to estmate the number of unts,
dscovered or e pored by reason of such e pendtures, n the reserve of the mne
or depost at the cose of such ta abe year. Ths estmate s, of course, sub-
|ect to revson n the event t s ascertaned as the resut of operaton or deveop-
ment work that the remanng recoverabe unts are materay greater or ess
than the number remanng from a pror estmate. s these unts are produced
and sod, the amount of such e pendtures to be deducted w be an amouut whch
s n the same proporton to the tota amount of such e pendtures wth respect
to whch an eecton under paragraph (2) has been made as the number of unts
sod s to the number of unts n the reserve.
The deductons aowabe under ths subsecton are not, of course, sub|ect to
dsaowance under secton 2 (a) (2).
Ths subsecton s appcabe ony to a ta payer who has pad or ncurred
e pendtures of the type descrbed theren and accordngy has no appcaton
to that part of the cost of a mne or depost attrbutabe to such e pendtures
when acqured by purchase. The subsecton ntends that where a ta payer has
pad or ncurred such e pendtures, has made an eecton under paragraph (2),
and has thereafter eased the mne or depost, retanng a royaty nterest theren,
the ta payer s to be aowed the ratabe deducton provded n paragraph (2).
Paragraph (3) of the subsecton provdes that the subsecton sha not appy to
any amounts pad or ncurred n any ta abe year f n any four precedng years
(not necessary consecutve years) the ta payer, or any ndvdua or corpora-
ton (who has transferred to the ta payer any mnera or ore property under
crcumstances whch make the provsons of paragraph (7), ( ), (11), (13), (1 ),
(17), (20), or (22) of secton 113(a) of the Code appcabe to such transfer),
has (1) been aowed a deducton under parasrnph (1) of the subsecton, or f2)
made the eecton provded under paragraph (2) of the sn ecton. Thus, for
e ampe, f a ta payer who makes hs return ou a caendar-year bass takes a
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
90
deducton under the subsecton n each of the years 19 2, 19 3, 19 , and 19 6,
he w not be entted to any deducton under the subsecton for 19 7, or any
other subsequent ta abe year. Ths s true even though the amount of the
deducton token n each such year s for ess than the 7 ,000 annua ceng.
Paragraph ( ) provdes that the amount of the e pendtures whch are to be
deferred and deducted rataby under the eecton provded n paragraph (2) sha
be taken nto account n determnng the ad|usted bass of the mne or depost
owever, no amount of such deferred e pense sha be ncuded n the ad|usted
bass of the property for the purpose of computng a deducton for depeton under
secton 11 of the Code.
Subsecton (b) of ths secton of the b amends secton 113(b)(1) of the
Code (reatng to ad|usted bass of property) to add a new subparagraph (M)
thereto. Ths subparagraph provdes that the bass of a mne or depost sha be
ad|usted for amounts aowed as deductons as deferred e penses under secton
23(T) (2) of the Code to the e tent such deductons resuted n a reducton of the
ta payer s ta es under chapter 1 of the Code, but not ess than the amounts
aowabe under such secton for the ta abe year and pror years. No ad|ust-
ments are to be made for such deductons, however, n determnng the ad|usted
bass of the property for the purpose of computng a deducton for depeton
under secton 11 of the Code.
Subsecton (c) of ths secton of the b provdes that the amendments made
by ths secton sha be appcabe ony wth respect to ta abe years endng
after December 31, 19 0.
S CTION 312. CORPOR T LI UID TIONS
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 11 of the Code by addng a new subsecton (n) whch states a
speca rue for the treatment of gan upon the compete qudaton of a corpora-
ton where the dstrbuton n qudaton ncudes stock n another corporaton
to whch unmproved rea estate has been transferred n antcpaton of such
qudaton. The new subsecton (n) provdes that f pursuant to a pan of
qudaton a corporaton (1) transfers part of ts assets consstng of unmproved
rea estate to a newy organzed corporaton n e change soey for the entre
stock of the new corporaton, and (2) wthn a perod of 2 months from the
date of the adopton of the pan of qudaton dstrbutes n compete qudaton
a ts assets ncudng the stock n the new corporaton, the amounts dstrbuted
sha be treated as dstrbutons n compete qudaton of the od corporaton,
and none of such dstrbutons s to be treated as havng been made n pursuance
of a pan of reorganzaton and sub|ect to the provsons of secton 112(c) (2).
Thus, the entre recognzed gan, f any, to the sharehoders of the od corporaton
sha be treated as capta gan and no part of such gan sha be ta ed as a
dvdend to the sharehoders of the od corporaton, notwthstandng any other
provsons of chapter 1 of the Code, ncudng secton 112(e) (2). In other words,
f n connecton wth the transacton descrbed above a or part of the gan
recognzed upon the qudaton of the od corporaton woud otherwse be treated
as the dstrbuton of a ta abe dvdend and ta ed as a dvdend to the share-
hoders under the provsons of secton 112(c) (2), the new subsecton (n) pro-
vdes that n eu of ta ng such part of the gan as a ta abe dvdend to the
sharehoders, a of the gan sha be ta ed as capta gan.
The benefts of secton 11 (n) appy ony f (1) the busness of the od cor-
poraton s dscontnued. (2) the new corporaton to whch the unmproved
rea estate s transferred was organzed and s operated soey for the purpose
of hodng tte to such rea estate and coectng ncome from the easng or
sae thereof, and (3) there was a sound busness reason for organzng such
new corporaton to hed tte to the unmproved rea estate.
The amendment made by ths secton appes to ta abe years begnnng after
December 31, 19 7.
S CTION 3 3. D FINITION OF MPLOr
Ths secton, for whch there s no correspondng provson n the ouse b,
adds a new paragraph (20), appcabe to ta abe years begnnng after 193S,
to secton 3797(a) of the Code to provde n substance that a fu-tme fe
nsurance saesman sha be consdered to be an empoyee for the purpose of
npp.vng the provsons of chapter 1 (such as sectons 22(b) (2) ( ). 23(p). and
10 ) whch determne the effect of contrbutons for the beneft of, and dstrbu-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
91
ons to, an empoyee under n stock bonus, penson, proft-sharng, or annuty
pan.
Secton 16 (b) provdes n substance that perodc dstrbutons made to an
empoyee by a penson or proft-sharng trust whch conforms to the requre-
ments of secton 16 are ta ed to the recpent as receved n the same manner
as annuty payments. owever, snce a fu-tme fe nsurance saesman s
not consdered, under e stng aw, to be an empoyee, the provsons of secton
16 do not appy wth respect to a trust for hs beneft.
Under your commttee s amendment, such a fu-tme fe nsurance saesman
s accorded the status of an empoyee for purposes of the appcaton of secton
16 f he s cassfed as an empoyee for purposes of the Federa od-age and
enrvvor s nsurance system or f, n the case of servces performed before
anuary 1, 19 1, he woud have been so cassfed f the servces were performed
n 19 1. .
TITL I CIS T S
Part I Ta on dmssons and Cabarets
S CTION 01 R MO L OF T ON FR DMISSIONS
s It passed the ouse, ths secton of the b amends secton 1700(a) (1) of
the Code by strkng out the second and fourth sentences thereof. The second
sentence provdes that persons (e cept bona fde empoyees, muncpa offcers
on offca busness, and chdren under 12 years of age), admtted free or at
reduced rates, sha pay the same ta as persons payng the reguar admsson
charge. Thus, by strkng out ths sentence, there w be no ta on free adms-
sons, and wth respect to admssons at reduced rates, the ta w be determned
by the frst sentence of secton 1700(a) (1), as amended by secton 16 0, whch
mposes on admssons a ta of 1 cent for each cents or ma|or fracton thereof.
The fourth sentence (reatng to e empton from ta by reguaton n the case
of free admsson of certan hosptazed veterans and members of the rmed
Forces) of such secton s strcken as surpusage upon the emnaton of the
second sentence. Your commttee has further amended secton 1700(a)(1)
by strkng out the ffth sentence whch was added thereto by Pubc Law 12 ,
approved ugust 2 , 19 1. The ffth sentence of secton 1700(a)(1) provdes
for an e empton from ta n the case of free admsson of members of the
rmed Forces. Ths ffth sentence becomes surpusage upon the emnaton of
the second sentence.
S CTION 02. MPTIONS FROM DMISSIONS T
s t passed the ouse, subsecton (a) of ths secton renstates the appca-
bty of secton 1701 of the Interna Revenue Code, whch e empted pror to
October 1, 19 1, certan admssons from the admssons ta . Your commttee
has retaned ths subsecton.
s t passed the ouse, subsecton (b) of ths secton amends secton 1701(a)
of the Code so as to retan certan of the e emptons from the admssons ta
whch e sted pror to October 1, 19 1.
Under the amendments made by the ouse b to secton 1701(a), the
admssons ta woud appy to:
1. dmssons to a athetc games or e hbtons e cept those where the
proceeds nure e cusvey to the beneft of an eementary or secondary schoo.
Under the prc-19 1 aw the e empton from the admssons ta was dened ony
wth respect to admssons to such events the proceeds of whch nured whoy
or party to the beneft of a coege or unversty.
2. dmssons to a wrestng matches, prze fghts, or bo ng, sparrng, or
other pugstc matches or e hbtons, regardess of to whom the proceeds are
payabe. Under the pre-19 1 aw admssons to such e hbtons were n some
cases e empt from ta .
3. dmssons to carnvas, rodeos, or crcuses n whch any professona
performer or operator partcpates for compensaton. There was no correspond-
ng provson n the pre-19 1 aw.
Your commttee has retaned the amendments made by the ouse as they
reate to the admssons sted above and, n addton, has further provded that
the admssons ta w appy to admssons to any moton-pcture e hbton,
regardess of to whom the proceeds are payabe, and the character of the person
or organzaton sponsorng such a moton-pcture e hbton.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
92
Subsecton (b), as t passed the ouse, emnated from the pre-19 1 e emptons
(1) the e empton wth respect to admssons a the proceeds of whch nure
e cusvey to the beneft of socetes or organzatons conducted for the soe
purpose of mprovng any cty, town, vage, or other muncpaty, and (2) the
e empton wth respect to admssons a the proceeds of whch nure e cusvey
to the beneft of persons n the mtary or nava forces of the Unted States
or to persons who have served n such forces and are n need. Your commttee
has retaned the ouse amendments wth respect to these actvtes, and, n
addton, has provded for the emnaton of the pre-19 1 e emptons n the
case of admssons a the proceeds of whch nure e cusvey to the beneft of
socetes for the preventon of cruety to chdren or anmas. The e empton
prevousy afforded to socetes or organzatons conducted for the soe purpose
of mantanng a cooperatve or communty center movng-pcture theater has aso
been emnated by your commttee.
Under pre-19 1 aw the e empton from ta apped to admssons where the
proceeds nured e cusvey to the beneft of members of the poce or fre depart-
ment of any cty, town, vage, or other muncpaty or the dependents or hers
of such members. Under the amendment passed by the ouse the proceeds must
nure e cusvey to the beneft of a poce or fre department (ncudng a voun-
teer fre department) of any such ocaty or e cusvey to a fund for the soe
beneft of members of a poce or fre department or the dependents or hers of
such members. Your commttee has further mted ths e empton so that the
proceeds must nure e cusvey to the beneft of a poce or re department of
any cty, town, vage, or any muncpaty or e cusvey to a retrement, pen-
son, or dsabty fund for the soe beneft of members of such a poce or fre
department or to a fund for the hers of such members.
Under pre-19 1 aw opera companes were e empted as educatona nsttu-
tons. The same resut was contempated under the b as passed by the ouse.
Your commttee hns ncuded a specfc e empton from the admssons ta where
the proceeds of the admsson nure e cusvey to a socety or organzaton
conducted for the soe purpose of mantanng symphony orchestras or operas,
and recevng substanta support from vountary contrbuton.
Under the ouse b, as under secton 1701 pror to October 1,19 1. the e emp-
ton from ta appes f the proceeds of the admssons nure e cusvey to the
beneft of regous, educatona, or chartabe nsttutons. Your commttee,
however, proposes to mt the e emptons to certan defned casses of nsttu-
tons wthn these categores. Under the amendment proposed by your com-
mttee, regous nsttutons are restrcted to churches or conventons or
assocatons of churches. n educatona nsttuton, to be e empt, must have a
reguar facuty and currcuum, and a reguar student body at the pace where
the educatona actvtes are carred on. chartabe nsttuton, n order to
quafy for e empton, must be supported, n whoe or n part, by funds con-
trbuted by the Unted States or any State or potca subdvson thereof, or
must be prmary supported by contrbutons from the genera pubc. For the
e empton to attach n the cases of ether an educatona nsttuton or a char-
tabe nsttuton, such nsttuton must be e empt from ncome ta under sec-
ton 101(0).
Subsecton (b), as t passed the ouse, woud renstate the pre-19 1 e empton
granted under secton 1701 (b) of the Code to admssons to agrcutura fars and
to admssons to any e hbt, entertanment, or other pay feature conducted by
the far assocaton as part of the far. Your commttee has amended secton
1701(b) to mt the e empton to the genera admsson charge to the far ony,
and to emnate the specfc e empton to charges for admsson to any e hbt,
entertanment, or other pay feature put on as part of such far.
Subsecton (c) of ths secton, as t passed the ouse, adds a new subsecton
(d) to secton 1701 of the Code. Ths new subsecton grants an e empton cov-
erng admssons to factes for physca recreaton, such as swmmng poos,
bathng beaches, and skatng rnks (ncudng e hbtons and tournaments con-
ducted at such factes) operated by, and wth the entre proceeds nurng to,
States and potca subdvsons thereof, such as countes and ctes, or the
Unted States, and agences and nstrumentates of the foregong. The new
e empton docs not encompass spectator factes, such as zoos and aquarums.
Your commttee has retaned ths e empton.
In addton, your commttee has aso provded for the addton of a new snb-
secton (c) to secton 1701 of the Code. Subsecton (e) (1) grants an e empton
from the admssons ta coverng admssons to a home or garden whch s tern-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
03
porarty opened to the genera pubc as part of a program conducted by a socety
or organzaton to permt the Inspecton of hstorca homes and gardens. Sub-
ecton (e) (2) grants an e empton from the admssons ta coverng admssons
to hstorc stes, houses, and shrnes, and museums conducted n connecton there-
wth, mantaned and operated by a socety or organzaton devoted to the
preservaton of such paces. To quafy for the e empton under the new sub-
secton (e) no part of the net earnngs of the socety or organzaton conductng
the home or garden tour program, or mantanng or opentng Rueh hstorc
stes, houses, and so forth, may nure to the beneft of any prvate stockhoder or
Indvdua.
S CTION 03. FF CTI D T OF M NDM NTS R L TING TO DMISSIONS
Ths secton Is the same as secton 03 of the ouse b and provdes that the
amendments made by sectons 01 and 0 2 sha appy to amounts pad on or after
the frst day of the frst month whch begns more than 10 days after the date
of the enactment of ths ct for admssons on or after such frst day.
CTION 0 . T ON C R TS, OOF G RD NS. TC.
Ths secton, whch s dentca wth secton 0 of the ouse b, amends
secton 1700(e)(1) of the Code to e empt from the cabaret ta bona fde dance
has, barooms, and other smar paces where the servng or seng of food,
refreshments, or merchandse s merey ncdenta to the musc and dancng prv-
eges furnshed uness the conduct of the pace s such as to brng t wthn the
norma concept of a roof garden, cabaret, or smar pace. Ths determnaton
w be made by reference to the over-a operaton of the estabshment, ncud-
ng such factors as the reatve ncome from the severa actvtes over a perod
of tme, the reatve porton of space devoted to the varous actvtes, the type
of refreshments served or sod, the scope and character of the entertanment
furnshed, and the hours of operaton.
The purpose of ths amendment s to make t cear that the prncpes set
forth by the dstrct court In the case of G cer v. rmngham ( S Fed. Supp.
1 9) are controng n the determnaton of whether the estabshment nvoved
s operatng as a cabaret or as a dance ha, and to avod the broad constructon
paced upon the statute In the case of vaon musement Corporaton v. Unted
States (1G Fed. (2d) t 3) and In the court of appeas decson reversng the
decson of the dstrct court n the Geer case ( rmngham v. Gcer, 1 Fed.
(2d) 2), whch requre that dance has and smar estabshments be ta ed as
cabarets, even though the servng or seng of food, refreshments, or merchan-
dse s merey ncdenta.
The amendment made by ths secton sha take effect at 10 a. m., on the frst
day of the frst month whch begns more than 10 days after the date of the
enactment of ths ct.
Pabt II Ta on Coabetteb
S CTION 21. T ON CIG R TT S
Subsecton (a) of ths secton as It passed the ouse amends secton 2000(c)
(2) of the Code (reatng to the ta on cgarettes) to Increase the rate of ta
wth respect to cgarettes weghng not more than 3 pounds per thousand from
3. 0 to per thousand. Tour commttee has amended ths secton to provde
that the Increased rate of ta sha be appcabe ony unt anuary 1, 19 , at
whch tme the rate of ta wth respect to such cgarettes w revert to 3. 0 per
thousand, the present rate of ta .
Subsecton (b) provdes that the ncrease n the rate of ta made by sub-
secton (a) sha take effect on the frst day of the frst month whch begns more
than 10 days after the date of enactment of ths ct.
S CTION 22. FLOOR STOC S T ND FLOOR STOC S R FUND ON CIG R TT S
s passed by the ouse, ths secton amends secton 2000 of the Code (reatng
to the ta on tobacco, etc.) by addng a new subsecton (f) whch mposes a
foor stocks ta equa to the ncrease n the ta made by secton 21(a) wth
respect to cgarettes weghng not more than 3 pounds per thousand whch are
hed for sae on the day the ncreased rate of ta on such cgarettes takes effect.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
Your commttee has retaned tha amendment but has added an addtona
subsecton (g) to secton 2000 of the Code. Ths added subsecton provdes
for a credt or refund (wthout nterest), on cgarettes weghng not more than
3 pounds per thousand whch on anuary 1, 19 , are hed and ntended for sae
or are n transt to the Unted States on whch ta has been pad, n an amount
equa to the dfference between the ta pad on such cgarettes (ncudng foor
stocks ta ) and the ta made appcabe to such cgarettes on anuary 1, 190 .
To be entted to credt or refund, such cgarettes must, on anuary 1, 19 . be
hed and ntended for sae; the person so hodng the cgarettes must, pror to
pr 1, 19 , fe cam for credt or refund; and he must aso make, keep, and
fe records as requred both before and after anuary 1, 19 (but not e tendng
beyond 1 year thereafter), and must estabsh to the satsfacton of the Secre-
tary, wth respect to cgarettes of the cass for whch credt or refund s camed
by hm under ths subsecton, that on and after anuary 1, 19 , and before
pr 1, 19 , the prce at whch cgarettes of such cass were sod (unt a num-
ber equa at east to the number on hand at the frst moment of anuary 1, 19 ,
were sod) refected, n such manner as the Secretary may by reguatons pre-
scrbe, the amount of the ta reducton. The Secretary w, under the regua-
tons, estabsh a system for makng credt or refund where the beneft of the
ta reducton s passed on to the consumer. The reguatons may prescrbe the
method of arrvng at the prce at whch such cgarettes were sod before the
ta reducton, and may aso prescrbe the method of ascertanng the reduced
prce refectng the ta reducton, f a credt or refund s to be aowed. Credt
or refund s not to be aowed under ths subsecton wth respect to the cgarettes
n respect to whch credt or refund s camed uness the requrements of the
subsecton and the reguatons are satsfed.
S CTION 23. R DUCTION OF T ON SNUFF ND C WING TO CCO
Ths secton, whch your commttee has added to the ouse b, amends secton
2000(a) of the Code, reatng to the ta on tobacco and snuff.
Subsecton (a) of ths secton amends e stng aw so as to change the rate
of ta on a snuff and chewng tobacco from 1 cents per pound to 10 cents per
pound, but retans the present ta rate of 1 cents per pound on a smokng
tobacco. Under ths amendment a ta of 10 cents per pound woud be mposed
on snuff of a descrptons, and on a chewng tobaccos.
Subsecton (b) provdes that the changes n the ta rates made by subsecton
(a) sha take effect on the frst day of the frst month whch begns more than
10 days after the date of the enactment of ths ct.
Part III Retaer s cse Ta es
S CTION 31. R T IL RS CIS T ON TOIL T PRF P R TIONS
Ths secton, whch s dentca wth secton 32 of the ouse b, amends
secton 2 02(a) of the Code (reatng to the ta on toet preparatons) by addng
at the end thereof a new sentence to e empt from the ta thereby mposed toet
artces ntended to be used or apped ony n the care of babes. The deter-
mnaton of whether toet artces are ntended to be used or apped ony n
the care of babes w be made ony by referenee to the advertsng wt respect
to, and the abeng contaned on, the artce. If an artce s advertsed and
abeed as beng for use n the care of babes and s not advertsed or abeed as
usabe ty persons other than babes the artce s e empt from ta even though
the partcuar purchaser buys t for adut use. On the other hand, an artce
whch s represented by advertsng or abeng as ft for adut use n addton
to use n the care of babes w not be e empt from ta even though sod to a
purchaser who ntends to use the artce ony n the care of babes.
Under e stng aw toet artces sod to a b auty paror, barber shop, or smar
estabshment for use n the operaton thereof nre ta abe when sod. rtces
sod to such estabshments for resae are not ta abe unt sod by them. Under
e stng procedures these estabshments must submt e empton certfcates to
tter vendors n order that toet artces may b3 purchased ta -free for resae.
rtces procured by such estabshments ta -free for resae and actuay used
n operaton of the pace are ta abe when frst set apart for such use. Under
the amendment made by secton 31(b) to secton 2 02(b) of the Code, toet
artces sod to such estabshments, for resae or for use n the operaton thereof,
are e empted from ta . The resae of toet artces at reta by such estabsh-
ments w contnue to be ta abe, as under present aw.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
S CTION 32. FF CTI D T OF P RT III
Ths secton, whch s the same as secton 33 of the ouse b, provdes
that the amendments made by part I (reatng to retaers e cse tu es)
sha appy ony to artces sod on or after the frst day of the frst month
whch begns more than 10 days after the date of enactment of ths ct.
Pakt I Lquor
S CTIONS 1, 2, ND 3. DISTILL D SPIRITS, WIN S, ND F RM NT D
M LT LI UORS
These sectons are the same as sectons 1, 2, and 3 of the ouse b,
e cept that provson s made for the emnaton of the proposed ncrease n
rates on and after anuary 1, 19 . These sectons ncrease the rates of ta
on dsted sprts, wnes, and fermented mat quors. The proposed ncreases
are as foows: Dsted sprts, from 9 to 10. 0 per proof gaon; st wnes
not over 1 percent acoho, from 1 to 17 cents per gaon; st wnes over 1
percent and not over 21 percent of acoho, from 60 to 67 cents per gaon;
st wnes over 21 percent and not over 2 percent of acoho, from 2 to 2.2
per gaon; sparkng wnes, from 1 to 17 cents per one-haf pnt; artfcay
carbonated wnes, from 10 to 12 cents per one-haf pnt; queurs, cordas, and
smar compounds contanng fortfed sweet wne or fortfed frut or berry
wnes, from 10 to 12 cents per one-haf pnt; fermented mat quors from
to 9 per barre. These sectons aso mpose equazng foor stocks ta es on
ta -pad dsted sprts and ta -pad wnes hed for sae or for use n the
manufacture of any artce ntended for sae on the date the ncreased rates
become effectve; and on a ta -pad fermented mat quors hed for sae on
the date the ncreased rate becomes effectve. Provsons smar to those
contaned n the Revenue ct of 19 3 are made for the fng of foor stocks ta
returns and for the payment of such ta . Secton 1 aso ncreases the rate of
ta on mported perfumes contanng dsted sprts from 9 to 10. 0 per
wne gaon.
S CTION . FLOOR STOC S R FUNDS
Ths secton deas wth refunds appcabe wth respect to acohoc quors
upon the termnaton of the ta rate ncreases proposed for these products In
the b. It amends secton 16 6 (a) and (b) of the Code. The ouse b dd
not provde for a termnaton date for the proposed rate ncreases and, accord-
ngy, made no provsons of refunds on the rate reducton date.
Secton 16 6 (a) and (b) of the Code, as amended by ths secton, covers
acohoc quors, ncudng dsted sprts, mported perfumes contanng ds-
ted sprts, wnes, ncudng queurs and cordas, and fermented mat quors.
It provdes for credt or refund (wthout nterest) of the e cess of the ta es
(ncudng foor stocks ta es) pad wth respect to such quors on account of
the hgher rates Imposed by ths b over the ta es that woud have been payabe
n the absence of the ncreased rates provded by ths b. To be entted to
credt or refund, the quor must, on anuary 1, 19 , be hed for sae or for
use n the manufacture or producton of an artce ntended for sae; the person
so hodng t must, pror to February 1, 19 , fe cam for credt or refund;
and he must aso make, keep, and fe records as requred, and must estabsh
to the satsfacton of the Secretary, wth respect to each knd of artce for
whch credt or refund s camed by hm under ths secton, that after December
31, 19 3, and before pr 1, 19 , the prce at whch artces of such knd were
sod (unt a number equa at east to the number on hand on anuary 1, 19 ,
were sod) refected, n such manner as the Secretary may by reguatons pre-
scrbe, the amount of the ta reducton. Under ths secton the Secretary
w be authorzed, under reguatons, to estabsh a system for makng credt
or refund where the beneft of the ta reducton s passed on to the consumer.
The reguatons may prescrbe the method of arrvng at the prce at whch the
artce was sod before the ta reducton. The reguatons may aso prescrbe
the method of ascertanng the reduced prce refectng the ta reducton, f
a credt or refund s to be aowed.
S CTION . CL RIC L M NDM NT
Ths secton s the same as secton of the ouse b. The secton amends
secton 10 0 (reatng to war ta rates on certan msceaneous ta es) by
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
96
strkng out the provsons thereof reatng to dsted sprts, mported per-
fumes contanng dsted sprts, wnes, and fermented mat quors.
S CTION 0. FF CTI D T OF P RT I
Ths secton s the same as secton 3 of the ouse b. The secton pro-
vdes that the amendments made by ths part sha take effect on the frst day
of the frst month whch begns more than 10 days after the date of enactment
of ths ct.
Pact Occupatona Ta es
S CTION 1. OCCUP TION L T S O D L RS IN LI UORS
Ths secton ncreases the rates of occupatona ta es on whoesae deaers
n quors, reta deaers n quors, and whoesae deaers n mat quors. The
proposed ncreases are as foows: Whoesae deaers n quors, from . 110 to
200; reta deaers n quors, from 27. 0 to 0; and whoesae deaers n mat
quors, from to 100. The secton s the same as secton G1 of the ouse
b, e cept that provson s made for the emnaton of the proposed ncrease
n rate on and after uy 1, 19 .
S CTION 2. DR W- C IN T C P OF DISTILL D SPIRITS US D IN T
M NUF CTUR OF C RT IN NON G PRODUCTS
bs secton corresponds to secton 02 of the ouse b. The secton ha ,
however, been redrafted to accompsh ts ob|ectve by amendng ony secton
32 0(1) (0) of the Code and to provde for reducton of the amount of draw-back
after December 31, 19 3, to correspond wth the proposed reducton n the rate
of ta on dsted sprts on and after anuary 1, 19 . Subparagraph ( ) ( )
provdes for payment of draw-back at the rate of 0 per proof gaon wth re-
spect to dsted sprts ta -pad at the rate of 9 per proof gaon pror to the
effectve date of secton 2. Subparagraph ( ) ( ) provdes for payment of
draw-back at the rate of 9. 0 per proof gaon wth respect to dsted sprts
ta -pad at the rate of 10. 0 per proof gaon on and after the effectve date
of secton 2. Subparagraph ( ) (C) provdes for payment of draw-back at
the rate of per proof gaon wth respect to dsted sprts ta -pad at the
rate of 9 p3r proof gaon after December 31, 1933.
The amendment sha be appcabe ony wth respect to dsted sprts used
on or after the frst day of the frst month whch begns more than 10 days
after the date of enactment of ths ct.
S CTION 03. T ON COIN OP R T D G MING D IC S
Ths secton, whch s the same as secton 63 of the ouse b, amends secton
3267(a) of the Interna Itevenue Code to ncrease the present rate of the speca
(occupatona) ta thereby mposed wth respect to con-operated gamng devces
from 1 0 to 230 per year.
S CTION . FF CTI D T OF P RT
Ths secton s substantay the same as secton 0 of the ouse b, and
provdes that the amendments made by sectons 1 and 3 sha take effect
on the frst day of the frst mouth whch begns more than 10 days after the
date of the enactment of ths ct. In be case of the year begnnng uy 1,
19 1, where the trade or busness on whch the occupatona ta s mposed was
commenced pror to the frst day of the month specfed n the precedng sen-
tence, . e., the mouth whch begns more than 10 days after the date of the
enactment of ths ct, the ncrease n the ta resutng from the amendments
made by sectons 1 and 3 sha be reckoned proportonatey from the frst
day of such frst month to and ncudng the 30th day of une foowng and
sha be due on, and sha be payabe on or before, the ast day of such specfed
month.
Tart I Wagekno
S CTION G1. W G RING T S
Ths secton s dentca wth secton 71 of the ouse b. It adds to the
Interna Revenue Code a new chapter entted Chapter 27 Wagerng Ta es,
whch mposes on wafers a ta equa to 10 percent of the amount thereof, and
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
97
a speca (occupatona) ta of . 0 per year on each person who Is abe for
the ta on wagers or who Is engaged In recevng wagers for or on ehaf of
any person so abe. For a detaed dscusson of these new ta es, see the e -
panaton begnnng on page 3 of the frst part of ths report.
S CTION 02. FF CTI D T OF P RT I
Ths secton, whch Is the same as secton 72 of the ouse b, provdes that
the ta mposed on wagers by subchapter of chapter 27 of the Interna Rev-
enue Code, as added by secton (11, sha appy ony wth respect to wagers
paced on or after the frst day of the frst month whch begns more than 10
days after the date of enactment of ths ct. The secton further provdes
that the occupatona ta mposed by subchapter of chapter 27 of the Code,
a added by secton 01, sha not be payabe wth respect to any perod pror
to the frst month whch begns more than 10 days after the date of enactment
of ths ct. It s aso provded that n the case of any person who Is abe for
ta under subchapter of chapter 27 , or who s engaged n recevng wagers
for or on behaf of any person so abe, an who commenced the actvty whch
makes hm sub|ect to such ta , or who was engaged n recevng such wagers,
pror to the frst day of the frst month specfed n the precedng sentence, . e.,
the month whch begns more than 10 days after the enactment of the ct, the
ta under subchapter of chapter 27 sha be rockone proportonatey from
the frst day of such month to and ncudng the 30th day of une foowng and
sha be due on, and payabe on or before, the ast day of such specfed month.
Tart II Manufacturers cse Ta es
S CTION 171. UTOMO IL S, TRUC S, ND P RTS OR CC SSORI S
Ths secton Is smar to secton 1 of the ouse b wth the e cepton that
your commttee has amended subsectons (a), (b), and (c) thereof to provde
that the Increases n rates of ta made by the ouse b sha be appcabe ony
unt anuary 1. 10 , at whch tme the rates of ta now n effect under secton
3 03 of the Code w be appcabe. so, your commttee has emnated the
ta upon house traers and parts and accessores sod on or n connecton
therewth. Under the ouse b the present 7 percent ta upon such tems
woud be contnued.
Subsectons (a) and (b) of ths secton respectvey amend secton 3 03(a)
of the Code to ncrease the manufacturers e cse ta from to percent on
automobe trucks and other Items ncuded n secton 3 03(a), and on passen-
ger automobes and a tems now ncuded n secton 3 0.3(h) from 7 to 10 per-
cent, e cept chasss and bodes for house traers (ncudng parts or accessores
therefor sod on or In connecton therewth or wth the sae thereof), whch
w be e empt from ta .
Subsecton (c) amends secton 3 03(c) of the Code to ncrease the ta on
parts or accessores for any of the artces enumerated n secton 3 03 (a) and
(b) of the Code from to percent.
Subsecton (d) adds a new sentence at the end of such secton 3-103(c) to
provde th;t n determnng the sae prce of a rebut automobe part or ac-
cessory, there sha be e cuded from the prce, In accordance wth regua-
tons prescrbed by the Secretary, the vaue of a ke part or accessory ac-
cepted n e change.
Subsecton (e) s a technca amendment of secton 3 03(e) to provde rates
of credt aowabe to manufacturers for ta -pad tres, nner tubes, or auto-
mobe rado or teevson recevng sets used n the manufacture of automobes,
etc., equa to the rates of ta mposed on automobes, etc.
Subsecton (f) amends secton 3 3(a)(3)( ) by addng a new cause (v)
to provde a credt or refund to a manufacturer of automobe parts or acces-
sores when a part or accessory (other than spark pugs, storage batteres,
eaf sprngs, ces, tmers, and tre chans) s resod for use as a repacement
part for farm equpment. I nder e stng procedure a farm equpment manufac-
turer may buy for use as component parts of such equpment, parts or accessores
prmary desgned for automotve use (other than spark pugs, storage batteres,
eaf sprngs, cos, tmers, and tre chans) under a certfcate of ntent to use
them as orgna equpment, but may not buy automobe parts or accessores
ta -free for resae for repar or repacement purposes on nonta abe artces.
Thus, under the amendment a credt or refund s aowabe wth respect to those
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
9
parts or accessores whch under e stng aw and procedures may be sod ta -
free to the manufacturer of the orgna nonta abe equpment
The credt or refund may not be aowed under secton 3 3(a) (3) ( ) (v)
wth respect to spark pugs, storage batteres, eaf sprngs, cos, tmers, and
tre chans or wth respect to any part or accessory ta abe under secton 3 03(c)
resod for use as repar or repacement parts for any of the artces ta abe
under secton 3 03 (a) and (b) of the Code.
Subsecton (g) provdes that the amendment made by subsecton (f) sha be
effectve wth respect to artces purchased by the user thereof on or after the frst
day of the frst month whch begns more than 10 days after the date of the
enactment of ths ct.
Subsecton (h) of ths secton amends secton 3 00(a) of the Cede to e empt
from the ta thereby mposed on tres those of a-rubber constructon wthout
fabrc or meta renforcement, whether hoow center or sod, f they are not
more than 20 nches n dameter and not more than 1 nches n cross secton,
and those of e truded trng wth nterna wre-fastenng agent.
S CTION 72. N IG TION R C I RS SOLD TO T UNIT D ST T S
Ths secton, whch s substantay the same as secton 2 of the ouse b,
deas wth communcaton, detecton, or navgaton recevers of the type used
In commerca, mtary, or marne nstaatons hereafter n ths paragraph
referred to as navgaton recevers. Subsecton (a) amends secton 3 0 (a) of
the Code to e empt from the ta thereby mposed on rado and teevson recevng
sets, etc., the sae of navgaton recevers to the Unted States for ts e cusve use.
Subsecton (b) amends secton 3 0 (b) of the Code to e empt from the ta
thereby mposed on component parts of rado and teevson recevng sets, etc.,
the sae of any artce for use by the vendee as matera n the manufacture or
producton of, or as a component part of, navgaton recevers to be sod by
hm to the Unted States for ts e cusve use. Subsecton (c) amends secton
3 3(a)(1) of the Code to aow a manufacturer or producer of navgaton
recevers a credt or refund of ta pad on artces ta abe under secton
3 0 (b) purchased for use by hm n the manufacture or producton of, or as a
component part of, navgaton recevers f such navgaton recevers have been
sod by hm to the Unted States for ts e cusve use. Subsecton (d) amends
secton 3 3(a) (3) ( ) of the Code to aow a credt or refund to a manufac-
turer, producer, or mporter of navgaton recevers n the amount of ta pad
by hm wth respect to the sae thereof f he has n hs possesson such evdence
as reguatons may requre that such navgaton recevers have been resod to
the Unted States for ts e cusve use. Subsecton (e) amends secton 3 (b)
of the Code to e empt from the ta thereby mposed on the use of ta abe
artces by the manufacturer, producer, or mporter thereof, artces -ta abe
under secton 3 0 (b) used n the manufacture or producton of. or as com-
ponent pnrt of, navgaton recevers sod to the Unted States for ts e cusve
use. Subsecton (f) specfes the varous effectve dates of the amendments
made by the foregong subsectons.
S CTION 73. T -FR S L S OF R FRIG R TOR COMPON NTS TO W OL -
S L RS FOR R S L TO M NUF CTUR RS
Ths secton, whch does not appear n the ouse b, amends secton 310 (b)
of the Code to provde for the ta -free sne of refrgerator components (. e.,
cnbnets, compressors, condensers, condensng unts, evaporators, e panson unts,
absorbers, and contros) by the manufacturer thereof to a whoesaer or deaer
for resae to a manufacturer of compete refrgerators, refrgeratng or coong
apparatus, or quck-freeze unts (herenafter referred to as refrgeratng equp-
ment ), f such components are n due course so resod. The preseut aw permts
the ta -free sae of refrgerator components by the manufacturer thereof to a
whoesaer or deaer for resae to a manufacturer of ta abe refrgeratng equp-
ment. owever, such ta -free saes of components to whoesaers for resae to
manufacturers of refrgeratng equpment may not be made, under present aw,
f the refrgeratng equpment n whch the components are used s nonta abe.
On the other hand, refrgerator components may be sod ta -free by the manu-
facturer thereof drect to a manufacturer of refrgeratng equpment whether or
not such refrgeratng equpment s ta abe.
Under the amendment proposed by your commttee, soes of refr|rerator
components may be made ta -free to whoesaers and deaers for resae to nauu-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
99
facturers of refrgeratng equpment whether or not such refrgeratng equp-
ment s ta abe.
Wth respect to ta -free saes of refrgerator components to a whoesaer or
deaer under the amendment, the present admnstratve reguatons reatng
to the ta -free sae of artces for further manufacture of ta abe artces w be
appcabe. Under these admnstratve reguatons, n the case of a sae of
refrgerator components by a manufacturer thereof to a whoesaer or deaer for
resae to a manufacturer of refrgeratng equpment, the ta abty of the
manufacturer of the refrgerator components w be suspended for a perod
of 2 months pendng submsson by the whoesaer or deaer to the manufacturer
of satsfactory evdence that the components purchased by hm ta -free were,
n fact, resod to a manufacturer of refrgeratng equpment. If the requred
evdence s not receved wthn the 2-month perod, the temporary suspenson
of abty w cease and the manufacturer of the components sod ta -free w
become abe for the ta on such components. If the requred evdence s
furnshed to the manufacturer of the components after the 2-month perod has
eapsed, a credt or refund s to be aowed wth respect to any ta prevousy
pad by the manufacturer on those components orgnay sod ta -free, but
upon whch ta was pad at a ater date by reason of the termnaton of the
temporary suspenson of ta abty.
S CTION 7 . SPORTING GOODS
Ths secton corresponds to secton 3 of the ouse b. s t passed the
ouse secton 3 amended secton 3 06(a) (1) of the Interna Revenue Code to
e cude from the ta on sportng goods the foowng named tems:
asketbas
o ng goves and other bo ng equpment
Crcket bas and bats
Fencng equpment
Footbas and other footba equpment
Gymnasum equpment and apparatus
ockey equpment
Indoor basebas and other ndoor-baseba equpment
Lacrosse equpment
Mass bas
Pushbas
Skates
Snow toboggans and seds
Soccer bas
Softbas and other softba equpment
Track hurdes
autng equpment
oeybas and other voeyba equpment
Water-two equpment
Wrestng head-harness
On the tems not so e cuded, the ta was rased from 10 percent to 1 percent
under the ouse b.
Your commttee has revsed the ta abe st of sportng goods to e cude from
ta basebas, baseba bats, baseba body protectors and shn guards, baseba
goves and mtts, and baseba masks. owever, your commttee has renstated
as ta abe sportng goods the foowng tems whch were e cuded from ta
under the ouse b: Crcket bas and bats, acrosse equpment, skates, and
snow toboggans and seds. Moreover, your commttee has provded that the
ta on fshng equpment sha reman at the present rate of 10 percent.
S CTION 7 . L CTRIC, G S, ND OIL PPLI NC S
Ths secton s smar to secton of the ouse b. s passed by the
ouse, secton amends secton 3 06(a)(3) of the Code (reatng to manu-
facturers e cse ta on eectrc, gas, and o appances) (1) to ncude n the st
of artces sub|ect to the ta at the rate of 10 percent eectrc sheets and spreads,
and the foowng appances of the househod type: ectrc bet-drven fans;
eectrc or gas cothes drers; eectrc door chmes; eectrc dehumdfers; eectrc
dshwashers; eectrc foor poshers and wa ers; eectrc food choppers and
grnders; eectrc hedge trmmers; eectrc ce-cream freezers; eectrc manges;
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
GOO
eectrc moton- or st-pcture pro|ectors; eectrc pants pressers; eectrc
shavers; and power awn mowers; and (2) to remove eectrc heatng pads from
the appcaton of such ta . Your commttee has retaned these amendments,
e cept for the ncuson of eectrc shavers n the st of ta ahe artces, and has
added thereto the foowng; househod appances: ectrc e haust bowers;
eectrc vacuum ceaners; eectrc washng machnes; and eectrc garbage-ds-
posa unts. In addton, your commttee has deeted from the ta abe st eectrc
drect motor-drven fans of the ndustra type and eectrc ar heaters of the
bower type, whether or not desgned for househod use.
Subsecton (b) of ths secton (whch dd not appear n the ouse b) amends
secton 3 1(b) of the Code (reatng to sae prce of a ta abe artce) to make
the provsons of such secton appcabe to a stuaton where a ta abe artce
s sod at reta under an arrangement whereby the manufacturer negotates the
sae on behaf of the retaer. In such a case the ta sha be computed on the
prce for whch such artces are sod, n the ordnary course of trade, by manu-
facturers or producers thereof, as determned by the Commssoner. Ths amend-
ment to secton 3 1(b) s to be appcabe ony n those cases where t s
estabshed that the manufacturer has a bona fe pan or method of actuay
performng substantay a saes negotatons wth the consumer, through the
efforts of a seng staff traned and drected by the manufacturer.
S CTION 70. P OTOGR P IC PP R TUS
Ts secton corresponds to secton S of the ouse b. s passed by the
ouse, secton amends secton 3 00(a) ( ) of the Code to e cude from the
appcaton of the ta certan photographc apparatus and fm generay used
by commerca enterprses and to sub|ect the remanng tems to a unform ta
rate of 20 percent. Provson s aso made n the ouse b for a foor-stocks
refund or credt wth respect to photographc bubs hed for sae on the effectve
date of the emnaton of the ta on such bubs.
In eu of the provsons of the ouse b, your commttee has amended secton
3 00(a) ( ) so that a unform ta rate of 1 percent w appy to a photographc
tems sub|ect to ta at the present tme. Moreover, your commttee has added to
ths secton of the Code a provson whereby the amount of ta on a sae of une -
posed 3 -mmeter coor postve prnt moton-pcture fm sha be computed,
n en of, on the prce for whch so sod, on the prce for whch an equvaent
quantty of une posed 3 -mmeter back-and-whte postve prnt moton-pcture
fm s sod, n the ordnary course of trade, by manufacturers or producers
thereof, as determned by the Secretary.
S CTION 77. T ON P NCILS, FOUNT IN ND LLPOINT P NS, ND
M C NIC L LIG T RS FOR CIG R TT S, CIG RS, ND PIP S
Ths secton corresponds to secton SG of the ouse b, whch amends chapter
29 of the Code (reatng to manufacturers e cse and mport ta es) by addng a
new secton whch provdes under subsecton (a) thereof for the mposton of a
ta of 20 percent on the sae by the manufacturer, producer, or mporter of
mechanca pencs, fountan pens, and ba-pont pens. Subsecton (b) of secton
0 of the ouse b provdes for an e empton from the manufacturers e cse
tn under ths new secton f any of the foregong artces are sub|ect to the 20
percent retaers e cse ta on |ewery under secton 2 00 of the Code.
Your commttee has retaned ths amendment, but has provded for a ta rate
of 10 percent nstead of 20 percent under the ouse b, and has ncuded n the
ta base mechanca ghters tor cgarettes, cgars, and ppes. These atter art-
ces, under secton 31 of the ouse b, were ncuded n the st of artces sub-
|ect to the 20 percent retaers e cse ta under secton 2 00 of the Code (reatng
to |ewery, etc.).
In order to prevent the pyramdng of ta es, your commttee has provded that
where a pen, penc, or ghter s sod and a tn of 10 percent s pad under ths
secton and such pen, penc, or ghter s thereafter decorated, pated, or orna-
mented so as to be sub|ect to the 20 percent |ewery ta when sod at reta, the
retaer sha, n the computaton of hs ta abty, be entted to a credt or
refund n an amount equa to the ta pad under ths secton.
S CTION 7 . R r L OF T ON L CTRIC L N RGY
Ths secton s substantay the same as secton S7 of the ouse b. Sub-
secton (a) repeas secton 3 11 of the Code (reatng to the ta on eectrca
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
601
energy for domestc or commerca consumpton) and certan reated sectons
n the nature of cross-references, namey, sectons 3 1(d) and 3 7(c).
Subsecton (b) provdes n paragraph (1) that e cept as provded n para-
graph (2), such repea sha appy to eectrca energy sod on or after the frst
ay of the frst mouth whch begns more than 10 (ays after the date of the
enactment of ths ct, and n paragraph (2) that u the case of a sae of eectr-
ca energy whch a bed to the customer for a perod begnnng before such
effectve date and endng on or nfter such effectve date, the provsons of sub-
secton (a) sha appy ony to that porton of the amount bed for the eectrca
nergy sod durng the entre perod whch the number of days n such perod
egnnng wth the effectve date bears to the tota number of days n such entre
erod. Ths secton sha not appy to eectrca energy sod before such effectve
ute for whch a h was rendered pror thereto.
S CTION 73. T ON G SOLIN
Subsecton (a) of ths secton amends secton 3 12(a) of the Code to ncrease
he ta on gasone from /fc cents to 2 cents a gaon. Subsecton (b) adds a new
subsecton (f) to secton 3 12 of the Code to mpose a foor-stocks ta on gasone
sub|ect to ta under such secton whch, on the effectve date of the ncrease
t ta , s hed or ntended for sae, at the rate of one-haf cent per gaon. It
s provded that such foor-stocks ta sha not appy to gasone n reta stocks
cd at the pace where ntended to be sod at reta or to gasone hed for sae
y a producer or mporter of gasone. These provsons correspond to secton
tv.s of the ouse b.
Your commttee, however, has amended the provsons of the ouse b to pro-
vde under subsecton (a) that the ncrease n rate of ta to 2 cents sha be
ppcahe ony unt anuary 1, 19 , at whch tme the rate of ta wth respect
o gasone w revert to 1 cents per gaon, the present rate of ta . In add-
on, your commttee has, n subsecton (b), added a new subsecton (g) to secton
12 of the Code. Ths added subsecton provdes for n credt or refund (wthout
nterest) to the producer or mporter n an amount equa to so much of the df-
erence between the ta pad on such gasone and the amount of ta made app-
cabe to such gasone on and after anuary 1, 193 , as has been pad by such
roducer or mporter to the person hodng snch gasone for sae as renburse-
nent for the ta reducton on such gasone. owever, no credt or refund sha
aowabe wth respect to gasone In reta stocks hed at the pace where n-
ended to be sod at reta nor wth respect to gasone hed for sae by a producer
r mporter of gasone. To be entted to a credt or refund, the producer or
mporter must te cam wth the Secretary pror to pr 1, 19 , and estabsh
hat he has n hs possesson satsfactory evdence of the nventores wth respect
o whch he has made rembursement to persons hodng such gasone on anuary
1, 19 . e must aso estabsh to the satsfacton of the Secretary that wth
espsct to the quantty of gasone for whch credt or refund s cnmed that on
nd after anuary 1, 19 , such quantty of gasone was sod to the utmate
onsur.cr thereof at a prce whch refected the amount of the ta reducton.
Ths atter provson s ncorporated nto subsecton (g) of secton 3 12 n order
o prevent any person seng the gasone for whch refund s camed from beng
n|usty enrched by havng receved rembursement from the producer and aso
eeevng from consumers a prce for such gasone whch represented the ta
t the rate of 2 cents a gaon.
S CTION 0. FF CTI D T OF P RT II
Ths secton provdes that, e cept as otherwse provded n part II, the amend-
nents made by such part sha take effect on the frst day of the frst month whch
ogns more than 10 days after the date of enactment of ths ct.
Part III. Msceaneous cse Ta mendments
S CTION 1. R DUCTION OF T ON T L GR Pn DISr TCII S
Ths secton corresponds to secton 91 of the ouse b. s t passed the
ouse, secton 91(a) reduced the ta mposed by secton 3 0 (a)(1)( ) of
e Code on domestc teegraph, cabe, or rado dspatches or messages from
percent to 20 percent.
Your commttee s amendment further reduces the ta on domestc teegraph,
abe, or rado dspatches or messages to 1 percent.
0 016 2 39
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G02
Subsecton (b) f es the tme when the amendment made by subsecton (a)
shn take effect n reaton to the rate-reducton date , whch Is dettned n
subsecton (d) as the frst day of the month whch begns more than 10 days
after the date of enactment of ths ct. Pursuant to subsecton (b) the amend-
ment appes wth respect to amounts pad on or after the rate-reducton date
for servces rendered on or after such date. Subsecton (c) provdes that the
amendment does not appy wth respect to amounts pad pursuant to bs ren-
dered pror to the rate-reducton date. The amendment appes wth res ect
to amounts pad pursuant to bs rendered on or after the rate-reducton date
for servces for whch no prevous b was rendered, e cept wth respect to such
servces as were rendered more than 2 mouths before such date. Servces ren-
dered more than 2 months before such date nre governed by the provsons of
sectons 16 0 and 3 0 of the Code n effect at the tme such servces were
rendered.
S CTION 2. MPTION OF C RT IN O RS S T L P ON C LLS FROM
T T ON T L P ON F CILITI S
Ths secton, whch does not appear n the ouse b, amends secton 3 GG of
the Code, reatng to e emptons from the ta mposed upon teegraph, teephone,
rado messages, and so forth. Subsecton (a) provdes for the redesgnat e n
of subsecton (c) of secton 3 06 as subsec ton (d) and for the nserton of a
new subsecton (c) after subsecton (b). The new subsecton provdes that
no ta sha be Imposed under secton 3 6 (a) (1) ( ) upon any payment receved
for any teephone or rado teephone message whch orgnates wthn a conmt
zone as defned n secton 22(b) (13) from a member of the rmed Forces of th
Unted States performng servces n such combat zone as determned under such
secton. To obtan the e empton, the person makng payment for the teephone
or rado teephone message w be requred to furnsh a certfcate to the person
recevng such payment contanng such facts reatng to the teephone or rado
teephone message as the Secretary may by reguatons prescrbe.
Subsecton (b) provdes that the amendment ade by subsecton (a) sha
appy to amounts pad on or after the frst day of the frst month whch begns
more than 10 days after the date of enactment of ths ct for teephone or rado
teephone messnges made on or after such date.
S CTION S3. MPTION OF FIS ING TRIPS FROM T t O TR NSPORT TION
Ths secton Is the same as secton 02 of the ouse b. Subsecton (a) of
ths secton amends secton 3 6 )(b) of the Interna Revenue Code to add to the
e empton from the ta on the transportaton of persons thereby granted, an
addtona e empton coverng amounts pad for transportaton by boat for the
purpose of fshng from such boat.
Subsecton (b) provdes that the amendment made by subsecton (a) sha
appy to amounts pad on or after the frst day of the frst month whch begns
more than 10 days after the date of the enactment of ths ct for transportaton
on or after such frst day.
S CTION . T ON TR NSPORT TION OF P RSONS
Ths secton, whch does not appear n the ouse b, amends secton 3 60(a)
of the Code (reatng to ta on transportaton of kmsohs). Subsecton (a) pro-
vdes that n the case of transportaton by water on a vesse whch makes one
or more ntermedate stops at ports wthn the Unted States. Canada, or Me co
on a voyage between the Unted States and a port outsde the northern porton
of the Western emsphere, the payment for the transportaton etween the
Intermedate stop and the port n the Unted States, where the transportaton
begns or ends, w not be sub|ect to the transportaton ta , f the vesse n
stoppng at any such ntermedate port s not authorzed both to dscharge and
to take on passengers. It s aso provded that a port or staton wthn New-
foundand sha not be consdered ns a port or staton wthn Canada u appyng
the foregong test.
ampe 1. purchases a steamshp tcket In New York Cty for transporta-
ton from New York Cty to Southampton, ngand. The vesse on whch sas
makes an ntermedate stop durng the course of such voyage at oston, Mass..
to take on passengers. The vesse s not, however, authorzed to dscharge pas-
sengers at such port. No ta appes to the porton of the transportaton between
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
003
New York Cty and oston, snce s voyage nvoved transportaton between a
port wthn the Unted States and a port outsde the northern porton of the
Western emsphere and the vesse on whch traveed was not authorzed
both to dscharge and to take on passengers at the ntermedate port at whch
t stopped.
ampe II. purchases a steamshp tcket n San Francsco for a voyage
from San Francsco to Mana. The vesse on whch he traves makes a stop at
onouu, T. ., to dscharge passengers. The vesse s not, however, authorzed
to take on passengers n onouu. No ta sha appy to that porton of the
transportaton between San Francsco and onouu, snce s voyage nvoved
trave from a port wthn the Unted States to a port outsde the northern porton
of the Western emsphere and the vesse on whch he traveed was not author-
zed to both dscharge and to take on passengers at onouu, the ntermedate
pont at whch t stopped.
The purchase of a round-trp tcket n ether of the above e ampes woud not
change the resut snce (athough the transportaton covered by the tcket may
begn and end wthn the Unted States) the return trp consttutes a separate
voyage.
Subsecton (b) provdes that the amendment made by subsecton (a) sha
appy to amounts pad on or after the frst day of the frst month whch begns
more than 10 days after the date of the enactment of ths ct for transportaton
on or after such frst day.
S CTION S . TR NSPORT TION OF M T RI L C T D IN T COURS OF
CONSTRUCTION WOR .
Ths secton, whch does not appear n the ouse b, amends secton 3 7 of
the Code (reatng to ta on transportaton of property). Subsecton (a) pro-
vdes that the ta mposed on the transportaton of property sha not appy to
the transportaton of earth, rock, or other matera e cavated wthn the bound-
ares of, and n the course of, a constructon pro|ect and transported to any
pace wthn, or ad|acent to, the boundares of such pro|ect.
To come wthn the e empton two tests must be met: (1) The property must
be earth, rock, or other matera e cavated wthn the boundares of, and n the
course of, a constructon pro|ect, and (2) the transportaton of the e cavated
matera must be wthn the boundares of the constructon pro|ect or to a pace
ad|acent thereto.
In determnng the area of a constructon pro|ect, due regard w be gven the
type of constructon operaton whch s nvoved and the area whch s requred
to perform and carry out the necessary work. For e ampe, n the case of a
road-budng operaton, the boundares of the pro|ect woud embrace the area
covered by the ength and wdth of the roadway, pus any ad|onng rght-of-way.
In the case of the constructon of an arport, the boundares woud ncude the
outermost mts of the arport.
The amendment made by ths secton sha appy to amounts pad on or after
the frst day of the frst month whch begns more than 10 days after the date
of the enactment of ths ct for transportaton on or after such frst day.
S CTION 0. RTICL S FROM FOR IGN-TR D ZON S
Ths secton s the same as secton 9 of the ouse b. The secton w pre-
vent the recept n customs terrtory of the Unted States of the artces specfed
n Code sectons 2000(c)(2) (cgarettes), 2S00(a) (dsted sprts), 3030(a)
(wnes), and 31 0(a) (fermented mat quors) whch were n foregn-trade
zones when the ncrease n the ta on such artces became effectve by ths ct,
unt there s coected the fu amount of a ta es whch woud have been m-
posed upon such artces f they had been sub|ected to ta n customs terrtory
of the Unted States on such effectve date.
Subsecton (a) provdes that wth respect to such artces on whch the n-
terna revenue ta es have been determned, pursuant to secton 3 of the ct of
une 1 , 193 , as amended by the ct of une 17, 19 0 (19 U. S. C. Sc), pror
to the effectve date of the rates of ta mposed on such artces by the b, whch
on or after such date are brought from foregn-trade zones nto customs terrtory
of the Unted States, there sha be eved, assessed, coected, and pad on such
artces, n addton to the ta so determned, an addtona ta at rates equa
to the ncreases n rates of ta made appcabe to such artces by ths ct.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G0
Under the frst provso of secton 3 of the ct of nne 1 , 193 , as amended,
the coector of customs now has authorty, upon request, to take under super-
vson any ot or part of a ot of foregn merchandse n a foregn-trade zone and
cause t to be apprased and ta es determned and dutes qudated thereon. It
may thereafter be sent Into customs terrtory upon the payment of snch qu-
dated dutes and determned ta es. Inasmuch as such provso authorses a
fndng of ta es and dutes ony once and a fndng once made woud thereafter
govern the dutabe and ta abe status of the foregn merchandse whenever t
was sent nto customs terrtory, t Is necessary to provde affrmatvey for the
evy, assessment, coecton, and payment (In addton to the ta determned
pror to the effectve date of the rate of ta mposed on the named artces) of
the addtona ta at rates equa to the ncreases n rates of ta made appcabe
to such artces by secton S0(a) of the b.
It s further provded that wth respect to such mported artces, the ta
mposed by secton 6(a) sha be coected, pnd, and accounted for at the
same tme and In the same manner as the ta on such artces s coected, pad,
and accounted for when brought from the foregn-trade zone Into the customs
terrtory.
Under the second provso of secton 3 of the ct of une 1 , 103 , as amended,
certan artces may be taken Into a foregn-trade zone from customs terrtory
and may thereafter be brought back to customs terrtory free of duty and ta .
Wth respect to cgarettes, dsted sprts, wnes, and fermented quors whch
were taken Into such zone pursuant to such second provso pror to the effectve
date of the rates of ta Imposed on such artces by ths b, subsecton (b) of
secton 0 provdes that when, after such effectve date, they are returned
(wthout oss of dentty) from such foregn-trade zones to customs terrtory,
there sha be eved, assessed, coected, and pad on such artces an addtona
ta at rates equa to the ncreases made by the b n rates of ta appcabe to
such artces and that the addtona ta so mposed sha be coected, pad,
and accounted for at the same tme and In the same manner as f such artces
had been taken nto the foregn-trade zone free of ta .
S CTION 7. R FUNDS ON RTICL S FROM FOR IGN TR D ZON S
Ths secton makes provson for refunds wth respect to certan cgarettes
and acohoc quors brought from foregn-trade zones nto customs terrtory
of the Unted States on and after anuary 1, 11) .
Secton 7(a) covers cgarettes and acohoc quors. Incudng dsted
sprts, mported perfumes contanng dsted sprts, wnes, Incudng queurs
and cordas, and fermented mat quors. It provdes for refund or credt
(wthout nterest) of the e cess of the ta determned pursuant to secton 3 of
the ct of une 1 , 193 , as amended (19 U. S. C. 1c), pror to anuary 1,
19 , and pad on and after such date upon brngng the artce from the foregn-
trade zone nto customs terrtory, over the ta that woud have been payabe
n the absence of the ncreased rates provded by ths b. To be entted to
refund or credt cam must be fed wthn 30 days after payment of the ta .
Secton 7(b) covers the same artces named n secton 7(a) on whch
the nterna revenue ta (ncudng foor stocks ta ) has been pad at the
appcabe rate and whch are taken nto a foregn-trade zone from customs
terrtory of the Unted States and paced under supervson of the coector of
customs pursuant to the second provso of secton 3 of the ct of une 1 , 193 .
as amended (19 U. S. C. 1c), pror to anuary 1, 19 , and whch on and after
such date are (wthout oss of Identty) returned to customs terrtory of the
Unted States. Ths secton provdes for a refund or credt (wthout nterest)
equa to the dfference between the ta so pad and the amount appcabe to
such artces on and after anuary 1, 19 . To he entted to refund or credt
cam must be fed wthn 30 days after the return of such artce to customs
terrtory.
TITL C SS TROF1TS T
S CTION 01. M IMUM T FOR N W CORPOR TIONS
Ths secton, for whch there Is no correspondng provson In the b as It
passed the ouse, amends secton 30 of the Code (reatng to Imposton of
e cess profts ta ) to provde for an aternatve ma mum rate of e cess profts
ta , wth respect to the frst 00,000 of e cess profts net Income of a new cor-
poraton, for the ta abe year In whch t commences busness and the four sue-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
eoo
ceedng ta abe years. Ts aternatve rate, whch w generay be ower
than the ma mum rate appcabe to corporatons generay, s provded n a new
.subsecton (e) (1) of secton 30. Under ths new subsecton, the e cess prots
ta of a new corporaton durng ts frst fve ta abe years commencng wth
ts commencement of busness w not e ceed the sum of the foowng:
(1) specfed percentage of ts frst -100,000 of e cess profts net ncome
for the ta abe year ( percent for the ta abe year n whch t commenced
busness and for the frst succeedng ta abe year, percent for the second
succeedng ta abe year, 11 percent for the thrd succeedng ta abe year,
and 1 percent for the fourth succeedng ta abe year; and
(2) specfc percentage of t cess profts net ncome n e cess of
00,000 for the ta abe year (13 percent of such e cess f the ta abe year
ends before pr 1, 10 1, 16 percent of such e cess f the ta abe year s
the caendar year 10 1, and 17 percent of such e cess f the ta abe year s
a year (other than the caendar year 19 1) whch ends after March 31, 19 1).
The amount computed under ths formua w be the ma mum e cess profts
ta of such corporaton f ess than the amount computed under secton
30(a) (2) of the Code.
Subparagraph (II) of paragraph (2) provdes rues for determnng when a
ta payer sha be consdered, for the purpose of subsecton (e), to have com-
menced busness and to have had ta abe years durng the perod from such
date. It s contempated that the Secretary w, by reguatons, provde for
the determnaton of such constructve ta abe years by reference to the annua
accountng perod frst estabshed by the ta payer. The foowng corporatons
are taken nto account for the purpose of determnng a constructve date of
commencement of busness and constructve ta abe years from such date:
() ny corporaton whch s a party wth the ta payer to a transacton
descrbed n secton (g) (whether or not such transacton s descrbed n
secton 01(a)), determned as f the date December 1, 19 0 n secton
(g) read anuary 1, 19 6.
() ny corporaton (n a busness substantay smar to that of the
ta payer) f a group of not more than four persons who contro the
ta payer at any tme durng the ta abe year aso contro such corporaton
at any tme durng the ta abe year or controed such corporaton at any
tme durng the perod begnnng 12 months precedng the acquston by
such group of contro of the ta payer. The term contro for the purpose
of ths provson s defned as the ownershp of ether more than 0 percent
of the tota combned votng power of a casses of stock entted to vote
or more than 0 percent of the tota vaue of shares of a casses of stock.
() ny corporaton whch s a seng corporaton n a part I trans-
acton n whch the ta payer s a purchasng corporaton. Part I s
added to the e cess profts ta aw by secton 20 of ths b.
(v) ny corporaton whch, under reguatons prescrbed by the Secretary,
s determned by one or more appcatons of causes (), (), and ()
to stand ndrecty n the same reaton to the ta payer as though such
corporaton were descrbed n any such cause.
Paragraph (3) of subsecton (e) provdes, n effect, that the benefts of the
speca mtaton provsons under secton 30(e)(1) sha be dened to any
ta payer whch derves more than 0 percent of ts ncome for the ta abe year
from contracts or subcontracts to whch tte I of the Renegotaton ct of 19 1
or to whch any pror renegotaton act s appcabe. owever; determnaton
of whether a corporaton meets ths 0 percent requrement w be made
wthout regard to whether the recepts and accruas from any such contract
or subcontract are sub|ect to renegotaton under the Renegotaton ct of
10 1, whch e empts from renegotaton recepts and accruas of ess than
2 0,000 n any ta abe year. Thus, a corporaton whch has ncome for the
ta abe year of 200,000, of whch 1 0,000 s derved from a war contract to
whch the Renegotaton ct of 19 L appes, woud not be egbe for the benefts
of the proposed aternate ma mum ta , nasmuch as 7 percent of ts ncome
was derved from a contract to whch the Renegotaton ct of 19 1 appes, even
though the 1 0,000 receved woud not be renegotated.
S CTION 02. P YM NTS FROM FOR IGN SOURC S FOR T C NIC L
SSIST NC , TC.

Ths secton, for whch there s no correspondng provson n th3 ouse

b, amends secton 33 of the Code to provde for the e cuson from norma
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
606
ta net ncome, In the computaton of e cess profts net Income, of ncome of
a domestc corporaton whch consttutes remuneraton for certan servces
rendered by snch domestc corporaton to ts reated foregn corporaton.
The term rentcd foregn corporaton s defned as a foregn corporaton,
at east 10 percent of the outstandng stock of whch s owned by the domestc
corporaton renderng the servces. To quafy for e cuson under the sub-
paragraph the Income must consttute remuneraton for technca assstance,
engneerng servces, scentfc assstance, or smar servces (Incudng the
furnshng of nformaton) rendered to the foregn corporaton (whe It s a
reated corporaton) reated to the producton or mprovement of products of
the same type as those manufactured by the domestc corporaton, and It must
consttute Income derved from sources wthout the Unted States.
The amendment provdes aso for the dsaowance, n transformng norma
ta net Income Into e cess profts net ncome, of deductons In connecton wth
or propery aocabe to the renderng of servces of the specfed types.
These ad|ustments to norma ta net Income are requred, n computng
e cess profts net Income for e cess profts ta ta abe years, by new sub-
paragraph (R) of secton 33(a) (1) (added by subsecton (a) of ths secton of
the b) and, In computng e cess profts net Income for base perod years, by
new paragraph (16) of secton 33(b) (added by subsecton (b) of ths
secton of the b).
S CTION 03. R G S T RIOD N T INCOM IN T C S OF C RT IN
FISC L T R T P Y RS
Under e stng aw, a ta payer wth a fsca year begnnng before anuary
1, 10 0, and endng after March 31, 10 0, n computng ts average base perod
net ncome by the genera average method provded by secton M (d) of the Code,
must use ts e cess profts net ncome for the caendar mouths begnnng
nnunry 1, 19 6, and endng December 31, 19 9. Ths secton, added to the
b by your commttee, aows such a ta payer to compute ts average base
perod net ncome under the genera average method by reference to the
perod of consecutve months endng March 31, 0, Instead of by reference
to Its base perod, f such computaton produces a esser e cess profts ta
for the ta abe year. The determnaton of the base perod for such a ta payer
remans unchnnged, the amendment beng nappcabe for the purpose of
ny computatons other than the determnaton of the average base perod
net ncome under the genera average method. Ths provson s appcabe
ony n the case or a ta payer whose frst e cess profts ta ta abe year was
a ta abe year whch began before anuary 1, 19 0, or whose frst e ss
profts ta ta nbe year was preceded by a ta abe year begnnng before
anuary 1, 19 0, and eudn, after March 31, 19 0.
S CTION 00 . R G S P RIOD N T INCOM LT RN TI S D OS
GROWT IN C S OF N W CORPOR TIONS
Ths secton, for whch there Is no correspondng provson In the ouse
b, amends secton 3 (e) of the Code (reatng to the aternatve based on
growth) to permt a new corporaton whch commenced busness before the
end of ts base perod to quafy for the aternatve average base perod net
ncome based on growth, provdng t can meet the other requrements of such
secton. For the pnrpose of determnng quafcaton under secton 3 (e)
the amount of a new corporaton s tota assets tota payro, gross recepts,
net saes, e cess profts net ncome, etc., for any perod of tme durng whch such
corporaton was not n e stence, w be taken nto account under secton 3 (e
at r-ero. For e ampe, a new corporaton woud, uness It s a member of an
affated group for Its frst e cess profts ta ta abe year, automatcay
satsfy the tota assets requrement of secton 3 (e) (1) ( ) (I), snce Its tota
assets as of the frst day of Its base perod woud be zero. correspondnz
amendment has been made In part 11 (reatng to the e cess profts credt based
on Income In connecton wth certan e changes).
S CTION 60 . R G S P RIOD N T INCOM LT RN TI S D O
GROWT
Ths secton, for whch there Is no correspondng provson In the ouse b,
amends secton 3 (e) (2) (G) of the Code (reatng to the growth aternatve)
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0
3

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G07
to emnate the word ony so that a corporaton can compute ts credt under
subparagraph (G) even though t quafes as a growth corporaton under secton
33(e) (1) ( ) as we as under secton 3 (e) (1) ( ).
S CTION 00. D USTM NTS FOR C NG S IN IN DMISSI L SS TS IN C S
OP N S
Ths secton, added to the b by your commttee, provdes for a mtaton n
the case of a bank, as defned n secton 10 of the Code, on the amount of the
ad|ustment to the net capta addton or reducton for the ta abe year and to
the base-perod capta addton whch s attrbutabe to nadmssbe assets.
Subsecton (a) of ths secton adds a new paragraph ( ) to secton 3 (g) of
the Code (reatng to net capta addton or reducton). Subparagraph ( ) of
ths new paragraph provdes that the amount of the ad|ustment under secton
3 (g)(1) (reatng to the computaton of the net capta addton) for an n-
crease n nadmssbe assets sha not e ceed an amount whch bears the same
rato to the net capta addton computed wthout regard to such ad|ustment as
the ncrease n nadmssbe assets for the ta abe year, determned under secton
3 (g)( ), bears to the ncrease n tota assets for the ta abe year. The
determnaton of the amount of the ncrease n the ta payer s tota assets for the
ta abe year sha be made n the manner provded n secton 3 (g) ( ) but sha
be made wth respect to a assets whether admssbe or nadmssbe assets as
defned n secton 0.
The appcaton of ths subparagraph w be effectve n cases where the n-
crease n tota assets e ceeds the net capta addton. Thus, f n bank has a net
capta addton for the ta abe year of 0,000, before any ad|ustment wth
respect to ts nadmssbe assets, an ncrease n tota assets of 200,000, and an
ncrease n Inadmssbe assets of 0,000, the net capta addton for the ta abe
year woud be 30,000 ( 0,000 ess an ad|ustment of 10,000 for the ncrease n
nadmssbe assets), nstead of beng entrey emnated by reason of the
nadmssbe asset ncrease as under present aw.
Subparagraph ( ) provdes a correspondng mtaton on the nadmssbe
asset ad|ustment where there s a decrease n such assets for the ta abe year.
In such a case the amount of the ad|ustment under secton 3 (g) (2) (reatng
to the computaton of the net capta reducton) for a decrease n nadmssbe
assets sha not e ceed an amount whch bears the same rato to the net capta
reducton, computed wthout regard to such ad|ustment for nadmssbes, as the
decrease n nadmssbe assets for the ta abe year determned under secton 3
(g) ( ), bears to the decrease n tota assets for the ta abe year. The deter-
mnaton of the amount of the decrease n the ta payer s tota assets for the
ta abe year sha be made In the same manner as n the case of an ncrease n
tota assets, that s, under secton 3 (g)( ) and wth respect to a assets,
whether admssbe or nadmssbe assets as defned n secton 0.
Subsecton (b) of ths secton amends secton 3 (reatng to new capta
credt changes n the case of a ta payer usng the asset method for computng ts
nvested capta) to provde a mtaton on the amount of the ad|ustment for an
ncrease n nadmssbe assets whch corresponds to that provded n paragraph
( ) ( ), as added by subsecton (a) descrbed above.
Subsecton (c) of ths secton amends secton 3 (f) (reatng to capta
addtons n the base perod) by e pressy provdng that the amount of the
yeary base-perod capta for any ta abe year sha not be reduced beow zero
by the nadmssbe asset ad|ustment. Ths provson s appcabe to any ta -
payer (ncudng a bank) and carfes the e stng aw.
Subsecton (c) aso adds a new paragraph (0) to secton 3 (f), appcabe
ony n the case of a bank. Ths new paragraph mts the amount of the reduc-
ton n the yeary base-perod capta for amounts of nadmssbe assets.
Subparagraph ( ) of ths new paragraph (0) provdes that a tentatve yeary
base-perod capta sha be computed under secton 3 (f) (1) but wthout regard
to the nadmssbe asset ad|ustment under subparagraph ( ) of such secton.
Subparagraph ( ) of ths new paragraph (0) provdes that such tentatve yeary
base-perod capta sha then be reduced by an amount whch bears the same rato
to t as nadmssbe assets bear to tota assets. The rato of nadmssbe assets
to tota assets s to be determned under secton 0(b) of the Code, usng the
day amount of such nssets for the frst day of the ta abe year. The yeary
base-perod capta s the tentatve yeary base-perod capta so reduced.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
COS
S CTION 07. D CR S IN IN DMISSI L SS TS
Under e stng aw, a decrease n nadmssbe assets durng an e cess-profts-
ta ta abe year s not refected n an upward ad|ustment n the e cess profts
credt for such year. In the case of a ta payer usng the ncome credt, such a
decrease acts nstead as an offset to the amount of the net capta reducton for
the ta abe year. Ths secton, added to the b by your commttee, provdes, f
certan condtons are met, that a decrease n nadmssbe assets, to the e tent
that t e ceeds the net capta reducton for the ta abe year, sha be an addton
to the e cess profts credt computed under the ncome method.
Ths secton adds two new paragraphs (9) and (10) to secton 3 (g). Para-
graph (9) provdes that the e cess of the amount computed under secton 3
(g) (2) ( ) or ( ) (reatng to ad|ustments to the net capta reducton where
there s a decrease n nadmssbe assets for the ta abe year) over the amount
of the net capta reducton for the ta abe year (such net capta reducton
beng computed wthout regard to decrease n nadmssbe assets) sha be
consdered the net capta addton for the ta abe year. Where the computa-
tons under secton 3 (g) (2) resut n no net capta reducton for the ta abe
year, before ad|ustment for a decrease n nadmssbes, the amount determned
under paragraph (9) sha be an tem to be added to the net capta addton for
such year computed under secton 3 (g) (1).
Paragraph (10) sets forth certan e ceptons and mtatons appcabe to
computatons under paragraph (9). Subparagraph ( ) of paragraph (10)
provdes a mtaton to the ad|ustment to the decrease n nadmssbe assets
under secton 3 (g)(2)( ) whch secton s appcabe under present aw
where such decrease s n e cess of the net capta reducton computed before
any reducton by reason of such decrease and computed wthout regard to
secton 3 (g)( ) (C) and ( ) (reatng respectvey to decrease n borrowed
capta and to ncrease n oans to a member of a controed group). Under
the b, the mtaton n such a case s to an amount not greater than 2
percent of the e cess of the net capta reducton (unad|usted for nadmssbe
asset decrease) computed wthout regard to the 7 percent mtatons provded
n secton 3 (g)( ) (C) and ( ), over the net capta reducton computed
under such sentence wthout regard to secton 3 (g)( ) (C) and ( ). Thus,
under ths subparagraph, the amount of the ad|ustment to the decrease n n-
admssbe assets under secton 3 (g)(2)( ) s mted (for purposes of
secton 3 (g) (9)) to 2 percent of the sum of the amount of the decrease n
borrowed capta and the amount of the ncrease n oans to members of a
controed group.
Subparagraph ( ) of paragraph (10) provdes an over-a mtaton on the
amount determned under paragraph (9) (after appyng paragraph (10) ( ))
n order to nsure that where there s a decrease n nadmssbe assets that
there sha be a correspondng ncrease n the ta payer s operatng assets before
any ncrease n credt s aowed. ccordngy, subparagraph ( ) provdes
that the amount so determned under paragraph (9) sha not be greater than
the e cess of the ncrease n operatng assets for the ta abe year over the
net capta addton (determned wthout regard to paragraph (9) and deter-
mned wthout regard to the 7 percent mtaton provded n paragraphs
(3)(C) and ( ) (C) and ( ) of secton 3 (9)).
The ncrease n operatng assets for the ta abe year sha be determned
n the same manner as the ncrease n nadmssbe assets for such year s
determned under secton 3 (g) and as though that secton referred nstead
to operatng assets. The term operatng assets means property used n the
ta payer s trade or busness wthn the meanng of secton 117(|)(), stock
n trade or other property of a knd whch woud propery be ncudbe n the
nventory of the ta payer f owned at the cose of the ta abe year, and property
hed by the ta payer prmary for sae to customers n the ordnary course
of the ta payer s trade or busness. cuded from such term are nadmssbe
assets, stock, securtes, and ntangbe property (such as evdence of ndebted-
ness). For the purpose of such e cuson ntangbe property s not mted
to the defnton of ntangbe property n secton 1 ().
Subparagraph (C) of paragraph (10) provdes that the ad|ustment to the
net capta addton for a decrease n nadmssbe assets provded n paragraph
(9) sha not appy n any case n whch the Secretary determnes that the
ncrease n operatng assets s the drect or ndrect resut of an ncrease n
ndebtedness of the ta payer, other than ndebtedness whch consttutes bor-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
609
rowed capta as defned n secton 39(b). For e ampe, ths mtaton may
be apped to prevent a ta payer from obtanng a net capta addton under
paragraph (9) where ts addton to operatng assets s accompaned by n-
creased open account Indebtedness to members of a controed group ncudng
the ta payer.
S CTION SOS. L CTION WIT R Sr CT TO C RT IN IN DMISSI L SS TS
Subsecton (a) of ths secton, for whch there s no correspondng provson
n the ouse b, adds a new subsecton (c) to secton 0 of the Code to
permt a deaer In Government securtes to eect for any ta abe year, n
accordance wth reguatons prescrbed by the Secretary, to ncrease ts e cess
profts net ncome by an amount equa to the amount by whch the nterest
receved or accrued durng the ta abe year on Government obgatons e ceeds
the sum of ( ) the nterest pad or accrued durng such year whch s not
aowed as a deducton under secton 23(b) of the Code, and ( ) the amount
of the ad|ustments requred for the ta abe year under secton 22(o) of the
Code (reatng to ad|ustment for certan bond premums). The amount of the
secton 22(o) ad|ustment sha not be In e cess of the amount of nterest re-
ceved or accrued durng the ta abe year on obgatons to whch such secton
Is appcabe. The Government obgatons for whch an eecton s avaabe
are obgatons descrbed n secton 22(b)( ), the nterest on whch s whoy
e empt from ta aton under chapter 1 of the Code. The eecton s avaabe
ony wth respect to obgatons whch are not capta assets n the hands of
the ta payer.
The effect of makng the eecton provded n ths paragraph s to aow such
obgatons to be treated as admssbe assets for the purposes of a computa-
tons n determnng the e cess profts ta abty for the ta abe year for
whch the eecton s made. Thus, wth respect to the ta abe year for whch
an eecton s made, such obgatons sha aso not be consdered nadmssbe
assets n determnng ether orgna nadmssbe assets under secton 3 (g) ( )
or yeary base perod capta under secton 3 (f).
For the purpose of determnng the e cess profts credt based on ncome for
any ta abe year for whch an eecton has been made, the e cess profts net
ncome computed for base perod years under secton 33(b) sha aso ncude
the amount by whch the nterest receved or accrued durng each such ta abe
year on Government obgatons e ceeds the amount of nterest pad or accrued
durng such year whch s not aowed as a deducton under secton 23(b) and,
f the ta abe year ends after une 30, 19 0, the amount wth respect to such
year requred as an ad|ustment under secton 22(o).
S CTION 09. LT RN TI R G S P RIOD N T INCOM
Subsecton (a) of ths secton adds a new subsecton (h) to secton 2. The
ta payer s entted to compute an aternatve average base perod net ncome
under ths new subsecton f t commenced busness on or before the frst dny
of ts base perod and f the aggregate of the e cess profts net ncome for
each of the 12 months for whch a substtute e cess profts net ncome s to
be computed s ess than 3 percent of one-haf of the aggregate of the e cess
profts net ncome for each of the 2 months remanng after seectng the 12
months to be so ad|usted. For the purpose of ths egbty test, defcts n
e cess profts net ncome sha be taken n account.
The frst step n the computaton of the aternatve average base perod net
ncome s the computaton of the e cess profts net ncome (or defct theren)
for the 30 months from whch the 12-month perod s to be seected. Ths com-
putaton s to be made n the manner provded n secton 2(b) by seectng
ordnary the 30 months whch produce the hghest aggregate e cess profts net
ncome or the owest aggregate defct n e cess profts net ncome. The second
step s the seecton, from the 30 months determned under the frst step, of
12 months the emnaton of whch w resut ordnary n the hghest reman-
ng aggregate e cess profts net ncome or the owest remanng aggregate defct
n e cess profts net Income. Ths seecton s made by determnng ether the
12 consecutve months the emnaton of whch produces the hghest remanng
aggregate e cess profts net ncome or the owest remanng aggregate defct n
e cess profts net Income, or the 12 months whch reman after retanng the
2 consecutve months whch produce the hghest aggregate e cess profts net
ncome or owest aggregate defct. The thrd step s the computaton, for each
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
610
month n the 12-month perod so seected, of a substtute e cess profts net ncome
under secton 2(e), whch s n genera based on the product of the ta payer s
tota assets for the ast day n the year n whch such month fas and the ap-
proprate ndustry base perod yeary rate of return.
The fourth step s the determnaton of the aggregate of such substtute e cess
profts net ncome for each month n the seected 12-month perod. Ths a
based upon the amount computed under the thrd step, mted, however, to
an amount equa to one-haf of the aggregate e cess profts net ncome for each
month n the 2 -month perod remanng after the computaton requred under
the second step above. For the purpose of ths mtaton defcts n e cess
pr fts net ncome for such 2 -month perod nre taken nto account. To the
amount of such aggregate so determned the aggregate of the e cess profts net
ncome for the 2 -month perod s added, such e cess profts net Income for
ths purpose beng computed n the manner provded n the second sentence of
secton 3 (d) (1) whch nocntes to each month a porton of the e cess profts
net ncome for the ta abe year n whch such month fas and provdes that the
e cess profts net ncome for any month sha not be ess than cro. The fna
step n the determnaton of the aternatve average base perod net ncome
under ths subsecton Is to dvde by 3 the amount ascertaned under the fourth
step.
If the ta payer Is entted to the benefts of ths provson and Is aso entted
to compute ts average base perod net ncome under subsecton (c) of sett on
2 because of abnormates durng ts base perod, the ta payer sha com-
pute ts average base perod net ncome under whchever of the appcabe sub-
sectons produces the ower e cess profts ta . The same rue appes where
the ta payer s entted to the benefts of ether the new provson or secton
2(d). In order to be entted to the aternatve average base perod net n-
come computaton under subsecton (h), the ta payer need not demonstrate the
presence of abnormates n ts base perod.
Your connttee has made technca amendments to secton 2 n order to
conform thnt secton to the addton of ths new subsecton and has amended
secton 3.1(f) (3) to provde that the base perod capta addton of a ta payer
computng an aternatve average base perod net ncome under ths new sub-
secton (h) sha.be computed n the same manner as the base perod capta
addton n the case of a ta payer to whch secton 2(c) (reatng to ab-
normates durng the base perod whch affect 12 or fewer months) s appcabe.
S CTION 10. D FINITION OF TOT L SS TS FO PURPOS S OF S CTIONS
2- 6
Secton 10, for whch there s no correspondng provson In the ouse b,
amends secton 12(f) of the Code (reatng to the defnton of tota assets)
to requre that n determnng tota assets a reducton sha be made equa
to the amount of any ndebtedness tother than borrowed capta ns defned
n secton 39(b) (1)) to a member of a controed group, as defned n secton
3 (g) (( ), whch ncudes the ta payer. Secton 2(f) of the Code now
provdes that tota assets for any day sha be determned as of the end of such
day and sha be an amount equa to the sum of the cash and the property
(other than cash, nadmssbe assets, and oans to members of a controed
group as defned n secton 3 ) (f)) hed by the ta payer n good fath for the
purposes of the busness. Thus, at present, secton 2(f) ncudes borrowed
funds n determhng tota assets, even though such Indebtedness may be to
a member of a controed group whch ncudes the ta payer and such oans
may be of a type that are not taken nto account, as oans to members of a
controed group n determnng the capta poston or capta changes of the
ender for the purposes of the e cess profts ta . The amendment n effect
provdes thut open account ndebtedness, and other ndebtedness not meetng;
the defnton of borrowed capta, sha reduce tota assets f such ndebtedness
s owed to a member of the same controed grwp.
Ths secton s effectve wth respect to ta abe years endng after the date
of enactment of ths b.
S CTION 11. R G S P RIOD N T INCOM C NG IN PRODUCTS OR
S R IC S
Secton 11, for whch there Is no correspondng provson n the ouse b,
amends secton 3(f) of the Code (reatng to changes In products or servces)
to provde that f after the end of the base perod of the ta payer there was
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
611
a substanta change n the products furnshed by such ta payer, such change
sha be consdered to have occurred on the ast day of the base perod f the
ta payer pror to uy 1, 19 0, was constructng the factes used to manu-
facture such new product and f such constructon and the producton of such
new product are n furtherance of a course of acton to whch t (or a corpora-
ton wth whch t has the prvege of fng a consodated return under secton
1 1) was commtted before the end of ts base perod by a contract whch
granted to t a cense, franchse, or smar rght to produce such new product.
t present, secton 3(a) (1) requres that the change n products occur durng
the ast 36 months of the base perod. The amendment n effect modfes
ths requrement of secton 3(a)(1). owever, the other requrements of
secton 3(a)(1) and the tests of secton 3(a) (2) and (3) must st be
satsfed before a ta payer, whch s consdered to have made a change of
product by reason of the amendment of secton 3(f) made by ths secton of
the b, may quafy to compute, ts average base perod net ncome under
secton 3.
S CTION 12. R G S P RIOD N T INCOM N W CORPOR TION
Secton 12 for whch there s no correspondng provson n the ouse b,
amends secton (c) of the Code (reatng to tota assets for the frst 3 years
of new corporatons). t present, a new corporaton computng ts average base
perod net ncome under secton for the purpose of determnng the ta for
;ny of ts frst three ta abe years whch s an e cess profts ta ta abe
year, s entted to appy ts ndustry rate of return ony to the sum of ts tota
assets (as defned n secton 2(f)) for the ast day of ts ta abe year mmed-
atey precedng ts frst ta abe year endng after une 30, 10 0, such tota assets
frst beng ncreased by the net capta addton determned under secton 3 (g)
for the e cess profts ta ta abe year, or decreased by the net capta reducton
for such ta abe year. though under such formua addtons to equty capta
are fuy refected, ony 7 percent of tbe ncrease or decrease n borrowed capta
s taken nto account n determnng tota assets. The amendment ncudes the
fu amount of borrowed capta n the amount to whch the ndustry rate of
return s apped.
S CTION 13. C SS PROFITS CR DIT R GUL T D PU LIC UTILITI S
Secton 13, for whch there s no correspondng provson n the ouse b,
amends secton (c)(3) of the Code (reatng to aternatve e cess profts
credt for reguated pubc uttes) to ncude theren a corporaton engaged as
a common carrer n the furnshng or sae of transportaton of o or other petro-
eum products (ncudng shae o) by ppene f such corporaton s sub|ect
to the |ursdcton of a pubc servce or pubc utty commsson or other smar
body of the Dstrct of Coumba or of any State. t present, o ppenes are
not ncuded n secton (c) (3), uness they are sub|ect to the |ursdcton of
the Interstate Commerce Commsson. Secton (d) defnes a reguated pub-
c utty for the purposes of the aternatve e cess profts credt as a corporaton
descrbed n secton (c) whch derves a certan percentage of ts gross
ncome from sources descrbed n secton (c). The nmendnent thus aows
ntrastate as we as nterstate o ppenes to quafy as reguated pubc uttes
f they meet the requrements of the secton.
S CTION 1 . CONSOLID T D R TURNS OF R GUL T D PU LIC UTILITI S
Secton 1 , for whch there s no correspondng provson n the ouse b,
amends secton (e) of the Code (reatng to consodated returns of reguated
pubc uttes) to provde that for the purposes of fng a consodated return
wth ts raroad essee corporaton, a raroad essor corporaton descrbed n
secton 3 (d) of the Code sha be consdered a corporaton descrbed n secton
(c) (3). In effect, ths amendment permts a raroad corporaton whch has
eased substantay a of ts raroad propertes to another raroad corporaton
to fe a consodated return, usng the aternatve credt provded by secton
, wth ts affated essee raroad corporaton, f both such corporatons
otherwse quafy to use secton -1 .
S CTION 1 . NONT L INCOM FROM C RT IN MINING PROP RTI S
Ths secton, for whch there s no correspondng provson n the ouse b,
aows to producers of potash, sufur, and metaurgca grade and chemca
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
612
grade mestone the aternatve method for computng nonta abe Income from
e empt e cess output provded n secton 3(b) (2) of the Code where the prop-
ertes were n operaton durng the norma perod. Where these mnera prop-
ertes were not n operaton durng the norma perod, the net ncome from such
propertes s accorded the benefts of secton 3(b)( ) now avaabe n the
case of meta and coa mnes, tmber bocks, and natura-gas propertes.
Your commttee has aso made technca amendments to these sectons and to
secton 3(a) (13) n order that they may conform to the amendment made by
ths secton of the b.
S CTION 16. TR NSITION FROM W R PRODUCTION ND INCR S IN
P C TIM C P CITY
Secton 16, for whch there s no correspondng provson n the ouse b,
adds subsecton (a) of a new secton 9 to part I of subchapter of chapter 1
of the Code. Subsecton (a) of secton 10 provdes for the computaton of an
average base perod net Income based upon the e cess profts net ncome for the
ast 6 months of 19 and a percentage of the frst 0 months of 19 0 as provded
n secton 3 (e) (2) ( ). It s provded that the credt sha be appcabe to
any ta payer whch has commenced busness before anuary 1, 19 0, and snce
such date has been prmary engaged n manufacturng.
ta payer may quafy for the computaton under ths subsecton ony f It
meets the requrements of paragraphs (1) to ( ) of the subsecton. Paragraph
(1) provdes that the ad|usted bass of ts tota factes (as denned n secton
0(d)) on the frst day of ts base perod when added to the tota factes for
such day of corporatons wth whch t was affated must not e ceed 10,000,000.
Paragraph (2) provdes that the unad|usted bass for determnng gan of the
ta payer s tota factes on the ast day of ts base perod must be at east 0
percent of the unad|usted bass for determnng gan of Its tota factes on the
frst day of ts base perod. Paragraph (3) provdes that durng the perod
19 2 through 19 , 70 percent of the ta payer s gross ncome must have been
from contracts wth the Unted States ether as a prme contractor or as a sub-
contractor. It s further provded that In a ta abe years endng after 191 and
before 19 0 ess than 20 percent of ts ncome must be from stch sources and
that ess than 20 percent of the ncome must be from such sources for a ta abe
years endng after December 31, 19 9, and begnnng before uy 1, 19 0.
Paragrnph ( ) provdes that the monthy average of the e cess profts net
ncome of the ta payer for a ta abe years endng wth or wthn the ast 2
months of ts base perod (that s, the aggregate of the e cess profts net ncome
for each month n such ta abe years dvded by the number of such months) and
for the ast ta nbe year endng before ts base perod (smary determned)
shu each be at east 300 percent of the monthy average e cess profts uet ncome
for a ta abe years endng wth or wthn the frst 2 months of ts base perod
(that s, the aggregate of the e cess profts net ncome for each month n such
ta abe years dvded by the number of such months).
Subsecton (b) of secton 10 provdes for amendments to secton 3 (e) to
ncude ths and other subsectons of secton 9 among the varous methods of
computng average base-perod net ncome whch are avaabe to the ta payer
f they resut In a esser e cess profts ta . One addtona effect of ths amend-
ment Is to make cear that no base-perod capta addton s aowabe f the
average base-perod not Income determned under ths subsecton s used.
S CTION 17. S P RIOD C T STROP
Ths secton, for whch there s no correspondng provson n the ouse b,
adds a new secton 9(b) to the Code o gant to a ta payer whch has suffered
a catastrophe durng the ast 3G months of ts base perod the aternatve. In
computng ts average base perod net ncome under the genera average method,
of substtutng for the e cess profts net Income for each month of the ta abe
year n whch the catastrophe occurred the average of the e cess profts net
ncome for each month n the base perod precedng the ta abe year n whch the
catastrophe occurred. The benefts of ths subsecton are avaabe to a ta payer
whch was engaged throughout Its base perod prmary n manufacturng If t
meets the egbty tests descrbed In paragraphs (1) to (3), ncusve.
Paragraph (1) requres that the ta payer must have suffered durng the ast
30 months of ts base perod a catastrophe by fre, storm, e poson, or other
casuaty, destroyng or renderng noperatve a producton facty consttutng
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G13
n compete pnnt or pants havng n the hands of the ta payer mmedatey pror
to the catastrophe an ad|usted bass for determnng gan equa to 1 percent or
more of the ad|usted bass for determnng gan of a the ta payer s producton
factes at such tme. The term producton facty means a factory (ncud-
ng equpment and machnery whch are part of the factory) and smar
manufacturng pants.
Paragraph (2) requres that the ta payer s norma producton or operaton
he substantay nterrupted for a perod of more than 12 consecutve months as
a resut of such catastrophe.
Paragraph (3) requres that the ta payer must have repaced the destroyed
or noperatve producton facty pror to the end of ts base perod wth a
producton facty whch at the end of Its base perod had n ts hands an
ad|usted hass for determnng gan n an amount not ess than such ad|usted
bass, mmedatey pror to the catastrophe, of the destroyed or noperatve
producton facty.
For the purpose of secton 3 (a) (1) ( ), the average base perod net ncome
determned under ths subsecton s consdered an average base perod net ncome
determned under secton 3 (d). ccordngy, the computaton of the average
base perod net Income under ths subsecton does not reduce the amount of the
base perod capta addton to whch the ta payer woud otherwse be entted.
S CTION 1 . CONSOLID TION OF N WSP P RS
Ths secton, added to the h by your commttee, adds a new secton 0(c)
to the Code, appcabe In the case of a ta payer engaged prmary n the
newspaper-pubshng busness whch, after the frst haf of ts base perod and
before uy 1, 1C 0, consodated ts mechanca, crcuaton, advertsng, and
accountng operatons wth such operatons of another newspaper-pubshng
corporaton n the same area. In the case of a ta payer entted to the benefts
of ths subsecton, ts average base perod net ncome sha be the amount com-
puted under secton 3 (e) (2) (reatng to the computaton of the average base
perod net ncome based on growth), but computed wthout regard to subpara-
graph (G) of such secton. In order to be egbe for the benefts of ths subsec-
ton the ta payer must quafy under the condtons set forth beow.
Paragraph (2) of the new subsecton requres that the ta payer estabsh to
the satsfacton of the Secretary that, durng the perod begnnng wth the con-
sodaton and endng wth the cose of the frst ta abe year begnnng after the
consodaton, there were substanta reductons n the amount of e penses whch
woud otherwse have been pad or ncurred n conductng the operatons descrbed
under paragraph (1), and that such reductons were attrbutabe to the
consodaton.
Paragraph (3) of the new subsecton requres that for the frst ta abe year
begnnng after such consodaton the tota deductons of the ta payer under
secton 23 of the Code, computed wthout regard to secton 23(s) (reatng to
the net operatng oss deducton) and wthout regard to secton 23(bb) (reatng
to crcuaton e pendtures), must not be n e cess of 0 percent of the average
of such deducton for the two ta abe years of the ta payer ne t precedng the
ta abe year n whch such consodaton began.
Paragraph ( ) of the new subsecton requres that the e cess profts net ncome
of the ta payer, computed ns provded n secton 33(b) (reatng to the e cess
profts net ncome for ta abe years n the base perod), for the frst ta abe year
o the ta payer begnnng after such consodaton must be 12 percent or more
of the amount determned under secton 3 (d) ( ) (reatng to nverage base
perod net ncome determned under the genera average method). For the pur-
pose of the test set forth n ths paragraph, the e cess profts net ncome sha
be computed n the manner provded n secton 33(b) whether or not the frst
ta abe year of the ta payer begnnng after the consodaton s an e cess profts
ta ta abe year.
The benefts of ths subsecton shft not be avaabe to any ta abe year of the
ta payer uness the consodaton was contnued throughout such ta abe year.
S CTION 19. T L ISION RO DC STING COMP NI S
Secton 10 of the b, for whch there s no correspondng provson n the
ouse b, adds subsecton (d) to secton 0 of the Code, secton 0 (a), (b),
and (c) beng added to the Code by sectons 16 to 1 of the b. Subsecton (d)
of secton 0 provdes for the computaton of an average base perod net ncome
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
61
n the case of corporatons engaged n the teevson broadcastng busness,
ncudng both staton and network operatons. Subsecton (d)(1) provdes that
the average base perod net ncome determned under ths subsecton shu be
avaabe ony to corporatons whch were engaged n the busness of teevson
broadcastng pror to anuary 1, 19 1, and have remaned n such busness con-
tnuousy throughout the perod endng wth the cose of the ta abe year for
whch the ta s beng computed.
Subsecton (d) (1) ( ) provdes for the computaton of an average base perod
net ncome n the case of a corporaton whch s engaged ony n the busness
of teevson broadcastng, and n no other busness, at the end of ts base perod.
In the case of such a corporaton, the average base perod net ncome s deter-
mned by mutpyng ts tota assets (as defned n secton 2(f)) on te ast
day of ts base perod by the base perod rate of return for the ndustry cass-
fcaton whch ncudes rado broadcastng.
Subsecton (d) (1) ( ) provdes for the computaton of an average base pero
net ncome n the case of a corporaton whch Is engaged ony n the busness
of teevson and rado broadcastng, and n no other busness, at the end of ts
base perod. Two aternatve methods of compuaton are provded. One s
the same as that provded n paragraph (1)( ) and the other s computed by
mutpyng ts tota assets (as defned n secton 2(f)) on the ast day of Its
base perod by ts ndvdua rate of return. The computaton of the ndvdua
rate of return s descrbed n paragraph (2) of subsecton (d).
Subsecton (d) (1) (C) provdes for the computaton of an average base perod
net ncome n the case of a corporaton whch at the end of ts base perod was
engaged n the teevson broadenstng busness and n another busness or bus-
nesses other than rado broadcastng. For e ampe, secton 9(c)(1) (C) may
be appcabe to a corporaton engaged at the end of ts base perod n the tee-
vson broadcastng busness, the rado broadcastng busness, and another bus-
ness, nnd to n corporaton engaged at the end of (s base perod n the teevson
busness and n n busness other than the rado broadcastng busness. The
average base perod net ncome n the case of such a corporaton sha e deter-
mned under ths subsecton by frst computng an average base perod net ncome
under the genera average method (secton 3 (d)) for te busness other than
rado or teevson, such computaton beng made wthout regard to ncome,
deductons, osses, or other tems from the rado and teevson broadcastng
busness. To ths s added an amount computed by appyng to the tota assets,
on the ast day of ts base perod used n the rado broadcastng busness (f the
ta payer was engaged n such busness) and n the teevson broadcastng bus-
ness, ether the ndustry rate of return for rado broadcastng or the ndvdua
rate of return as determned under subsecton (d) (2).
Subsecton d) (1) (I)) provdes for the computaton, of an average base perod
net ncome n a case n whch the teevson broadcastng busness s acqured
by the ta payer after the cose of ts base ) er d and before the end of the caen-
dar year 10 0. In such case the average base perod net ncome sha frst be
computed wthout regard to ths secton, and then there sha be added thereto
an amount computed by appyng ether the ndustry rate of retnrn for rado
broadcastng or the ta payer s ndvdua rate of return (determned under sub-
secton (d) (2) on the bass of the rado broadcastng busness, f any, n whch
the ta payer was engaged durng ts base erod) to the amount of tota assets
whch woud be ncuded wth respect to the teevson busness f such busness
had been acqured on the ast day of ts base perod.
Subsecton (d) (1) authorzes the Secretary to provde by reguatons the
rues appcabe n the case of a ta payer determnng ts average base perod
net ncome under ths subsecton. ampes of the rues to be prescrbed by
reguatons are rues for the met hud of determnng the ncome, deductons,
osses, nnd other Items reatng separatey to teevson broadcastng, to rado
broadcastng, and to busnesses other than teevson and rado broadcastng;
for the method of determnng the average base perod net ncome for any bus-
ness of the ta payer other than teevson nnd rado broadcastng; for the
method of determnng the assets attrbutabe to the teevson broadcastng bus-
ness and to the rado broadcastng busness, and for the method of determnng
the e cess profts net Income of the rado broadcastng busness, whch deter-
mnatons are approprate to the determnatons to be made ether under ths
subsecton or under subsecton (d) (2). Further rues woud reate to the em-
naton of dupcaton where assets used durng the base perod n another bus-
ness of the ta payer are drecty or ndrecty transferred nto assets to whch
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
61
the ndustry or ndvdua rate of return s apped, and for the emnaton of
dupcaton where assets hed at any tme durng ts base perod are used n
acqurng the teevson busness n a ease descrbed n subsecton (d) (1) (D).
Subsecton (d)(2) provdes for the computaton of the ndvdua rate of re-
turn, the use of whch s prescrbed n subsecton (d) (1). Such rate of return
sha be determned by frst averagng the tota assets attrbutabe to the rado
broadcastng busness at the cose of each month n the base perod. The aggre-
gate of the e cess profts net ncome of the rado broadcastng busness, deter-
mned wthout regard to ncome, deductons, osses, or other tems attrbutabe
to any other busness, ncudng the teevson broadcastng busness, for each
month durng the base perod s then to be computed and dvded by . The
average of the e cess profts net ncome s then dvded by the average of the
assets to obtan the ndvdua rate of return.
Subsecton (d) (3) provdes an ad|ustment, appcabe f the ndustry rate of
return s used, for nterest pad by the ta payer. Ths ad|ustment corresponds
to that requred under e stng provsons of the e cess profts ta . It s pro-
vded, however, that the reducton of the amount computed by reference to the
ndustry rate of return sha n cases under subsecton (d) (1) (C) and (D) be
ony by such porton of the nterest pad as the tota assets to whch the ndustry
rate of return s apped s of the tota assets of the ta payer. Thus, the nterest
pad s attrbuted rataby among a the assets hed by the ta payer.
Subsecton (d) ( ) provdes that the Secretary sha by reguatons provde for
the appcaton of part II of subchapter D (reatng to certan ta -free transac-
tons) n the case n whch a corporaton otherwse entted to the benefts of
ths secton s an acqurng corporaton n a part II transacton.
S CTION 20. C SS PROFITS CR DIT S D ON INCOM IN CONN CTION
WITII C RT IN T L C UISITIONS
Secton 20 for whch there s no correspondng provson n the ouse b
adds a new part I to subchapter D of chapter 1 and provdes for certan technca
amendments of parts I and II of subchapter D reatng to such new part.
Subsecton (a) of secton 20 adds part I whch conssts of one secton,
secton 7 . Subsecton (a) thereof comprses defntons. Subsecton (a)(1)
defnes the term purchasng corporaton. Subsecton (a)(1)( ) defnes as a
purchasng corporaton any corporaton whch, before December 1, 19 0,
acqured substantay a of the assets of another corporaton or of a partnershp
n a transacton other than a transacton descrbed n secton 01(a).
Subsecton (a)(1)( ) provdes that a corporaton sha be a purchasng
corporaton f t acqures ony part of the assets of another corporaton (n a
transacton other than a part II transacton) provded (1) the propertes acqured
n such transacton are a of the propertes of a separate busness of the other
corporaton and (2) that n the furtherance of a pan of compete qudaton by
such other corporaton substantay a of ts other propertes were transferred
to one or more other corporatons. For the purpose of subsecton (a)(1)( )
(as dstngushed from subsecton (a)(1)( )), the acquston must be from a
corporaton. Thus, the acquston of part of the assets of a partnershp w
not quafy the purchaser as a purchasng corporaton under subsecton
(a)(1)( ).
It s further provded (subsecton (a) (1) (C)) that a ta payer can be a pur-
chasng corporaton f t receves soey as pad n surpus or a contrbuton to
capta n respect of votng stock owned by another corporaton substantay
a of the propertes whch such other corporaton acqured mmedatey pror
thereto n n part I transacton wth respect to whch such other corporaton
svas a purchasng corporaton as defned n subsectons (a)(1)( ) or (a)(1)( ).
For the purpose of the above subsectons the propertes acqured need not
ncude cash.
Subsecton (a)(2) dfnes as the seng corporaton the corporaton or part-
nershp whose assets were acqured by the purchasng corporaton.
Subsecton (a) (3) defnes as a part I transacton any transacton descrbed
n subsecton (a)(1).
Subsecton (b) of secton 7 provdes that the nverage base perod net ncome
Df a purchasng corporaton under the genera average method provded n secton
3 (d) sha be determned by computng the e cess profts net ncome of the
purchasng corporaton wthout regard to the fact that t s such a purchasng
corporaton (that s, wthout reference to part I ) or by appyng the provsons
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
616
of part I n computng Its e cess profts net ncome, whchever produces the
esser e cess profts ta for the ta abe year. If the ta payer appes part
I , the e cess profts net ncome for each month of the base perod of the
purchasng corporaton sha be computed by addng to the actua e cess profts
net ncome (or defct theren) of the purchasng corporaton for such month the
e cess profts net ncome (or defct theren) for each such month of the busness
acqured by the purchasng corporaton.
Subsecton (c) of secton 7 provdes for the foowng mtatons: Frst,
that mmedatey after the part I transacton (that s, the purchase of assets
by the purchasng corporaton) the seng corporaton dscontnued a busness
actvtes and was competey qudated n a transacton other than a transacton
descrbed In secton 61(a). Thus, f the qudaton of the seng corporaton
s pursuant to secton 112(b) (6), the provsons of part I may not be apped
by the purchasng corporaton. The requrement of dscontnuance of bnsness
actvtes and qudaton In a case In whch ony part of the assets of a corpo-
raton were acqured may be postponed unt after the ast part I transacton
by the seng corporaton n furtherance of Its snge pan of compete qudaton.
The second mtaton requres that the propertes acqured n the part I
transacton were a or substantay a of the propertes (other than cash)
used by the seng corporaton (or by a component corporaton thereof) n the
operaton of the busness whose assets were acqured. Thus, f any substanta
porton of the assets used n the busness by the seng corporaton had been
sod or dstrbuted to others pror to the transacton, part I may not be apped
to the purchasng corporaton. It s further provded that n any case n whch
the busness was operated under a franchse or cense, such franchse or cense
sha be deemed to have been acqured by the purchasng corporaton from the
seng corporaton f t acqures a substantay dentca franchse or cense
from the same person who granted the one nsed by the seng corporaton. Thus,
n a case n whch an automobe manufacturer had prevousy granted a fran-
chse or cense to the seng corporaton, whch franchse or cense was not
transferabe, the purchasng corporaton w be deemed to have acqured such
franchse or cense from the seng corporaton f the same manufacturer grants
to the purchasng corporaton a substantay dentca franchse or cense.
The thrd mtaton requres that the busness acqured from the seng cor-
poraton be operated by the purchasng corporaton from the date of the trans-
acton to the end of the ta abe year. It s contempated that where the
purchasng corporaton becomes a component corporaton n a part II transacton
the busness must have been operated by the purchasng corporaton (f t hed
t for any perod of tme) and, after the part II transacton, by the acqurng
corporaton unt the end of the ta abe year.
Subsecton (d) of secton 7 provdes that In determnng whether property
s acqured soey a t ad-n surpus or a contrbuton to capta the assumpton
by the purchasng corporaton of a abty of the transferrng corporaton or
the fact that the property acqured s sub|ect to a abty sha be dsregarded.
Subsecton (e) of secton 7 provdes that the Secretary sha by reguatons
prescrbe the rues for the appcaton of part I to a of the partes to a
part I transacton. It s specfed n the subsecton that those rues are to be
consstent wth the prncpes of part II as apped to transactons descrbed under
that part. In partcuar, the subsecton provdes that the reguatons sha pre-
scrbe rues for the appcaton under part I of the prncpes descrbed n secton
G2(|) (1) and n other provsons of part II reatng to the preventon of dup-
caton. It s antcpated that rues w be ssued, based upon the prncpes set
forth n secton 02(b), for use n combnng the e cess profts net ncome of the
purchasng corporaton wth the e cess profts net ncome attrbutabe to the
busness acqured; that rues w be ssued, based upon the prncpes of sectons
C3 and 0 , reatng to capta changes, for use, n con|uncton Wth an appca-
ton of the prncpes of secton 02(|) (1), n determnng the capta changes
of the purchasng corporaton after the transacton ; and that rues w be ssued,
based u on the prncpes of secton C2(), reatng to aocatons n the case
of certan part II transactons, ncudng, n proper cases, the prncpes set
forth n secton 62() (0) reatng to dentfabe earnngs e perences, for use n
determnng that part of the e cess profts net ncome receved by the seng
corporaton durng ts base perod and pror to the transacton (and that part
of the capta changes durng the base perod and thereafter whe the propertes
were hed by the seng corporaton) whch s attrbutabe to the propertes
whch were purchased by the purchasng corporaton and whch s propery
aocabe to that corporaton.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
C-17
Subsecton (b) of secton 20 of the b makes two technca amendments to
subchapter P of chapter 1 of the Code. cross-reference to part I s nserted at
the end of secton 3 (a) (3) (reatng to the amount of e cess profts credt).
Secton 62(b) In part II of the snchapter s amended by addng n new para-
graph ( ) to the effect that the Secretary sha provde by reguatons for the
appcaton of that subsecton n any case n whch a purchasng corporaton, as
defned n part I , s a component corporaton n a transacton descrbed n that
part II. No amendment s made to those subdvsons of secton 02 whch dea
wth the varous aternatve average base perod net ncomes snce the benefts
of part I reate ony to the computaton by a purchasng corporaton of Its
average base perod net Income under the genera average method provded n
secton 3 (d) and, thus, to the use by the acqurng corporaton of that e per-
ence for a smar mted purpose. It was not deemed necessary to make a
conformng amendment ether to secton 1(e) or to secton 03(b), reatng
to successve part II transactons, or to secton 62(1), reatng to aocatons n
the case of certan part II transactons, snce the amendment of secton 02(b)
necessary requres that the prncpes of those atter sectons be made appcabe.
The amendment of secton 02(b) s made for purposes of transactons nvovng
acqurng corporatons as defned under secton 01 (a) of part II.
CTION 601. MPTION OF C RT IN ORG NIZ TIONS FROM INCOM T
FOR PRIOR T L Y RS
Secton 601 of the b, whch secton s dentca wth secton 01 of the ouse
b, adds a subsecton at the end of secton 302 of the Revenue ct of 11) 0 to
provde that for any ta abe year begnnng pror to anuary 1, 19 1, an organ-
saton (whch term ncudes a trust) operated for the prmary purpose of carry-
ng on n trade or busness for proft, no part of the net earnngs of whch nures
to the beneft of any prvate sharehoder or ndvdua and a of the net earn-
ngs of whch nure to the beneft of an educatona organzaton whch normay
mantans a reguar facuty and currcuum and normay has a reguary organ-
zed body of pups or students n attendance at the pace where ts educatona
actvtes are reguary carred on, sha not be dened e empton from ta aton
under any paragraph of secton 101 of the Code on the ground that t s carryng
on a trade or busness for proft.
n e ampe of the appcaton of the amendment woud be the case of a feeder
corporaton whose busness s the manufacture of automobes for the utmate
proft of a unversty.
Ths secton, for whch there Is no correspondng provson n the ouse b,
amends sectons 13 and 930 of the Code to provde that, where property ncuded
for Federa estate ta purposes n the gross estate of a resdent or ctzen of
the Unted States s stuated n a foregn country and sub|ected to a death ta
by such country, a credt sha be aowed aranst the estate ta for such foregn
death ta . The amendment appes ony wth respect to estates of resdents and
ctzens dyng after the date of enactment of the b.
The credts for foregn death ta es are to be deducted after deductng the
e stng credts under secton 13(b) of the Code for State Inhertance ta es
and under sectons 13(a) and 930(b) for Federa gft ta .
The credts provded under ths secton are aowabe (under prncpes deve-
oped under the foregn ncome ta credt authorzed by secton 131 of the Code),
not ony for death ta es of foregn states n the nternatona sense, but aso for
such ta es of possessons or potca subdvsons of foregn states. Credt n
the estate of a partcuar decedent s aowabe, however, ony for estate, nher-
tance, egacy, or successon ta es mposed wth respect to the death of such
decedent. Where credt for a partcuar foregn death ta s authorzed by
treaty, there s to be aowed ether the credt computed under the treaty or
that computed under ths secton, whchever s greater. For e ampe, f a
porton of the estate of a ctzen of the Unted States s stuated n the Provnce
of uebec and s sub|ected to Domnon and Provnca successon dutes, the
credt for the Domnon duty computed under the estate ta treaty wth Canada,
or the credt for the Domnon and provnca dutes computed under ths secton,
whchever s greater, s to be aowed.
TITL I MISC LL N OUS PRO ISIONS ND M NDM NTS
S CTION 602. FOR IGN ST T T CR DIT
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
61
In the case of a decedent who was a resdent but not a ctzen of the Unted
States, the credt s to be aowed ony f the country of whch the decedent was a
natona, n mposng death ta es, aows a smar credt n the case of a ctzen
of the Unted States resdent In such country. Ths smar credt requrement
s anaogous to that contaned n secton 131(a) (3) of the Code, reatng to the
foregn ncome ta credt.
The credt s not aowabe for any porton of the foregn ta whch s pad
wth respect to propery stuated outsde the terrtory of the foregn country
mposng such ta . The determnaton of the country n whch property s st-
uated for the purposes of determnng whether the credt s aowabe s to e
made n accordance wth the prncpes appcabe n determnng whether prop-
erty s stuated wthn or wthout the Unted States for purposes of the mpos-
ton of the Federa estate ta on the estate of a nonresdent not a ctzen of
the Unted States.
Credt s to be aowed ony wth respect to property whch meets three
condtons: (1) Sub|ecton to the death ta of a foregn country, (2) stus
wthn such foregn country, and (3) ncuson n the gross estate for the pur-
pose of the Federa estate ta . Where property whch fas to meet condton
(2) or condton (3) s aso sub|ected to the foregn ta , a rato s to be used
n determnng the amount of the foregn ta attrbutabe to the property wth
respect to whch credt s aowabe. The method of computng ths rato, whch
s the frst mtaton on the amount of the foregn ta credt, s stated n para-
graphs (2) ( ) and (3) ( ) of secton 13(c) and paragraphs (2) ( ) and
3) ( ) of secton 936(c).
second mtaton on the amount of the credt s stated n paragraphs (2) ( )
and (3) ( ) of secton 13(c) and paragraphs (2) ( ) and (3) ( ) of secton
936(c). Under ths mtaton the credt s not to e ceed the porton of the
Federa estate ta attrbutabe to the property whch meets the three condtons
stated n the precedng paragraph.
The two mtatons on the credt are to be separatey computed for the ta
of each foregn country. Where the foregn country mposes more than one
knd of death ta or mposes ta es at dfferent rates upon the severa shares
of an estate, or where the foregn country and a potca subdvson thereof each
mposes a death ta , the frst mtaton but not the second mtaton s to be
separatey computed for each such tar.
The credt s to be aowed ony upon submsson of a necessary evdence
by the e ecutor. Sectons 13(c)( ) and 936(c)( ) provde mtatons on the
aowance of the credt or of refund based on the credt, whch are dentca
wth those now contaned n secton 13(b), reatng to credt for State nher-
tance ta es. Refunds based on the credt are to be made wthout nterest.
Subsecton (c) of ths secton of the b makes a technca amendment to
secton 927 to provde an e tended perod, n cases n whch payment of the
estate ta attrbutabe to a reversonary or remander nterest s postponed,
for the camng of credt for foregn death ta es aowabe aganst such part
of the estate ta .
Subsecton (d) of ths secton of the b amends secton 7 (b) (reatng
to e ceptons to the genera perods of mtaton on assessment and coecton
of estate ta ) by addng a new paragraph (3). The new paragraph requres
the e ecutor to notfy the Commssoner of any recovery of State or foregn
death ta es for whch credt has been camed, and authorzes a redetermna-
ton of the Federa ta on the bass of such recovery.
SUCTION 603. ST T ND GIFT T TR TM NT OF UNIT D ST T S ONDS
LD Y C RT IN NONR SID NT LI NS
Ths secton s dentca wth secton 03 of the b as passed by the ouse.
Ths secton amends secton 01, reatng to the computaton of net estate of
a decedent nonresdent not a ctzen of the Unted States, and secton 1000(b).
reatng n pnrt to appcaton of gft ta n Ihe case of a transfer by a nonres-
dent aen, by the addton of specfc provsons defnng the treatment for
purposes of estate ta nnd gft ta of certan obgatons of the Unted States
hed or transferred by a nonresdent aen not engaged n busness n the Unted
States.
The Unted States Supreme Court, as eary as 1900, estabshed the prncpe
that a statutory provson whch n genera terms e empts property from ta -
aton appes ony to a drect ta on such property and does not appy to e cse
ta es, such as the estate ta or the gft ta whch s mposed not on the prop-
erty tsef but on the transfer of the property. Mur ock v. Ward (17S U. S.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
619
139) : Phmmer v. Coor (17 U. S. 11 ). owever, the Courts of ppeas for
the Second and Thrd Crcuts have, n a number of recent cases, hed that
secton of the ctory Lberty Loan ct of March 3, 1919 ( 0 Stat. 1311; 30
U. S. C. 7 0), e empted Unted States Government bonds owned by a non-
resdent aen ndvdua, not engaged n busness wthn the Unted States,
from estate ta as we as from drect ta es. See state of ar andorf v.
Commssoner (C. . 2, 19 ), 171 Fed. (2d) 6 : state of Irene DcGuehratt
v. Commssoner (C. . 2, 19 1), 1 6 Fed. (2d) 307: and Pennsyvana Co. for
ankng and Trusts ( state of enr/ Waace ume) v. Unted States (C. . 3,
1 0), 1 Fed. (2d) 12 .
Your commttee beeves that Unted States obgatons n the hands of a
nonresdent aen not engaged n busness n the Unted States are and shoud
be sub|ect to the prncpe of Murdoch v. Ward and Pummer v. Coer ; accord-
ngy subsecton (a) adds a new subsecton (c) to secton 61 of the Code affrma-
tvey so provdng n the case of the estate ta . owever, n the nterest of
equty, two e ceptons are provded to ths rue. Frst, Unted States obgatons
ssued before March 1, 19 1, are not to be ncuded n the gross estate of a
deceased nonresdent aen who was not engaged n busness n the Unted States
snce such ssues are e empt under present Treasury reguatons. Secondy,
the amendment e pressy provdes that such obgatons ssued on or after March
1. 19 1, are to be Incuded n the gross estate of such a decedent ony f the
decedent des after the date of the enactment of the b.
Subsecton (b) of ths secton s desgned to provde a smar resut n the
case of the gft ta , e cept that the amendment does not concern tsef wth
gfts made on or before the date of the enactment of the b. Under the amend-
ment, a gft of such obgatons made after the date of the enactment of the
h, by a nonresdent aen not engaged n busness n the Unted States, w
be sub|ect to the gft ta ony f such obgatons were ssued on or after March
1. 19 1. s to gfts made on or before the date of the enactment of the b,
the amendment does not affect any abty for gft ta whch may e st under
present aw, and s not ntended to dsturb the rue of e stng gft ta regua-
tons whch e empts from ta the transfer of such obgatons ssued before
March 1, 19 1.
S CTION 60 . ST T T MPTION FOR WOR S OF RT LO N D t
NONR SID NT LI NS
Ths secton, for whch there s no correspondng provson n the ouse b,,
amends secton 63(c) of the Code to e tend the estate ta e empton granted
by that secton wth respect to works of art oaned by a nonresdent aen to
the Natona Gaery of rt, Washngton, D. C, to works of art oaned to other
pubc gaeres or museums.
Secton 03(c) of e stng aw provdes that, wth respect to estates of de-
cedents dyng after September 1, 19 0, works of art owned by a nonresdent
not a ctzen of the Unted States sha not be deemed to be property stuated
n the Unted States for purposes of ncuson n the net estate of the non-
resdent aen If such works of art are (1) mported nto the Unted States soey
for e hbton purposes, (2) oaned to the Trustees of the Natona Gaery of
rt soey for e hbton purposes, and (3) at the tme of death of the owner,
n e hbton (or en route to or from e hbton), n such Natona Gaery of
rt or n such other pubc gaery or museum as the Trustees of such Natona
Gaery of rt may have desgnated.
Under your commttee s amendment, the e empton n secton 63(c) w
appy not ony to works of art oaned to the Natona Gaery of rt, but aso
to works of art oaned to other pubc gaeres or museums n the Unted States
no part of the net earnngs of whch nures to the beneft of any prvate stock-
hoder or ndvdua. The condtons of the e empton parae the condtons
n e stng aw, that s, the mportaton must be soey for e hbton pur-
poses, the works of nrt must be oaned to the pubc gaery or museum, and the
works of art must, at the tme of death of the owner, be on e hbton (or en
route to or from e hbton) n a pubc gaery or museum.
The amendment to secton 63(c) made by ths secton s appcabe ony to
pstates of decedents dyng after the date of enactment of ths ct.
S CTION 603. MPTION FROM DDITION L ST T T OF M M RS OF
RM D FORC S UPON D T
Ths secton, for whch there s no correspondng provson n the ouse b,
nends secton 939 of the Code to provde that the ta mposed by secton 93
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G20
(the addtona estate ta ) sha not appy to the transfer of the net estate of a
ctzen or resdent of -the Unted States dyng after une 2 , 19 0, and before
anuary 1, 19 , whe n actve servce as a member of the rmed Forces of
the Unted States, f such decedent (1) was ked n acton whe servng n a
combat zone, as determned under secton 22(b) (13), or (2) ded at any pace
ns a resut of wounds, dsease, or n|ury suffered, whe servng n a combat zone
(as determned under secton 22(b) (13)) and whe n ne of duty, by reason
of a hazard to whch he was sub|ected as an ncdent of such servce.
S CTION COO. TR NSF R CONDITION D LTON SUR I ORS IP
Ths secton, for whch there s no correspondng provson n the ouse b,
provdes that, n the case of a decedent dyng after March IS, 1937. the date of
approva of Treasury Decson 729, and before February 11, 1939, the deter-
mnaton of whether property s to be ncuded n the gross estate of the de- ,
cedent under secton 302(c) of the Revenue ct of 1926 as a transfer ntended
to take effect n possesson or en|oyment at or after hs death sha be made n
conformty wth the provsons of artce 17 of Reguatons 0, as amended by
such Treasury Decson.
S CTION 007. TR NSF RS WIT INCOM R S R D
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 7(b) of Pubc Law 37 , ghty-frst Congress (the Technca
Changes ct of 19 9). Secton 7(b) now provdes that the provsons of secton
S (c) (1) (1 ) of the Code, provdng for ncuson n a decedent s estate of
property transferred wth reservaton of rghts n ncome, sha not be app-
cabe to transfers made before March , 1931 (and, n some cases, before une
G, 1932), f the decedent ded before anuary 1, 19 0. Under your commttee s
amendment, nappcabty of secton S(c)()( ) s e tended to estates of
decedents dyng before anuary 1,19 1.
S CTION 00 . TR NSF RS T ING FF CT T D Tn
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 7(b) of Pubc Law 37 , ghty frst Congress (the Technca
Changes ct of 19 9) to provde that the provsons of secton 11(c)(1)(C)
of the Code (reatng to ncuson In gross estate of transfers ntended to take
(.feet n possesson or en|oyment at or after death) sha not appy to transfers
made before September , 1910. The effect of the ust sentence of ths secton,
whch makes secton 7(c) of such pubc aw nappcabe to overpayments re-
sutng from the enactment of ths secton of the b, s to mt refunds of such
overpayments to those stuatons In whch the refund s not prohbted by the
statute of mtatons or some other aw or rue of aw.
S CTION 00D. R RSION RY INT R STS IN C S OF LIF INSUR NC
Ths secton, for whch there Is no correspondng provson In the ouse b,
permts the makng of refund or credt of any overpayment resutng from the
appcaton of secton 03 of the Revenue ct of 19 0, f cam therefor s fed
wthn 1 year from the date of enactment of the b, even though the makng
of such refund or credt s otherwse prohbted by the statute of mtatons or
any other aw or rue of aw (other than secton 3700 or 3701 of the Code whch
reate, respectvey, to cosng agreements and compromses). The ctT t of
secton 03 of the Revenue ct of 19 0 was to provde that proceeds of fe
nsurance poces attrbutabe to premums pad on or before anuary 10. 19 1,
shoud not he ncuded n the gross estate of the nsured person for estate ta
purposes by reason of the fact that the premums were pad by hm, uness ou
anuary 10, 19 1, or thereafter he had substanta rghts n the fe nsurance
pocy.
S CTION 010. INCOM PURSU NT TO W RD OF INT RST T COMM RC
COMMISSION
Secton 610, for whch there s no correspondng provson n the b ns passed
by the ouse, provdes that amounts receved pursuant to an award under the
order ssued under the Raway Ma Pay ct of 1910 by the Interstate Com-
merce Commsson on December , 19 0, ns compensaton for the transportaton
of ma durng 19 0 and any pror years sha be deemed to be ncome whch
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
021
accrued n the ta abe years Id whch the servces to whch such compensaton
reates were rendered. No Interest sha be assessed or coected for any perod
pror to uy 1, 19 1, wth respect to that part of any defcency whch the
Secretary of the Treasury determnes to be attrbutabe to the Incuson of
Income In a ta abe year by reason of the appcaton of secton 610. def-
cency whch s attrbutabe to the ncuson of ncome In any ta abe year by
reason of the appcaton of secton 610 may be assessed, notwthstandng any
provson of aw or rue of aw whch woud otherwse prevent such assessment,
at any tme pror to the e praton of the perod for assessment wth respect to
that ta abe year of the ta payer whch Incudes December , 10 0.
S CTION 611. CR DIT IN TRIOR T L Y RS FOR DI ID NDS R C I D
ON PR F RR D STOC OF PU LIC UTILITY
The Revenue ct of 19 3 amended secton 26(h) (1) of the Code by nsertng
after the frst sentence two sentences whch e cuded from the computaton of
the credt for dvdends pad on the preferred stock of a pubc utty amounts
dstrbuted wth respect to dvdends unpad and accumuated n any ta abe
year endng pror to October 1,19 2. The 19 3 ct dd not contan a conformng
amendment to Incude n the computaton of the dvdends receved credt the
amounts e cuded from the computaton of the credt for dvdends pad.
In the case of the caendar year 19 1 and ta abe years begnnng after March
31,19 1, the amounts e cuded from the computaton of the dvdends pad credt
w (by reason of the amendments made by secton 122(a) of the b) be
Incuded as dvdends to whch the S percent credt w appy. Secton 611 pro-
vdes the same treatment for ta abe years begnnng before pr 1, 1931,
S CTION 612. CONSOLID T D R TURNS INCLUDI L CORPOR TION
Ths secton of the b, for whch there Is no correspondng secton n the ouse
b, provdes that, f an affated group makng a consodated return wth
respect to the frst ta abe year of the group endng after une 30, 19 0, ncuded
a corporaton descrbed n secton 2(f) of the Code pursuant to the consent
provded n secton 1 1(e) (7) of the Code, such corporaton may wthdraw such
consent at any tme wthn 90 days after the enactment of the Revenue ct of
19 1. If such consent Is wthdrawn under ths secton the ta abty of tre
affated group and ts severa members for the ta abe year sha be determned,
assessed, and coected as f such corporaton had never |oned n the makng of
the consodated return.
S CTION 61 . TIM FOR P RFORMING C RT IN CTS POSTPON D IN C S
OF C IN TR D CT CORPOR TIONS
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton 3 0 of the Code to provde December 31, 19 ; . as the due date for
Chna Trade ct corporatons, for the fng of returns and payng of the ncome
ta for ta abe years begnnng after December 31, 19 , and endng before
October 1, 19 3. The secton Is to appy ony to corporatons and for ta abe
years whch the Secretary of the Treasury, under reguatons prescrbed by hm,
determnes reasonabe under the crcumstances n Chna. Ths provson recog-
nzes that whe the present stuaton n Chna makes t mpossbe for many such
companes to have access to ther records for the purpose of payng ta , certan
Chna Trade ct corporatons are fuy abe to compy wth requrements of
e stng aw as to the due dates of ncome ta returns and the due dates of
ta payments.
The December 31, 19 3, due date specfed n ths secton s sub|ect to the
power of the Secretary to e tend the tme for fng returns or payng ta as
n other cases.
S CTION 01 . TR TY O LIG TIONS
Ths secton, for whch there s no correspondng provson n the ouse b,
provdes that no amendment made by the b sha appy n any case where ts
appcaton woud be contrary to any treaty obgaton of the Unted States.
S CTION 61 . R ORG NIZ TION PL N NO. 20 OF 19 0
T nder ths secton of the b, whch s dentca to secton 0 of the ouse
b, the appcabe provsons of Reorganzaton Pan No. 26 of 19 0, respectng
the Department of the Treasury, partcuary secton 1(a) of such pan, trans-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
622
ferrng certan functons to the Secretary of the Treasury, sha appy to a
functons stated to be vested by the Revenue ct of 19 1 n any offcer, empoyee,
or agency of the Department of the Treasury, even though by such ct any
functon s stated to be vested esewhere than n the Secretary of the Treasury.
Thus, as an e ampe, a requrement n the Revenue ct of 19 1 that returns
sha be made and ta es due pad by the ta payer to the coector for the dstrct
n whch s ocated the ta payer s prncpa pace of busness, or f he has nn
prncpa pace of busness n the Unted States, then to the coector at at-
more, Md., w be gven the same effect as a smar requrement n effect at the
tme when the pan became effectve.
19 1-2 -1373)
R NU CT OF 19 1
ouse ot Representatves Report No. 1213, ghty-second Congress, Frst Sesson
October 1 , 19 1
Mr. Doughton, from the commttee of conference, submtted the foowng
conference report to accompany . R. 73 :
The commttee of conference on the dsagreeng votes of the two ouses on the
amendments of the Senate to the b ( . R. 73), to provde revenue, and for
other purposes, havng met. after fu and free conference, have agreed to rec-
ommend and do recommend to ther respectve ouses as foows:

ST T M NT OF T M N G RS ON T P RT OF T OUS
The managers on the part of the ouse at the conference on the dsagreeng
votes of the two ouses on the amendments of the Senate to the b ( . R.
73) to provde revenue, 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. 1: The ouse b provded for an ncrease n ndvdua n-
come ta rates by a percentage ncrease of 12 percent of the ta abty
under e stng aw, wth an over-a effectve ceng rate of 90 percent of the net
ncome of the ta payer. The ouse b aso ncreased the aternatve ta on
capta gans by 12 percent. The Senate amendment emnated the ncrease
n the aternatve ta on capta gans and provded, n genera, for an ncrease
of 11 percent of the present ta abty, or percent of the amount by whch
the surta net ncome e ceeds present ta es, whchever produced the esser
ncrease n ta . The Senate amendment provded an over-a ceng rate of
percent of the net ncome of the ta payer.
Under the conference agreement the ncrease n the combned norma ta
and surta under e stng aw w, n genera, be 11 percent of the present
rates or 9 percent of the amount by whch the surta net ncome e ceeds pres-
ent ta es, whchever s the esser, e cept that the ncrease n the frst surta
bracket w be ony 11 percent. Speca rates are provded for the caendar year
19 1 so as to refect November 1, 19 1, as the effectve date of the ncrease n
ta . The ceng rate of percent contaned n the Senate amendment s re-
taned under the conference agreement, and no ncrease n ta s provded wth
respect to the aternatve ta on capta gans. Under the ouse b no term-
naton date was provded for the ncrease n the ta es. The Senate amendment
provded for the termnaton of the ncreased rates on anuary 1, 19 , and
the conference agreement retans the termnaton date.
mendments Nos. 2 and 3: These amendments are cerca. The Senate
recedes.
mendments Nos. and : The ouse b provded for an ncrease n the
norma ta on corporatons, n genera, from . to 30 percent of norma ta
net ncome, appcabe to ta abe years begnnng after December 31, 19 0. The
Senate provded for an ncrease n the corporaton norma ta from 2 to 27
percent and an ncrease n the corporaton surta from 22 to 2 percent.
Under the Senate amendment, the ncreases n norma ta and surta were to
be effectve as of pr 1, 19 1, and were to termnate on December 31, 19 3.
Speca rates were provded for the caendar year 19 1 to refect the pr 1
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
023
effectve date. Under the conference agreement on amendments and , the
norma ta s ncreased from 2 to 30 percent as provded n the ouse b
wth no Increase n the surta . Tbe ncrease In norma ta Is to be effectve as of
pr 1, 19 1, wth a norma a rate of 2 percent for the caendar year 10 1.
The conference agreement provdes that the ncrease n norma tu s to ter-
mnate as of March CI, 10 .
mendment No. 6: The ouse b amended secton 30(a)(2) of the Code
(reatng to ma mum e cess prots ta ) so us to ncrease the percentage used
under e stug aw for computng the ma mum e cess profts ta from 62 to TO
ercent. The Senate amendment provded a new method for computng the
ma mum e cess profts ta whch, n genera, wns 1 ( percent of tbe e cess
profts nec ncome for the caendar year 19 1 and was 17 percent of the e cess
profts net ncome for ta abe years begnnng after March 31, 19 1. The IT r-
cent fgure of the Senate amendment was comparabe to a t 0 percent fgure under
the method provded n the ouse h. The ouse recedes wth an umendmeut
whch adopts the Senate method of computng the ma mum tu but ncreases the
IT percent fgure to 1 percent (comparabe to the ouse b TO percent fgure)
for ta abe years begnnng after March 31, 19 1. Under the conference agree-
ment the ma mum e cess profts ta for tbe caendar year 10 1 s IT percent
of te e cess profts net ncome for such year.
mendments -Nos. T, , and 0: Senate amendments Nos. 7 and amended
secton 207(a) (ta on certan nsurance companes), 302(b) (ta on regu-
ated nvestment companes), secton 21(a) (ta on busness ncome of certan
ta -e empt organzatons), and secton 20 (reatng to credts for corpora-
tons) of the Code to make changes conformng to the acton of the Senate wth
respect to the corporate norma and surta rate ncreases. These amendments
aso made other technca conformng changes n the Code. Senate amendment
So. 9 struck out secton 123 of the ouse b whch provded for the aowance
at ony one surta e empton and one mnmum e cess profts credt to certan
controed groups of corporatons. The ouse recedes on amendments Nos. 7
nd wth conformng amendments and an amendment addng a new secton
1 (c) to the Code (reatng to dsaowance of surta e emptons and mnmum
cess profts credt) and the ouse recedes on amendment No. 9.
The new subsecton (c) of secton 1 appes to the stuaton where a corpo-
raton, on or after anuary 1, 19 1, transfers property (other than money) to
une or more corporatons created for the purpose of acqurng such property, or
to one or more corporatons not actvey engaged n busness at the tme of such
acquston, f after such transfer the transferor corporaton or ts stockhoders,
or both, are n contro of the transferee durng any part of a ta abe year of
such transferee corporaton. In such case the transferee corporaton sha not
be aowed ether the 2 ,000 e empton from surta or the 2 ,000 mnmum
e cess profts credt uness t estabshes by the cear preponderance of the
evdence that the securng of the 2 ,000 e empton or the 2 ,000 mnmum
cess profts credt, or both, was not a ma|or purpose of the transfer of the
property to t by the transferor. The term contro s defned as the owner-
shp of stock possessng at east 0 percent of the tota combned votng power
sf a casses of stock entted to vote or at east 0 percent of the tota vaue
of shares of a casses of stock of the corporaton. Under the amendment the
ownershp of stock s to be determned n accordance wth the provsons of
secton 03, e cept that constructve ownershp under secton 03(a)(2) s to
oe determned ony wth respect to the ndvdua s spouse and mnor chdren.
The Secretary, to the e tent not nconsstent wth the provsons of the new
subsecton, s granted the same authorty as under secton 129(b) to aow n
vhoe or n part a surta e empton or a mnmum e cess profts credt whch
mght otherwse be dsaowed under the subsecton or to apporton such e emp-
ton or credt among the corporatons nvoved. For e ampe: Corporaton
transfers on anuary 1, 19 2, a of ts property to corporatons and C In
e change for the entre stock of such corporatons. Immedatey thereafter
_-orporaton s dssoved, ts stockhoders becomng the stockhoders of and C.
ssumng that a ma|or purpose for such transfers s to secure addtona surta
e emptons and mnmum e cess profts credts, the Secretary has the authorty
to aow one such e empton and credt and to apporton such e empton and
credt between corporatons and C. It s provded that the subsecton sha
not be appcabe to any ta abe year wth respect to whch the ta mposed by
subchapter D of chapter 1 (reatng to the e cess profts ta ) s not n effect.
It s not ntended that the new subsecton sha n any way demt or abrogate
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
62
any of the e stng provsons of the Code (Incudng sec. 129), or any prncpe
estabshed by |udca decson, whch have the effect of preventng the avodance
of ncome or e cess profts ta es.
mendment No. 10: Ths amendment strkes out a of secton 12 of the ouse
b whch provded, In the case of corporatons, for an ncrease from 23 percent
to 2 .123 percent of the aternatve ta (under sec. 117(c) (1) of the Code) on
capta gans. The ouse recedes wth an amendment changng the secton
number from 12 to 123, and provdng for an ncrease of the aternatve ta
from 2 percent to 2C percent, effectve In the case of ta abe years begnnng
after March 31, 19 1, and before pr 1, 19 . Under the conference agree-
ment, the amendment w have no effect on ta abe years begnnng before
pr 1, 19 1, even though the ta abe year ends after that date, but the 26
percent rate w appy n fu to a ta abe year endng after March 31, 10 , f
the ta abe year begns before pr 1, 19 .
mendment No. 11: Ths amendment provdes, n genera, that corporatons
sub|ect to a ta mposed by chapter 1 of the Code for a ta abe year endng
after March 31, 19 1, but pror to October 1, 19 1, sha after the date of the
enactment of the b and on or before anuary 1 , 19 2, make a return for
such ta abe year wth respect to such ta and such ta abe year. The ouse
recedes wth a cerca amendment. ,
mendment No. 12: Ths amendment, wrhch corresponds to secton 12 of the
ouse b, provdes the effectve date of part II of tte I. The ouse recedes
wth a cerca amendment.
mendment No. 13: Ths amendment, reatng to the computaton of ta by
certan fsca year ta payers, corresponds to subsecton (a) of secton 131 of
the ouse b wth such changes as are necessary to refect the norma ta
and surta rates and the termnaton dates provded by the Senate amend-
ments. The ouse recedes wth amendments conformng to the conference acton
wth respect to the corporate ncome ta rates.
mendments Nos. 1 , 1 , 16, 17, 1 , 19, 20, and 21: These amendments are
cerca amendments. The ouse recedes.
mendment No. 22: Ths amendment strkes out part I of tte II of the ouse
b provdng for the wthhodng of ta at the source on dvdends, nterest, and
royates. The ouse recedes.
mendment No. 23: Ths amendment, whch corresponds to part II of tte II
of the ouse b (reatng to ncrease n wthhodng of ta at source on wages)
amends secton 1622(a) of the Code by changng the percentage rate of wth-
hodng from 1 percent to 20 percent n the case of wages pad on or after
November 1, 19 1, and before anuary 1, 19 . It aso amends secton
1022(c)(1), reatng to wage-bracket wthhodng, to provde new tabes whch
refect the ncreased ta rates. It aso provdes, as dd the ouse b, for add-
tona wthhodng of ta on wages upon agreement by empoyer and empoyee
and provdes that the amendments made thereby sha be appcabe ony wth
respect to wages pad on or after November 1, 19 1. The ouse recedes.
mendments Nos. 2 , 2 , 26, and 27: These amendments are cerca and
conformng amendments. The ouse recedes.
mendment No. 2 : Secton 301 of the ouse b amended secton 12(c) of
the Code to provde for a head of a househod appro matey one-haf of the
ncome-spttng benefts provded for a husband and wfe who fe a |ont return.
Under the Senate amendment the hend of a househod was afforded appro -
matey one-fourth of such benefts. The ouse recedes wth an amendment
conformng to the ouse acton n affordng appro matey one-haf of such
benefts and makng the necessary changes n the surta tabes to conform to the
conference acton wth respect to ndvdua ncome ta rates and effectve date
provsons.
mendment No. 29: Under the ouse b, a ta payer mght quafy as a head
of a househod by reason of such househod consttutng the prncpa pace of
abode of a descendant of a stepson or stepdaughter of the ta payer. Under
the Senate amendment, such descendants are emnated from the category of
persons n respect of whom the ta payer may quafy as head of a househod.
The ouse recedes.
mendment No. 30: Ths amendment adds subsecton (b) to secton 301 of
the b to provde that n the case of a head of a househod who eects the
benefts of secton 1(f) (1) of the Code (reatng to ta computed by coector
n case of wage earners) the ta sha be computed by the coector under
suppement T wthout regard to the ta payer s status as head of a househod.
The ouse recedes.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
C2
mendment No. 31: Ths amendment amends secton 22(b)(1) of the Code
(reatng to e cuson of fe Insurance proceeds from gross ncome) to provde
for a mted e cuson for amounts pad by an empoyer to the benefcares of an
empoyee by reason of the empoyee s death. The Iouse recedes.
mendment No. 32: Ths amendment amends sectons 113(a)( ) and
(22) (b) (2) of the Code to provde that the bass of a survvor s nterest n a |ont
and survvor annuty, the vaue of whch s requred to be Incuded n the estate
of a decedent annutant dyng after December 31. 19 0. sha be consdered to be
acqured by bequest, devse, or nhertance and that such bass (that s, the
vaue of such survvor s nterest at the tme of the decedent s death) sha be
consdered, for purposes of determnng the amount to be ncuded n the ncome
of the survvor, to be the consderaton pad for the survvor s annuty. The
ouse recedes.
mendment No. 33: Ths amendment provdes for the permanent enactment
of secton 22(b)(9) of the Code, reatng to e cuson from gross ncome of
ncome attrbutabe to the dscharge of certan ndebtedness n the case of a
corporaton whch consents to reducton n bass of ts propertes n an amount
equa to the Income e cuded, and e tends for 3 yearR the appcaton of secton
22(b) (10), reatng to the e cuson of ncome of a raroad corporaton attrbu-
tabe to the dscharge of ts ndebtedness n a recevershp proceedng. The
amendment s smar to . . 2 1t , whch was passed by the ouse on pr 12,
19 1 ( . Report No. 311). The ouse recedes.
mendment No. 3 : Ths amendment makes certan changes n secton
22(b) (13) of the Interna Revenue Code, eatng to the addtona aowance
for certan members of the rmed Forces.
Secton 22(b) (13) of e stng aw e cudes from gross Income certan com-
pensaton receved for actve serv -e n the rmed Forces of the Unted States
for any month durng any part of whch the recpent served n a combat zone
after une 2 , 11) 0, and pror to anuary 1, 19 2. Ths amendment e tends ths
atter date from anuary 1, 19 2, to anuary 1, 19 .
Ths amendment aso e tends the e cuson to certan compensaton receved
for actve servce n the rmed Forces of the Unted States for any month durng
any part of whch the recpent was hosptazed at any pace as a resut of
wounds, dsease, or n|ury ncurred whe servng n a combat zone after une
2 , 19 0, and pror to anuary 1, 19 , provded that durng a of such month
there are combatant actvtes n some combat zone. The ouse recedes.
mendment No. 3 : Ths amendment revses secton 22(d) (6) (F) () of
the Code, whch provson was added to secton 22(d)(0) by Pubc Law 919
( 1st Cong., 2d sess.), so as to vary the appcaton of the rue wth respect to
repacement of nvountary qudatons of nventores n certan cases where
such repacement s made durng ta abe years endng after une 30, 1 ) 0, and
pror to anuary 1, 19 3. The effect of the amendment woud be to permt the
repacement of the Word War II nvountary qudatons durng ta abe years
endng after une 30, 19 0, and pror to anuary 1, 19 3, wthout requrng
that the nvountary qudatons occurrng durng such years be frst repaced,
thus enabng the repacement of the Word War II qudatons to be made n
tme to permt them to quafy for the benefts of secton 22(d) (6). The ouse
recedes.
mendment No. 30: Ths amendment amends secton 2.1 ( ) (reatng to
the deducton of medca e penses) by emnatng the percent mtaton wth
reapect to the deducton of medca, denta, etc., e penses pad durng the ta abe
year, not compensated for by nsurance or otherwse, for the care of the ta payer
or hs spouse f ether the ta payer or hs spouse attans the age of 6 before
the cose of the ta abe year. The mtaton wth respect to the ma mum
deducton aowabe under secton 23( ) remans unchanged. The amendment
Is effectve wth respect to ta abe years begnnng after December 31, 19 0. The
ouse recedes.
mendment No. 37: Ths amendment adds paragraph (7) to secton 23(aa)
of the Interna Revenue Code to provde, n genera, that an eecton to take
or not to take the standard deducton for any ta abe year may be changed after
the tme prescrbed for tng a return for such year. The ouse recedes.
mendment No. .3 : Ths amendment s cerca. The ouse recedes.
mendment No. 3 ): Secton 302 of the ouse b woud add a new subpara-
graph (D) to secton 23(a)(1) of the Code provdng, n genera, that a
e pendtures pad or ncurred after December 31. 19 0, In the deveopment of
a mne or other natura depost (other than an o or gas we), to the e tent
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G23
pad or ncurred after the e stence of ores or mneras In commercay mar-
ketabe quanttes has been dscosed, sha be deducted rataby as the produced
ores or mneras benefted by such e pendtures are sod. Secton 302 of the
ouse b aso amended secton 113(b)(1) by addng a new subparagraph ( )
thereto to provde for ad|ustment to the bass of the mne or depost for amounts
aowed as a deducton under new subparagraph (D) as added to secton
23(a)(1).
The Senate b made technca cbnnges n the ouse provsons and nserted
the substance of subparagraph (D) as added to secton 23(a) (1) by the 1 oose
b n a new subsecton (cc) to be added to secton 23 of the Code. The Senate
b aso added a provson to the new subsecton (cc) whch, n genera, woud
aow the ta payer to eect to deduct deveopment e pendtures ether n the
tn nbe year pad or ncurred or rataby durng the ta abe years n whch the
produced ores or mneras benefted by such e pendtures are sod. The ouse
recedes.
mendments os. 0 and 1: These amendments arc cerca. The ouse
recedes.
mendment o. 2: Ths amendment changes secton 2 (b)(1)(D) of the
Cede to ncrease the gross ncome test of a dependent from 00 to 600. The
ouse recedes.
mendment No. 3: Ts amendment adds to secton 26(b) of the Code a
r.ew paragraph to provde for a dvdends receved credt n the case of dvdends
receved from a foregn corporaton (other than a foregn persona hodng com-
pany) sub|ect to ta aton under chapter 1 of the Code whch for a stpuated
unnterrupted perod of tme has been engaged n trade or busness wthn the
Unted States and has derved durng such perod 0 percent or more of ts
gross ncome from sources wthn the Unted States.
The ouse recedes wth an amendment under whch the dvdends receved
credt w be aowed wth respect to dvdends receved from such a foregn
corporaton In an amount equa to
( ) percent of the dvdends receved out of ts 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 or profts at the tme the ds-
trbuton was made, but such amount sha not e ceed an amount whch
bears the same rato to percent of such dvdends receved out of such
earnngs or profts as the gross ncome of such foregn corporaton for such
ta abe year from sources wthn the Unted States bears to Its gross ncome
from a sources for such ta abe year, and
( ) percent of the dvdends receved out of that part of Its earnngs
or profts specfed n cause (1) of the frst sentence of secton 11 (a)
accumuated after the begnnng of such unnterrupted perod, but such
amount sha not e ceed an amount whch bears the same rato t/) per-
cent of such dvdends receved out of such accumuated earnngs or profts
as the gross ncome of such foregn corporaton from sources wthn the
Unted States for the porton of such unnterrupted perod endng at the
begnnng of the ta abe year bears to ts gross ncome from a sources
for such porton of such unnterrupted perod.
The determnaton of earnngs or profts dstrbuted In any ta abe year sha
be made n accordance wth secton 11 (b) of the Code.
The appcaton of ths amendment s ustrated by the foowng e ampe:
Corporaton (a foregn corporaton fng ts return on a caendar year
bass) whose stock s 100 percent owned by Corporaton R (a domestc corpora-
ton fng t-, return on a caendar-year bass) for the frst tme engaged n
trade or busness n the Unted States on anuary 1, 19 0, and quafed under
ths amendment for the entre perod begnnng from that (ate and endng wth
December 31, 10 1. Corporaton had accumuated earnngs or pnfts of
P 0.000, Immedatey pror to anuary 1, 10 0, and had earnngs or profts of
SIO.OOO for each ta abe year durng the unnterrupted perod from anuary 1.
10 0. through December s, 10 1. It derved for the perod from anuary 1,19 0,
through December 31, 19 0, f percent of ts gross Income from sources wthn
the Unted States, and n 19 1 derved 9 percent of ts gross ncome from
sources wthn the Unted States. Durng the caendar years 19 0, 19 1, 19 2,
19 3. and 19 corporaton dstrbuted n each year 1 ,000; durng the
caendar years 19 , 10 0. 19 7, 19 , 19 9. and 1C 0 t dstrbuted In each
year ,000; nud durng the year 19 1, 0,000. For 10 1 a dvdends-receved
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
( 27
credt of 31,02 w bo gven corporaton wth respect to the . .0,000 rpceved
from corporaton , computed as foows:
(1) ,07 whch Is , 00 ( percent of the 10,000 of earnngs or profts
of the ta abe year) mutped by 9 percent (the porton of the gross
Income of cormrnton derved durng the ta abe year from sources
wthn the Unted States) pus
(2) 22,9 0 whch Is 1 , 00 ( percent of 30,000 (that part of the
earnngs or profts accumuated after the begnnng of the unnterrupted
perod)) mutped by 90 percent (the porton of the gross Income derved
from sources wthn the Unted States durng that porton of the unnter-
rupted perod endng at the begnnng of the ta abe year).
If. n the foregong e ampe, corporaton for the ta abe year 1 ) 1 had
Incurred a defct of 10,000 (shown to have been Incurred pror to December
31), and If It had dstrbuted 0,000 on December 31. 10 1. the dvdends
receved credt whch corporaton woud receve woud be 1 ,300, computed
by mutpyng 17,000 ( percent of 20,000 earnngs or profts accumuated
nfter the begnnng of the unnterrupted perod) by 90 percent (the porton of
the gross Income from Unted States sources durng thnt part of the unnter-
rupted perod endng at the begnnng of the ta abe year).
mendment No. : Ths amendment adds to secton 1 of the Code (rentng
to ndvdua returns) a new subsecton (g) provdng for the fng of n ont
return by a ta payer and hs spouse for a ta abe year for whch a ont return
coud have been made under secton 1(b) even though the tme prescrbed
by aw for fng the return for such ta abe year has e pred. Ths provson
Is effectve wth respect to ta abe years begnnng after December 31, 10 0:
The ouse recedes.
mendment No. : Ths amendment adds secton 313 to the b whch rentes
to Income ta treatment of mutn: savngs banks, budng and oan assocatons,
and cooperatve hunks, effectve wth respect to ta abe years begnnng nfter
December 31,19 1. The ouse recedes wth nn amendment.
Subsecton (a) of secton 313 as agreed to In conference repeas secton 101(2)
of the Code (reatng to e empton from tu of mutua savngs banks).
Subsecton (b) amends secton 101( ) of the Code to repea the e empton
from ta of budng and oan assocatons and cooperatve banks. Credt
unons wthout capta stock organzed and operated for mutua purposes and
wthout proft w reman ta -e empt under secton 101( ) of the Code.
The amendment to secton 101( ) of the Code made by subsecton (b) w
aso contnue to e empt from ta corporatons or assocatons wthout capta
stock organzed pror to September 1, 1 1, and o|erated for mutua purposes
and wthout proft for the purpose of provdng reserve funds for. and nsurance
of, shares or deposts n ( ) domestc bndng and oan assocatons (as de-
fned n sec. 3797(a) (19)), ( ) cooperatve bauks wthout capta stock organ-
sed and operated for mutua purposes and wthout proft, or (C) mutua savngs
banks not havng capta stock represented by shares.
Subsecton (c) amends secton of the Code to add to the st of corpora-
tons e empt from the e cess profts ta any mutua savngs bank not havng
capta stock represented by shares, any domestc budng and oan assocaton
(as defned n sec. 3797(a) (19)), and any cooperatve bank wthout capta
stock organzed and operated for mutua purposes and wthout proft.
Subsecton (d) amends secton (h) of the ome Owners Loan ct of 1933
( Stat. 132; 12 U. S. C, sec. 1 6 (h)), to remove the anguage n such secton
e emptng Federa savngs and oau assocatons from Federa ncome ta ,
war-profts, and e cess profts ta es, n the case of ta abe years begnnng after
December 31, 19 1. These assocatons w not, of course, be sub|ect to the
e cess profts ta , by reason of the amendment made by subsecton (c).
Subsecton (e) amends secton 23(k)() (reatng to deducton from gross
Income of bad debts) to provde rues wth respect to a reasonabe addton to
a reserve for bad debts n the case of a mutua savngs hank not havng capta
stock represented by shares, a domestc budng and oan assocaton, and a co-
operatve bank wthout capta stock organzed and operated for mutua pur-
poses and wthout proft. Where 12 percent of the tota deposts or wthdrawabe
accounts of the Insttuton s depostors at the cose of the ta abe year e ceeds
the sum of Its surpus, undvded profts and reserves at the begnnng of the
ta abe year t may take a deducton for a reasonabe addton to a reserve
for bad debts for such year n any amount determned by t to be a reasonabe
addton for such year, e cept that such amount sha not be greater than the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
62
esser of ( ) the amount of ts net ncome for such year computed wthout r -
gard to ths provson, or (13) the amount by whch such 32 percent of ts tota
deposts e ceeds ts surpus, undvded profts, and reserves at the begnnng of
such year. Where the sum of the nsttuton s surpus, undvded profts, and
reserves at the begnnng of the ta abe year equas or e ceeds 12 percent of
ts tota deposts or wthdrawabe accounts at the cose of such year, any deduc-
ton for such year for a reasonabe addton to a reserve for bad debts w be
determned under the genera provsons of secton 23(k) (1). In determnng
a deducton for a reasonabe addton to a reserve for bad debts, and n deter-
mnng the sum of the surpus, undvded profts, and reserves, there w be
taken nto account surpus, undvded profts, and bad debt reserves accumuated
pror to the cose of December 31, 10 1 (. e., durng the perod for whch the
nsttuton was not sub|ect to ta aton).
Subsecton (f) amends secton 23(r) (reatng to the deducton from gross
ncome of certan dvdends pad by bankng corporatons) to provde that n
the case of mutua savngs banks, cooperatve banks, and domestc budng and
oan assocatons (for defnton of domestc budng and oan assocatons, see
secton 3707(a) (19) as added by secton 313() of the b), there sha be
aowed as deductons n computng net ncome any amounts pad to, or credted
to the accounts of, depostors or hoders of accounts as dvdends on ther de-
posts or wthdrawabe accounts, f such amounts may be wthdrawn on demand
sub|ect ony to customary notce of ntenton to wthdraw. For e mpe, f an
nsttuton has the rght to receve 30 days notce pror to the wthdrawa of
a depost or of any amounts pad or credted to the account thereof, the amounts
credted w nevertheess be consdered as wthdrawabe on demand sub|ect ony
to customary notce of ntenton to wthdraw.
Subsecton (g) amends secton 23 of the Code (reatng to deductons from
gross ncome) to provde a deducton for repayment of certan oans by a mutua
savngs bank not havng capta stock represented by shares, a domestc bud-
ng and oan assocaton (as defned n secton 3707(a) (19) of the Code) or a
cooperatve bank wthout capta stock organzed and operated for mutua pur-
poses and wthout proft. It provdes that amounts pad by the ta payer durng
the ta abe year n repayment of oans made pror to September 1, 19 1, by the
Unted States or any agency or nstrumentaty thereof whch s whoy owned
by the Unted States, or by a mutua fund estabshed under the authorty of the
aws of any State, sha be aowed as a deducton n computng net ncome of
the ta payer. n e ampe for ths purpose of an agency or nstrumentaty
whoy owned by the Unted States woud be the Reconstructon Fnance Cor-
poraton.
Subsecton (h) amends secton 10 (a) of the Code (defnng the term bank)
to ncude, wthn the defnton of bank, a domestc budng and oan assoca-
ton.
Subsecton () amends secton 3797(a) of the Code (reatng to defntons for
the purpose of the Interna Revenue Code) to defne the term domestc bud-
ng and oan assocaton to mean a domestc budng and oan assocaton, a
domestc savngs and oan assocaton, and a Federa savngs and oan assoca-
ton, substantay a the busness of whch s confned to makng oans to mem-
bers. Ths amendment s of a carfyng nature and s not ntended to change
the e stng meanng of a domestc budng and oan assocaton.
Subsecton (|) provdes that the amendments made by the secton sha be
appcabe ony wth respect to ta abe years begnnng after December 31, 19 1.
mendment No. 0: Ths amendment n genera amends secton 101(12) of
the Code to sub|ect ta -e empt cooperatves to norma ta and surta on earnngs
not defntey aocated to the accounts of patrons.
The ouse recedes wth an amendment makng a cerca change, and wth
the foowng addtona amendments. Frst, t s provded that amounts ao-
cated to patrons wth respect to Income not derved from patronage, f made
after the eoso of the ta abe year and on or before the ffteenth day of the nnth
foowng month, sha be consdered as made durng the ta abe year to the
e tent such aocatons are attrbutabe to ncome derved before the cose of
the ta abe year. Second, t s made cear that n takng nto account patronage
dvdends to patrons wth respect to ther patronage n computng the net ncome
of the cooperatve, t s mmatera whether such dvdends reate to patronage
of the ta abe year of the cooperatve or to patronage of precedng ta abe
years. Thrd, the provson of the Senate amendment reatng to wthhodng
on patronage dvdends n the event wthhodng s requred on corporate dv-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
629
dentn Is Rtrcken from the h. Fourth. It s provded thnt the provsons of
subsecton (f) of secton 1 (reatng to Informaton returns of patronage
dvdends pad by corporaton. ), ns amended hy the Senate amendment, sha
not appy n the case of any corporaton (ncudng any cooperatve or nonproft
corporaton encased n rura eectrfcnton) e empt from ta aton under sta ton
101 (10) or (11) or In the case of any Insurance corporaton sub|ect to n ta
mposed by suppement .
Under the conference agreement, patronage dvdends aocated hy a coopera-
tve to Its patrons w not be treated as ta abe ncome to the cooperatve.
mendment No. 7: Ths amendment, whch adds a new subparagraph (D)
to secton 102(d) (1) of the Interna Revenue Code, provdes tha the e cess of
the net ong-term capta gan for the ta abe year over the net short-term
capta oss for such year, ess the ta es mposed hy chapter 1 of the Code attrb-
utabe to such e cess, sha.be deducted from the net ncome n computng secton
102 net ncome. owever, the Tact that such e cess s not to be taken Into
account n the ta bass on whch the penaty ta under secton 102 s mposed
w not prevent capta gans from beng taken Into consderaton n determn-
ng whether earnngs or profts of a corporaton have been permtted to accumu-
ate beyond the reasonabe needs of the busness. The ouse recedes.
mendment No. : Ths amendment amends secton 112(b)(7) of the Code
(reatng to eecton as tc recognton of gan n certan corporate qudatons),
so as to make t appcabe to cases n whch the qudaton s pursuant to a
pan adopted after December 31, 19 0, and the transfer of a the |.roperty under
the qudaton occurs wthn one caendar month n 19 1 or 19 2. The ouse
recedes.
mendment No. 9: Ths amendment amends sectons 112(b) and 113(a) of
the Code to provde for the nonreco nton of gan n certan cases, where, pur-
suant to a pan of reorganzaton, a sharehoder of a corporaton whch s a
party to the reorganzaton receves stock (other than preferred stock) n an-
other corporaton whch Is a party to the reorganzaton wthout the surrender
by such sharehoder of stock. Ths amendment s appcabe wth respect to
ta abe years endng after the date of the enactment of ths ct, but appes
ony wth respect to dstrbuton of stock made after such date. The ouse
recedes.
mendment No. 0: Ths s a cerca amendment. The ouse recedes.
mendment No. 1: Secton 303 of the ouse b provdes, n genera, that
any gan from a sae of property used by the ta payer as hs prncpa resdence
w not be recognzed f the ta payer wthn a perod begnnng 1 year pror to
the date of such sae and endng 1 year after such date purchases property and
uses t a.s hs prncpa resdence e cept to the e tent that the ta payer s seng
prce of the od resdence e ceeds hs cost of purchasng the new resdence. The
Senate amendment provdes that, where the ta payer Is constructng the new
resdence, such perod sha Incude 1 , rather than 12, months after such sae.
If the ta payer commenced constructon of the new resdence more than 1 year
pror to the date of the sae of the od resdence, n determnng the ta payer s
cost of budng the new resdence there w be ncuded ony so much of th3
cost as Is attrbutabe to the constructon made durng the perod begnnng 1
year pror to the date of the sae of the od resdence and endng 1 months after
such date. The ouse recedes.
mendment No. 2: Ths s a cerca amendment. The ouse recedes.
mendment No. 3: The ouse b granted a percentage depeton aowance
at the rate of percent n the case of deposts of asbestos, sand, grave, stone
(Incudng pumce, scora, and sute), brck cay, te cay, shae, oyster she,
cam she, grante, and marbe. The Senate amendment granted percentage
depeton n the case of asbestos at the rate of 10 percent and added to the above
st sodum chorde and, f produced from brne wes, cacum chorde, mag-
nesum chorde, potassum chorde, and bromne. The Senate amendment
removed sate from the parenthetca cause foowng stone and ncuded t as a
separate tem n ths percent category. The ouse b Increased the percent
rate of percentage depeton now aowed for coa to 10 percent. The Senate
amendment foowed ths treatment n the case of coa and ncuded n ths new
10 percent category those mneras whch the ouse b woud have aowed
percentage depeton at a rate of 1 percent. These mneras are bora , fuer s
earth, trpo, refractory and fre cay, quartzte, perte, datomaceous earth,
metaurgca grade mestone, and chemca grr.de mestone. The Senate
amendment aso added woastonte, ugneste, doomte, bructe, and cacum
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
630
and magnesum carbonates, to ths 10 percent st, and added apte and gurnet
to the st now aowed percentage depeton at the 1 percent rate.
The b, as passed by both the ouse and the Senate, made technca amend-
ments to secton 11 (b)( )( ) whch do not ater ts substance. The ouse
b changed the parenthetca cause, statng that thenardte produced from
brnes or m tures of brne woud be aowed psreeutage depeton, to state that
thenardte, ncudng thenardte from brnes or m tures of brne, woud be
permtted such aowance. The Senate amendment acheved the same effect
by strkng the parenthetca cause.
The amendments made by both ouses are appcabe ony wth respect to
ta abe years begnnng after December 31, 19 0.
The ouse recedes wth an amendment whch restores bora -, fuer s earth,
trpo, refractory nnd tre cay, quartzte, datomaceous earth, metaurgca
grade mestone, and chemca grade mestone to the 1 percent category n whch
they appeared n the ouse b and whch removes potassum chorde from the
st of mneras to whch the Senate b granted the percentage depeton aow-
ance at the percent rate. Potassum chorde s entted, under e stng aw, to
percentage depeton aowance at 1 percent. Under the conference agreement
cacum carbonates are granted an aowance of 10 percent, whe marbe, whch
s a cacum carbonate, receves percent. It s ntended, n any case where a
mnera s specfcay provded for at a stated rate of percentage aowance, that
the specfc provson w govern over the aowance provded (whether hgher
or ower) for a more genera cassfcaton.
It s the ntenton, n ncudng stone n the percent percentage depeton
category, to mt such term to ts commony understood meanng. Thus, depe-
ton wovdd be aowed n the case of common stone whch s crushed for use n
budng roads but woud not be aowed n the case of precous stones such as
damonds.
mendment No. : Secton 11 (g) (3) of the Interna Revenue Code provdes
n substance that secton 11 (g)(1), reatng to the treatment as dvdends of
amounts dstrbuted n redempton of stock, sha be nappcabe where the
redempton s of stock the vaue of whch s ncuded n determnng the vaue
of the gross estate of n decedent provded, among other mtatons, that the vaue
of the stock n such corporaton comprses more than 0 percent of the vaue of
the net estate of the decedent. Under the Senate amendment, the 0 percent
mtaton woud be reduced to 2 percent. The ouse recedes wth an |mend-
ment under whch the vaue of the stock of the corporaton must comprse more
than 3 percent of the vaue of the gross estate of the decedent. The amendment
woud be appcabe wth respect to dstrbutons n redemptons made after the
date of enactment of the ct.
mendment No. : Ths amendment amends secton 116(a) of the Interna
Revenue Code so as to appy the e empton of earned ncome receved from
sources wthout the Unted States to (1) an ndvdua ctzen of the Unted
States who has been a bona fde resdent of a foregn country or countres for an
unnterrupted perod whch ncudes an entre ta abe year or (2) an ndvdua
ctzen of the Unted States who durng any perod of IS consecutve months s
physcay present In a foregn country or countres for a tota of at east 10 fo
days n such pprod. mounts pad by the Unted States or any agency thereof
do not come wthn the provsons of ths amendment. The amendment furter
amends the Interna Revenue Code to adapt the provsons respectng coecton
of ncome ta at source on wages to the substantve changes made to secton
116(a) of the Code, and to emnate wthhodng of Federa ncome ta wth
respect to wages whch are requred by aw of any foregn country to be wthhed
upon for Income ta es of suc foregn country. The ouse recedes wth a cer-
ca amendment.
mendment Nos. 0, 7, and : These are cerca amendments. The ouse
recedes.
mendment No. 9: Ths amendment strkes out the provson of the ouse
b whch provded for an ncrease, In the case of ndvduas, of the aternatve
ta on capta gans from 2 percent to 2 .12 percent. The ouse recedes wth
nn amendment provdng (effectve n the case of ta abe years begnnng after
October 31,19 1, and before November 1, 19 3) for an ncrease of the aternatve
ta from 2 percent to 20 percent. Under the conference ngreement, the amend-
ment w have no effect on a ta abe year begnnng before November 1, 19 1,
even though t.e ta abe year ends after thnt date, but the 20 percent rate w
appy n fu to a ta abe year endng after November 1, 19 3, f the ta abe year
began before that date.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
631
mendments Nos. GO, CI, and 02: These are cerca amendments. The ouse
recedes.
mendment No. 03: Ths amendment provdes rues for the. appcaton of sec-
ton 117(|) n cases where and bearng an unharvested crop s sod. The prov-
son appes n cases where the and has been hed for move than 6 months. The
perod that the crop has been on the and s mmatera. The ouse recedes.
mendment No. 6 : The ouse b contaned a provson whch, effectve for
ta abe years after 1930, amended secton 117(|)() of the Code to provde
that the term property used n the trade or busness ncudes vestock hed by
te ta payer for draft, breedng, or day purposes for 12 months or more. The
Senate amendment restates ths provson to provde that the term property used
n the trade or busness ncudes vestock, regardess of age, hed by the ta -
payer for draft, breedng, or dary purposes, and hed by hm for 12 months or
more from the date of acquston. The Senate amendment aso provded that
the term does not ncude poutry e cept that the term does ncude turkeys
regardess of age. hed by the ta payer for breedng purposes, and hed by hm
for 12 months or more from te dae of acquston. The Senate amendment aso
ncuded rues respectng effectve date. The ouse recedes wth an amendment
strkng out the reference to turkeys. Ths provson of the b s not ntended
to change te present appcaton of secton 117(|) of the Code to race horses n
any stuaton n whch such race horses fa wthn the term property used n
e trade or busness.
mendments Nos. ( through 72: Secton 307 of the ouse b (whch corre-
sponds to secton 323 of the Senate b) e tended capta gans treatment to
certan coa royates. The Senate amendments added certan addtona rues
and conformng amendments to other sectons of the Code. The ouse recedes on
amendments Nos. 0 , 00, OS, 09, 70, 71, and 72, and recedes on amendment No. 07
wth an amendment whch strkes a references to tmber, and whch provdes
that the provsons n regard to coa added by the b sha have no appcaton
tor the purpose of appyng secton 102 or subchapter of chapter 2, ncudng
the computaton under secton 117(c) (1) of a ta n eu of the ta mposed by
secton 00.
mendment No. 73 : Ths s a cerca amendment. The ouse recedes.
mendment No. 7 : The ouse h provded that the amendments reatng to
coapsbe corporatons sha be appcabe to ta abe years begnnng after
December 31, 11) 0. Ths amendment mts the effectve date to ta abe years
endng after ugust 31, 19 1, and mts the appcaton of the amendment to
gans reazed after such date. The ouse recedes.
mendment No. 7 : Ths s a cerca amendment. The ouse recedes.
mendment No. 70: Secton 30 ) of the ouse b added a new subsecton (n)
to secton 117 of the Code to provde rues for the treatment of capta gans and
ordnary osses by a deaer n securtes n order to prevent the deaer from
obtanng the most benefca ta resut by a shft n securtes from one account
to another or by nsuffcent dentfcaton of securtes aeged to be wthn a
partcuar account. Under the amendment the provsons of secton 117 n) are
made nappcabe to the e tent that these provsons are nconsstent wth the
provsons of secton 117t) reatng to bond, etc., osses of banks. The ouse
recedes.
mendment No. 77: Ths amendment strkes out secton 310 of the ouse b.
The ouse recedes wth an amendment whch adds a new subsecton (o) to secton
117 of the Interna Revenue Code so as to provde that n the case of a sae or
e change, drecty or ndrecty, of deprecabe property (1) between husband
and wfe, or (2) between an ndvdua and a corporaton n whch he, hs spouse,
and hs mnor chdren and mnor grandchdren own more than 0 percent of
the vaue of the outstandng stock, any gan recognzed to the transferor sha
be consdered ordnary ncome and not capta gan. The transfer of the property
can be from the corporaton to the stockhoder or from the stockhoder to the
corporaton. The property transferred must be property whch n the hands of
the transferee s property of a character whch s sub|ect to the aowance for
deprecaton provded n secton 23(1) of the Code. Ths amendment sha be
appcabe ony wth respect to saes or e changes mane after May 3, 19 1.
mendment No. 7 : Ths amendment adds a new subsecton to s cton 117 of the
Code to provde that certan payments receved by an empoyee after the termna-
t on of hs empoyment, whch under e stng aw are ta abe as ordnary ncome,
sha be treated as gans from the sae or e change of a capta asset hed for more
than 6 months. The ouse recedes wth cerca amendments and wth an
amendment whch provdes that such payments (commencng after termnaton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
632
of the empoyment) must be payabe for a perod of not ess than years or for
the perod of the empoyee s fe foowng the termnaton of hs empoyment.
mendment No. 7 ): Ths amendment, for whch there s no correspondng pro-
vson n the ouse b, amends secton 122(b) (2) (reatng to the amount of
net operatng oss carry-overs) to provde for a -year carry-over of 19 and 19 9
net operatng osses by both corporate and noncorporate ta payers, and for a
-year carry-over of 19 6 and 19 7 net operatng osses by certan new corpora-
tons. The amendments to secton 122(b) (2) are made appcabe n computng
the net operatng-oss deducton for ta abe years begnnng after December 31,
19 . The ouse recedes wth an amendment whch emnates the provsons
of the Senate amendment for the carry-over of 19 G net operatng osses by new
corporatons, rednees from four to three the number of years to whch the 19 7
net operatng oss may be carred forward by new corporatons, and reduces from
four to three the number of years to whch 19 and 19 9 net operatng osses
may be carred forward by a ta payers.
mendment No. 0: Ths amendment amends subsecton (d) of secton 130 .
reatng to defnton of the term restrcted stock opton, to provde that f the
grant of an opton s sub|ect to stockhoder approva, the date of the grant of the
opton sha be determned as f the opton had not been sub|ect to stockhoder
approva.
The amendment s made effectve as f t had been enacted as a part of secton
21 of the Revenue ct of 19 0. The ouse recedes wth a cerca amendment.
mendment No. 1: Ths amendment adds to the b a new secton 331 pur-
suant to the provsons of whch (1) a domestc corporaton whch owns at east
10 percent of the votng stock of a foregn corporaton from whch t receves
dvdends n a ta abe year w, for purpose of computng the foregn ta credt
of such domestc corporaton, be deemed to have pad a proporton of certan
foregn ta es pad, or deemed to be pad, by such foregn corporaton, and (2) such
foregn corporaton w, for the purpose of the above computaton, be deemed to
have pad a proporton of certan foregn ta es pad by any other foregn corpora-
ton from whch t receves dvdends n a ta abe year, f the former foregn
corporaton owns a ma|orty of the votng stock of the atter foregn corporaton.
The ouse recedes wth a cerca amendment and an amendment pursuant to
whch (2) above w be operatve f the former foregn corporaton owns 0
percent or more of the votng stock of the atter foregn corporaton.
mendment No. 2: Ths amendment amends secton 1 7 of the Code to gve
to the Secretary the authorty to requre nformaton returns reportng payments
of nterest, regardess of amount. Under e stng aw, e cept n the case of
certan payments, nformaton returns may not be requred from persons makng
payment of nterest uness the payment s 000 or more. The ouse recedes
wth a cerca amendment.
mendment No. 3: Ths amendment adds a new secton 1 to suppement D
of chapter 1 of the Code, reatng to returns and payment of tn es.
Such secton 1 provdes that, where any ndvdua des after une 2 . 19 1,
and pror to anuary 1, 19 , whe n actve servce as a member of the rmed
Forces of the Unted States, f hs death occurred whe servng n a combat zone,
as determned under secton 22(b) (13) of the Code, or at any pace as a resut of
wounds, dsease, or n|ury ncurred whe so servng, (1) the ta mposed by
chapter 1 of the Code w not appy wth respect to the ta abe year n whch
fas the date of hs death, or wth respect to any pror ta abe year whch ended
on or after the frst day he was so servng n a combat zone after une 2 , 19 0,
and (2) the ta (ncudng nterest, addtons to the ta , and addtona amounts)
mposed by chapter 1 of the Code and under the correspondng tte of each pror
revenue aw for n ta abe year - precedng those specfed n (1) above, whch s
unpad at the date of hs death sha not be assessed, and f assessed the assess-
ment sha be abated, and f coected sha be credted or refundedTs an overpay-
ment. The ouse recedes wth a cerca amendment.
mendment No. : Ths amendment amends secton 16 (b)-of the Code,
reatng to dstrbutons to an empoyee by a trust whch quafes for e empton
under secton 16 (a).
Under secton G (b), amounts dstrbuted or made avaabe to an empoyee
by such a trust (n e cess of the empoyee s contrbutons) are ta ed to the
empoyee ony n the years n whch dstrbuted or made avaabe and. f the
tota dstrbutons are pad to the empoyee n one ta abe year on account of the
empoyee s separaton from the servce, the amount of the dstrbuton (to the
e tent e ceedng the empoyee s contrbuton) s ta ed at capta gan rates
(as from sae or e change of a capta asset hed for more than months).
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
633
Under the amendment, where such a tota dstrbuton occurs n one ta abe
year, and conssts n whoe or n part of securtes of the empoyer corporaton,
that part of the e cess (of the amounts dstrbuted over the amount of the em-
Ioyee s contrbutons) as conssts of net unreazed apprecaton attrbutabe to
that part of the tota dstrbutons made In securtes of such empoyer corpo-
raton sha be e cuded from ncome n the year of dstrbuton, and sha be sub-
|ect to ta ony when the securtes are sod (or otherwse dsposed of n a ta -
abe transacton). The amount of the net unreazed apprecaton whch s e -
cuded sha n the hands of the recpent not be ncuded n the bass of the stock
or other securtes dstrbuted.
The ouse recedes wth an amendment provdng that the proposed treatment
Is aso to appy to securtes ssued by a parent or subsdary corporaton of the
empoyer corporaton.
mendment No. : Under secton 311 of the ouse b, the speca rue for
19 9 and 19.10, set forth n secton 202(b) (2) of the Code for use n determnng
the reserve and other pocy abty credt of fe nsurance companes, woud
have been e tended to appy to ta abe years begnnng n 10 1. Under ths
amendment there s substtuted for ths provson a system for ta ng such com-
panes, but ony for ta abe years begnnng n 19 1, whch s dfferent from that
contaned n present aw. Under ths system, n eu of aowng fe nsurance
companes an ad|ustment of ther norma ta net ncome and of ther corporaton
surta net ncome, by means of the reserve and other pocy abty credt, for
purposes of a ta mposed at the reguar corporate rates, a ow-rate ta s mposed
on the norma ta net ncome of such companes wthout aowance of any such
credt. Under the Senate amendment there s mposed for 19 1 a ta equa to 3
percent of the frst 200,000 of the 19 1 ad|usted norma ta net ncome of such
companes and O G percent of the amount n e cess thereof. The ouse recedes
wth a cerca amendment.
mendment No. 0: Ths Is a cerca amendment. The ouse recedes wth
a cerca amendment.
mendment No. 7: Ths amendment makes technca and carfyng changes
n the secton of the ouse b provdng for ta treatment under suppement
of chapter 1 of the Code of certan regstered management nvestment com-
panes certfed by te Securtes and change Commsson as prncpay en-
gaged n furnshng capta to corporatons prncpay engaged n deveopment
or e potaton of nventons, technoogca mprovements, new processes, or prod-
ucts not prevousy generay avaabe. The ouse recedes.
mendment No. S : Ths amendment, for whch there s no correspondng
provson n the ouse b, makes a mnor change n the defnton of system
group contaned n secton 373(d) of the Interna Revenue Code. Under ths
amendment, n determnng whether one or more of the corporatons n a utty
system owns the requred 90 percent of each cass of the stock of another corpo-
raton n the same system, there Is dsregarded not ony stock whch s preferred
to both dvdends and assets, whch type of stock may be dsregarded for ths
purpose under present aw, but aso stock whch s mted and preferred as to
dvdends but whch s not preferred as to assets, provded that the tota vaue
of such stock s ess than 1 percent of the aggregate vaue of a casses of stock
whch are not preferred as to both dvdends and assets. Ths amendment s ap-
pcabe to a ta abe years affected by e changes and dstrbutons made after
December 31, 19 7. The ouse recedes wth a cerca amendment.
mendment No. 9: Ths amendment sub|ects governmenta coeges and
unverstes and corporatons whoy owned by such coeges or unverstes to the
suppement U ta on ther unreated busness net ncome, effectve for ta abe
years begnnng after December 31, 19 1. The ouse recedes wth a cerca
amendment.
mendment No. 00: Ths Is a cerca amendment. The nouse recedes wth
a cerca amendment.
mendment No. 91: Ths amendment provdes for retroactve appcaton to
ta abe years begnnng after December 31, 193 , and before anuary 1, 19 1, of
the provsons added by the b to the Interna Itevenue Code wth respect to the
treatment of famy partnershps for ncome ta purposes, whch provsons are
appcabe generay to ta abe years begnnng after December 31, 19 0. The
ouse recedes wth an amendment revsng the effectve date provson to pro-
vde that the amendments made by the b wth respect to famy partnershps
sha be appcabe ony wth respect to ta abe years begnnng after December
31, 19 0, and to provde rues for cases where the ta abe year of the partner
dffers from that of the partnershp.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
63 -
In appyng the proposed treatment of famy partnershps to ta abe years be-
gnnng after December 31, 1960, where the ta abe year of a partnershp begn
In 19 0 and ends wthn or wth, as to a the famy partners, ta abe years whch
begn In 19 1, the proposed treatment sha appy to a dstrbutve shares derved
by the famy partners from the ta abe year of the partnershp begnnng n
19 0; however, where a ta abe year of the partnershp endng In 19 1 (whether
begnnng n 19 0 or 19 1) ends wthn or wth a ta abe year of a famy partner
whch began In 19 0, the proposed treatment Is not appcabe to any of the ds-
trbutve shares of ncome derved by the famy partners from such ta abe year
of the partnershp.
mendment No. 92: Ths amendment, for whch there s no correspondng
provson n the b as t passed the ouse, amends secton 1 of the Code to
provde an aternatve treatment of war oss recoveres, appcabe at the eecton
of the ta payer. Under the amendment the amount of the recovery, to the e -
tent that t does not e ceed the aowabe deductons n pror ta abe years on
account of the destructon or sezure of property n respect of whch the recovery
s receved, s e cuded from gross ncome for the ta abe year In whch the re-
covery s receved. In eu of ncudng such amount In gross ncome for the
ta abe year of the recovery, there Is to be added to the ta mposed by chapter 1
for such ta abe year the tota ncrease In the ta under chapter 1 and -. hapter 2
for a ta abe years whch woud resut by decreasng, n an amount equa to
such part of the recovery so e cuded, deductons aowabe n pror ta abe years
wth respect to the destructon or sezure of the property. To the e tent that
the amount of the recovery e ceeds the aowabe deductons n pror ta abe
years on account of the destructon or sezure of the property, such amount s
treated for the ta abe year of the recovery as gan on the nvountary converson
of property and s recognzed or nonrecognzed as provded n secton 112(f).
Ths amendment aso provdes a new rue for the determnaton of the unad|usted
bass of property where the aternatve treatment of the recovery s appcabe
pursuant to eecton made by the ta payer. The ouse recedes wth amendments
whch revse secton 127(c) (3) ( ) and ( ), and make mnor changes In the
phrasng of secton 127(c) (3) ( ) and (C) and secton 127(d) (2). The effectve
date of the amendment s aso changed so that t w be appcabe to ta abe
years begnnng after December 31, 19 1.
Secton 127(c) (3) ( ), reatng to the defnton of amount of recovery for
the purposes of the new aternatve treatment, s revsed under the conference
agreement so that n the case of recovery of the same property or nterest con-
sdered under secton 127(a) as destroyed or sezed, such property or nterest may
be ncuded n the amount of recovery at ts far market vaue, determned as
of the date of recovery, or at the opton of the ta payer at the ad|usted bass (for
determnng oss) of such property or Interest n the hands of the ta payer on
the date of the oss. Subparagraph ( ) Is aso revsed to provde that for the
purposes of secton 127(e)(3) ( ) and (G) (but not secon 127(d)(2)) the
amount of recovery sha be reduced by the amount of the obgatons or abtes
wth respect to the property recovered, f the ta payer for any prevous ta abe
year chose under secton 127(b)(2) to treat such obgatons or abtes as
dscharged or satsfed out of such property, and such obgatons or abtes
were not so dscharged or satsfed pror to the date of the recovery.
These two new rues ncorporated Into secton 127(c) (3) ( ) may be ustrated
by the foowng e ampes:
ampe (1) : The ta payer on December 11,19 1, owned ackacre, a property
ocated n Germany. The ad|usted bass of such property n the hands of the
ta payer on such date was 1,000,000. Under secton 127(a) such property was
deemed destroyed or sezed n the year 19 1 and the ta payer s oss of 1.0u0.000
was an aowabe deducton for such year whether or not the ta payer camed
such deducton. recovery wth respect to such oss s requred to be taken
nto account under secton 127(c). ssume that n 10 0 the ta payer recovered
ths property and that on the date of recovery t had a far market vaue of
00,000. If the ta payer eects to proceed under the provsons of secton
127(c) (3), he has an opton to Incude In the amount of the recovery respectng
ths property ether the far market vaue on the date of the recovery ( 00,000)
or an amount equa to the ad|usted bass of the property as of the date of the
oss ( 1,000,000). ssumng the ta payer had no prevous recovery wth respect
to ths property, Its unad|usted bass under secton 127(d)(2) for the perod
subsequent to recovery woud be 00,000 or 1,000,000 dependng upon whether
the ta payer chose to Incude the property n the amount of recovery n 19 0
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
63
at ts far market vaue on the date of the recovery or ts ad|usted bass as of the
date of oss. If the ta payer chooses to treat 1,000,000 (the ad|usted bass of
the property on the date of the oss n 19 1) as the amount of the recovery, there
woud be added to the ta for 19 0 the tota ncrease n the ta whch woud
resut by decreasng from 1,000,000 to zero the amount of the deducton aowabe
n 19 1 on account of the destructon or sezure of ackacre. If the ta payer
chooses to treat ony 00,000 (far market vaue on date of recovery) as the
amount of the recovery, there woud be added to the ta for 19 6 the amount
of the tota ncrease n ta resutng from decreasng to 00,000 the amount of
the deducton aowabe In 19 1. If the 1,000,000 aowabe as a deducton n
19 1 dd not resut n any ta beneft, then there woud be nothng to be added
to the ta for 19 6, whether the ta payer chooses the amount of the recovery as
00,000 or as 1,000,000.
ampe (2) : The ta payer on December 11, 19 1, owned an ndustra pant
n Germany. The ad|usted bass of such property n the hands of the ta payer
on such date was ,000,000. The property on such date was sub|ect to a mort-
gage of 3,000,000. Under the provsons of secton 127(b) (2) the ta payer chose
to treat the mortgage as dscharged or satsfed out of the property. ssume
that n 19 6 the ta payer recovered ths property and that on the date of recovery
t had a far market vaue of ,000,000, and s st sub|ect to the mortgage of
3,000,000. If the ta payer eects to have the provsons of secton 127(c) (3)
appy, the amount of the recovery respectng ths property for the purposes of
subparagraph ( ) s consdered to be 2,000,000. Snce ths amount s equa
to the aowabe deducton n 19 1 under secton 127(b), a of such amount s
e cuded from gross ncome n 19 6; however, there s to be added to the ncome
ta for such year the tota ncrease n the ta under chapter 1 and chapter 2 for
a ta abe years whch woud resut from emnatng the aowabe deducton of
2,000,000 n 19 1. For the purposes of paragraph (C) the amount of recovery
s kewse consdered to be 2,000,000, so that there s no amount to be treated
for 19 6 as gan from the nvountary converson of the property. owever, ths
rue whch reduces the amount of the recovery on account of abtes and
obgatons s not appcabe n appyng the provsons of secton 127(d)(2).
Under that secton the amount of the recovery n respect of the property s
,000,000, and snce there was no amount consdered as gan upon nvountary
converson of the property n 19 6, such amount s not reduced and the bass of
the property s ,000,000.
Under the conference agreement, as under e stng aw and tho Senate amend-
ment, property consdered as destroyed or sezed tnder secton 127(a) of the
Code s consdered as not beng n e stence from the date of the oss to the
date of ts recovery. Thus, deprecaton on the recovered property s not aow-
abe for the perod between the date of the oss and the date of the recovery.
Secton 127(c) ( ), reatng to the eecton by the ta payer to have the prov-
sons of secton 127(c) (3) appy to war oss recoveres, has been revsed under
the conference agreement to provde that f the ta payer eects to have the
provsons of paragraph (3) appcabe n any ta abe year n whch he recovers
any money or property n respect of property consdered under secton 127(a) as
destroyed or sezed, the provsons of paragraph (3) sha be appcabe to a
ta abe years of the ta payer begnnng after December 31, 19 1. Such eecton
once made s rrevocabe. The eecton by the ta payer s to be made n such
manner and at such tme as the Secretary may by reguatons prescrbe. ow-
ever, no eecton may be made after December 31, 19 2, by the ta payer uness
he receves war oss recoveres durng a ta abe year endng after the date of
enactment of the Revenue ct of 19 1.
If under an eecton made by the ta payer the provsons of secton 127(c) (3)
are appcabe to any ta abe year, the perod of mtatons provded n sectons
27 and 276 of the Code for the assessment and coecton of (1) the amount to
be added to the ta for such ta abe year under secton 127(c) (3), and (2) any
defcency for such ta abe year or for any other ta abe year to the e tent at-
trbutabe to the bass of the recovered property beng determned under sec-
ton 127(d)(2), sha not e pre pror to the e praton of 2 years foowng
the date of the makng of such eecton. ny amount and any defcency spec-
fed n causes (1) and (2) of the precedng sentence mny be assessed at any
tme pror to the e praton of such 2-year perod, notwthstandng any aw or
rue of aw whch woud otherwse prevent such assessment and coecton.
Paragraph ( ) further provdes that f secton 127(c) (3) s appcabe to any
ta abe year pursuant to the ta payer s eecton, and credt or refund of any
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
63G
overpayment resutng from the ppcaton of secton 127(c) (3) to such ta abe
year Is prevented on the date of the makng of such eecton, or wthn 1 year
from such date, by any aw or rue of aw (other sec. 3761 of the Interna Reve-
nue Code, reatng to compromses), credt or refund of such overpayment may
nevertheess be made or aowed f cum therefor s fed wthn 1 year from
such date.
Paragraph ( ) further provdes that In the case of any ta abe year endng
before the date of the makng by the ta payer of an eecton, no nterest sha
be pad upon any overpayment resutng from the appcaton of the provsons
of secton 127(c) (3) to such year, and no nterest sha be assessed or coected
wth respect to any amount or any defcency specfed In causes (11 and (2)
above, for any perod pror to the e praton of G months foowng the date of
the makng of such eecton by the ta payer.
mendment No. 93: Ths amendment adds a new subsecton (ft) to secton 23
of the Code (reatng to deductons from gross ncome), provdng that e -
pendtures pad or ncurred durng the ta ahe year for the purpose of ascer-
tanng the e stence, ocaton, e tent, or quaty of any depost of ore or other
mnera, and pad or ncurred pror to the begnnng of the deveopment ftase of
the mne or depost, may be deducted n computng net ncome for the ta abe
year, e cept to the e tent that such e pendtures e ceed 7 ,000. The subsec-
ton further provdes that the ta payer may eect to treat as deferred e pense
any porton of such deductbe amount, n whch event such deferred porton
sha be deductbe on a ratabe bass as the unts of produced ores or mneras
dscovered or e pored by reason of such e pendtures are sod. No deducton
may o taken under ths new subsecton If n any four precedng years (not nec-
essary consecutve years) the ta payer, or any ndvdua or corporaton (who
has transferred to the ta payer any mnera or ore property under crcumstances
whch make the provsons of pars. (7), ( ), (11), (13), (1 ), (17), (20), or
(22) of secton 113(a) of the Code appcabe to such transfer), has taken a
deducton, or eected to treat e poraton e pendtures as deferred e pense,
under the now subsecton. The ouse recedes wth a cerca amendment.
mendment No. 0 : Ths amendment woud have added a new subsecton (n)
to secton 11 of the Code to provde a speca rue for the treatment of gan
upon the compete qudaton of a corporaton where the dstrbuton n quda-
ton Incuded stock n another corporaton to whch unmproved rea estate had
been transferred n antcpaton of such qudaton. The Senate recedes.
mendment No. 0 : Ths amendment adds paragraph (20) to secton 3797 of
the Code to provde n substance that a fu-tme fe Insurance saesman who
s an empoyee undsr the defnton contaned n the Federa Insurance Con-
trbutons ct sha be consdered to be an empoyee for the purpose of ap-
pyng the provsons of chapter 1 (such as sectons 22(b) (2) (It), 23(p), and
100) whch determne the effect of contrbutons for the beneft of, and dstrbu-
ton to, an empoyee under a stock bonus, penson, proft-sharng, or annuty
pan. The amendment a appcabe to ta abe years begnnng after 103 . The
onse recedes.
mendment No. 96: Ths amendment woud aow n fu, for purposes of com-
putng the net operatng oss (as defned by sec. 122(a) of the Code) of a
ta payer other than a corporaton, deductons aowabe under secton 23(e) (2)
(reatng to osses ncurred n a transacton entered nto for proft) and secton
23(e)(3) (reatng to osses of property not couneeted wth a trade or bus-
ness, If the osse arse from fre, storm, shpwreck, or other casuaty or from
theft). I nder e stng aw. In computng the net operatng oss n the case of
such a ta payer, secton 122(d) ( ) mts the deductons otherwse aowabe
under secton 23 of the Code whch are not attrbutabe to a trade or busness
reguary carred on by the ta payer to the e tent of the gross ncome not de-
rved from such trade or busness. The ouse recedes wth an amendment whch
removes from the present mtaton n secton 122(d) ( ) deductons for ossef
sustaned after December 31, 1 0, n respect of property, f the osses arse
from fre, storm, shpwreck, or other casuaty, or from theft. The amendment
w enabe a ta payer who s an ndvdua to take such osses nto account In
computng a net operatng oss whch may be carred back 1 year or carred for-
ward years. The amendment s made appcabe n computng the net operat-
ng oss deducton for ta abe years endng after December 31, 19 .
mendment No. 97: Ths amendment reates to the abatement of ta of cer-
tan rrevocabe trusts to the e tent that the ncome s owned by any ndvdua
|rho des on or after December 7, 19 1, whe u actve servce as a member of
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
637
te mtary or nava forces of the Unted States or of any of the other Unted
Natons and pror to anuary 1, 19 .
The ouse recedes wth an amendment whch provdes that, n the case of a
trust whch accumuated ncome for a benefcary who ded on or after Decem-
ber 7, 19 1, and before anuary 1, 19 , whe n actve servce as a member of
the mtary or nava forces of the Unted States or o. any of the other Unted
Natons, there sha be aowed as a deducton n computng the net ncome of
the trust for any ta abe year the ncome of the trust for such ta abe year,
before dmnuton for ncome ta es wth respect thereto, whch was, or woud
have been but for such dmnuton, accumuated for such benefcary.
Ths deducton sha be aowed, however, ony f (1) the ncome accumuated
was for a ta abe year of the trust whch ended wth or wthn a ta abe year
(endng on or after December 7, 19 1) of such benefcary durng any part of
whch he was a member of such mtary or nava forces, or, n the case of the
ta abe year of the trust durng whch such benefcary ded, the ncome accu-
muated was for the perod n such ta abe year pror to the death of such benef-
cary, and (2) the amount of such accumuated ncome was, wthout regard to
ths amendment, ta abe to the trust, and (3) the ncome for such ta abe year
accumuated for the benefcary, f not dstrbuted to hm pror to hs death,
was payabe by the trust at or after hs death ony to hs estate, spouse, or nea
ancestors or descendants.
mendment No. 9S: Ths amendment (effectve for ta abe years endng after
the date of enactment of ths b) woud requre a net worth statement to be fed
wt the return of any ndvdua who durng the ta abe year receved gross
ncome n e cess of 10,000 from one or more unawfu trades or busnesses. The
Senate recedes.
mendment No. 99: Ths amendment amends the fe nsurance company pro-
vsons of te Code to provde that the fe nsurance department of a mutua
savngs bank s to be ta ed as a fe nsurance company. Ths amendment s a
coroary of amendment No. , reatng to the ta aton of mutua savngs banks.
The amendment s appcabe ony wt respect to ta abe years begnnng after
December 31, 10 1.
Te ouse recedes wth an amendment whch adds a new secton 110 to the
Cede to provde the method for computng the ta of a mutua savngs bank
authorzed under State aw to conduct a fe nsurance busness and whch
conducts such a busness n a separate department the accounts of whch are
mantaned separatey from the other departments of the bank. The ta s to
consst of the sum of (1) a parta ta computed under sectons 13 and 1 of the
Code upon the net ncome of the bank determned wthout regard to any tems
o ncome or deductons propery aocabe to the fe nsurance department; and
c2) a parta ta upon the net ncome of the fe nsurance department deter-
mned wthout regard to any tems of ncome or deductons not propery aocabe
to such department at the rates and n the manner provded n suppement G
v.th respect to fe nsurance companes. In determnng the net ncome for
Iurposcs of such parta ta es no account sha be taken of any transactons
between te nsurance department and the bank or any other department thereof.
The amendment s appcabe ony wth respect to ta abe years begnnng
after December 31, 19 1.
mendment No. 100: Ths amendment adds at the end of secton 22(b) of
te Code (reatng to defnton of unreated trade or busness for te purpose
of determnng the unreated busness net ncome sub|ect to the suppement U
ta ) a speca rue wth respect to pubshng busnesses carred on by coeges
and unverstes. Ths amendment s appcabe wth respect to ta abe years
begnnng after December 31, 19 0, and pror to anuary 1, 39 3. The purpose
of ths amendment s to afford an organzaton (e empt under sec. 101(C) and
sub|ect to suppement U) whch owns a pubshng busness mted opportunty
to conform or reate such pubshng busness to ts educatona or other e empt
purposes wthn the tme specfed n the amendment, and thus be reeved of
suppement U ta thereon for ta abe years precedng the ta abe year n whch
the actvty becomes reated. The ouse recedes wth a carfyng amendment.
mendment No. 101: Ths amendment, for ta abe years begnnng pror to
anuary 1, 19 , treats as reated, for the purposes of the ta mposed by suppe-
ment U, an unreated trade or busness carred on by certan educatona organ-
zatons. The ouse recedes wth an amendment whch adds at the end of
secton 2(a) (reatng to the defnton of unreated busness net ncome for the
purpose of the suppement U ta ) a speca rue wth respect to unreated trades
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
63
or busnesses carred on In partnershp by certan educatona organzatons.
The amendment s appcabe wth respect to ta abe years begnnng after
December 31, 19 0, and pror to anuary 1, 19 .
mendment No. 102: Ths amendment adds a new subsecton (e) to secton
0 of the Code reatng to the computaton of undstrbuted subchapter net
Income for purposes of the mposton of the surta on persona hodng com-
panes. Subsecton (e) w provde for the deducton, for purposes of com-
putng undstrbuted subchapter net ncome, of an amount by whch the unds-
trbuted subchapter net ncome determned wthout regard to subsecton (e)
e ceeds the amount whch coud be dstrbuted on the ast day of the ta abe
year as a dvdend (1) wthout the voaton of any acton, reguaton, rue, order,
or procamaton made under the Tradng Wth the nemy ct of October 16,1917,
as amended, or the Frst War Powers ct of 19 1, and (2) not uh|ect to a en
Id favor of the Unted States. The amendment s appcabe to ta abe years
begnnng after 1939. The ouse recedes wth a cerca amendment.
mendment No. 103: Ths Is a technca amendment to provde that the ffth
sentence of secton 1700(a)(1) of the Code, added by Pubc Law 12 , ghty-
second Congress, sha be strcken from the Code as surpusage upon emnaton
of the second sentence as provded n the ouse b. The ouse recedes.
mendment No. 10 : Ths amendment retans the substantve provsons of the
ouse b, but dffers therefrom n the foowng respects:
(a) Whereas the ouse b woud grant an e empton from the adms-
sons ta In the case of shows or performances the proceeds of whch Inure
e cusvey to the beneft of certan organzatons, such as regous, char-
tabe, and educatona groups, no such e empton woud appy, under the
Senate amendment, In the case of any moton-pcture e hbton. Under the
Senate amendment, to come wthn the e empton prvege, a regous In-
sttuton must be a church or a conventon or assocaton of churches; an
educatona nsttuton, to be entted to the e empton, must have a reguar
currcuum and student body; and a chartabe nsttuton must be supported,
n whoe or part, by Federa or State funds or by contrbutons from the
genera pubc.
(6) The Senate amendment emnates the pre-19 1 e empton In the case
of admssons a the proceeds of whch Inure e cusvey to the beneft of
socetes for the preventon of cruety to chdren or anmas and the pre-19 1
e empton n the case of socetes or organzatons conducted for the soe
purpose of mantanng a cooperatve or communty center moton-pcture
theater.
(c) Whereas the ouse b woud e empt admssons to agrcutura fars
and to any e hbt, entertanment, or other pay feature conducted by the far
assocaton as part of the far, the Senate amendment mts the e empton
to the genera admsson charge to the far ony.
( /) The e empton granted under the ouse b In the case of benefts
conducted for or on behaf of poce or fre departments, ther members or
hers has been further mted to provde that the proceeds from such benefts
must Inure e cusvey to the beneft of the poce or re department or to a
retrement, penson, or dsabty fund for the members or ther hers.
(e) The Senate amendment aso makes t pan that an e empton from
the admssons ta Is to appy to operas as we as symphones whch recev
ther support from vountary contrbutons.
The ouse recedes wth an amendment whch provdes an e empton from
ta on admssons, the proceeds of whch nure e cusvey to the beneft of an
organzaton (organzed pror to October 1, 19 1) whch s e empt under secton
101 (0) of the Code and whch s operated for the purpose of conductng an annua
Chautauqua program o educatona, cutura, and regous actvtes at a perm
nent ocaton.
The b restores the provsons of secton 1701(c) of the Code wthout change,
so that admssons to concerts conducted by a cvc or communty membershp
assocaton (such as orchestras, chora socetes, etc.) w be e empt from ta .
mendment No. 10 : Ths s a cerca amendment. The ouse recedes.
mendment No. 106: Ths amendment grants au e empton from the adms-
sons ta coverng admssons (1) to a home or garden whch s temporary
opened to the genera pubc as part of a program carred on by a socety or
organzaton for such purpose and (2) to hstorc stes, houses, and shrnes, and
museums conducted In connecton therewth, mantaned and operated by a socety
or organzaton devoted to the preservaton of such paces. The ouse recedes.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
639
mendment No. 10T: Ths amendment provdes that the ncrease n the rate
of ta wth respect to cgarettes sha be reduced to the present rate of ta effec-
tve anuary 1, 19 . The ouse recedes wth an amendment f ng the rate
reducton date as pr 1,19 .
mendments Nos. 10 and 109: These are cerca amendments. The ouse
recedes.
mendment No. 110: Ths amendment makes provson for a foor stocks refund
on ta -pad cgarettes whch are hed for sae on anuary 1, 19 , the rate reduc-
ton date specfed n the b as passed by the Senate. The ouse recedes wth
an amendment f ng pr 1, 19 , as the nventory date to correspond wth the
change made n the rate reducton date and an amendment f ng uy 1, 19 ,
as te date before whch cams for refund must be fed.
mendment No. I: Ths amendment provdes for a reducton n the rnte of
ta on snuff and chewng and smokng tobacco from 1 cents per pound to 10 cents
per pound. The ouse recedes wth a technca amendment.
mendment No. 112: Ths amendment strkes out the provsons of secton 31
of the ouse b mposng a retaers e cse ta upon mechanca ghters for
cgarettes, cgars, and ppes. Such artces w be ta ed at the manufacturers
eve at the rate of 1 percent (see amendment No. 1 9). The ouse recedes.
mendments Nos. 113 and 11 : These amendments are cerca. The ouse
recedes.
mendments Nos. 11 and 116: These amendments provde that the retaers
e cse ta sha not appy wth respect to the sae of mnature sampes of cos-
metcs, toet artces, otons, powder, etc., ta abe under secton 2 02(a) of the
Code, made by a manufacturer or dstrbutor to a house-to-house saesman for
demonstraton purposes ony uness such sampes are resod by the saesman.
The ouse recedes.
mendment No. 117: Ths amendment s cerca. The ouse recedes.
mendment No. 11 : Ths amendment strkes out a of the provsons of the
ouse b reatng to the mposton of a ta of 2 cents per gaon upon any
qud sod or used as a fue n a Dese-powered hghway vehce. The ouse
recedes wth an amendment whch restores the ouse provsons but provdes
that effectve pr 1, 19 , the rate of ta on such fue w be reduced to
/ cents per gaon.
mendments Nos. 119 and 120: These amendments are cerca. The Senate
recedes.
mendments Nos. 121 and 122: These amendments provde that the ncrease
In ta mposed wth respect to dsted sprts generay and to mported per-
fumes contanng dsted sprts sha be reduced to the present rate of ta effec-
tve anuary 1, 19 . The ou. e recedes wth an amendment f ng pr 1, 19 ,
as the rate reducton date n eu of anuary 1,19 .
mendments Nos. 123, 12 ,12 , and 120: These amendments are cerca. The
Senate recedes.
mendments Nos. 127, 12 , and 129: These amendments provde that the
ncrease n ta wth respect to wnes of the varous cassfcatons specfed sha
be reduced to the present rate of ta effectve anuary 1,19 . The ouse recedes
wth an amendment provdng that the rate reducton date sha be pr 1, 19 .
mendment No. 130: Ths amendment s cerca. The Senate recedes.
mendment No. 131: Ths amendment provdes that the ncrease n ta mposed
wth respect to certan sparkng wnes, queurs, and cordas sha be reduced to
the present rate of ta effectve anuary 1, 19 . The ouse recedes wth an
amendment estabshng the rate reducton date as pr 1, 19 .
mendments Nos. 132, 133, 13 , 13 , and 130: These are cerca amendments.
The Senate recedes.
mendment No. 137: Ths amendment provdes that the ncrease n the rnte
of ta mposed wth respect to fermented mat quors sha be reduced to the
present rate of ta effectve anuary 1,19 . The ouse recedes wth an amend-
ment provdng that the rate reducton date sha be pr 1, 19 .
mendments Nos. 13 , 139, and 1 0: These amendments are cerca. The
Senate recedes.
mendment No. 1 1: Ths amendment provdes for foor stocks refunds wth
respect to ta -pad dsted sprts, wne, and beer hed for sae upon the term-
naton of the ta rate Increases proposed for these products n the b. The
ouse recedes wth an amendment f ng the nventory date to be used n deter-
mnng the amount of refunds as pr 1,19 , n eu of anuary 1,19 , and wth
a cerca amendment. -
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 0
mendment No. 1 2: Tbs s a cerca amendment. The ouse recedes wth
a cerca amendment.
mendment No. 1 3: Ths s a cerca amendment. The ouse recedes wth
a cerca amendment.
mendments Nos. 1 , 1 , and 1 6: These amendments are cerca. The
Senate recedes.
mendments Nos. 1 7, 1 , and 1 0: These amendments provde that the n-
crease n the occupatona ta for whoesae deaers n quor, reta deaers n
quor, and whoesae deaers n mat quor, respectvey, sha be reduced to the
present rate on and after anuary 1,19 . Under the ouse b, the ncrease n
rates was permanent. The Senate recedes.
mendment o. 1 0: Ths amendment s cerca. The Senate recedes.
mendment No. 1 1: The ouse b provded for an ncrease n the rate of
draw-back on dsted sprts used n certan nonbeverage products. The Senate
amendment makes technca revsons n ths provson so as to provde for reduc-
ton of the amount of draw-back after December 31, 10 3, to correspond wth the
reducton n the rate of ta on dsted sprts on and after anuary 1,19 . The
ouse recedes wth cerca amendments and wth an amendment provdng that
the reference to draw-becks made after December 31, 19 3, sha be changed to
March 31,19 , to take nto account the change n the rate reducton date.
mendment No. 1 2: Ths amendment s cerca. The Senate recedes.
mendment No. 1 3: Ths amendment emnates the ncrease n ta proposed
under the ouse b on bowng aeys and bard and poo tabes. The ouse
recedes.
mendment No. 1 : Ths s a cerca amendment. The ouse recedes wth a
cerca amendment.
mendment No. 1 : Ths s a cerca amendment. The Senate recedes.
mendment No. 1 6: Ths s a cerca amendment The ouse recedes wth a
cerca amendment.
mendments Nos. 1 7,1 ,1 9,160,161, and 162: These amendments are cer-
ca. The Senate recedes.
mendment No. 163: Ths amendment s technca and makes t cear that any
person who s abe for ta under subchapter of chapter 27 of the Code, as
added by the b, or who s engaged n recevng wagers for or on behaf of any
person so abe, and who commenced the actvty whch makes hm sub|ect
to ta , or who was engaged n recevng such wagers, pror to the day on whch
such ta becomes effectve sha be requred to pay the speca ta mposed by
subchapter 1 of chapter 27 . The ouse recedes wth cerca amendments.
mendments Nos. 16 and 16 : These are cerca amendments. The Senate
recedes.
mendment No. 1GC: Ths amendment provdes that the ncrease n the rate of
the manufacturers e cse ta wth respect to trucks, busses, etc., sha revert
to the present rate of ta effectve anuary 1, 19 . The ouse recedes wth an
amendment provdng that the rate reducton date sha be pr 1, 19 .
mendment No. 167: Ths amendment emnates the present ta of 7 percent
upon the sae of house traers, Incudng parts and accessores therefor. Ths
amendment w become effectve on the 1st day of (he frst month whch begns
more than 10 days after the date of enactment of the b, thus, the ta woud
appy wth respect to the sae of bouse traers made pror to such effectve
dnte and notwthstandng that such purchases may be pad for on an nstament
pan after such date. house traer woud be consdered as sod pror to
such effectve date f the rght of possesson thereto passed to the purchaser
pror to such effectve date.
The amendment aso provdes that the Increase n the rate of the manufacturers
e cse ta wth res|wet to automobe chasss and bodes, motorcyces, traers,
and semtraers (other than house traers) sutabe for use n connecton wth
automobes, sha revert to the present rate of ta wth respect to saes made
on and after anuary 1,19 . The ouse recedes wth an uucudmeut provdng
that the rate reducton date sha be pr 1,19 .
mendment No. 16 : Ths amendment provdes that the Increase n the rate of
the manufacturers e cse ta wth respect to parts and accessores for antomo-
bes sha revert to the present rate of ta wth respect to saes made on and
after anuary 1, 19 . The ouse recedes wth an amendment provdng that
the rate reducton date sha be pr 1, 10 .
mendment No. 169 : Ths s a technca amendment. The ouse recedes.
mendment No. 170: Ths s a cerca amendment. The Senate recedes.
mendment No. 171: Ths s a technca amendment. The ouse recedes.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 1
mendment o. 172: Ths s a cerca amendment. The ouse recedes wth a
cerca amendment.
mendment No. 173: Ths amendment provdes that a manufacturer of refrg-
erator components may se such components ta -free to a whoesaer or deaer f
such components are purchased for resae to a manufacturer of refrgerator
equpment and provded the reguatons prescrbed by the Secretary of the
Treasury reatng to such saes are comped wth. The ouse recedes wth
cerca amendments.
mendment No. 17 : Ths amendment (a) revses the ta abe st of sportng
goods n the ouse b to e cude basebas and baseba equpment, (6) renstates
certan tems ta abe under present aw but e cuded under the ouse b, (c)
retans the present 10 percent rate of ta wth respect to fshng equpment, and
(d) ncreases the rate of ta , ke the ouse b, wth respect to the remanng
sportng equpment to 1 percent. The ouse recedes, wth an amendment pro-
vdng that snow toboggans and seds GO nches or ess n ength, and skates, sha
not e sub|ect to ta and that the ncrease n the rate of ta sha revert to the
present rate of ta effectve pr 1,193 .
Under the provsons of the ct of ugust 9,19 0 (the Dnge- ohnson ct), an
amount equa to the revenue accrung from the ta on fshng rods and equpment
s authorzed to be approprated for assstance to the States for fsh restoraton
and management pro|ects. The amendments made by ths b w not affect
such authorzaton nor the permanency of such ct.
mendment No. 17 : Ths s a cerca amendment. The ouse recedes wth
a cerca amendment.
mendment o. 170: Ths s a cerca amendment. The ouse recedes.
mendment No. 177: Ths s a cerca amendment. The Senate recedes.
mendment o. 17 : Ths amendment strkes out eectrc drect motor-
drven fans and ar crcuators of the ndustra type and eectrc ar heaters
of the bower type from the st of tems sub|ect to the manufacturers e cse
ta under secton 3 00(a) (3) of the Code. Senate amendment No. 1S2 e empts
from the ta a appances sted n such sectons whch are of the ndustra
type.
The ouse recedes wth an amendment whch provdes that the ta mposed
by secton 3 00(a)(3) of the Code sha not appy to eectrc drect motor-
drven fans and ar crcuators of the ndustra type, and sha appy n the
case of a other appances sted n secton 3 00(a) (3), ncudng those added
to such st by the b, ony to such appances of the househod type.
mendment No. 179: Ths s a cerca amendment. The ouse recedes wth
a technca amendment to conform to the acton of the conferees wth respect
to amendment o. 17 .
mendment No. ISO: Ths amendment adds eectrc e haust bowers to the
st of tems sub|ect to the manufacturers e cse ta . The ouse recedes.
mendment o. 1 1: Ths amendment strkes out the provson of the ouse
b whch woud have added eectrc shavers to the st of appances sub|ect
to the manufacturers e cse ta under secton 3 00(a) (. ) of the Code, and
adds eectrc garbage-dsposa unts to such st. The ouse recedes.
mendment o. 1S2: Ths amendment provdes that the ta mposed by
secton 3 00(a)(3) w not appy to appances of the ndustra type. The
substance of ths amendment s covered by the acton of the conferees wth
respect to amendment No. 17S. The Sene recedes.
mendment No. 1 3: Ths amendment makes the provsons of secton 3 1(b)
(reatng to sae prce of a ta abe artce) appcabe to a stuaton where a
manufacturer has a pan of negotatng the sae of an artce to the utmate
user for and on behaf of the retaer of such artce. The Senate recedes.
mendment o. 1 : The ouse removed certan tems from the st of
artces sub|ect to the manufacturer s e cse ta on photographc apparatus,
mposed by secton 3 00(a) ( ) of the Code, and sub|ected the tems upon whch
the ta s retaned to a unform 20 percent rate.
The Sennte amendment (a) retans the present st of photographc tems
sub|ect to ta and sub|ects such tems to a unform ta rate of 1 percent
wth respect thereto and (b) provdes that the ta on a sae of une posed
3 mmeter coor postve-prnt moton pcture fm sha be computed, n
eu of on the prce for whch so sod, on the prce for whch nn equvaent
quantty of une posed . . mmeter back-and-whte postve-prnt moton pc-
ture fm s sod. The ouse recedes wth an amendment whch restores the
ouse provson wth a cerca amendment.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 2
mendment No. 1 : Ths Is a cerca amendment. The ouse recedes wth
a cerca amendment.
mendments Nos. 1 6 and 1 7: These are cerca amendments. The ouse
recedes.
mendments Nos. 1 and 1 9: The ouse b Imposed a manufacturers
e cse ta , nt a rate of 20 percent, on mechanca pencs, fountan pens, and
bu pont pens. Senate amendment No. 1 0 adds to ths st mechanca ghters
for cgarettes, cgars, and ppes (the ouse had mposed a ta on these tems
at the reta eve; see amendment No. 112), and Senate amendment No. ISsS
provdes a rate of ta of 10 percent on a these tems. The ouse recedes
on amendment No. 1 9, and recedes wth an amendment on amendment No. 1
f ng the rate of ta on these tems at 1 percent.
mendment No. 190: Ths s a technca amendment. The ouse recedes.
mendment No. 191: Ths s a cerca amendment The ouse recedes wth
a cerca amendment.
mendment No. 192: Ths Is a cerca amendment. The ouse recedes.
mendment No. 193: Ths s a cerca amendment The ouse recedes
wth a cerca amendment.
mendment No. 19 : Ths amendment provdes that the ncrease n the
rate of ta on gasone sha be reduced to the present rate of ta effectve
anuary 1, 19.r . The ouse recedes wth an amendment f ng the rate re-
ducton date as pr 1, 19 .
mendments Nos. 19 . 196, and 197: These are cerca amendments. The
ouse recedes on amendments Nos. 19 and 190 and recedes wth a cerca
amendment on amendment No. 197.
mendment No. 19 : Ths s a technca amendment. The ouse recedes
wth a further technca amendment provdng that the credt and refund
provsons of secton 3 3 of the Code sha be appcabe to the foor stocks
ta Imposed on gasone.
mendment No. 199: Ths amendment provdes for a foor stocks refund
on certan gasone hed for sae on anuary 1, 19 , the date provded by
Senate amendment No. 19 for termnaton of the ncrease n ta on gaso-
ne. The ouse recedes wth an amendment f ng pr 1, 19 , as the
nventory date to correspond wth the change mude n the rate reducton
date.
mendment No. 200: Ths s a cerca amendment. The ouse recedes
wth a cerca amendment.
mendments Nos. 201, 202, and 203: These are cerca amendments. The
Senate recedes.
mendment No. 20 : The nouse b reduced the rate of ta on domestc
teegraph, cubc, or rado dspatches from 2 percent to 20 percent. The Sen-
ate amendment further reduces the rate of ta to 1 percent. The ouse
recedes.
mendments Nos. 20 , 206, 207, 20S, and 209: These are cerca amendments.
The ouse recedes.
mendment No. 210: Ths amendment provdes that no ta sha be m-
posed under secton 3 6 (a)(1)( ) of the Code on any payment receved
for any teephone or rado teephone message whch orgnates wthn a com-
bat zuue. ns defned n secton 22(b) (13), from a member of the rmed
Forces of the Unted States performng servce n such combat zone. The
ouse recedes wth a cerca amendment.
mendment No. 211: Ths Is a cerca amendment. The ouse recedes
wth a cerca amendment.
mendment No. 212: Ths amendment strkes out the provsons of the ouse
b whch woud mpose a ta on the transportaton of crude petroeum and
qud products thereof by water from one pont n the Unted States to another
when such transportaton s performed by the owner of the crude petroeum and
qud products thereof. The ouse recedes.
mendment No. 213: Ths amendment provdes that no ta sha be mposed
wth respect to the transportaton of persons by water on a vesse whch makes
one or more ntermedate stops at ports wthn the Unted States, Canada, or
Me co on a voyage whch begns or ends n the Unted States and ends or
begns outsde the northern porton of the Western emsphere f the vesse n
stoppng at such ntermedate ports s not authorzed both to dscharge and to
take on passengers. The ouse recedes wth a cerca amendment.
mendment No. 21 : Ths amendment provdes that secton 3 7 of the Code,
reatng to the ta on the transportaton of property, sha not appy to the
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 3
transportaton of earth, rock, or other matera e cavated wthn the boundares
of, and In the course of, a constructon pro|ect and transported to any pace
wthn, or ad|acent to, the boundares of such pro|ect The ouse recedes wth
an amendment provdng that the determnaton as to the appcabty of the ta
mposed by secton 3 7 n the case of the transportaton of any e cavated
matera, other than transportaton to whch the amendment made by ths sub-
secton appes, sha be made as f ths subsecton had not been enacted and
wthout nferences drawn from the fact that the amendment made by ths sub-
secton s not e pressy appcabe to the transportaton of such other matera.
mendment No. 21 : Ths s a cerca amendment. The ouse recedes wth
a cerca amendment.
mendment No. 210: Ths amendment provdes for a refund of ta on cga-
rettes, dsted sprts, wne, and beer equa to the dfference between the ta
pad on such tems and the amount of ta made appcabe on and after anuary
1, 19 , brought from a foregn trade zone nto customs terrtory of the Unted
States on and after anuary 1,19 , the rate reducton date specfed wth respect
to the ta abe artces n queston. The ouse recedes wth a cerca amend-
ment and wth an amendment f ng the determnatve date as pr 1, 19 , n
eu of anuary 1, 19 .
mendment No. 217: Ths amendment provdes that the Secretary of the
Treasury s authorzed and drected to make refund, or aow credt, n the case
of a dster or rectfsr, f he so eects, n the amount n the nterna revenue ta
and customs dutes pad on sprts prevousy wthdrawn, and ost or rendered
unmarketabe by reason of the 19 1 foods, provded certan condtons are met.
The ouse recedes wth a cerca amendment.
mendment No. 21 : Ths amendment s cerca. The ouse recedes.
mendment No. 219: Ths amendment, for whch there s no correspondng
provson n the b as passed by the ouse, provdes n a new subsecton (e) (1)
of secton 30 for the computaton of an aternatve amount of e cess profts ta
for each of the frst fve ta abe years of corporatons whch commenced bus-
ness after uy 1, 19 . The amount computed thereunder woud be the ma -
mum e cess profts ta f ess than the amount computed under secton 30(a) (2).
Under the Senate amendment, the ma mum ta woud not e ceed the foowng
percentages of the frst 00,000 of the e cess profts net ncome: percent f
the ta abe year s the frst or second ta abe year (determned from the com-
mencement of busness), percent for the thrd ta abe year, 11 percent for the
fourth ta abe year, and 1 percent for the ffth ta abe year. Under the Senate
amendment, f, for any such year the e cess profts net ncome e ceeds 00,000,
the e cess over 00,000 s sub|ect to the same ma mum ta as n the case of
other corporatons.
The amendment aso provdes rues n subsecton (e) (2) for determnng, for
the purpose of the subsecton, when a ta payer sha be consdered to have com-
menced busness and to have had ta abe years determned by reference to the
date of commencement of busness of certan other corporatons. It contem-
pates that the Secretary w, by reguatons, provde for the determnaton of
constructve ta abe years by reference to the annua accountng perod frst
estabshed by the ta payer.
The Senate amendment aso provdes, n effect, that the benefts of the speca
mtaton provsons under secton 30(e)(1) sha be dened to any ta payer
whch derves more than 0 percent of ts ncome for the ta abe year from
contracts or subcontracts to whch tte I of the Renegotaton ct of 19 1 or to
whch any pror renegotaton act s appcabe.
The ouse recedes wth an amendment. Paragraph (1) of subsecton (e) s
amended to make t cear that the provson s appcabe ony to ta payers whose
ffth ta abe year ends after une 30, 19 0. Causes () and () of subpara-
graph ( ) of subsecton (e) (1) are amended to conform the percentage fgures
specfed theren to those provded by the conference agreement on Senate mend-
ment No. 6. change s made n each of subparagraphs ( ) to (D), ncusve,
of subsecton (e)(1), whch makes the percentages theren specfed appcabe
to ony the frst 300,000 of e cess profts net ncome nstead of to the frst
00,000 of such ncome as provded n the Senate amendment, and a conformng
amendment s made to subsecton (e) (1) ( ). mendments are made to para-
graph (2) of subsecton (e) to make cear that n determnng a constructve
date of commencement of busness and constructve ta abe years from such date
thereunder, a new determnaton sha be made each ta abe year n the ght of
the facts for such year. n addtona amendment s made to cause () of sub-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G
paragraph ( ) to make cear that such cause appes wthout regard to the
provsons of secton (g) (1). n addtona amendment s made to cause
(11) of such subparagraph to make cear that, for the purpose of such cause, a
person sha not be consdered a member of a group of persons who contro the
ta payer and another corporaton uness durng the perod specfed In such
cause he owns stock n the corporaton at a tme when the members of the group
contro such corporaton and he owns stock In the ta payer at a tme when the
members of the group contro the ta payer. change s made n subparagraph
( ) of paragraph (2) of subsecton (e) to the effect that transactons descrbed
n causes () and () sha be dsregarded n determnng the date as of whch
the ta payer sha be consdered to have commenced busness f the ad|usted
bass of the aggregate assets acqured by the ta payer In such transactons
before December 1, 19 0 (or acqured n the ordnary course of busness n
repacement of such assets), consttuted ess than 20 percent of the ad|usted
bass of the ta payer s tota assets as of December 1, 19 0. change s aso
made n paragraph (3) of subsecton (e) to provde that the gross ncome of the
ta payer for the ta abe year from contracts and subcontracts sub|ect to renego-
taton sha, for the purpose of appyng the mtaton provded by such para-
graph, be determned wthout regard to capta gans and dvdends receved.
Such gross Income Is the gross ncome after renegotaton.
mendment No. 220: Ths amendment, for whch there s no correspondng
provson n the ouse b, provdes for e cuson n the computaton of e cess
profts net ncome, for both e cess profts ta ta abe years and base perod years,
of payments made to a domestc corporaton by ts reated foregn corporaton
as remuneraton for certan technca servces rendered. The ouse recedes wth
carfyng amendments and an amendment whch amends the defnton of reated
foregn corporaton to provde that, n order to be a reated corporaton, 10
percent or more of the stock of the foregn corporaton must be owned by the
domestc corporaton at the tme the specfed servces are rendered.
mendment No. 221: Ths amendment adds secton 03 to the b, for whch
there s no correspondng secton In the ouse b. Ths secton permts a
ta payer wth a fsca year begnnng before anuary 1, 19 0, and endng after
March 31,19 0, n computng ts average base perod net ncome under the genera
average method provded by secton 3 (d) of the Code, to use the perod of
consecutve months endng March 31, 19 0, nstead of ts base perod, f such
computaton produces a esser e cess profts ta for the ta abe year.
The ouse recedes wth an amendment whch provdes that the e cess profts
net ncome for the frst 3 months of 19 0 sha be sub|ect to the percentage m-
tatons provded n secton 3 (e) (2) ( ) If such months fa n a ta abe year
endng after une 30, 19 0.
mendment No. 222: Ths amendment e tends to a new corporaton whch
commenced busness before the end of ts base perod the rght to quafy under
secton 3 (e) of the Code for the aternatve average base perod net ncome
based on growth for the purpose of determnng ts e cess profts credt based on
Income. The ouse recedes wth technca amendments.
mendment No. 223: Ths amendment e tends the benefts of secton
3 (e) (2) (G) (speca aternatve average base perod net ncome for a corpora-
ton whose e cess profts net Income for 19 9 s not more than 2 percent of ts
e cess profts net ncome for 19 ) to a ta payer quafyng for growth treatment
under secton 3 (e) (1) ( ) even though t aso quafes as a growth corporaton
under secton 3 (e) (1) ( ). The ouse recedes.
mendment No. 22 : Ths amendment, for whch there s no correspondng
secton n the ouse b, provdes mtatons n the case of a bank, as denned
n secton 10 of the Code, on the amount of the nadmssbe asset ad|ustment
to the net capta addton or reducton for the ta abe year, to the net new capta
addton for the ta abe year, and to the base perod capta addton. Ths
amendment aso amends secton 3 (f) (reatng to capta addtons n the base
perod) to make cear that the yeary base perod capta of any ta payer
(whether or not a bank) sha not be reduced beow zero by the nadmssbe
asset ad|ustment.
The ouse recedes wth carfyng amendments and wth an amendment
deang wth the effectve date of the provson appcabe to the base perod
capta addton of banks, makng such provson retroactve ony at the eecton
of the ta payer.
mendment No. 22 : Ths amendment, for whch there s no correspondng
provson n the ouse b, adds two new paragraphs (9) and (10) to secton
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
3 (g) (reatng to net capta addton or reducton) n order to provde, If
certan condtons are met, that a decrease n nadmssbe assets, to the e tent
In e cess of the net capta reducton (f any) for the ta abe year, sha be an
addton to the e cess profts credt computed under the ncome method. The
prncpa condton to be met s that where there s a decrease n nadmssbe
assets there must aso be a correspondng ncrease n operatng assets before any
ncrease n the credt s aowed.
The ouse recedes wth carfyng amendments and wth an amendment pro-
vdng a speca rue for the treatment of a decrease n nadmssbe assets n
the case of a bank.
mendment No. 220: Ths amendment, for whch there s no correspondng
provson n the b as passed by the ouse, permts a deaer n whoy ta -
e empt Government securtes to eect to ncrease Its e cess profts net ncome
by the nterest (wth certan ad|ustments) on such obgatons, and to treat
such obgatons as admssbe assets. The ouse recedes wth a technca
amendment and an amendment whch e tends the appcaton of the secton to
Government obgatons any part of the nterest from whch s aowabe as a
credt aganst net ncome.
mendment No. 227: Ths amendment adds secton 09 to the b, for whch
there s no correspondng provson n the b as passed by the ouse. Secton
09 adds a new subsecton (h) to secton 2 (reatng to abnormates durng
the base perod) whch n genera permts a ta payer n certan cases, after
seectng the 30 months n the base perod whch resut n the hghest e cess
profts net ncome or owest defct n e cess profts net ncome, to emnate
from such 30 months the 12 months havng the owest e cess profts net ncome,
or hghest defct, and to use a substtute e cess profts net ncome computed under
secton 2(e) for such 12 months. s passed by the Senntc, the provson was
appcabe ony to a ta payer whch commenced busness before the begnnng
of ts base perod and ony f the aggregate of the e cess profts net ncome for
each of the 12 months for whch a substtute e cess profts net ncome s to e
computed s ess than 3 percent of one-haf of the aggregate of the e cess profts
net ncome for each of the 2 months remanng after seectng the 12 months to
be so ad|usted.
The ouse recedes wth technca amendments, and aso adds other amend-
ments whch further mt the appcaton of ths new subsecton. The frst of
these addtona mtatons requres that n order to he entted to the benefts
of subsecton (h), the ta payer s norma producton, output, or operaton must
be nterrupted or dmnshed because of the occurrence (n the 12 months pror
to the perod for whch a substtute e cess profts net ncome s computed) of
events unusua or pecuar n the e perence of the ta payer. Under ths m-
taton there s no requrement that a causa connecton be shown between te
event and a decne n e cess profts net ncome In the perod for whch a sub-
sttute e cess profts net ncome s to be used.
The second mtaton added by the conference agreement appears as a new
sentence added to paragraph (1) and prevents a ta payer from usng new
subsecton (h) n cases where the aggregate e cess profts net ncome for the
2 months, whch reman after seectng the 12 months for whch a substtute
e cess profts net ncome s to be computed, s an amount ess than zero.
mendment No. 22S: Ths amendment provdes that n determnng tota assets
under secton 2(f), to whch factor the ndustry rates of return are apped n
computng average base perod net ncome under varous e cess profts ta reef
formuas, the sum of the cash and other property ncuded sha be reduced by
the amount of the ndebtedness (other than that ncuded n the defnton of
borrowed capta) to a member of a controed group whch ncudes the ta payer.
The ouse recedes wth an amendment changng the effectve date from ta abe
years endng after the date of enactment of the b to ta abe years endng after
une 30. 10 0.
mendment No. 229: Ths amendment changes secton 3, whch secton pro-
vdes for the case of a change n products or servces occurrng durng the ast
36 months of the base perod, so as to ncude certan base perod commtments.
The ouse recedes.
mendment No. 230: Ths amendment provdes that n determnng tota assets
under secton (c), whch factor s used by a new corporaton n computng ts
average base perod net ncome for any of ts frst three years (f that year s an
e cess profts ta ta abe year), the net capta addton or reducton sha be
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 6
computed wthout regard to the 7 percent mtaton as to borrowed capta and
oans to members of a controed group. The ouse recedes.
mendment No. 231: Ths amendment provdes that a corporaton engaged as
a common carrer n the furnshng or sae of transportaton of o or other petro-
eum products (Incudng shae o) by ppene sha be egbe to quafy under
secton for the aternatve e cess profts credt provded for reguated pubc
uttes f such corporaton s sub|ect to the |ursdcton of a pubc servce or
pubc utty commsson or other smar body of the Dstrct of Coumba or of
any State. The ouse recedes wth an amendment requrng that the rates for
such furnshng or sae be sub|ect to the |ursdcton of the pubc servce or pubc
uttes commsson.
mendment No. 232: Ths amendment provdes that for the purpose of ng
a consodated return wth Its raroad essee corporaton (usng the aternatve
credt provded by secton for reguated pubc uttes), a raroad essor
corporaton meetng certan requrements sha be consdered a corporaton sub-
|ect to secton . The ouse recedes.
mendment No. 233: Ths amendment adds secton 1 to the b, for whch
there s no correspondng secton n the b as passed by the ouse. Secton 1
aows to producers of potash, sufur, and metaurgca grade and chemca grade
mestone the aternatve method for computng nonta abe ncome from e empt
e cess output provded n secton 3(b) (2) of the Code where te propertes
were In operaton durng the norma perod. Where these mnera propertes
were not In operaton durng the norma perod, the net ncome from such proper-
tes Is accorded the benefts of secton 3(b) ( ) now avaabe n the case of
meta and coa mnes, tmber bocks, and natura-gas propertes. The ouse
recedes.
mendment No. 23 : Ths amendment, for whch there s no correspondng
provson In the ouse b, adds secton 0(a) to the Code to provde a speca
credt for certan corporatons under specfed crcumstances reatng to a trans-
ton from wartme to peacetme producton and to an ncrease In peacetme
capacty. The ouse recedes wth carfyng amendments.
mendment No. 23 : Ths amendment adds secton 17 to the b. There s
no correspondng secton n the ouse b. Secton 17 amends secton 9, as
added to the Code by secton 16 of the Senate amendment No. 23 , by addng a
new subsecton (b). Ths new subsecton grants to a ta payer whch suffered a
catastrophe durng the ast 30 months of ts base perod, f certan condtons are
met, two aternatve methods of computng ts average base perod net ncome.
The ta payer mny use whchever resuts n the esser e cess profts ta for the
ta abe year. The frst aternatve aows such a ta payer to substtute for the
e cess profts net ncome for each month of the ta abe year n whch the catas-
trophe occurred, the average of the e cess prufts net ncome for the months In
the base perod precedng the ta abe year n whch the catastrophe occurred. If
the ta payer computes ts average base perod net Income under the frst aterna-
tve, It w not be dened the benefts of ts base perod capta addton. The
second aternatve aows the ta payer to compute ts average base perod net
Income under the growth aternatve of secton 3 (e)(2)(G) () and () of
the Code.
The ouse recedes wth technca amendments whch separate new subsecton
(b) nto two paragraphs. The frst paragraph sets forth egbty requrements,
and the second paragraph sets forth the computaton of average base perod net
ncome under ths subsecton.
mendment No. 23 : Ths amendment, for whch there s no correspondng
provson In the ouse b, adds a new subsecton (c) to secton 9 of the Code,
and s appcabe n the case of a ta payer engnged prmary n the newspaper
pubshng busness whch, after the frst haf of Its base perod and before uy 1,
19 0, consodated ts mechanca, crcuaton, advertsng, and accountng opera-
tons wth such operatons of another newspaper pubshng corporaton n the
same area. In order to be egbe for the benefts of ths subsecton the ta payer
must meet certan specfed requrements.
In the case of a ta payer egbe for the benefts of ths subsecton, the average
base perod net ncome under the Senate amendment sha be an amount computed
under secton 3 (d) pus an amount equa to the e cess of the average of the
amounts pad or Incurred as e penses n the conduct of the mechanca, crcua-
ton, etc., operatons durng the two ta abe years of the ta payer ne t precedng
the ta abe year In whch such consodaton began over such amounts pad or
Incurred durng the frst ta abe year of the ta payer begnnng after such co
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 7
sodaton. The e penses referred to are those whch are taken nto account In
computng net ncome. Ths secton s nappcabe to any ta abe year of the
ta payer uness the consodaton was contnued throughout such ta abe year.
The ouse recedes wth amendments, one of whch provdes that the egbty
requrements n paragraphs (3) and ( ) secton 9(c) sha be n the aternatve.
nother amendment provdes that n determnng the e cess amount of e -
penses proper ad|ustment sha be made for ncreases n the unt cost of abor
and newsprnt (due to wage and prce ncreases) foowng such consodaton.
It s contempated that such ad|ustment sha be made n accordance wth regu-
atons prescrbed by the Secretary. The ouse aso adds an amendment to
provde for approprate ad|ustments for any case n whch a ta abe year referred
to n ths new subsecton s a perod of ess than 12 months.
mendment No. 237: Ths amendment, for whch there s no correspondng
provson n the ouse b, provdes a speca credt for corporatons begnnng
the teevson broadcastng busness before anuary 1, 10 1. It provdes for a
computaton of an ndvdua rate of return n the case of corporatons engaged
n the rado and teevson broadcastng busness and for an appcaton of such
rate of return (or of the ndustry rate of return for the ndustry whch ncudes
rado broadcastng) to the assets of the ta payer empoyed n the rado and
teevson broadcastng busness, or n the case of an acquston of the teevson
broadcastng busness after the base perod, to ts assets empoyed ony n the
teevson busness. In the case of a corporaton engaged soey n rado and
teevson broadcastng, ths rate of return s apped to ts tota assets. In the
case of a corporaton engaged n another busness or busnesses, the credt ncudes
an average base perod net ncome computed wth respect to such other busness
or busnesses. The ouse recedes wth an amendment provdng n a cases
that the ndustry rate of return or the ndvdua rate of return, as the case may
be, sha be appcabe ony to the assets of the corporaton used n the teevson
broadcastng busness. The amendment aso provdes that the average base perod
net ncome computed n connecton wth the ta payer s nonteevson busness
sha be ony the average base perod net ncome computed under secton 3 (d)
(reatng to the genera average of earnngs durng the base perod) ; that the
base perod capta addton sha be aowabe wth regard to the ta payer s non-
teevson busness; and that, n the case of corporatons whch frst engaged n
the teevson broadcastng busness after the cose of the base perod and before
anuary 1, 19 1, the teevson assets aganst whch the ndustry rate of return
or the ndvdua rate of return are to be apped sha be those hed on the ast
day of the caendar month n whch the corporaton frst engaged n the teevson
broadcastng busness.
The nouse amendment changes the provson n the Senate amendment for the
emnaton of dupcaton n the computaton of a credt under ths secton by
provdng specfcay the method to be used n emnatng such dupcaton. It
s provded that f any porton of the teevson assets used n computng the
teevson porton of the credt was acqured, drecty or ndrecty, by the use
of assets attrbutabe at any tme durng the base perod to a busness of the
ta payer other than teevson broadcastng, the e cess profts net ncome
wth respect to such other busness sha be propery ad|usted by emnatng the
porton thereof attrbutabe to the assets used n the acquston of the teevson
propertes for months pror to such acquston. The e cess profts net ncome
attrbutabe to such assets s determned by reference to the rato of such assets
to the tota assets of the ta payer other than propertes used n teevson
broadcastng.
mendment No. 23 : Ths amendment adds a base perod commtment rue
under secton , whch secton provdes for the computaton of the average base
perod net ncome by appyng a base perod ndustry rate of return to the tota
assets of the ta payer n case of an ncrease n capacty for producton or opera-
ton occurrng durng the ast 3G months of the base perod. The ouse recedes
wth an amendment revsng the Senate provson. s amended, the commtment
rue provdes that f, durng the frst ta abe year endng after une 30, 19 0,
the ta payer competed constructon of a factory budng or other manufacturng
estabshment (for e ampe, an o refnery), ncudng the nstaaton of the
machnery or equpment for use n such factory budng or such other estabsh-
ment, such factory budng or such other estabshment and such machnery or
equpment sha, for the purpose of determnng whether there s an ncrease n
capacty under the provsons of secton (b), but not for the purpose of com-
putng the average base perod net ncome under secton (c). be consdered
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
G
to have been added to Its tota factes on te Inst day of Its base perod. The
provson Is appcabe ony If ( ) the ta payer, pror to the end of ts base perod,
had competed constructon work representng more than 0 percent of the tota
cost of constructon of such factory budng or such other estabshment, and
( ) the competon of such factory budng or such other estabshment was In
pursuance of a pan to whch the ta payer was commtted pror to the end of Its
base perod.
mendment No. 239: Ths amendment, for whch there Is no correspondng pro-
vson n the ouse b, provdes for the addton of a new part I to subchapter
D of the Interna Itever.ue Code denng wth the e cess profts credt based on
ncome n connecton wth certan ta abe acqustons b fore December 1, ft t.
Under ths amendment a purchasng corporaton as defned In the part, woud,
n certan cases, obtan the use of the ncome e perence of a seng corpora-
ton for the purpose of computng Its e cess profts credt. The ouse recedes
wth nn amendment makng changes for purposes of carfcaton and n order
further to defne the scope of appcaton of the part
The Senate amendment Incudes n the defnton of a purchasng corporaton
any corporaton whch acqured substantay a of the assets of another corpora-
ton or of a partnershp n a transacton other than a part II transacton. The
amendment made by the ouse Incudes In ths defnton a corporaton whch ha
acqured substantay a of the propertes of a busness owned by a soe pro-
pretorshp. The defnton n the Senate amendment aso ncudes a corporaton
whch acqured ony part of the assets of another corporaton In a transacton
other than a part II transacton provded the propertes acqured were substan-
tay a the propertes of a separate busness of the other corporaton and that
such acquston was In furtherance of a pan of compete qudaton by su h
other corporaton. The purchase, under the same crcumstances, of a separate
busness whch consttuted part of the assets of a partnershp s added to the
d( fnton by the ouse amendment. The ouse amendment aso deetes a prov-
son whch Incuded In the defnton of purchasng corporaton a corporaton
whch receves assets as pad-n surpus or as a contrbuton to capta from
another corporaton whch had acqured those assets as a purchasng corporaton.
Ths provson under the conference agreement w In genera cover those
cases In whch assets consttutng the whoe of a separate busness of a seng
corporaton were acqured from a corporaton, soe propretorshp, or partner-
shp. It does not cover an acquston n a ta -free transacton, for e ampe,
a case In whch a corporaton s qudated to ts stockhoders and they n turn
pace a or part of the assets n a new corporaton n a ta -free transacton.
The ouse amendment makes cear that the part provdes for the use by the
purchasng corporaton of an average base perod net hcome computed ony
under secton 3 (d) (the genera average of earnngs method), that, under the
part, the defcts as we as the e cess profts net ncome of the seng corpora-
ton for any month sha be refected In the computaton, and that the e cess
profts net ncome to whch reference s made s that of the corporaton In the
case of an acquston of substantay a of the assets of a seng corporaton
and Is the porton thereof propery aocabe to the busness or busnesses ac-
qured In the case of an acquston of ony part of the assets, representng on
or more separate busnesses of a seng corporaton.
The Senate amendment provdes that, for part I to appy, the seng cor-
poraton must, mmedatey after the transacton, dscontnue a busness actv-
tes and be competey qudated n a transacton other than a part II trans-
acton. The ouse amendment changes ths requrement to provde that the
seng corporaton must not have engnged In any busness actvtes after the
part I transacton other than those Incdent to Its compete qudaton and
must, wthn a reasonabe tme after such cessaton of busness actvtes, have
been competey qudated (whether before or after the part I transacton)
n a transacton other than a part II transacton. Such qudaton must term-
nate the seng corporaton s e stence.
The Senate amendment further provdes that the propertes acqured In the
part I transacton must be substantay a of the propertes whch wore used
by the seng corporaton (or by a component corporaton of such seng cor-
poraton) n the operaton of the busness whose assets were acqured by the
purchasng corporaton. The ouse amendment provdes that such propertes
must be those used by the seng corporaton In the producton of the e cess
profts net Income or defct theren whch s used n the computaton of the
credt provded by ths part.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0 9
The Sor.ate amendment further provdes that the busness acqured In the
pnrt I transacton mnt have been operated by the purchasng corporaton from
the date of such transacton to the end of the ta abe year. The ouse amend-
ment prordes that such busness must be operated by the purchasng corpora-
ton unt the end of the ta abe year uness transferred by It, dnrtng the ta abe
year, In a part II transacton to whch the provsons of the new secton
12(b) ) of the Code are appcabe.
The ouse amendment adds three speca rues. The frst provdes that, for
tre putro- e of the defnton of a purchasng corporaton, propertes sha be
deemed acqured from the seng corporaton If they are purchased drecty from
the seng corporaton or If they are purchased from Its stockhoders, provded
smcb stockhoders dd not transfer them to the purchasng corporaton In a part
II transacton. Ths provson Is appcabe ony In a case In whch the seng
corporaton was frst qudated to Its stockhoders and the propertes were
forthwth sod by them to the purchasng corporaton. The second sp ra rue
provdes for the determnaton under reguatons prescrbed by the Secretary of
a of the computatons requred by ths part as If the busness or busnesses
whch were purchased from a partnershp or soe propretorshp had been op-
erated by a corwraton. The thrd speca rue Is that In the case of the pur-
chase of ess than n of severa busnesses operated hy a corporaton or part-
nershp, the amount of e cess profts net Income aocabe to a or any number
of the purchasng corporatons or other persons recevng such propertes upon
the qudaton of the seng corporaton sha not e ceed 100 percent of the
e cess profts net Income of the seng corporaton. Thus, In a cage In whch
a seng corporaton has an e cess profts net Income for any month of 100
e stng by reason of one of Its busnesses havng an Income of 300 and another
havng a oss of 200, the amount of the e cess profts net Income avaabe to
ether or both of the partes recevng the two busnesses sha not e ceed 100
for such month.
The ouse amendment adds a new subsecton (e) deang wth successve
transactons and provdng that f one part I transacton succeeds another part
I transacton, the e cess profts net Income of the frst seng corporaton Is
not made avaabe to the second purchasng corporaton. The e cess profts net
ncome, however, of the frst purchasng corporaton Is avaabe to the second
purchasng corporaton but, for that purpose, t must be computed wthout regard
to the e cess profts net Income of the frst seng corporaton. It aso provdes
that the e cess profts net ncome of a seng corporaton under ths part n-
cudes the amount prevousy nvaabe to It under part II wth respect to a
prevous part II transacton. Thus, where corporaton had prevousy merged
wth corporaton n a transacton descrbed In secton 61(a), the purchase
by corporaton C of the assets of corporaton under the crcumstances out-
ned n ths part w make avaabe to corporaton C the e cess profts net
ncome (or def-t) of both corporatons and , as determned under part II
for corporaton for the perod pror to the merger, as we as the e cess profts
net Income of corporaton for the perod after the merger.
The Senate amendment provded for the promugaton of rues by the Sec-
retary, consstent wth the prncpes of part II, for the appcaton of ths part.
For the purpose of carfcaton, the conference agreement specfcay provdes
for the promugaton of such rues wth respect to (1) base perod capta add-
ton. (2) net capta addton or reducton, (3) e cess profts net ncome, ( )
upcaton, and ( ) the e cess profts credt of the purchasng corporaton for
the ta abe year n whch the transacton occurs If such ta abe yeur s a year
whch ended after .Tune 30, 1 ). 0. It s aso provded that the Secretary sha
not appy the prncpes of certan specfed provsons of part II.
It s not ntended by ths specfc enumeraton of prncpes to be foowed by
the Secretary that the genera authorty to prescrbe rues for the appcaton
of ths part sha be restrcted e cept as specfcay provded. Such reguatons
may Incude other prncpes approprate to the determnaton of the computa-
tons provded by ths part.
The Senate nmendment contans technca amendments to the Code, whch
technca amendments are revsed by the ouse amendments. Incuded n these
technca amendments as revsed are provsons for the appcaton of part II
n cases where a corporaton acqured n a part II transacton propertes of a
corporaton whch was a purchasng corporaton n a prevous part I trans-
acton. In genera, the amendments provde that the ncome e perence of the
orgna seng corporaton sha be used by the acqurng corporaton n deter-
016 2 2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 0
mnng Its average base perod net ncome under secton 3 (d) wth reference
to part II. For these provsons to be appcabe, however, substantay a
of the propertes acqured n the part I transacton (or repacements thereof a
the ordnary course of busness) must have been transferred n the part II
transacton, or, f the part II transacton nvoved a component corporaton
whch acqured the propertes n a prevous part II transacton, substantay
a of the propertes of such component corporaton must have been acqured
by the acqurng corporaton. The busness operated by the seng corporaton
must have been contnuousy operated by the acqurng corporaton to the end
of the ta abe year, uness the busness s transferred by the acqurng cor-
poraton durng the ta abe year n a part II transacton to whch the provsons
of secton 02(b) ( ) are appcabe. If the acqurng corporaton obtaned the
propertes n a part II transacton of the type descrbed n secton 61(a) (1) ( )
( spt-up ), the provsons of the foowng amendment to secton 62() (6)
must be satsfed: Secton G2()(C) s amended to provde that f the com-
ponent corporaton n the part II transacton was a purchasng corporaton
n a prevous part I transacton, and f secton 62(b) ( ) s appcabe, the
aocaton of the e cess profts net ncome of the component corporaton to the
acqurng corporaton must be based upon the earnngs e perence of the assets
transferred rather than upon the far market vaue rue of aocaton provded
n secton 62(), ths provson beng appcabe whether or not the other par-
tes to the part II transacton agree to such an aocaton. The technca amend-
ments as revsed further provde that secton 63 and secton 6 , reatng to
capta changes of the acqurng corporaton, sha be apped under reguatons
promugated by the Secretary wth respect to cases n whch the part II trans-
acton foows a part I transacton.
mendment No. 2 0: Ths amendment adds secton 22 to the b, for whch
there s no correspondng secton n the b as passed by the ouse. Secton
22 adds bau te to the st of mneras deemed strategc under secton 0(b) (1)
of the Code for the purpose of e emptng from the e cess profts ta the porton
of the ad|usted e cess profts net ncome attrbutabe to the mnng of such
mnera. The ouse recedes wth a cerca amendment.
mendment No. 2 1: Ths amendment provdes that, e cept as otherwse
provded n secton 10 of the b, the amendments made by tte of the b,
as passed by the Senate, sha be appcabe wth respect to ta abe years endng
after une 30, 19 0. The ouse recedes wth amendments conformng to the
conference agreement wth respect to amendments, Nos. 22 and 22S. ccord-
ngy, the amendments made by tte are appcabe wth respect to ta abe
years endng after une 30, 19 0, e cept as otherwse provded n secton 06(d)
of the b (reatng to base perod capta addtons of banks).
mendments Nos. 2 2, 2 3, and 2 : These amendments are cerca. The
ouse recedes.
mendment No. 2 : Ths amendment deas wth possbe ta abty for
ta abe years begnnng pror to anuary 1, 19 1, n the case of certan organza-
tons carryng on trades or busnesses the profts of whch were dedcated e cu-
svey to e empt purposes. Specfcay, ths amendment adds to the st of feeder
organzatons covered by the ouse b, those organzatons a of the profts
of whch nure to the beneft of a hospta or to an nsttuton for the rehabta-
ton of physcay handcapped persons whch mantans or s budng for proper
mantenance such a hospta or nsttuton staffed or to be staffed by quafed
professona persons for the treatment of the sck and/or the rehabtaton
of the physcay handcapped, or to an eeemosynary corporaton under State
aw e empt under secton 101(G) of the Interna Revenue Code.
The ouse recedes wth an amendment strkng out the reference to an
eeemosynary corporaton under State aw e empt under secton 101(6) of
the Interna Revenue Code, and wth a carfyng amendment provdng that
no mpcaton s to be drawn from the amendment as to the ta status for ta abe
years pror to 19 1 of so-caed feeder organzatons not deat wth n secton
302 of the Revenue ct of 19 0 as amended.
mendment No. 2 6: The ouse b provded that the percentage of the
average base perod net ncome to be taken nto account n computng the e cess
profts credt based on ncome sha be reduced from 3 percent of the average
base perod net ncome to 7 percent thereof. Ths reducton was effectve, under
the ouse b, as of anuary 1, 19 1. The Senate amendment struck ths prov-
son of the ouse b. The ouse recedes wth an amendment under whch the
percentage of the base perod net ncome s reduced from to 3 percent, effec-
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
0 1
tve uy 1, 19 1, and In the ease of the caendar your 19 1, to percent. Pro-
vatnt s made under the conference agreement for the case of a fsca year
begnnng before uy 1, 19 1, and endng after une SO, 19 1, so that a propor-
tonate part of the decrease In the e cess profts credt w be refected.
mendment No. 2 7: Ths amendment, for whch there Is no correspondng
provson In the ouse b, amends sectons 13 and 930 of the Code to provde
that, where propery Incuded for Federa estate ta purposes In the gross estate
of a resdent or cta-n of the Unted States Is stuated In a foregn country and
sub|ected to a death ta by such r-ountry, a credt sha be aowed aganst the
estate ta for such foregn death ta . The amendment appes ony wth respect
to estates of resdents and ctzens dyng after the date of emu-Uncut of the
b.
The ouse recedes wth carfyng amendments.
mendment No. 2 S: Ths Is a cerca amendment. The ouse recedes wth
a cerca amendment.
mendment No. 2 9: Ths amendment, for whch there Is no correspondng
provson In the ouse b, amends secton 03(c) of the Code to e tend the
estate ta e empton granted by that secton wth res ect to works of art oaned
by a nonresdent aen to the Natona Gaery of rt, Washngton, D. C, to
works of art oaned to other pubc gaeres or museums.
The ouse recedes wth a cerca amendment.
mendment No. 2. ): Ths amendment, for whch there Is no correspondng
provson n the ouse b, makes certan changes In secton 9.19 of the Code,
reatng to the estnte ta treatment of certan members of the rmed Forces.
The amendment provdes that the ta mposed by secton 93 (the addtona
estate ta ) sha not appy to the transfer of the ner estate of a ctzen or resdent
of the Unted States dyng after une 2 , 19 0, and before anuary 1, 1 . . whe
In actve servce as a member of the rmed Forces of the nted States, If such
decedent (1) was ked n acton whe servng In a combat zone, as determned
under secton 22(b) (13), or (2) ded at any pace as a resut of wounds, dsease,
or n|ury suffered, whe servng In a combat zone (as determned under secton
22(b) (13)) and whe In ne of duty, by reason of a hazard to whch e was
sub|ected as an ncdent of such servce.
The ouse recedes wth a cerca amendment.
mendment No. 2 1: Ths amendment, for whch there Is no correspondng
provson In the ouse b, adds a new secton to the b to provde that In the
case of a decedent dyng after March 1 , 1937, and before February 11, 1939, the
determnaton of whether property Is ncuded n the gross estate of the decedent
as a transfer ntended to take effect n possesson or en|oyment at or after hs
death sha be made n conformty wth the provsons of artce 17 of Regua-
tons 0, as amended by Treasury Decson 72 ). The ouse recedes wth a
cerca amendment.
mendment No. 2 2: Ths amendment, for whch there Is no correspondng
provson In the ouse b, amends secton 7(b) of Pubc Law 37 , ghty-frst
Congress (the Technca Changes ct of 19 9). Secton 7(b) now provdes that
the provsons of secton Sc) (11( ) of the Code, provdng for Incuson n
a decedent s estate of property transferred wth reservaton of rghts In Income,
sha not be appcabe to transfers made before March , 1931 (and, n some
cases, before une 6, 1932), f the decedent ded before anuary 1, 19 0. Under
the amendment, nappcabty of secton 11(c)(1)( ) Is e tended to estates
of decedents dyng before anuary 1, 19 1. The ouse recedes wth a cerca
amendment.
mendment No. 2 3: Ths amendment, for whch there s no correspondng
provson n the onse b, amends secton 7(b) of Pubc Law 37 , ghty-frst
Congress (the Technca Chances ct of 10 9) to provde that the provsons of
secton 11(c) (1) (C) of the Code (reatng to Incuson In gross estate of trans-
fers Intended to take effect In possesson or en|oyment at or after death) sha
not appy to transfers made before September , 1916. The effect of the ast
sentence of ths secton, whch makes secton 7(c) of such pubc aw Inappcabe
to overpayments resutng from the enactment of ths secton of the b, s to mt
refunds of such overpayments to those stuatons In whch the refund s not
prohbted by the statute of mtatons or some other aw or rue of aw. The
ouse recedes wth a cerca amendment
mendment No. 2 : Ths amendment, for whch there Is no correspondng
provson n the ouse b, permts the makng of refund or credt of any over-
payment resutng from the appcaton of secton 0- of the Revenue ct of 10 0,
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 2
f cam therefor s fed wthn 1 year from the date of enactment of the b,
even though the makng of such refund or credt s otherwse prohbted by the
statute of mtatons or any other aw or rue of aw (other than sec. 3760 or
37C1 of the Code whch reate, respectvey, to cosng agreements and compro-
mses). The effect of secton 03 of the Revenue ct of 19 0 was to provde that
proceeds of fe nsurance poces attrbutabe to premums pad on or before
anuary 10,19 1, shoud not be ncuded n the gross estate of the nsured person
for estate ta purposes by reason of the fact that the premums were pad by hm,
uness on anuary 10, 19 1, or thereafter he had substanta rghts n the fe
nsurance pocy. The ouse recedes wth an amendment provdng that cam
for credt or refund must be made after October 2 , 10 9, and on or before
October 2 , 19 0.
mendment No. 2 : Ths amendment, for whch there s no correspondng
provson n the ouse b, provdes that n the case of the award made on
December , 19 0, by the Interstate Commerce Commsson as retroactve com-
pensaton for the transportaton of ma, such compensaton sha ba deemed to
be ncome whch accrued n the ta abe year n whch the servces to whch such
compensaton reates were rendered. It s provded that no nterest sha be
assessed for defcences created by the ncuson of such ncome n pror years
and that the perod for assessment and coecton of such defcences sha be
e tended to the date cosng the perod for assessment and coecton for the
ta abe year of the ta payer whch ncudes December , 19 0. The amendment
aso amends secton 292 of the Code to provde that n the case of retroactve ma
payments, f such payments are requred to be ncuded n ncome n the year or
years n whch the ma was carred, no nterest.sha be due wth respect to def-
cences resutng from such ncuson for any perod pror to 30 cays after the
award of payment s granted. The ouse recedes wth a cerca amendment.
mendment No. 2 G: Ths amendment, for whch there s no correspondng
provson n the ouse b, adds to the b a new secton 011 whch provdes wth
respect to certan ta abe years a speca rue to be foowed whereby n the
computaton of corporaton surta net ncome certan amounts receved as dv-
dends on the preferred stock of a pubc utty w not be dsregarded n comput-
ng the credt for dvdends receved.
Secton 110(a) of the Revenue ct of 19 3 so amended secton 2G(n) (1) of
the Interna Revenue Code that, n the computaton of the credt for dvdends
pad on the preferred stock of a pubc utty, amounts dstrbuted n the current
ta abe year wth respect to dvdends unpad and accumuated n any ta abe
year endng pror to October 1, 19 2. were to be e cuded from the amount of
dvdends pad on ts preferred stock durng the ta abe year. The 19 3 ct
dd not contan a conformng amendment so that n the computaton of corpo-
raton surta net ncome the percent credt for dvdends receved woud
aways be aowed wt respect to such amounts as were to be e cuded n com-
putng the credt or dvdends pad on the preferred stock of a pubc utty.
Pursuant to new secton G, n the case of ta abe years begnnng before
pr 1, 19 1, the parcent credt for dvdends receved w be aowed n
the computaton of corporaton surta net ncome wth respect to those amounts
whch are to be e cuded n computng the credt for dvdends pad on the pre-
ferred stock of a pubc utty. In the case of the caendar year 19 1 and ta -
abe years begnnng after March 31. 19 1. see the amendments made to secton
20(b) of the Code by secton 122 of the b (amendment No. ). The ouse
recedes wth a cerca amendment.
mendment No. 2 7: Ths amendment, for whch there s no correspondng
provson n the ouse b, provdes that f an affated group makng a con-
sodated return wth respect to the frst ta abe year of the group endng after
une 30, 10 0, ncuded a corporaton descrbed n secton (f) of ;he Code,
pursuant to the consent provded n secton 1 1(e) (7) of the Code, such corpo-
raton may wthdraw such consent at any tme wthn 90 days after the enact-
ment of te Revenue ct of 19 1. If such consent s wthdrawn under ths pro-
vson, the ta abty of the affated group and ts severa members for the
ta abe year sha be determned, assessed, and coected as f such corporaton
had never |oned n the makng of the consodated return. The ouse recedes
wth a cerca amendment.
mendment No. 2 S: Ths amendment, for whch there s no correspondng
provson n the ouse b, adds to the b a new secton G13 pursuant to whch
the due date for fng ncome ta returns of, or for payng the ncome ta by,
Chna Trade ct corporatons for any ta abe year begnnng after December 31,.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
(3 3
19 , and endng before October 1, 19 3, sha be not ater than December 31,
19 3. The due date thus prescrbed sha appy, however, ony wth respect to
any such corporaton and any such ta abe year as the Secretary or the Treasury,
pursuant to such reguatons as he may prescrbe, may determne to be reasonabe
In vew of crcumstances n Chna. New secton 613 recognzes that certan
Chna Trade ct corporatons, despte the stuaton e stng n Chna, are fuy
abe to compy wth requrements of e stng aw as to the tme for fng returns
a.d payng the ta .
The due date of December 31, 19 3, hereby prescrbed s sub|ect to the power
of the Secretary to e tend, as n other cases, the tme for fng returns or payng
the ta . The ouse recedes wth a cerca amendment.
mendment No. 2 9: Ths amendment, for whch there s no correspondng
provson n the ouse b, adds a new secton whch provdes that no anend-
ment made by the b sha appy n any case where ts appcaton woud be con-
trary to any treaty obgaton of the Unted States. The ouse recedes wth a
cerca amendment.
mendment No. 260: Ths s a cerca amendment. The ouse recedes wth a
cerca amendment.
mendment No. 261: Ths amendment, for whch there s no correspondng
provson n the ouse b, e tends for months the date on or before whch a
cam for net renegotaton rebates arsng under the Word War II Renegotaton
ct may be fed. Secton 201(c) of the Renegotaton ct of 19 1, approved on
March 23, 19 1, sets the e praton date as une 30, 19 1. Ths amendment
e tends such date to October 31, 19 1. The ouse recedes wth a cerca
amendment.
mendment No. 262: Ths amendment, for whch there s no correspondng
provson n the ouse b, adds to the b a new secton reatng to prohbton
upon the dena of payments by the Federa Government to a State under tte
I, I , , or I of the Soca Securty ct. These ttes reate to grants by
the Federa Government to States for ad to needy aged ndvduas, needy de-
pendent chdren, needy bnd Indvduas, and needy permanenty and totay
dsabed ndvduas, respectvey. The Federa Government and the States
share the cost of these assstance programs. State s not entted to pay-
ments from the Federa Government uness the State pan for assstance has
been approved by the Federa Securty dmnstrator. Under e stng aw a
State assstance pan n order to be approved must, nter aa, provde safe-
guards whch restrct the use or dscosure of nformaton concernng appcants
and recpents to purposes drecty connected wth the admnstraton of the
assstance program. The Senate amendment provdes that no State or any
agency or potca subdvson thereof sha be deprved of any grant-n-ad or
other payment to whch t otherwse s or has become entted pursuant to tte
I, I , , or I of the Soca Securty ct by reason of the enactment or en-
forcement by such State of any egsaton prescrbng any condtons under
whch pubc access may be had to records of the dsbursement of any such
funds or payments wthn such State. The ouse recedes wth an amendment
whch mposes a condton that the State egsaton provdng pubc access to
the records of dsbursement must prohbt the use of any st or names obtaned
through such access to such records for commerca or potca purposes.
Under ths amendment, as agreed to by the conferees, the State of Indana,
whch has a aw whch permts pubc access to the records of dsbursements of
pubc wefare funds but whch contans, nter aa, a prohbton upon the use of
any sts or names so obtaned for commerca or potca purposes of any nature,
w be entted to receve ts payments under the Soca Securty ct n the
future and w aso be entted to receve any such payments whch have been
wthhed because of the enactment and enforcement of the Indana aw.
mendment No. 263: Ths amendment, for whch there s no correspondng
provson n the ouse b, amends the provsons of e stng aw whch provde
the Presdent, the ce Presdent, the Speaker of the ouse, and the Members of
Congress an e pense aowance whch s ta -e empt and for whch no accountng
s made. Under ths amendment, the Presdent woud receve 1 0,000 a year
for hs servces, nstead of the 100,000 pus the 0,000 ta -e empt e pense
aowance he now receves. Under e stng aw, the Presdent nether pays ta
on nor accounts for ths 0,000. Under ths amendment, 0,000 woud be
added to hs compensaton and hs 0,000 ta -e empt e pense aowance woud
be emnated. Lkewse, the saary of the ce Presdent, and that of the Speaker
of the ouse, woud be ncreased by 10,000 and hs 10,000 ta -e empt e pense
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6
aowance woud be emnated. nd, smary, the saary of each Member of
Congress woud be ncreased by 2, 00 and hs 2, 00 ta -e empt e pense aow-
ance woud be emnated. Ths amendment woud become effectve, wth respect
tc the Presdent, on anuary 20, 19 3, and wth respect to the ce Presdent,
the Speaker, and Members of Congress, on anuary 3,19 3.
The ouse recedes wth an amendment whch emnates the provsons of
the Senate amendment ncreasng the compensaton of the Presdent, the ce
Presdent, the Speaker of the ouse, and the Members of Congress but whch
removes the ta -e empt status of the e pense aowances of such offcas. The
e pense aowance provded the Presdent by secton 102 of tte 3 of the Unted
States Code and that provded the ce Presdent by secton 111 of tte 3 of
the Unted States Code sha be ta abe on and after anuary 20, 19 3; the
e pense aowance provded the Speaker of the ouse by subsecton (e) of the
frst secton of Pubc Law 2, ghty-frst Congress, approved anuary 19, 19 9,
and that provded each Member of Congress by secton 601 (b) of the Legsatve
Reorganzaton ct of 19 6 (Pubc Luw 601, 79th Cong.) sha be ta abe on
and after anuary 3, 19 3. The Presdent, the ce Presdent, the Speaker of
the ouse, and each Member of Congress w be requred to account for such
e pense aowances nsofar as s necessary for the purpose of deductng such
e penses for ncome ta purposes.
mendment No. 26 : Ths amendment struck out the tabe of contents to
the b and nserted a new tabe of contents conformng to the amendments to
the b made by the Senate. The ouse recedes wth an amendment to con-
form the tabe of contents to the acton of the conference commttee.
R. L. Doughton,
ere Cooper,
onN D. Dnqe ,
W. D. Ms,
Rchard M. Smpso ,
Managers on the Part of the ouse.
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
IND
dmssons ta , appcaton to admssons free of charge of
unformed members of the rmed Forces of the Unted
States
grcutura workers, amendng the grcutura ct of 19 9
(P. L. 7 ) -
rcraft, suppes for. See cse ta es.)
ens:
Nonresdent, payment of ta wthhed, Reguatons 111
amended
Resdent, hodng vad permts to reenter the Unted
States, status
mendments:
Reguatons 130
Sectons 0. 61-1 to 0. 61-7 (added), 0. 62-1 to
0. 62-1 (added), 0. 63-1 (added), 0. 63-2
(added), 0. 6 -1 (added), 0. 6 -2 (added)
Reguatons 11
Secton 11.606a (added)
Reguatons 111
Sect ons 29.3-1, 29. -3, 29.107-1, 29.107-2, 29.107-3,
29.120-1, 29.131-1, 29.131- , 29.101-1, 29.29 -1,
29. 0-1 (added), 29. 1-1 (added), 29. 1-2
(added), 29. 1-3 (added), 29. 1- (added),
29. 2-1 (added), 29.3 01(a) (1)-1, 29.3 10-1
(added), 29.3 12-1 (added), 29.3 12-2 (added)
Sectons 29.22(b) (2)- , 29.16 -6, 29.10 -7.
Sectons 29.22(o)- (added), 29.113(b)()-, 29.12 -1,
29.12 -
Sectons 29. 2-3 (added), 29. 3-1, 29. 3-3, 29. 6-1,
29.1 3-7
Sectons 29.112(b)(7)- , 29.112(b)(7)-2, 29.112(b)(7)-
29.112(b)(7)- , 29.113(a)(1 )-, 29.1 -2, 29.1 -3__
Sectons 29.12 -1 to 29.12 -9 (added), 29.117-9
(added), 29.172-1, 29.190-1
Sectons 29.1 7-1, 29.1 7-7, 29.1 7- , 29.1 -1,
29.1 -3
Sectons 29.391-1, 29.393-1, 29.39 -1
Reguatons 10
Secton 1.2
Secton 1. 7a
Reguatons 6
Secton 316.3. .
Reguatons 1
Sectons 192.273-192.2 0 (added)..
Reguatons 1
Sectons 190. 79, etc
Reguatons 10
Sectons 1 .36 , 1 .360, 1 .390
Sectons 1 . 61, 1 . 7
Sectons 1 . , 1 .09
Reguatons
rtces 206, etc
Reguatons
Sectons 1 3. 01, 1 3. 0 a
Reguatons 3
ppend
Rung No.
1366
1363
1369
136
1371
13619
13671
13662
1369
1369
1367
136
13679
13702
136 1
136 0
136 6
13633
13732
130 0
136 1
13731
13729
130 0
13620
(0 )
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 6
Rung No
mortzaton:
ond premum, Reguatons 111 amended to conform to
sectons 203 and 217 of the Revenue ct of 19 0
mergency factes, Reguatons 111 amended to conform
to secton 216 of the Revenue ct of 19 0
nnutes, contracts purchased by empoyer for empoyees,
treatment under secton 16 (d), I. R. C
rmed Forces of the Unted States:
ppcaton of admssons ta to admssons free of charge
of unformed members
portatons to. (See cse ta es.)
tenson of tme for fng cams for refund by estates of
certan deceased servcemen, Reguatons 10 amended..
Transportaton of. (See cse ta es.)
ssgnments of ncome, proceeds of pubc entertanments con-
ducted for bsneft of chartabe organzatons
utomobe deaers, corporaton prmary organzed and
operated for advertsng purposes, status as busness eague..
utomobes:
Saes of gass cut and nstaed by gass deaers
Temporary used as demonstrators by deaers
1
ankruptcy ct, approved uy 1, 1 9 , amendng subdvsons
d and e of secton
ond premum, amortzaton, Reguatons 111 amended to
conform to sectons 203 and 217 of the Revenue ct of 19 0..
ureau of Interna Revenue:
Changes n organzatona nomencature
Changes n organzatona nomencature of Technca
Staff.
Procedure where fed determnatons of ncome, etc., ta es
agreed to by ta payers are dsapproved on post-revew
n Washngton
usness e penses, payments by empoyers under New York
dsabty benefts aw
usness eagues, corporaton prmary organzed and operated
by automobe deaers for advertsng purposes
Cana Zone:
ttached to the Interna Revenue Coecton Dstrct of
Forda
Lmtng the retroactve appcaton of the ncome ta to
Federa empoyees
Capta gans and osses motor vehces temporary used as
demonstrators by deaers
Capta gans, vestock used for dary, breedng or other pur-
poses, treatment under secton 117(|), I. R. C., of proceeds
from sae
Chartabe organzatons, proceeds of pubc entertanments for
beneft of
Cgarette ta , New ersey, by whom deductbe _.
Cgarettes. (See cse ta es.)
Cgars. (Sec cse ta es.)
Cams for refund, e tenson of tme for fng by estates of
certan deceased servcemen, Reguatons 10 amended
Coecton of ta , Cana Zone attached to Interna Revenue
Coecton Dstrct of Forda
1369
136
13662
1366
136 1
1371
13616
1369
13670
1363
1369
1373
1373
136 7
13667
13616
13623
136 0
13670
13626
1371
13661
136 1
13623
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 7
Rung No.
Page
Warehousng, Reguatons 10 amended.
Commttee reports:
Revenue ct of 19 1
Conference ( ouse Rept. 1213)
ouse of Representatves Report No. 6
Senate Report No. 7 1
Senate Report No. 7 1, part 2, suppementa...
Summary prepared by ont Commttee Staff)
Compensaton:
Dsabty retrement pay receved by retred commssoned
offcer of Unted States Coast and Geodetc Survey
Servces rendered by a partnershp for a perod of 36 months
or more
Stpends receved under feowshp awards
Contrbutons:
mpoyer to empoyees trust, deductbty of payments
n e cess of those requred
mpoyers, New York dsabty benefts aw
Corporatons:
Computaton of ncome ta for ta abe vears begnnng
after une 30, 19 0
ecton as to recognton of gan n certan qudatons,
Reguatons 111 amended
cess profts credt based on ncome n connecton wth
certan e changes, Reguatons 130 amended
tensons of tme for fng returns for ta abe years end-
ng after une 30, 19 0, and before February 1, 19 1
Informaton returns, payment of dvdends, Reguatons
111 amended
Tme for fng returns and payment of ta , Reguatons
111 amended
Credt aganst ta , Cuban ta on surpus from operatons or
undstrbuted profts of corporatons
Cuba, ta mposed on surpus from o ratons or undstrbuted
profts of corporatons, credt aganst Unted States ncome
ta
13720
13700
13712
13730
1366
136 6
136 3
13632
Department stores empoyng the reta nventory and eectve
nventory methods, prce ndces for uy 19 1
Deprecaton, motor vehces temporary used as demonstra-
tors by deaers
Dsabty benefts, payments receved by empoyees under New
York dsabty benefts aw
Dsabty retrement pay, retred commssoned offcer of
Unted States Coast and Geodetc Survey
Dsted sprts:
mergency transfers (P. L. 76)
Lquors, msceaneous reguatons reatng thereto
Producton, Reguatons amended
Rectfcaton, Reguatons 1 amended
Transfer at regstered dsteres, amendng secton 2 3(b),
I. R. C. (P. L. 73)
Transfer of gn and vodka, amendng secton 2 3(d),
I. R. C. (P. L. 72)
Dvdends, nformaton returns by corporatons, Reguatons
111 amended..
13667
11
136
3
1367
6
1371
97
13669
6
1367
3 1
13679

1369
1
1370
7
1370
7
13093
1
13670
01
13607
11
1360
13
13037
3
13701
2 1
13709
2
1372
270
130 0
233
13732
23
13636
3 7
1363
3 7
130 0
233
136 1
23
13731
236
13079

G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6

mergency factes, amortzaton, Reguatons 111 amended to
conform to secton 216 of the Revenue ct of 19 0
mpoyees trusts:
nnutes under contracts purchased by empoyer for em-
poyees, treatment under secton 16 (d), I. R. C
Deducton of contrbutons n e cess of those requred
mpoyment ta es:
Interna Revenue Code
mpoyees
Nurses, status
Ta cab drvers
arety entertaners
Form 9 1a, prvate prntng, permssbe varatons
and rues for
ome workers, status after 19 0.
Raroad Retrement Ta ct, depostary procedure
under
ntertaners, varety, status for empoyment ta purposes
state ta :
tenson of tme for fng cams for refund by estates of
certan deceased servcemen, Reguatons 10 amended..
Marta deducton, Reguatons 10 amended
Powers of appontment, Powers of ppontment ct of 19 1.
cess profts credt, based on ncome, n connecton wth
certan e changes, Reguatons 130 amended
cse ta es:
Manufacturers and retaers ta es
portaton, saes of ta abe artces to mercan
ctzens, ncudng members of the foregn servce
or rmed Forces of the Unted States traveng to
or ocated n a foregn country
Manufacturers ta es
Imported artces prevousy shpped out of Unted
States ta -free
Saes of gass cut to automobe patterns, term cus-
tomer s defned
Teevson recevng sets, quck-freeze unts; credt or
refund of ta pad on certan suppes for certan
arcraft
Tobacco ta es
Manufactured n and removed from domestc
factores
Cgarettes
Mav, 19 1 and 19 0.
une, 19 1 and 19 0...
uv, 19 1 and 19 0
ugust, 19 1 and 19 0.
September, 19 1 and 19 0
October, 19 1 and 19 0
Cgars
Large
May, 19 1 and 19 0
une, 19 1 and 19 0
uv, 19 1 and 19 0
ugust, 19 1 and 19 0.
September, 19 1 and 19 0
October, 19 1 and 19 0
Rung No.
136
13662
13632
13627
1361
13727
136 7
13696
13617
13619
13727
136 1
136S0
1362
1371
136 2
136 6
1369
13672
13621
13639
136
1367
13691
13722
13629
136 2
1366
136
13713
13733
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
6 9
Rung No.
cse ta es Contnued
Tobacco ta es Contnued
Manufactured n and removed from domestc
factores Contnued
Cgars- Contnued
Sma
May, 19 1 and 19 0 ---
une, 19 1 and 19 0
uy, 19 1 and 19 0,
ugust, 19 1 and 19 0...
September, 19 1 and 19 0
October, 19 1 and 19 0...
Snuff
May, 19 1 and 19 0
une, 19 1 and 19 0
uy, 19 1 and 19 0_._ -
ugust, 19 1 and 19 0
September, 19 1 and 19 0...
October, 19 1 and 19 0 -
Tobacco
Mav, 19 1 and 19 0..
une, 19 1 and 19 0
uv, 19 1 and 19 0_
ugust, 19 1 and 19 0
September, 19 1 and 19 0
October, 19 1 and 19 0..
Reguaton amended
Transportaton of persons-
ppcaton of ta to amounts pad for transporta-
ton of members of rmed Forces of Unted States.
ppcaton of ta to charges for nontransportaton
servces ncuded n an a-e pense cruse
ecutve order, attachng the Cana Zone to the Interna
Revenue Coecton Dstrct of Forda ( . O. 102 2)
empt corporatons, prmary organzed and operated by
automobe deaers for advertsng purposes, status as busness
eague
tenson of tme:
Cams for refund by estates of certan deceased servce-
men, Reguatons 10 amended
Corporaton returns for ta abe vears endng after une 30,
19 0, and before February 1, 10 1
13621
13639
136
1367
13691
13722
13622
136 1
136 9
136 3
13703
13721
13622
136 1
136 9
136 3
13703
13721
13729
1370
13699
13623
13616
136 1
13669
1367
Feowshp awards, stpends receved
Fducares, estates and trusts, tme for fng returns and
payment of ta , Reguatons 111 amended
Foor stocks ta on cgarettes, ncrease n rate of ta
Forda, Cana Zone attached to Interna Revenue Coecton
Dstrct of
Foregn servce, members of, e portatons to. See cse
ta es.)
Foregn ta es:
Cuba, ta mposed on surpus from operatons or unds-
trbuted profts of corporatons, credt aganst Unted
States ncome ta
Form W-2 (Revsed uy 19 1), Wthhodng Statements 19 1:
Rues for reproducng
Use and reproducton by Federa, State, and oca gov-
ernments
Form W-2, Wthhodng Statements 19 2, rues for reproduc-
ng .
136 3
1369
13729
13623
1370
13663
13697
13719
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
660
Form 9 1a, prvate prntng, permssbe varatons and rues
for _
Form 10 0 for 19 1, correcton n Schedue C Summary
Forms, Schedue FY (Form 1120), computaton of corporaton
ncome ta for ta abe years begnnng after une 30, 19 0..
G
Gan or oss:
ecton as to recognton of gan n certan corporate
qudatons, Reguatons 111 amended ....
Gasone cense ta , awa, deductbty by consumer
Georga, prvege or cense ta , by whom deductbe
Gft ta , powers of appontment, Powers of ppontment ct
of 19 1
Gross ncome:
d|ustment for amortzabe bond premum, Reguatons
111 amended to conform to secton 203 of the Revenue
ct of 19 0
Incusons:
Proceeds of pubc entertanments conducted for bene-
ft of chartabe organzatons
Stpends receved under feowshp awards
When ncuded, optons open to owners of maturng Unted
States Savngs onds of Seres
II
awa, cense ta on gasone and other motor vehce fues,
deductbty by consumer ,
ome workers, status after 19 0, changes effected by Soca
Securty ct mendments of 19 0
I
Imported artces, prevousy shpped out of Unted States ta -
free
Industra acoho pants, secton 3121 of the Interna Revenue
Code amended (P. L. 1 1
Industra acoho, Reguatons 3 amended
Informaton at source:
Dvdend payments by corporatons, Reguatons 111
amended
Return respectng certan corporate qudatons, Regua-
tons 111 amended
Inspecton of returns:
Senate Commttee on pendtures n the ecutve
Departments, nformaton as to sae of tanker shps by
Unted States Martme Commsson
Senate Commttee on the Dstrct of Coumba
Senate Speca Commttee To Investgate Organzed Crme
n Interstate Commerce
Insurance, accdent or heath, payments receved by empoyees
under New York dsabty benefts aw
Inventores, eectve method, prce ndces for uy 19 1 for use
by department stores

ont Commttee on Interna Revenue Ta aton, summary of

provsons of Revenue ct of 19 1

entucky, advance payment of State ncome ta by ta pas er

fng returns on cash bass, when deductbe..
Rung No.
136 7
1372
136
1367
13677
136
1362
1309
1371
136 3
136
13677
13617
13696
136 6
1367
13620
13679
1367
136 6
13716
136 7
13667
13693
13730
13C2
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
661
Legsaton:
ghty-second Congress
Pubc Law No. ...
Pubc Law No. 66...
Pubc Law No. 71
Pubc Law No. 72...
Pubc Law No. 73...
Pubc Law No. 76...
Pubc Law No. 7
Pubc Law No. 2...
Pubc Law No. 12 ..
Pubc Law No. 1 0..
Pubc Law No. 1
Pubc Law No. 1 7..
Pubc Law No. 161..
Pubc Law No.
Pubc Law No,
Pubc Law No.
Lqudatons, corporate, eecton as to recognton of gan n
166.
2 1.
2 .
certan cases, Reguatons 111 amended.
Lquor, part 171, msceaneous reguatons.
Lquors, fermented mat, Reguatons 1 amended
Lvestock, used for dary, breedng, or other purposes, treat-
ment under secton 117(|), I. R. C., of proceeds from sae
M
Manufacturers e cse ta es. (See cse ta es.)
Marta deducton, estate ta , Reguatons 10 amended
Merchant Marne ct, 1936, as amended, e tenson of tme for
use of constructon reserve funds (P. L. 1 7)
Meta scrap, contnung unt the cose of une 30, 19 2, the
suspenson of dutes and mport ta es on meta scrap
Mtgaton of effect of statute of mtatons, etc., sef-empoy-
ment ta , Reguatons 111 amended
Motor vehces, temporary used as demonstrators by deaers.
N
New ersey, cgarette ta , by whom deductbe
New York, payments receved by empoyees under dsabty
benefts aw
Nonresdent aens, payment of ta wthhed, Reguatons 111
amended
Nurses, status for empoyment ta purposes, etc
Rung No.
1362
13630
1363
1363
13636
13637
1363
136 0
1366
13673
1367
136
136 9
13690
13710
13711
1367
13701
13709
1372
13633
13620
136 0
136
13630
13671
13670
13661
13667
1369
13627
Partnershps, compensaton for servces rendered for a perod
of 36 months or more
Payment of ta , corporatons, estate and trust fducares, and
persons wthhodng ta from nonresdent aens, Reguatons
111 amended
Penson trusts, annutes under contracts purchased by em-
poyer for empoyees, treatment under secton 16 (d), L R. C
Persona servce corporatons, ta abty of sharehoders, Regu-
atons 111 amended
Possessons of the Unted States:
Federa empoyees, mtng the retroactve appcaton
of the ncome ta -- .....
136 6
1369
13662
13702
136 0
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
662
Powers of appontment, treatment for estate and gft ta
purposes
Prvege or cense ta , Georga, by whom deductbe
Procedure, ureau, fed determnatons of ncome, etc., ta es
. agreed to by ta payers but dsapproved on post-revew n
Washngton --
Pubc aws:
ghty-second Congress
No. , reatng to the treatment of powers of appont-
ment for estate and gft ta purposes
No. 66, contnung unt the cose of une 30, 19 2,
.the suspenson of dutes and mport ta es on meta
scrap, and for other purposes
No. 71, amendng subdvsons d and e of the ank-
ruptcy ct, approved uy 1, 1 9
No. 72, amendng secton 2 3(d) of the Interna
Revenue Code, as amended by Pubc Law ,
ghty-frst Congress
No. 73, amendng secton 2 3(b) of the Interna
Revenue Code, as amended by Pubc aw ,
ghty-frst Congress
No. 76, amendng chapter 26 of the Interna Revenue
Code
No. 7 , amendng the grcutura ct of 19 9
No. 2, mtng the retroactve appcaton of the
ncome ta to empoyees of the Unted States work-
ng n the possessons or n the Cana Zone
No. 12 , provdng that admssons ta sha not
appy to admssons free of charge of unformed
members of the rmed Forces of the Unted States..
No. 1 0, amendng and e tendng the Sugar ct of
19 , and for other purposes
No. 1 , amendng secton 3121 of the Interna Reve-
nue Code
No. 1 7, e tendng tme for use of constructon reserve
funds estabshed under secton 11, Merchant
Marne ct, 1936, as amended
No. 161, amendng secton 2 01(c)(1), Interna Reve-
nue Code
No. 166, amendng secton 37(c), Interna Revenue
Code
No. 2 1, reatng to ncome ta treatment of gan
reazed on an nvountary converson of property. -
No. 2 , amendng penaty provsons appcabe to
persons convcted of voatng certan narcotc aws,
and for other purposes
Puerto Rco, ta on sef-empoyment ncome e tended to,
Reguatons 111 amended
uck-freeze unts. (See cse ta es.)
R
Raroad Retrement Ta ct. (See mpoyment ta es.)
Refunds, cams, e tenson of tme for fng by estates of
certan deceased servcemen, Reguatons 10 amended
Reguatons (see aso mendments: Reguatons).
Wthhodng, Unted States-Swtzerand ncome ta con-
venton
Reproducton of Form W-2 (Revsed uy 19 1), Wthhodng
Statements 19 1
Reproducton of Form W-2, Wthhodng Statements 19 2
Rung No.
1362
136
136 7
1362
13630
1363
1363
13636
13637
1363
136 0
1366
13673
1367
136
136 9
13690
13710
13711
13671
130S1
13717
13663
13719
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
663
Rung No.
Resdent aens, hodng vad permts to reenter the Unted
States, status
Retaers e cse ta es. (See cse ta es.)
Retrement pay, dsabty, retred commssoned offcer of
Unted States Coast and Geodetc Survey
Returns:
Corporatons
mended, refectng ad|ustments requred by cess
Profts Ta ct of 19 0 for ta abe years begnnng
after une 30, 19 0
tensons of tme for fng for ta abe years endng
after une 30, 19 0, and before February 1, 19 1
Fducares of estates and trusts and certan corporatons,
tme for fng, Reguatons 111 amended
Form 10 0 for 19 1, correcton n Schedue C summary
Informaton
Dstrbutons n qudaton, Reguatons 111 amended
Payments of dvdends by corporatons, Reguatons
amended
Inspecton by Senate Commttee on pendtures n the
ecutve Departments, nformaton as to the sae of
tanker shps by Unted States Martme Commsson
Inspecton by Senate Commttee on the Dstrct of
Coumba
Inspecton by Senate Speca Commttee to Investgate
Organzed Crme n Interstate Commerce
Revenue ct of 19 1:
Commttee reports
Conference ( ouse Rept. 1213)
ouse of Representatves Report No. 6
Senate Report No. 7 1
Senate Report No. 7 1, part 2, suppementa
Summary prepared by ont Commttee Staff
S
Saes ta , South Carona
Savngs bonds, Unted States, Seres , optons open to owners
upon maturty
Savngs notes, Treasury, Seres , sae
Schedue FY (Form 1120), computaton of corporaton ncome
ta for ta abe years begnnng after une 30, 19 0
Sef-empoyment ncome, ta on, Reguatons 111 amended
Senate Commttee on pendtures n the ecutve Depart-
ments, nspecton of returns, nformaton as to sae of tanker
shps by Unted States Martme Commsson
Senate Commttee on the Dstrct of Coumba, nspecton of
returns
Senate Speca Commttee to Investgate Organzed Crme n
Interstate Commerce, nspecton of returns
Snuff. (See cse ta es.)
South Carona, saes and use ta es
Sugar ct of 19 , amended and e tended (P. L. 1 0)
Summary of provsons of Revenue ct of 19 1, prepared by
Staff of ont Commttee on Interna Revenue Ta aton
Swtzerand, ncome ta conventon, wthhodng reguatons..
T
Tabe, wthhodng, combnng ncome ta and F. I. C. . ta ,
weeky wages
Ta Court of the Unted States, The:
Decsons of, st of acquescences and nonacquescences
Ta tabes, wthhodng, 10-day and 2 -day perods
136
1366
136
13669
1367
1369
1372
1367
13679
136 6
1371G
136 7
13720
13700
13712
13730
1372
136
136 9
136
13671
136 6
13716
136 7
1372
13673
13730
13717
13706
13723
13707
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g

e
66
Ta es:
Foregn
Cuba, mposed on surpus from operatons or unds-
trbuted profts of corporatons, credt aganst
Unted States ncome ta
Georga prvege or cense, by whom deductbe
awa, gasone or other motor vehce fues, deductbty
by consumer
Income, etc., procedure where fed determnatons agreed
to by ta payers are dsapproved on post-revew n
Washngton
entucky State ncome, advance payment by ta payer fng
returns on cash bass, when deductbe
New ersey cgarette, by whom deductbe
Sef-empoyment ncome, Reguatons 111 amended
South Carona saes ta and use ta
Ta cab drvers, status for empoyment ta purposes
Technca Staff, changes n organzatona nomencature
Teevson recevng sets. (See cse ta es.)
Tobacco (See cse ta es.)
Transportaton of persons. (See cse ta es.)
Treasury savngs notes, Seres sae
Trusts, empoyees , annutes under contracts purchased by
empoyer for empoyees, treatment under secton 16 (d),
I. R. C
U
Unted States Coast and Geodetc Survey, dsabty retrement
pay of retred commssoned offcer
Unted States Savngs onds, Seres , optons open to owners
upon maturty
Use ta , South Carona
rgn Isands, status as a country n West Indes under secton
109, I. R. C, reatng to Western emsphere trade cor ra-
tons
W
Western emsphere trade corporatons, status of rgn
Isands as a country n West Indes
Wthhodng of ta at source:
ome workers, status after 19 0
Rung No.
Nurses, status
Reguatons under Unted States-Swtzerand ncome ta
conventon
Tabe combnng ncome ta and F. I. C. . ta , weeky
wages
arety entertaners, status
Wthhodng Statements 19 1, Form W-2 (Revsed uy 19 1):
Rues for reproducng
Use and reproducton by Federa, State, and oca Govern-
ments
Wthhodng Statements 19 2, Form W-2, rues for repro-
ducng I
Wthhodng ta tabes, 10-day and 2 -day perods 1
1370
7
136
22
13677
2
136 7
2
1362
36
13661
2
13671
1 1
1372
26
1361
162
1373
231
136 9
221
13662
90
1366
136
1372
13726
13726
13617
13696
13627
13717
13706
13727
o
G
e
n
e
r
a
t
e
d

f
o
r

L

n

Z
h
a
n
g

(
N
e
w

Y
o
r
k

U
n

v
e
r
s

t
y
)

o
n

2
0
1
3
-
0
1
-
2
1

2
2
:
0

G
M
T


/


h
t
t
p
:
/
/
h
d

.
h
a
n
d

e
.
n
e
t
/
2
0
2
7
/
u
c
1
.
b
3
2
9
6
9
2
0
P
u
b

c

D
o
m
a

n
,

G
o
o
g

e
-
d

z
e
d


/


h
t
t
p
:
/
/
w
w
w
.
h
a
t
h

t
r
u
s
t
.
o
r
g
/
a
c
c
e
s
s
_
u
s
e
#
p
d
-
g
o
o
g