SP CI L TT NTION to the cautonary notce on ths page that pn

shed rungs of the ureau do not have the force and efe
f Treasury Decsons and that they are appcabe ony to facts presented n the pubshed cas
Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn I -1
NU RY- UN , 1935
31
IN T IS ISSU
Notes I r
N M I N UNI RSITY v-vm
oard of Ta ppeas .... .P P t9 . . . 1-11
Income Ta - LOOMINGTON /
Part I (1934 ct) 43-139
Part n (1932 ct) 140-157
Part III (1928 ct) 158-241
Part I (192 and Pror cts) 242-380
state and Gft Ta 381-395
Saes Ta 39 -122
Capta Stock Ta 423-424
Msceaneous Ta 425-141
442-5 3
5 5-585
The rungs reported n the Interna Revenue uetn are for the nformaton of ta payer and ther counse as
hewng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs 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 (he aw and Treasury Decsons to the entre
state of facts opon bch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary he reached n another case nntess a the matera facts are dentca wth those of the reported case. s t s
at sfwsys fessbc to pubsh a compete statement of the facts underyng each rung, there can be no assurance
that any new cose 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 c ganst reachng a concuson n any case
crcy on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a per-
tnent provsons of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used as
ads n st ad rng the aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
to pabrsh a rungs and decsons, ncudng opnons of the ssstant Genera Counse for the ureau of Interna
a t toue. whch, because they announce a rung or decson upon a nove queston or upon a queston n regard
bch 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 decsons whch revoke, modfy.
mend, or a eet n any manner whatever any pubshed rung or decson. In many nstances opnons of the
assstant Genera Counse for the ureau of Interna Revenue are not of genera nterest because they ann
no new ratng or no new constructon of the revenue aws but smpy appy rungs aready made pubc to c
noatton 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 ssstant Genera Counse for the ureau of
Interna Revenue are not consecutve. No unpubshed rung or decson w he cted or reed upon by any offcer
or empoyee of the nrean of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwse
specfccy ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING O IC , W S INGTON : 1935
fw ua by the Soperntcnaent of Documents, Washngton, D. C - See bach of tte for ard
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he Interna Revenue uetn servce for 1935 w consst of weeky
etns and semannua cumuatve buetns.
he weeky buetns w contan the rungs and decsons to be
de pubc and a Treasury Department decsons (known as Treas-
decsons) pertanng to Interna Revenue matters. The sem-
ua cumuatve buetns w contan a rungs and decsons fn-
dng Treasury decsons) pubshed durng the prevous s months,
re compete uetn servce may be obtaned, on a subscrpton
:s, from the Superntendent of Documents, Government Prntng
ce, Washngton, D. C, for 2 per year. Snge copes of the weeky
etn, 5 cents each.
ew subscrbers and others desrng to obtan the 1919, 1920, and
1 Income Ta Servce may do so from the Superntendent of Docu-
nts at prces as foows: Dgest of Income Ta Rungs No. 19
ntans dgests of a rungs appearng n Cumuatve uetn 1
5, ncusve), 50 cents per copy Cumuatve uetns Nob. 1 to 5,
tanng n fu a rungs pubshed snce pr, 1919, to and h-
dng December, 1921, as foows: No. 1, 30 cents No. 2, 25 cents
. 3, 30 cents No. 4, 30 cents No. 5, 25 cents.
Persons desrng to obtan the Saes Ta Cumuatve uetns for
uary- une and uy-December, 1921, may procure them from the
perntendent of Documents at 5 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
years 1922, 1923, 1924, 1925, 192 , 1927, 1928, 1929, 1930, 1931,
12, 1933, and 1934, may do so at prces as foows:
muatve uetn-I-1 ( anuary- une, 1922) 40 cents
muatve uetn 1-2 ( uy-December, 1922) 30 cents
muatve uetn II 1 ( anuarv- une, 1923) 30 cents
muatve uetn II-2 ( uy-December, 1923) 40 cents
muatve uetn III 1 ( anuarv- une, 1924) 50 cents
muatve uetn III-2 ( uv-December, 1924) 50 cents
est No. 13 ( anuary, 1922-December, 1924) 0 cents
muatve uetn I -1 ( anuary- une, 1925) 40 cents
muatve uetn I -2 ( uy-December, 1925)--- 35 cents
gest No. 17 ( anuary-December, 1925) 25 cents
muatve uetn - ( anuarv- une, 192 ) 40 cents
muatve uetn -2 ( uy-December, 192 ) 30 cents
gest No. 21 ( anuary-December, 192 ) 15 cents
muatve uetn I-1 ( anuary- une, 1927) 40 cents
muatve uetn I-2 ( uy-December, 1927) 40 cents
gest No. 22 ( anuary, 1925-December, 1927) 35 cents
muatve uetn II-1 ( anuary- une, 1928) 35 cents
muatve uetn II-2 ( uy-December, 1928) 50 cents
muatve uetn III-1 ( anuary- une, 1929) 50 cents
muatve uetn III-2 ( uy-December, 1929) 55 cents
muatve uetn I -1 ( anuarv- une, 1930) 50 cents
muatve uetn I -2 ( uy-December, 1930) 50 cents
muatve uetn - ( anuary- une, 1931) 5 cents
muatve uetn -2 ( uy-December, 1931) 30 cents
muatve uetn I-1 ( anuarv- une, 1932) 30 cents
muatve uetn I-2 ( uy-December, 1932) 30 cents
muatve uetn II-1 ( anuary- une, 1933) 30 cents
muatve uetn II-2 ( uy-December, 1933) 50 cents
mutatve uetn III-1 ( anuary- une, 1934) 50 cents
muatve uetn III-2 ( uy-December, 1934) 50 cents
muatve uetn I -1 ( anuary- une, 1935) 50 cents
gest (ncome ta rungs ony, pr, 1919, to December,
1930, ncusve) SI. 50
nqures n regard to these pubcatons and subscrptons shoud
sent to the Superntendent of Documents, Government Prntng
fce, Washngton, D. C. ,
y
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn I -1, n addton to
a decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters, contans ssstant Genera
Counse s opnons, and rungs and decsons pertanng to ncome,
estate, gft, saes, capta stock, and msceaneous ta es, as ndcated
on the tte page of ths uetn, pubshed n the weeky uetns
( oume I , Nos. 1 to 25, ncusve) for the perod anuary 1 to
une 30, 1935. It aso contans a cumuatve st of announce-
ments reatng to decsons of the Unted States oard of Ta
ppeas pubshed n the Interna Revenue uetn Servce from
anuary 1, 1932, to une 30, 1935.
Income Ta rungs are prnted n four parts. Rungs under the
Revenue. ct of 1934 are pubshed as Part I, the secton headngs
correspondng wth the sectons of that aw and the artce headngs
correspondng wth the artce headngs of Reguatons 8 . Rungs
under the Revenue ct of ,1932 are pubshed as Part II, the secton
and artce headngs correspondng wth the secton and artce head-
ngs of the Revenue ct of 1932 and Reguatons 77. Rungs under
the Revenue ct of 1928 are prnted as Part III, the secton and
artce headngs correspondng wth the secton and artce headngs
of the Revenue ct of 1928 and Reguatons 74. Rungs under the
Revenue ct of 192 and pror cts w be prnted as Part I , the
secton and artce headngs correspondng wth the secton and
artce headngs of the Revenue ct of 192 and Reguatons 9.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. Genera Counse s or ssstant Genera Counse s memorandum.
I. R. . Interna Revenue uetn.
I. T. Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mm. Mmeographed etter.
MS. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera,
p. T. Processng Ta Dvson.
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I
8. T. Saes Ta Dvson.
R. ISver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
The practce of promugatng Treasury Decsons that embody
court decsons reatng to the nterna revenue has been dscontnued.
ereafter opnons of the courts, wth approprate headnotes for the
nformaton and gudance of ta payers and offcers and empoyees of
the ureau of Interna Revenue, w be pubshed n the Interna
Revenue uetn wthout forma approva and promugaton by the
Secretary of the Treasury.
NNOUNC M NT R L TING TO O RD OP T PP LS D CISIONS.
Under the provsons of the recent Revenue cts, reatng to ap-
peas to the oard of Ta ppeas, the Commssoner may acquesce
n the decson of the oard or he may, f the appea was heard by
the oard pror to the passage of the 192 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta deter-
mned bv the Commssoner to be due but dsaowed by the oard,
provded that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 192 ot, the Commssoner may, wthn s
months after the oard s decson s rendered, fe a petton for a
revew of the decson by a Crcut Court of ppeas or by the Unted
States Court of ppeas for the Dstrct of Coumba however, as to
decsons rendered on and after une 7, 1932, pettons for revew
must be fed wthn three months after the decson s rendered.
In order that ta payers and the genera pubc may be nformed as to
whether or not the Commssoner has acquesced m a decson of the
oard of Ta ppeas dsaowng a ta determned by the Comms-
soner to be due, announcement w bo made n the weeky uetn
at the earest practcabe date. notce that the Commssoner has
acquesced or has nonacquesced n a oard decson reates, however,
ony to the ssue or ssues decded n favor of the ta payer. Dec-
sons so acquesced n shoud be reed upon by offcers and empoyees
of the ureau of Interna Revenue as precedents n the dsposton of
other cases before the ureau.
or addtona nformaton whch w be of assstance n the use
of the Interna Revenue uetn servce read the Introductory
Notes to the atest Dgest.
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CONT NTS.
Rung.
4533 _
Rung No.
I -1-723
I -1-7238
I -2-7249
1 -2-7250
I -2-7252
I -3-72 3
I -3-72 2
I -S-72 1
I -3-72 5
I -3-72
1 -4-727
I -4-7277
I -4-7280
I -4-7281
I -5-7290
I -5-7292
I - -7309
I - -729
I -7-7320
I -7-7324
I -8-7335
I -8-732
I -9-7347
I -9-7349
I -10-73 4
I -10-73 8
I -11-7377
I - 1-7378
I -U-7379
I -12-7388
I -12-7. 189
1 -12-7390
I - 2-7392
I -12-7393
I -13-740
I -15-7434
I -15-7435
I -15-7431
I -1 -7447
I -17-74 1
I -17-74 2
I -17-7457
I -18-7475
I -19-7489
I -20-7502
I -21-7512
I -21-7514
I -21-751
I -21-7517
I -21-7518
I -22-7527
I -22-7528
I -22-7530
I -22-7529
I -23-7541
I -23-7543
I -23-7544
I -25-75 0
I -25-75 2
I -25-75 3
I -1-7232
I -1-7233
I -1-7230
I -1-7229
I -2-7243
1 -2-7244
I -3-7257
I -3-7258
I -3-7259
1 -4-7273
Pnge.
8
122
508
524
75
22
128
107
70
509
543
537
499
19
4 0
11
31
410
544
124
25
3
00
32
15
82
475
510
3
550
50
51
31
118
535
534
40
141
70
25
814
83
10
23
538
449
83
4 2
318
542
423
524
21
5 8
54 5
507
08
542
21
522
332
332
303
253
23
335
195
22
28
193
Rung
Court decsons Contnued
912
913
914
915
91
917
918
919
920
921
922
923.
924
925
92S
927
928
929
930
931
932
933.
934
935.
93
937
938 ,.
939
940
941
942
943
944
945
94 .
947.
948
949
950.
951.
952
953
954
955
95
957
958
959
9 0
9 1
9 2
m
9 4
9 5
9
9 7
9 8
9 9.
970
971.
972
973
974
97 . -
97 _
977
978
979.
980.
981
982
Rung No.
Page.
I -4-7272
1 8
I -4-7274
228
I -4-7275
240
I - -7288
247
I -5-7287
171
I -5-7289
319
I M -7301
2 7
I - -7302
298
I -7-7314
213
I -7-7315
2 7
I -7-7317
327
I -8-7332
387
I -8-7331
217
I -8-7330
17
I -8-7334
284
I -9-7341
221
I -9-7344
352
I -9-7342
242
I -10-7354
231
I -10-735
245
I -10-7358
322
I -11-7370
174
I - 1-7372
338
I -11-7373
348
1 -12-738
355
I -12-7384
2 4
I -12-7385
293
I - 3-7400
259
I -13-7402
300
I -13-7401
289
I -13-7405
421
I -14-7414
187
I -14-7415
2 9
1 -14-741
370
I -15-7425
272
I -15-742
385
I -15-7430
439
I -1 -7442
205
I -1 -7443
339
1 -1 -7444
341
1 -17-7454
209
I -17-7452
190
I -17-7455
234
I -18-74 9
350
I -18-74 8
279
I -18-7470
390
I -18-7471
503
I -19-7481
31
I -19-7484
373
I -19-7482
3 0
1 -19-7483
3 5
I -20-7497
292
I -20- 7- , s
37
I -20-749
183
I -21-7504
1 0
I -21-7508
1 4
I -21-7509
280
I -21-7510
310
I -22-7522
15
1 -22-7523
305
I -22-7524
392
1 -22-7525
407
I -23-7534
158
I -23-7535
250
1 -23-7537
29
I -24-75.W
383
I -24-7548
178
I -24-7549
185
I -25-7557
431
I -25-7558
433
1 -25-7559
438
( )
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I
Rung.
Rung No.
Page.
Opnon of ttorney Gen-
er.
I -10-7359
442
9
I -19-7488
444
ssstant Genera Counse s
memoranda:
13 81
I -3-7254
58
14012
I - -7299
145
I -1-7231
32
I -I0-7351
102
14128
I -3-725
142
14129
I -9-7345
428
141 2
I -9-7340
152
14198.
I -13-7399
2 1
14207
I -7-7311
8
14348
I -7-7318
427
I -11-73 8
47
14350
I -11-7371
201
14375
I -9-7338
52
1 -7-731
103
I -12-7383
98
I -10-73 0
497
14509
I -13-739
84
I -15-7427
417
I -17-7451
154
14582
I -13-7403
397
14585
I -13-7404
400
14593
I -10-7437
50
II1.117
I -14-7410
2
14 25
I -1 -7440
114
1400
I -19-7479
181
14 93
I -17-7453
197
I -17-7450
44
1483
I -20-7492
45
14839
I -20-7493
73
I -21-7505
102
14987.
I 24-7547
99
15082
I -25-7555
131
oard of Ta ppeas:
13425
I -13-7394
32
1342
I -13-7394
32
I -9-7337

39534
I -3-7253
2
I -3-7253
8
I -3-7253
17
I -3-7253
17
40710
1 -I9-7477
13
I -21-7503
30
I -1 -743
24
43052
I -14-740S
8
43733..
I -3-7253
20
I -21-7503
30
47210.
I -22-7519
18
I -22-7519
18
47212.
I -22-7519
s
I -13-7394
24
I -12-7380
25
I -3-7253
20
I -17-7449
25
I -4-7207
3
49880
I 22-7519
3a 32
50073
I -14-7408
8
I -21 7503
30
I -12- 7.180
9
I -12-7380
9
I -9-7317
11
I -14-740S
27
5299 --
I -14-740S
27
53189.
I -12- 7280
25
I -21-7503
28
53778...
I -20-7491
29.39
54050.
I -19-7477
1
5134
I -21-7503
29
54347.
I -21-7503
29
I -20-7491
41
54739
I -1 -743
9
M740..
I -1 -743
5
51741
I -1 -743
22
I -3-7253
20
I -17-7449
11
5 443.
I -9-7337

I -1-7225
Rung.
Rung No.
Pago.
ard of Ta ppea Con.
58180
I -9-7337
27
54400
I -9-7337
2
58 04
I -9-7337
15,35
8
58787
I -9-7337
58788
I -9-7337
8
58789
I -9-7337
21
I -14-7408
2
I -17-7449
39
5948 .-
I -21-7503
18
59598
I -1 -743
14
I -8-7325
31
59957
I -14-7408
15,1
I -9-7337
2
0227
I -1 -743
22
0228
I -1 -743
5
0229
I -1 -743
9
I -24-7545
27
I -24-7545
27
0237
I -24-7545
27
0313
I -21-7503
30
0381
I -S-7325
29
05 9
I -19-7477
1
0780
I -19-7477
31
0929
I -20-7491
28
1042
I -9-7337
28
1043.
I -9-7337
28
115
I -21-7503
18
1290
I -14-7408
27
I -14-7408
27
I -21-7503
31
I -7-7310
13
1750.
I -12-7380
17
1754.
I -17-7449
8,28
1932
I -9-7337
40
2510.
I -17-7449
21
2 7
I 17-7449
10
2 94.
I -23-7532
39
I -23 7532
39
2717
I --7225
15
I -17-7449
9
27 4
I -17-7449
9
I -17-7449
19
2832
I -1-7225
40
I -1-7225
40
I -1-7225
40
I -11-73 7
32
3741
I -1 -743
24
391
I -7-7310
21
I -3-7253
20
4500
I -17-7449
34
4501
I -17-7449
29
I - 3-7253
20
4782.
I -15-7420
23
5122..
I -14-7408
27
5123
I -14-7408
27
51 9
I -17-7449
9
5173.
I -8-7325
1
5177...
I -14-7408
25
5310
I -14-7408
2
5111
I -14-7408
o
I -4-72 7
3
597 . _
I -9-7337
28
5 77
I -9-7337
28
5921
I -3-7253

5924
I -3-7253

09 4
I -19-7477
1
9 9 _
I -11-73 7
1
I -4-72 7
3
7259
I -11-73 7
24,27
7422.
I -19-7477
1
750 .
I -23-7532
20
7581.
I -19-7477
17
7 02
I -15-7420
23
7 81.
I -1-7225
33, 35
7750
I -22-7519
29
7751
I -22-7519
20
777
I -24-7545
38
7843
I -7-7310
40
81 11
I -18-74 5
11
8002
I -18-7405
11
SO03
I -18-74 5
11
G
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II
Rung.
oard of Ta ppeas Con.
98159.
r .MM.
415.
SS0S.
wn.
e)2| .
f- YT .
71145..
71310..
71311..
71347..
71348..
713 ..
71350..
71351..
71353..
71588.-
71589..
71 49..
71 50..
71718..
71744..
71951..
72157..
72158..
72711.
72712.
72713.
72714.
73089.
73C 9.
73C14.
73758.
73954. .
Offce decsons (I. T.):
2842
2843
2844
2845
284
2847
2850.
2851..
2852.
2853..
2854.
285 ..
Rung No.
I -9-7337
1 -2-7239
I -24-7545
I -1 -743
I -3-7253
I -2-7239
I -18-7485
I -18-74 5
I -18-74C5
I -19-7477
I -2-7239
1 -24-7M5
I -7-7310
I -3-7253
I -3-7253
I -3-7253
I -3-7253
I -3-7253
I -3-7253
I -3-7253
I -3-7253
I -3-7253
I -3-7253
I -7-7310
I -23-7532
I -9-7337
I -19-7477
1 -9-7337
I -17-7449
I -17-7449
I -1-7225
I -1-7225
I -1-7225
I -1-7225
I -1-7225
I -7-7310
I -24-7545
I -20-749I
I -14-7408
1 -M-7408
I -14-74C8
I -11-73 7
I -14-7408
I - r74
I -1 -743
I -1-7225
I -11-7307
I -11-74 7
I - 1-73 7
I -11-73 7
I -11-73 7
I -15-7420
I -1-7225
I - -7294
I -3-7253
I -5-7282
I -23-7532
I -24-7545
I -24-7545
I -24-7545
1 -22-7519
I -22-7519
I -1-722
I -1-7227
I -1-7228
I -2-7240
1 -2-724I
I -2-7242
I -3-7255
I -4-72 8
I -4-72 9
I -4-7270
I -4-7271
I -5-7284
I - -728
I - -7295
I -4S-7297
I - -7298
I - -7300
Page.
5

3
7,13
4
20
11
11
11
7,18
19
4
9
11
II
3
15
11
3
1
3
11
15
5
12
40
31
41
9
9
40
40
40
37
37
33
1 ,35
7
4

5
1
27
1
1
28,38
18
37
37
M
24
23
84
2
211
19
3
41
41
2
20
43
77
111
7
112
148
0
(n
1
2
72
110
130
72
84
127
147
ng.
Offce decsons (I. T.) Con
2859
28 0
28 1
28 3
28 4
28 5
28 8
28 7
2S 8
28 9
2870
2871
2872
2873
2874
2875
287
2877 -
2878
2870
2880
2881
2882
2883....
2 84
2888
2SS
2887
2888
2889
2890
2891
2892
2893
2894
2MI5.
289
2897
2898
2899 -
Offce decsons ( . T.):

7
Offce decsons (S. T.):
795.. _
790
797
798
799.
800 _
801
802
803
804
805
808
807 ---
808
809
810
811
812 -
813
Offce d ecsfons (P. f ) :
18...
19
20
21 ...
22
23
24
2
20
27
Offce decson (S.):
4
Offce decsons (T.):
-.
7
8
Rung No.
Pag..
I -7-7312
101
I -7-7313
115
I -7-7321
29
I -8-7327
73
I -8-7328
94
I -8-7329
11
I -9-7339
54
I -9-7343
291
I -10-7352
111
r -10-7353
113
I -10-735
288
I -I0-7357
288
I -11-73 9
71
I -12-7382
1
I -12-7381
49
I -13-7395
81
I -13-7397
123
I -13-7398
137
I -14-7409
7
I -14-7411
4
1 -14-7412
95
I -M-7413
150
I -15-7421
4
I -15-7422
8
I -15-7423
151
I -1 -7438
4
I -I -7439
103
I -17-745
19
I -18-74
54
I -18-74 7
5
I -19-7480
225
I -19-7478
50
I -20-7495
148
I -21-750
205
I -21-7507
239
I -22-7521
140
I -22-7520
98
I -23-7533
144
I -24-754
70
1 -25-7553
7
I -2-7245
381
I -1 7445
382
I -2-724
413
I -1-727S
411
I -5-7293
408
1 -8-7333
414
I -11-7374
420
I -12-7387
398
I -15-7428
415
I -15-7429
419
I -1 744
405
1 -17-74.W
418
I -17-7459
425
I -19-7485
41
I -I9-748
413
I -20-7499
398
I -2O-75O0
418
I -21-7 11
412
1 -22-7528
409
I -24-7 1
40
I -25-7M
425
I -2 7247
449
I -3-72 0
449
I - -7303
448
I - -7304
49
I - -7305
497
I -7-7319
493
I -I8-7472
494
I -I 7173
498
I -23-7539
499
I -23-7538
447
I -2-7248
495
I -1-7235
559
-f-7307
59
I -10-7302
559
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III
Rung.
Rung No.
Page.
Rung.
Rung No.
Page.
Offce decsons (T.) Con.
g
Mmeographs Contnued.
4298
I -14-7418
I 19-7487
I -2S-7540
5 0
500
0
I -1I-7375
I -9-7350
I -10-73 5
I -18-7441
I -15-7432
I -15-7424
1 M7-74 0
I -20-7494
I -23-753
1 -9-734
I -18-7474
I -25-7554
1 -25-7581
547
10
4299
as
11
4301
138
133
528
208
544
119
379
551
552
90
5 1
Offce decsons (MS.):
4303
158
I -1-7234
I - -730
I -10-73 1
I -14-7417
I -17-74 4
I -21-7515
553
554
555
55
557
558
430
159
4311
180
4317
101.
4323
1 2
4338
1 3
Mmeographs:
4281
I -5-7283
I - -7285
I -7-7322
92
128
539
428
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CONT NTS O CUMUL TI ULL TINS (L T.) 1 TO 5 S. T. OR 1920 ND 1921 INT RN L
R NU 1-1,1-2, -, II-2. n-1, n-2, I -1, I -2, -. -2, I-1, I-2, II-1, vn-2, vm-, vn-2,
-, -2, -, -2, -. -2, u-, n-2, ra-, m-2, and v-.
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1)
anuary- une, 1920 (No. 2)
uv-D ccember, 1920 (No. 3)
anuarv- une, 1921 (No. 4)
uy-December, 1921 (No. 5)
aes 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-1)
uv-December, 1923 (No. II-2)
anuarv- une, 1924 (No. III-)
uy-December, 1924 (No. III-2)
anuary- une, 1925 (No. I -1)
uy-December, 1925 (No. I -2)
anuarv- une, 192 (No. -)
uy-December, 192 (No. -2)
anuarv- une, 1927 (No. I-1)
uv-December, 1927 (No. I-2)
anuarv- une, 1928 (No. II-1)
uy-December, 1928 (No. 1I-2)...
anuary- une, 1929 (No. III-1)....
uy-December, 1929 (No. III-2)..
anuary- une, 1930 (No. I -1)
uy-December, 1930 (No. I -2)___.
anuary- une, 1931 (No. -)
uv-December, 1931 (No. -2)
an uarv- une, 1932 (No. I-1)
uv-December, 1932 (No. I-2)
anuary- une, 1933 (No. II-1)
uy-December, 1933 (No. II-2)...
anuarv- une, 1934 (No. III-1)...
uv-December, 1934 (No. III-2)..
anuary- une, 1935 (No. I -1)___.
(I )
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O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC ROM NU RY 1, 1932, TO UN 30, 1935,
INCLUSI .
( nnouncements reatng to the acquescence or nonc/uesoence of the Commssoner In
decsons of the Unted States oard of Ta ppeas, as pubshed n the weeky Interna
Revenue uetn, from December 22, 1924, to December 31, 1931, ncusve, are prnted n
Cumuatve uetn -2, pages 1-10 . The st beow, therefore, contans ony such announce-
ments pubshed n the weeky uetns from anuary 1, 1932, to une 30, 1935, ncusve.
I -24-7545
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
4054
24
435
37095
24
435
37 93
24
435
37 94
24
435
37 9
24
435
41034
24
435
25194
38 87

429
39980
25
211
39593
25
124
39593
25
124
5 9 0
9007
28
58
207 5
24
37
41295
27
1091
0700
28
1291
39019
27
1210
448 0
30
3
25414
25
834
31704
25
127
40039
28
8 8
30133

31998
5 024
30
1182
343

.
bees, Chares T
bcea, Cfford -
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemenc
cme Manfodng Co., Inc
deade Park Land et a., trustees
fremow, Davd, estate of
fremow, Sarah, e ecutr
abama Mnera Land Co
bert Lea Packng Co., Inc
brecht et a., atherne ., e ecutrcea 1
coma Corporaton
e ander, . ., estate of
egheny Garbage Co
en, Irene C
ed mercan Corporaton
mbassador Petroeum Co
mercan Centra Lfe Insurance Co.
state ta decson acquescence reates to deducton of 133,000.
cquescence reates to ssue whether pettoner receved nterest on mortgages when t bd In property
upon forecosure.
Rung No. 7545 ncudes a acquescence and nonaequescenee notces pubshed n the Interna Reve-
nue uetn servce from anuary 1, 1932, to une 30, 1935.
(1)
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2
cquescbncks Contnued.
Ta payer.
mercan Cgar Co
mercan eature m Co
mercan Prntng Co
mercan Securty Trust Co. et a., e ecutors
mercan South frcan Lne, Inc
nco Investment Co
nderson, C.
nderson, Gustave
nderson, .
nn rwr R. R. Co
rgumbau, rank M
rmstrong, C. George
rnod 4 Wnsor Co
shforth, bert ., estate of1
shforth et a., Ma e ., e ecutors1
t kns, . ., estate of
tkns, Mrs. .
tantc Coast Lne R. R. Co
.
adw n, orence G
afour, Sr Robert
a, Php D. C
atmore 4 Oho R. R. Co
atmore Oho R. R. Co.
ankers Dary Credt Corporaton
arber, rthur
arber, Php C
arber, St. George
arber Trusts, Sarah P
arcay, W. L
arker, red
asch, N.
Ice Coa Co
easey, W.
eaumoDt, Lous D
ebb, Rchard ., estate of
eggs, ohn I. (Trusts)
ehr, Chares
e, Ivor .
eows as Power Co
Docket
No.
1 229
27 23
39721
391 7
2955
8830
70701
58 47
33242
3 224
3827
258 9
73 14
58400
1553
47190
48009
49354
47190
48009
49354
38520
38519
58958
5310
, 5311
32387
40230
3 737
53702
37239
48329
2 747
2 755
2 757
2 747-
2 757
8743
51102
45928
7 37
00 1
31931
40509
49422
41295
5 75
39534
22335
18592
29104
oard of I m ppeas.
oume.
21
24
27
24
30
30
7
2
30
29
31
31
29
2
20
28
28
31
23
25
27
29
30
2
25
25
25
2
2
28
30
27
31
20
27
30
30
27
25
1 state ta decson.
1 Nonacquescence pubshed n uetn II-. page 1. wthdrawn.
1 cquescence reates to ssue nvovng contrbutons by shppers for constructon of sde and spur tracks
and deducton for nterna revenue stamps aff ed to bonds.
1 state ta decson acquescence reates to deducton of 13:, 0.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
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cquescences Contnued.
Ta payer.
enedum, M. L.1
ent Co., R. G
ernsten, Isaac M
est, rank
ups, George W
ngham. Robert W
rdneck Reaty Corporaton.
scayne ay Isands Co
ar, r., Mrs. Wey.
oodgood, dth
um, uus, trustee .
umentha, Lucy
oehrtger, Rudoph
oos ros. Cafetera Co.
org eck Co
ostck, r., ohn, trustee..
owden, Pau kers ...
raun, rthur ., trustee..
rnton, Lan McDonad.
rown, erence
ryan et u ., C.
ryan et u ., L.
uck, ohn ., estate of
uck et a., Mary M., e ecutors 3
ucna sta Land Deveopment Co.
uffao Unon Iron urnace Co.4
ungton, Orve
ungton, Mrs. Sade
us. een
uock, George
urdck, a P., trustee
urdck, oe W., estate of
uruham, Sas
urroughs, mbrose ., estate of
urton, en|amn T
uter, U. ..
y ere Trust, . T
1 cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
1 18.
cquescence reates to ssue nvovng secton 115(g) of the Revenue ct of 1928.
state ta decson acquescence reates to vaue of certan rea estate n San rancsco and vaue of
stock of Langendorf ang Co. for estate ta purposes and reasonabeness of Commssoner s aowance
for support of the wdow.
1 cquescence reates to ssue regardng deductons for obsoescence of bast furnaces.
cquescence reates to Issue 2 of decson.
oard of Ta ppeas.
No.
oume.
Page.
30990
28
917
57312
5979
2
13 9
3 729
28
744
3 74
2
1070
54917
29
804
51051
27
18
4 079
25
1084
27 1
1
35098
23
731
40147

9 82
31
212
2 750
25
513
39242
40939
45741
25
119
51507
4975
30
591
49891
29
8
39200
25
51
24223
349 4

995
8382
31
25
54923
2
1410
5455
29
11 1
53715
28
472
24 7
3 37
25
814
2403
19
111
24037
19
111
32584
1
44153
780
44 84

32584
1
44153
25
780
44 84

2025
13
895
1 075
1 07
23
439
9 84
31
212
9 79
31
212
81 4
73954
32
501
31209
23
710
4 322
29
731
4 322
1009
29
731
53795
29
05
59797
29
190
1055
28
1241
4 055
24
50
8382
31
25
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.C UI 8C NC S Contnued.
Ta payer.
c.
Caforna Coast O Co
Camp Manufacturng Co
Canaday, Inc., Ward M
Canfed et a., rances Marsha, e ecutors,
Canfed, George ., estate of
Cannng, ohn
Capta Compress Co
Carman, .
Carne, Goude Manufacturng Co,
Caro, Sue (Mrs. Nck Stuart)
Carona, Cncfcd Oho Ry
Carter Pubcatons, Inc
Caspar Lumber Co
Cathey, George
Cathey, Luke
Catn, Dane
Catn, Theron
Centra Market Street Co.1
Centra Natona ank
Centra Natona ank, trustee
Centra Renderng Corporaton
Centra Trust Savngs ank
Century Crcut, Inc., of Deaware-
Champon, Davd .
Champon, T. Perre
Chapman Dewey Land Co
Chapman Dewey Lumber Co.
Chcago Northwestern Ry. Co.
Chrstopher, Rache S.4
Cty ank armers Trust Co., e ecutor
Cty ank armers Trust Co. et a., e ecutors 4 -
Cark et a., ames, e ecutors
Ceand state Co.
Cements, W. L
Inc., enry . .
Cevcand Trndad Pavng Co. _
Cnchfed Securtes Co
Docket
No.
25018
35955
58 32
8415
8415
41482
49303
44321
44939
50178
20074
27095
39 3
71025
71 49
71 50
44838
891
57729
4005
4 057
25421
25413
24837
42587
28701
2077
42588
9345
555 9
3818
555 8
37403
51059
334
37402
47130
5019
51058
3 343
47704
59797
318 9
31499
33585
40890
51197
4 058
419 2
4 297
40554
oard of Ta ppeas.
oume.
25
25
29
1
31
29
31
25
24
30
31
28
30
24
24
2
25
25
29
25
24
29
31
27
27
25
25
22
2
29
23
24
29
24
20
2
1 cquescence reates to ssue regardng apportonment of ta es among affated corporatons.
cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
cquescence reates to foowng ssues: Matera and suppes ad|ustment amortzaton of bond
premum assessment of assocaton of raway e ecutves raroad Y. M. C. .
state ta decson.
cquescence does not reate to bass of property devsed suWect to a fe estate.
Nonacqucscouce notce pubshed n Cumuatve uetn -2, pages 83 and 84, revoked.
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5
cquescence 8 Contnued.
Docket
oard of Ta ppeas.
No.
oume.
Page.
54880
28
1311
38904
28
1127
1882
27
50
53799
2
588
42743
25
45
42707
2
794
f 43495
50051
28
143
8034
31
515
8034
31
515
/ 18591
2910
25
195
44081
45833
4 2 7
519 7
30
331
05
948
f 44083
45834
30
331
44082
30
331
72391
30
552
44859
30
3
419 3
20
772
38579
25
1351
53044
27
33
f 54740
0228
32
100
2 751
25
513
447 8
25
1320
447 9
25
1320
f 32 10
40115
-
21
4092
27
388
29252
2
1359
30303
24
915
44 17
30
717
22 40
27
377
59 55
25
8
/ 7729
70957
30
118
9 98
31
819
9 98
31
819
71718
30
29
71718
30
29
41121
27
588
Ta payer.
Cnton Cotton Ms, Inc
Coats, Inc. (R. I.), . P.1
Cogate, Mary
Coorado Utah Coa Co.
Coumban Carbon Co.2
Coumbus rck Te Co.
Commerca Investment Trust Corporaton .
Cone, mma S., e ecutr 5
Cone, Irvng ., estate of
Connectcut Rver Power Co
Conney, ames . .
Conney, L. .
Conney, Mary .
Conservatve Gas Co
Contnenta Lega and Protectve ssocaton.
Contractors Constructon Suppy Co.7
Cook, zabeth .s
Cook, M. M., estate of
Cook, P. W --
Cooke, eatrce
Coombs, zabeth M
Coombs, . oward
Cooper, ohn I
Corbett, ott R
Cornng Trust Co., trustee
Cornwe, . L
Cosmopotan ond Mortgage Co.
Costeo, oseph
Cotton, G.
Couchman, Wam ennng
Co , tta
Co , Carre G
Crane, e ander ., estate of 11
Crane et a., e ander M., e ecutor 11
Croker, ua
1 cquescence reates to contrbutons ssue and ssue respectng deducton of amount pad to treasurer
of Rhode Isand on account of ncreasng capta stock.
Nonacquescence pubshed n uetn I-14, page 1, revoked.
cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, etc.
cquescence reates to the foowng ssues: Deducton of e penses n connecton wth ssuance of
preferred stock deducton for dvdends credted to accounts of empoyees for purchase of stock.
1 state ta decson.
cquescence reates to queston whethor the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
7 Nonacquescence notce pubshed n Cumuatve uetn -2, pages 83 and 84, revoked.
I cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to ssue nvovng method of accountng used by ta payer.
II cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
11 Nonacquescence pubshed n Cumuatve uetn III-1, page 20, wthdrawn.
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1
3
-
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1
-
2
2

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5
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cqrr C c S Contnued.
Ta payer.
Cromwe et a., Wam Neson, e ecutors
Crousc, George N
Crowey, oseph ., estate of 2
Crownushed Shpbudng Co
Cuver, Wmer T
Cunard Coa Co. _
Curts, Laura M..
Dah, ndrew ., estate of
Dah et a., ua, e ecutors..
Daey, ugene 8., e ecutor
Dana, Myer
Dancer, dth It., estate of _
Davs, ohn-
Dc orest, ate R.
Deaware udson Co.
Dennett, Car P.
Dennett, Mare G.
Denns, rank ., estate of
Denns, Merry M., e ecutr 2
Detrot Trust Co. et a., e ecutors _
Dcknson, bert G .
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of
Dockweer et a., Isdore ., e ecutors and trustees-2
Doernbecher Manufacturng Co_
Dohme, fred R. L
Doese Shepherd Co. Syndcate No. 3_
Dome Co
Domnon Natona ank
Donney, Catherne, estate of
Donney et a., Garrett ., e ecutors
Dougas Co., ohn -
Drake, rancs
Dre e Packng Co
Duff, Robert C.1
Duncan, T. P
Duncan, Mrs. T. P
Dunham, Water
Dunne, nev Peter
du Pont, Perre S.
Docket
No.
42 19
4344
51419
35472
18987
37574
2 874
2 875
28792
5 314
44845
44845
2 45
50248
7045
20703
37284
50553
50 29
71858
72023
502 3
502 3
35472
35015
4317
17717
17717
50828
34853
43527
4 421
50 07
3 28
71534
8159
4113
41887
521 5
5 443
5 443
3872
4 804
20775
37552
5921
5924
308
54444
2 99
oard of Ta ppeas.
oume.
24
2
25
24
24
2
28
4
24
25
30
30
24
27
2
30
30
2
2
25
23
24
24
30
30
31
30
2
2
31
31
23
30
24
23
31
31
27
29
18
1 state ta decson nonacquescence pubshed n Cumuatve uetn -2, para 84, revoked.
1 state ta decson.
cquescence reates to deductons for addtona royates and offcers saares and drectors fees.
4 Gft ta decson.
1 Nonacquescence pubshed n Cumuatve u etn I-2, page 12. wthdrawn.
cquescence reates to deductbty of osses sustaned by pettoners upon aeged saes of stock to
each other durng the ta year.
cquescence reates to ssue 1 of decson.
Nonacquescence pubshed n Cumuatve uetn I -2, page 72, revoked.
G
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cqttescences Contnued.
Ta payer.
oard of Ta ppeas.
oume.
.
age Pass fc Pedras Negras rdge Co_
asterwood, r., W.
asterwood, r., Mrs. W.
sendrath, dwn W
sedrath et a., dwn ., e ecutors.
sendrath, Maron
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of
drdge. ce. .1
drdge, . S.1
gn Compress Co
ott-Grante Lnen Corporaton
more Mng Co
nameed Metas Co
nns Ice Co.
rb et a., Ray L., e ecutors
usts, ugustus
vans, . T
vans et a., nson, trustees
vans Products Co
vergreen Cemetery ssocaton.
ack, e ander D
as Cty Ice everage Co.
ame Cannng Co
armers ducatona and Cooperatve State Unon
of Nebraska
armers Lfe Insurance Co.
armers Loan Trust Co., trustee
armers Unon State change
awsett, Chares
edera Street Peasant aey Passenger Ry. Co.
dety Savngs Loan ssocaton
fth venue ank of New York, e ecutor4.
rst Ctzens ank Trust Co
rst Natona ank of oston, admnstrator.
rst Natona ank of ey West
rst Natona ank n Mobe
sher, Chares D., estate of
424 0
40181
341
40182
3417
3 72
3 724
3 727
3 728
3 725
3 724
4779
4778
49302
48212
4 7 8
52972
19011
22021
22022
2 259
42184
292 0
71 37
4397
2 4
43044
3072
20452
7 3
20774
1059
18105
27194
31748
43317
294 5
18105
4474
29758
148 2
31801
3940
45215
91
7 1 505
3 438
4 583
4518
3732
8338
23
28
28
28
28
28
28
28
28
30
30
31
2
27
25
24
29
30
30
29
29
25
2
27
24
30
27
2
30
31
24
23
32
32
25
2
30
32
1 cquescence reates to ssue whether dvdends decared In 1929 consttuted ncome to the pettoner
c 1929 or 1930.
cquescence reate to market vaue of o and gas eases on March 1, 1913.
cquescence reates to ssue n connecton wth opton payment receved for purchase of and.
state ta decson.
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-
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cqt|escences Contnued.
Ta payer.
tch, orence
orence Manufacturng Co.
ok, .
ordyce et a., Wam C, trustees.
orest Products Chemca Co
orres, Lord
oster, L. .
oster, N. C, estate of1
oster et a ., Ward, e ecutor 1
o , ontane
rank, m
rschkorn Deveopment Co.
uhage, fred 4
G.
Gamb, .
Gambe Stockton Co.
Gardner, Chares .
Garron et a., Isabe . ., e ecutors .
Gav, D.
Gay, . C ,
George, erome R
George Machnerv Co., R.
Gbbs, G. Wdy
Gette Rubber Co
Gnsberg, bert
Gnsberg, Nathan
Gven, T. ., estate of
Gancy, Inc., . R
Gobe Constructon Co.
Goden, dward
Godman, Ma we
Godsmth, Ma
Gordon, fred W
Gordon, zze7
Gordon, Ma L.7
Gore ros., Inc
Gotteb Reaty Co
Graeper, W.
Grand Rver Grave Co.
Grant, arry ohnston .
Docket
No.
51 70
15383
2 079
2839
31018
58 47
4 21
40229
43973
4308
32984
32984
71084
50224
3049
35170
42452
1754
47902
42707
38575
47705
58787
58788
45240
1218
31329
43052
50073
27 28
27 29
5455
20 2
43438
51 94
53310
27 25
30302
59722
57483
22332
22333
39538
42528
40 19
230S5
51794
oard of Ta ppeas.
oume.
29
25
2
30
27
25
2
2 .
25
30
27
30
2
2
25
2
31
31
27
20
28
31
24
24
29
31
2
24
24
29
29
27
27
M)
28
27
22
30
cquescence reates to ssue regardng fng O separate return for 1925.
1 sUte ta decson.
cquescence reates to deducton for deprecaton on premses and ncuson n year 1930 n pettoner
o s ncome, 7,400 representng rema vaue of premses occuped by Mm.
cquescence reates to ssue whether ta payer s entted to the statutory persona e empton as the
head of a famy.
1 cquescence reates to ncuson n consodated nvested capta of capta stock ssued for a te and
brck manufacturng pant, etc.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
7 cquescence reates to that part of decson hodng that Water . et-tman s not abe as a transferee
and to mtaton ssue.

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cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Green, Robert D.1.
Green, W. S
Grey u Corporaton
Grffs, Stanton 3
Grffths, va Lavno
Grffths, George W
Grffths, ohn
Guaranty udng Loan Co.
Gudeon, Water T
Guf Coast Irrgaton Co. .
Guett, C.
Guett, W.
Gummey, rank .
Gurnee, ugustus Coe, estate of .
aberand, Pau.
afner, fred...
aev-Oa Coa Co.
aaday, Sarah P..
amburg, r., Sam..
andy, rankn Mer
I anna, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of
anscom et a., Meve, e ecutors
arbeeon Lumber Co., W.
arkness, dward S
arkness, Mary S
arnschfeger, enry, estate of 11
arnschfeger et a., Mare ., e ecutors
arper, . T
arrah, Mare
arrah, Wam .
arrson, Inc., . M
artf|rd- mpre Co
estate of
astngs, Cve,
astngs, .
astngs, rederck
avard, Chares
awk, enry C, estate of.
53 47
4378
4 373
3487
4737
38577
3354
42498
43074
55352
54739
0229
33 94
40081
41343
52517
52518
105
42 19
29289
48389
57132
309 2
2 754
30304
810
7 71
7440
2718
2718
44992
44992
3307
51012
51 9
71310
71311
9 3
9 3
2784
252 9
21 43
50591
29958
4173
53 00
3789
03790
388 4
32841
0 90
24
2
27
25
30
25
25
27
32
24
31
31
2
24
25
31
24
25
24
30
31
31
24
24
24
31
31
31
31
31
27
27
30
2
29
29
27
25
29
1 cquescence reates to transactons 1, 2, 3. and 4.
1 cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence reates to a Issues e cept affaton ssue.
N onacque cence pubshed n Cumuatve uetn II-1. pace 17, wthdrawn.
1 state ta decson nonacqucscence pubshed n Cumuhuve uetn -2, page 88, revoked.
state ta decson.
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1
3
-
0
1
-
2
2

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:
1
9

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0
0
0
0
8
9
0
5
4
2
9
4
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e
10
c tr SC NC S Contnued.
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
0 90
29
10 1
37499
25
9
1 552
25
73G
1334
29
595
38573
25
1351
5 8
2845
30
301
4 80
25
1282
33279
24
475
22341
27
377
57032
3141
30
9 2
1 253
24
438
2 7
31
112
2 7
31
112
41728
1
427 9
2
541
45 3

47781
2
1351
27352
2
241
27351
2
241
33374
24
22
33375
24
22
4127
29
1272
54282
27
21
294 1
2
1359
51303
28
1091
53797
29
05
29445
2
1359
29444
2
1359
2944
2
1359
294 5
2
1359
12052
22
51
13104
22
22008
51
22009
22
51
22007
22
51
3878
75 9
30
19
3837
30
19
3878
30
19
75 9
30
19
45417
2
417
45417
2
417
45429
28
289
28099
30
53
2bOS9
30
53
283 9
29154
24
425
39841

f 38
75
awk, Ida W., e ecutr
ay, W. --
ayman Co.,
azt wood, N.
emph, Cfford 1
ennngscn, Water
ervev, W. R
ess, Nathane
ettman, Water .2
ewtt, rskne
ckman, anne Snyder
man, . D., estate of
man et a., udson McCntock, admnstrators..
mehoch ros. Co
res Co., Chares
obbs, enry
obbs, Teck
offer, nta Owens
offer, T.
oday, ohn
ongsworth, .
oster, George ue
omby Corporaton
omes, George W
oughton, anson
oughton, r., mory, estate of
oughton, rthur
oughton, Chares ., estate of
ouston ros.4
ouston, George T.s
ouston, orace .
ouston, Php D.
ubbard, dward, estate of
ubbard, Mdred M
ubbard, Mdred M., formery e ecutr
ubbard, Mdred M., transferee
unter, C. W., e ecutor
unter, George ., estate of
untngton, enry ., estate of 4
urt et a., Mrs. . ., e ecutors
urt, oe, estate of
uyer s, Inc
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
cquescence reates ony to deducton for busness e penses n 1820 and to number of feet of tmber
cut durng 1919.
cquescence reates to ssue regardng oss from operaton of a farm n 1925 and 1920 and ssue regardng
ncreasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
G
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2
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1
3
-
0
1
-
2
2

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:
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9

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11
cquescenceb Contnued.
Ta payer.
Docket
No.
Doard of Ta ppeas.
oume.
Page.
I.
Independent Ice Coa Co..
Indana Lamp Corporaton. _
Ingas, Chares C, estate of 1
Insu, Margaret
Insu, Samue
Insu, r., Samue
Interstate Reaty Co.
Iten scut Co.
Iverson, I. C.
Iverson, Ruphane _
ames, Wam L..
ones, Chester ddson .
ones, R. D
3.
.
ammerdner,
ansas Cty Leasehod Improvement Co. .
: Cty Memphs arms Co
ansas Cty Southern Raway Co. and affated
companes4
asch, d
asch, Theodora
e, rank
e, Mrs. rank
e, oe
e, We May
eey, ohn P
ent, verett
esser . M
bce, 0. . .
ng, enretta M., estate of.
ngsbury, . R
Inc., G. R.
7 39
527 1
57835
8002
8504
8003
8503
8001
8505
/ 4 272
50981
1 429
20899
48838
48837
70278
5020
9858
41 43
4 555
35718
510 0
22 8
35527
35528
35529
35530
35531
48293
48293
9 77
9 78
9 81
9 85
38233
3957
42589
4 0G4
52 40
24882
52 32
50382
31397
32980
27
28
25
32
32
32
25
2
29
29
30
31
21)
25
17
25
22
25
25
31
31
31
31
2
2
31
27
31
31
2
134
491
773
47
47
47
728
880
8 3
803
491
5
928
495
213
11
929
284
284
212
212
212
212
212
482
849
377
95
112
1091
1 state ta decson.
1 cquescence as to ssue whether pettoner shoud be aowed to fe hs return on communty property
bass.
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes. Mo. whether the nvested capta of the Smooe Reaty Co. shoud be ncreased for 1918:
art the March 1,1913. vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to the foowng ssues: Deducton of contrbutons to Y. M. C. ., Prests of Paace,
and ssocaton of Raway ecutves and amortzaton of commssons and e penses Incurred n sae
of bonds.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to mtaton ssue.
G
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d

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(
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Y
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U
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
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9

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2
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/

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3
0
0
0
0
0
8
9
0
5
4
2
9
4
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12
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
rchner, uus C
eberg et a., Robert ., e ecutors.
nght, . D
raemer, Samue ,
uhn, Ida L
unau et a., Oscar . C, trustees.
Lake Chares Nava Stores.
Landers, Dougas ., estate of 1
Langworthy, Mar|ore C.
Lawson, ohn
Leamngton ote Co
Ledesdorf, Samue D
Leonard odng Corporaton, George ., estate of.
Letts, r., rthur
Ley, George W.
Ley, Mary C.
Lberty arms Co -
Lberty osery Ms
Ldo udng Co., Inc
Lncon, Robert Todd, estate of 1
Lppncott et a., . ertram, e ecutors .
Lppncott, Water, estate of 1
Lttauer, ugene, estate of 4
Lttauer et a., Lucus N., e ecutors
Ltte, C.
Loyd, Water
Loeb, r., et a., Wam, trustees
Loge, oseph
Longyear, r., ohn M
Longyear, Mary ., estate of.
Loughborough Deveopment Corporaton.
Loure, Davd
Luhrg Coeres Co
M.
MaeCaum Gauge Co
Mata Tempe ssocaton
Man tque Lake Superor R. R. Co.
Markham Irrgaton Co.7
Marston, dgar L
25428
52 32
5 8 5
37822
32 09
402 7
4815
34 30
3 940
35443
719 1
40232
48413
48305
48871
210
2233
22337
2 717
29899
54
53385
391 7
49233
49233
51858
51858
1821
44089
341 1
377 2
40071
47117
5C027
2410
30438
4 83
510 4
27 30
40048
70437
2947
35337
41344
19 1

27
3
28
25
24
27
25
21
30
25
2
2
2
30
27
27
22
31
31
24
27
27
25
25
27
30
2
24
2S
25
29
24
2
32
1
29
24
29
1 state ta decson.
1 cqueseeue reates to reorganzaton ssue.
1 cquescence reates to that part of decson hodng that Water . Iettman s not abe as a trans-
feree and to mtaton ssue.
1 state ta decson acquescence reates to ssues 4. 5, and 7 of decson.
cquescence reates to queston whother the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
8 Nonacquescence pubshed n Cumuatve uetn III-2, page 7. wthdrawn.
cquescence reates to a ssues e cept aDatou ssue.
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13
cquescences Contnued.
Ta payer.
Martn ote Co. and affated corporatons.
Martn et a., . are, trustees
Martn, T. S., estate of
Martns, ndv 1
Marvn, Water S.
Matagarda Cana Co.
Matchette, rankn
Matthews, . P,
Maudn, I. M
Mc uffe, gnes
McCa, orence 4
McConne, Stea
McCoo, ess
McDonad, L. G --
Mc wan, nna
Mc wan et a., nna ., e ecutors
Mc wan, .
Mc wan, Lan G
Mc wan, W. ., estate of -
McGrew, zabeth W
McLaughn, Thomas
McLennan, . R
McMan, Wam Northrup, estate of5--- -.
McRae, Louse C, e ecutr 4
McRae, Php, estate of
Mead Coa Co., C.
Memphs Memora Park
Mente fc Co., Inc
Mente, ugene W
Mente, . G
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees 4
Mercante Trust Co. of atmore ct a
Merr, Isaac L.
Messer, Rchard ., estate of4.-
Metropotan Propertes Corporaton --.
Mchgan Centra R. R. Co. ..- -- --
Trust Co. et a., e ecutors 4
Mby Dow Coa Mnng Co_
Docket
No.
1 275
44583
44583
22334
38578
40082
41345
40710
2 250
2 239
49071
47702
43478
4 059
25427
2599
25997
25995
25994
25997
2 753
59788
2 730
459
32303
32303
42718
42719
540 0
49259
53458
51305
54701
54708
35443
8338
1722
42513
45032
19930
42513
22021
22022
2 259
42184
33177
31330
20772
oard of Ta ppeas.
oume. Pago
24
24
24
27
25
24
2
22
22
29
2
29
24
27
2
2
2
2
2
25
29
25
27
30
30
28
28
29
29
29
21
32
31
27
24
28
27
24
24
28
24
Mgrm 4 ros., Inc., . -__
ag Co., Inc.
1 cquescence reates to that part of decson hodng that Water . ettman Is not abe as a trans-
feree and to mtaton ssue.
1 cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence reates to a ssues e cept affatons ssue.
state ta decson.
1 state ta decson acquescence, e cept In so far as concerns the queston of stus.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra . R. Co. to
State of Inos In connecton wth Issuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
cquescence reates to Issue 1 of do
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14
cqt|tescences Contnued.
Ta payer.
Mssour State Lfe Insurance Co.1.
Mtche, L. C
Mtche, Oscar 1
Mobe Lght Raroad Co.3..
Morehead, Wam
Moorshead, O
Muchnc, . ., admnstrator.
Murchson, Mrs. .
Murphy, Mae . eey
Murray, dward
Murray, Rebecca
Martha Sehmoh Co
Musgrove, oyd L
Mutua ssurance Socety of rgna.
N.
Na et a.,R. ., e ecutors
Natona Capta Insurance Co
Coumba
Natona Casket Co., Inc.1
Natona Contractng Co.5
Natona M Suppy Co
Natona Packng Corporaton
Natona Te Co
Netcher, Chares, estate of
Netchcr, Gadys Over, e ecutr
Netcher, Irvng
Netcher, Townsend
Newavgo Portand Cement Co...
Newbock O Co. of Te as
Newbury, Moe Netcher
Newbury, Moe Netcher, trustee
Newe et a., Sterng, e ecutors 7
New ngand Power Co
of the Dstrct of
Newman et a., Rose, e ecutors .
Newman, Samue, estate of 7
Docket
No.
58241
238
41 10
41 80
41874
54 73
4102
420 2
25853
57045
3789
2838
38222
4017
58858
40174
58857
17911
42591
43911
53044
5 748
50320
24520
37001
31 08
33971
4013
38053
- m:,:
38052
38050
3 319
28045
38049
38052
57835
18593
29105
59598
59598
oard of Ta ppeas.
oume.
29
28
27
22
L S
29
28
2t
28
28
17
27
24
27
28
29
2.-.
23
21
30
2
2
2
2
27
2
2
2
25
25
31
I
Page.
1 cquescence does not reate to foowng ssues: Deducton for reserve set up to meet abty upon
matured coupons ad|ustment of ncome for renta of space occuped n home ouce budng and depre-
caton upon such budng.
1 cquescence reates to ssues regardng assgnment of earnngs of ron mnes n payment of ega serv-
ces, and deducton of amount pad to son for aeged servces rendered.
1 cquescence reates to foowng ssues: 1. Whether payments receved by a trustee on behaf of pet-
toner n the ta abe years n accordance wth a wrtten agreement entered nto by and between pettoner
and another n 190 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osses for 1924 and 1920 whch can be deducted from
ts ncome for 1925 and 1928, respectvey.
cquescence reates to deducton of corporaton e cse ta es.
cquescence n oard s decson that pettoner had the rght to aocate overhead e penses to each
contract on oompeted bass and that formua used by pettoner was permssbe and ssue reatve to
neggence.
Nonacquescence pubshed In Cumuatve uetn I-2, page IS, revoked.
state ta decson.
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15
c D sc NCa Contnued.
New Market Investment Co.1..
Newton, zabeth .1
Newton, oseph R., estate of
New York Centra R. R. Co. ..
New York, Chcago St. Lous R. R. Co.
Noonan state Trust, . R
North Sde Lumber Tmber Co
Northern Coa Co.4
Noyes, ansen 5
Oakey, Rchard _.
O Donohoe, ohn
O Donohoe, Mrs. ohn .
O.
Omsted, George W. _
Omsted, Iva C.1
Oympa arbor Lumber Co.
Ontaro Reaty Co.1
O Rear, . C.
Osborue, Owen, estate of
Pacfc Coast scut Co. ct a.
Package Machnery Co
Pane et a. rancs Ward, e ecutors.
Pane, Wam ., estate of
Pam each Mather Co --
Parke, Davs Co
Parker, Cara ., e ecutr _.
Parker, George D., estate of 10
Parkand Ice Coa Storage Co
Parrott, . . . - ---
oard of Ta ppeas.
No.
oume.
Pago.
35719
17
213
47703
2
292
47705
2
292
19932
1
34437
28
437
02040

21047
23
177
2 04
29
710
34924
27
1187
34945
24
307
38574
25
1351
45778
24
1082
9 8
31
212
90 0
31
212
44090
45745
48121
30
331
54714
1
074
44089
4574G
48143
30
331
54713
|
0745
4272
30
114
35721
17
213
32335
28
98
59957
29
371
71588
32
39
54334
28
980
34113
25
7 4
34113
25
7 4
43850
24
53
2717
31
427
58 04
31
44
58 04
31
44
7 40
27
1340
30989
28
917
1 cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. whether the Invested capta of the Smcoe Reaty Go. shoud e Increased for 1918 and
the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
1 state ta decson.
cquescence reates to the foowng ssues: Whether amount pad by New Yore Centra R. R. Co. to
State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
1 cquescence reates to Inventory ssue.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
Income.
cquescence reates to Issue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness n 1924.
I Nonacquescenoe-pubshed In Cumuatve uetn 111-1, page 27, wthdrawn.
cquescence wth respect to deducton of e pense Incdent to amendment of pettoner s charter.
M cquescence reates to a questons wheren decson was not whoy n favor of Commssoner e cept
decson regardng e stence of partnershp of Oeorge D. Parker Co.
II cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
1918.
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1
cqt|tebcences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Peavy- yrnes Lumber Co.
Peavy-Moore Lumber Co.
Peavy-Wson Lumber Co
Peck, Cara S., estate of
Peck et aL, remont C, c ecutors.
Pcgg, bert 0. .
Pennsyvana Indemnty Co
Pennsyvana Investors Co
Peopes Lfe Insurance Co.a
Perkns et a., acob
Pershouse, ce
Pershouse, Mabe
Peters, ndrew .
Phps, C.
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton.
Ptkn, George P
Pttsburgh thetc Co. ___
Pttsburgh Metng Co
Pttsburgh West rgna Ry.
Pztz Dry Goods Co., Lous
P-M- Petroeum Co.4
Poar Ice Coa Co
Pope, Ove R
Powe, en|amn I
Powe, T. I. are 5
Prare O Gas Co
Prce, Laura M
Prce, .
Co.
Prophyactc rush Co-
Prosperty Co., Inc.8

Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor 7.
Putnam Trust Co
Puttv, Mrs. Macom
15S24
1 354
25984
15823
1 355
2598
15822
1G35
25985
1520
1521
1520
1521
22338
71992
207
9 9
71744
28701
2 749
2 748
54050
47901
488 7
43995
2512
438 0
5173
05 9
9 4
7422
44858
72157
72158
4 585
5057
54779
7 38
29274
50380
44 4
57117
40 59
41072
3299
47845
4784
4589
594 8
2 752
59957
34743
9 83
25
25
25
31
31
27
30
24
31
25
25
25
28
2
2 )
2
28
31
27
30
32
22
24
27
25
20
27
2 )
24
21
25
27
25
2
2
31
cquescence reates to that part of decson hodng that Water . ettman s not abe
feroe and to mtaton ssue.
1 cquescence reates ony to treatment of renta vaue.
1 Nonacquescence pubshed n Cumuatve uetn II-2, page 24, revoked.
1 cquescence reates to thrd Issue of decson.
1 Nonnequescence pubshed n Cumuatve uetn II-1, page 21, wthdrawn.
cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
Nonacquescence pubshed n Cumuatve uetn III-1, page as, wthdrawn.
as a trans-
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1
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17
cquescences Contnued.
Ta payer.
unn, van
unn, Martn M.
unn, Pau
R.
Ramsh, doph
Ramsh, Inc., doph
Randa, Mar|ore G.1
Rapp, ohn W., estate of..
Rauh Reaty Co
Ray O Co.
Reardon Sons Co., ohn.
Reese, ugusta ss
en M Steamshp Co
Reynard Corporaton
Reynods Catte Co.
Rhea, Isaac T
Rhea, Mrs. Isaac T
Rato Mnng Corporaton
Rchards rschfed, Inc
Rchardson, my S., e ecutr
Rchardson, Chares W., estate of --
Rggs Natona ank
Roach Studos, Inc., a
Robertson, Cae .
Robertson, R. R
Robsou, Cara P., estate of
Rodeo- ae|o erry Co.4
Rogers, rown Crocker ros., Inc.
Rosenberg, Lous
Roseuboom nance Corporaton _.
Roth, Gorton
Rov Ttcomt), Inc
Ruz, M
Russe, C. C
Russe, Mrs. C. C.
S.
St. ohns Investment Co
St. Lous Unon Trust Co. ct a., cotrustees..
St. Lous Unon Trust Co., e ecutor 8
Sanders, W. C
San Marcos Compress Co
8544
8598
8574
395 8
395 9
38971
28 18
32822
34332
20773
2424
57728
738
70795
8445
714 3
549 0
54959
48 92
5 877
21715
4023
4023
30903
1750
4249
42497
2 45
3 411
48528
7581
27 2
35778
40903
225 8
29138
07097
4 0 0
4 0 1
50 13
5 75
459
2 51
49304
oard of Ta ppeas.
oume.
28
2
2
30
30
27
24
2
28
24
29
30
30
31
20
29
2
24
31
31
17
31
28
28
25
24
32
24
24
2
24
30
24
24
: o
30
27
25
31
Page.
970
970
970
1290
1290
475
10 1
48
1204
37

579
4 1
20
804
804
980
1280
245
245
15
828
35
35
949
93
207
18
7 3
31
0 9
74
50
50
973
370
318
91 )
273
1 cquescence In that part of decson reatng to deductbty of oss sustaned n 1924 from sae of
resence.
1 cquescence reates (o ssuo whether pettoner was ta abe n 1923 as a trust or as an assocaton.
1 cquescence reates to deducton for deprec on on premses and ncuson n year 1930 n pettoner
ot s ncome. 17.400. representng renta vaue of premses occuped by hm.
state tat decson.
1 onacquesconee pubshed n Cumuatve uetn -2. pa|ze 9 ). wthdrawn.
cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
cquescence reates to hodng of oard that dstrbutons receved from oseph II. nch Co. were
not parta qudatng dvdends.
1 state tun decson acquescence, e cept n so far as concerns the quest on of stus.
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1
3
-
0
1
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2
2

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4
:
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4
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18
cqt|escences Contnued.
Ta payer.
San Martnez O Co
Sappngton, G. Rdgey
Savngs eature of the Reef Department of the
atmore Oho R. R. Co
ebepp Co., L
Schermerhorn, arret Puman
Scov Manufacturng Co..
Scruggs, Gross R
Scruggs Investment Co
Scruggs, Maran P
Seaconnct Coa Co.1
Seares Rea state Trust
Securt es Co -
Securty rst Natona ank of Los ngees et a.,
e ecutors 1
Sebcrt, Ltd
Ses Sportng Goods Co -
Shaffer, C. .
Shand, Gadsden
Shapro, Samue.
Shaw, Davd, estate of
Shea, R. P
Shepherd, Cette G., estate of 4
Smcoe Reaty Co.s
Smmons, II, et a., dward C, e ecutors
Smmons. dward
Smmons, George W., estate of
Smmons et a., Rchard W., e ecutors
Smmons, Waace D., estate of
Smms O Co.
Smms Petroeum Co.
Sncare et a., een ., e ecutors
Sncare, enry P., estate of
Sncare, r., enry P., estate of _
Sncare et a., Murray, e ecutors
Sncare, Regnad
Sncare, Wam, estate of
Sou as Meta Cuvert Co
Spes, asper
Smathcrs, . ., estate of 7
Smathers Power Typewrter Co
Smth et a., zabeth D., e ecutors.
Smth, I. N., estate of
37447
43121
51044
5948
115
42908
43145
29854
30238
33 10
4 270
38711
18089
24489
40553
45429
57059
20771
29259
2 238
5158
34499
37835
40034
91
35720
47210
47211
47212
47212
47210
1497
149
37703
29252
37520
37520
378 4
37703
41070
72C05
292 0
439 8
39291
49 8
39291
49 8
25
218
25
1385
32
295
25
410
2
1031
25
2 5
24
1174
24
1174
24
1174
24
307
25
1115
25
44
2S
289
29
319
24
37
29
1350
22
858
29
1012
24
1235
24
798
32
208
17
213
32
320
32
320
32
320
32
320
32
320
28
110
28
110
2
1359
2
1359
2
1359
2
1359
2
1359
2
1359
2
1324
31
709
29
1350
28
327
25
291
25
291
cquescence reates to nventory ssue.
1 cquescence reates to ssue regardng oss from operaton of a farm n 1925 and 192 and ssue regardng
ncreasng defcency for 1925 by amount of nterest accrued on bonds e changed for art ob|ects.
1 cquescence reates to market vaue of o and gas enses on March 1. 1913.
state ta decson.
cquescence reates to March 1, 1913, vaue for purposes of cacuatng gan or oss upon sae of and at
ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud he ncreased for 1918 and the
March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod Im-
provement Co.
cquescence reates to bass for computng deprecaton on asssets acqured by Smms O Co. n 1925
from Cayton O Refnng Co.
T cquescence reates to market vaue of o and gas eases on March 1, 1913.
G
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2

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19
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Smth, esse, e ecutr
Smth, Mrs. esse
Smth, Lous, estate of
Smoot, Lews
Sneed, r., . T.1
South Memphs I and Co_
Southard, enne :.
Southern Raway Co. et
nger, Georga M_
nger, . W
Spragte-Ses Corporaton
Sprague Son Co., C. .
Sprunt Son, Inc., e ander.
Standard eef Co
Standard Conveyor Co.
Standfcr Constructon Corporaton, G. M
Starr, rank C
Stauffen, Theodora
Steams, Robert L
Steege, W.
Stegeman, .
Stegemao, r., bert
Stegeman, anne L
Stegeruan, . M
Stegeman, . R--
Stegeman, Mabe
Stegeman, Wam L
Stevens, ohn
Stevenson Consodated O Co.4
Stock Yards ank of Cncnnat
Stockham, |ah
Stone et a., Irvng ., e ecutors and trustees -
Stone, Irvng Lec, estate of .-
Stoneman, Davd
Storey, . M
8traube, . L. G
Stromeyer, Irene
8tromever, Wam
8trong, arod C.
Stuart, Chares
8tuart, r., Woughby --
1887
22313
1887
32578
45 94
44500
42592
If 21481
... 29951
a 37887-
37898
5 320
5 321
4200
42434
3494
38408
20770
33159
3 393
40873
51 3
9259
2 75
37573
7098
2 43
2 50
2 44
2 47
2 4
2 49
2 48
29 85
4341
41085
225 9
43830
43830
27 27
2813
5 8 7
55341
55342
3857
5379
738 9
24
24
24
25
30
27
27
27
29
29
30
24
24
24
25
30
31
25
24
30
2
25
25
25
25
25
25
24
23
25
2
20
2
24
31
29
28
28
25
29
cquescence reates to owd s hodng that bonuses shoud be ta ed as separate or communty property
n aranhnts wth the cassfcaton of the propertes under the ease and ssue n connecton wth assess-
ment of defcency tor 1925.
cquescence reates to foowng ssues: 1. Dd pettoner reaze ta abe ncome fromunrefundednor-
urns of amounts deposted by shppers for constructon of factes for use of such shppers 2. Where
bon s were sod at a premum pror to March 1, 1913, s the amortzed porton of such premum ta abe
uwsne 3. Dd Commssoner erroneousy e cude from ad|ustment for matera and suppes an amount
equvaent to nfaton contaned n book vaue of such materas and suppes as were not used durng 1920
cquescence reates to nventory ssue.
cquescence reates to Issues regardng reducton of ncome for fsca year endng November 30,1924, by
oss sustaned for 11 months endng November 30,1922, and ncuson n ncome for a years of 1 par vaue
o capta stock of Sunburst O as Co. receved by pettoner as a premum.
state ta decson acquescence reates to Issue nvovng deductons from gross estate.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
-
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20
cqt|escences Contnued.
Ta payer.
Sugar Creek Coa 4 Mnng Co.
Suvan, ugene C
Summerfed Co
Sunburst O Refnng Co
Swenhart, ames
Tabot, . .
Te as Irrgaton Co.1
Thee, Water
Thompson, dward W
Thompson, W. L
Three Rvers Securty Corporaton.
Thrft Reaty Co... -.
Tfft, Chares.
Tfft, Lews .
Tmes-Pcayune Pubshng Co.
Tobey, Maurce ,
Toerton Warfed Co.
Torrens, ames .4
Tracv, Davd ., estate of
Tracy et a., Gertrude emer, trustee.
Tracy, Wam R...
Trcou, Sae S...
Trnty DrUng Co. .
Trout, . W
True, dward C
Turbeve, e M.
73758
29389
58711
45979
54784
oard of Ta ppeas.
oume. Page.
31
20
29
23
29
3 191
23
792
40083
4134

958
750
32
134
51103
28
57
51104
28
57
44857
44880
30
3
50 53
29
545
31029
33404
42340
25
98
45957

31030

33405
25
42341

98
45958
48892
49539
27
277
27 24
24
18
45320
23
892
53778
31
787
54828
2982
30
115
54828
2982
30
115
45513
25
1055
28093
40258
25
713
1498
28
110
39020
27
1210
8501
31
71
43733
47900
55553
31
283
4334

45 0
22340
27
377
44742
24
913
29518
20
1 5
Turner, atheen M.
Turrsh, enry
Twn e O Syndcate
1 cquescence reates to oss ncurred n sae of a boat.
cquescence reates to a ssues e cept affaton ssue.
3 cquescence reates to ssue regardng deducton of oss sustaned by pettoner durng nonaffated
perod.
cquescence n oard s decson n so far as t bods that pettoner was not ta abe on any part of the
proceeds of the 100 shares preferred stock nven by hm to hs four sons n 1928.
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. n 1925
from Cayton O Refnng Co.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
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3
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21
cqt|escences Contnued.
oard of Ta ppeas.
No.
oume.
Page.
28927
25
109
207 9
24
37
35 39-
35 49
35 84
35 85
2
112
400 0
400 1
400 2
7045
30
1277
1009
29
731
30384
27
433
2 747-
25
513
2 757
u.
Uster Deaware R. R. Co..
Unon Lard Corporaton
Unon Pacfc R. R. Co. et a 1
Unon Peopes Natona ank of ackson et a.,
admnstrators
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Trust Co. of New York, trustee
.
Yaaut, the Netcher
ermont ydro- ectrc Corporaton.
rgna Iron, Coa Coke Co
W.
Waker, George estate of 2__
Waker Products Corporaton...
Ward ros. Co
Warner Co. -.
Waner, Raph C
Washngton Market Co
Watson, r., ohn .
Wayne County 4 ome Savngs ank 4.
Weeks, anson
Wom, Samue W
Wheeock, R. L
Wheeock, Mrs. R. L
Whte Oak Transportaton Co.5
Whtman, Ward Lee Co
Whtney, Ward M
Whtson, Thomas
Wco , C.
Wams, r., ford
Wams, a .
Wams, L.
Wams, W. W... -
Wamson, e ander --
Wamson, rchbad (Lord orres).
38051
59 38
5157
318 9
4485
30992
53039
53040
59190
2510
43912
53414
49144
391
212
3780
37805
18088
1552
37927
40233
4 371
915
29273
58789
4 0 2
40231
43972
40229
43973
2
29
29
23
30
24
20
31
25
27
2
31
30
28
28
I
29
2
25
27
20
25
:s
24
25
1 cquescence reates to donatons ssue amortzaton of dscount on bonds ssued pror to 1913 compu-
taton of ta for vau.
1 state ta decson.
onacquescence pubshed n Cumuatve uetn II I. page 24, wthdrawn.
. onacquescence pubshed n Cumuatve uetn I-2, page 18, revoked.
1 cquescence reates to nventory Issue.
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22
cquebcences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Wson Co., Inc., of Caforna
Wson Co., Lee
Wson Cbmmss on Co
Wson urs, Inc
Wson, George S., estate of
Wson Shpbudng Co.1
Wnne, Water G
Wood, red T
Wood Lumber Co., .
Woodard, ohn S.1
Woodward, rthur P
Wray, za
Wrght, George M
Wrght, Leonard Marsha
y.
Young, the P --
Yukon aska Trust
Z.
Co.
207 8
3382
207 7
57058
50828
34337
0000
3880S
23 05
2415
719 2
54741
0227
25881
25854
45508
388 8
341 1
5242
24
25
24
29
30
25
27
27
25
30
32
24
22
2
24
2
21
1 state ta decson.
1 cquescence does not reate to ssue 5 of decson.
1 cquescence reates to reorganzaton ssue.
The Commssoner as wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:
oard of T
oume.
ppeas.
Page.
Ta payer.
Docket
No.
Mchennv, ohn D., estate of
45008
45008
431 4
431 4
22
22
21
21
1093
1093
339
339
Wade, eptha ., estate of1
Wade, r., et a., eptha ., e ecutors 1
1 state ta decson acquescence pubshed n Cumuatve uetn -2, pages 4 and 73.
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1
3
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1
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2

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4
:
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2
7
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3
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0
0
0
0
8
9
0
5
4
2
9
4
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23
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Tapayer.
Docket
No.
oard of Ta ppeas.
oume.
beson Reaty Co., Inc.
beson s, Inc
ckerman, Irvng C.
ameda Park Co
brecht et a., atherne ., c ecutrces
ker, era M. oher
ed urrers Corporaton
mercan rck Te Corporaton
Centra Lfe Insurance Co. _
mercan Idea Ceanng Co.
mercan Raways Co
mercan Refrgerator Transt Co.
mercan Seatng Co.
mes, Mure Oakes
mes, r., Ward
partment Corporaton
ppeby, rancs S
rabo Manufacturng Co
rchbad, dward
rchbad, oseph
rchbad, r., oseph
Wam M..
ard
tas Lfe Insurance Co
uto Strop Safety Razor Co., Inc.
.
abson, red
abson, Gustavus
abecm, enry
anger, esse M., e ecutr 4
anger, Water ., estate of
atmore Oho R. R. Co.
ank of Caforna, Natona ssocaton.
Trust Co., trustee
53792
53793
30311
31034
40948
40949
8355
412C5
3 11
50059
29994
30133
31998
5 024
343
49205
7 2
4782
7C02
728 1
14 7
71811
49817
42024
73089
50489
10 0
50 4
1 1
50 2
1 73
50 3
40419
39148
40544
40751
7199
57374
52224
52223
52222
32177
32177
37239
55537
0 99
32459
24
24
24
25
27
25
24
22
30
30
529
30
939
31
4 5
14
328
30
51
27
24
2
849
31
533
2
10 8
27
837
27
837
27
837
25
928
28
582
29
750
28
21
27
859
27
859
27
859
23
1311
23
1311
30
194
30
55
24
10
1 state ta decson nonacquescenoe reates to State nhertance ta ssue.
1 Nonacquescenoe reates to ssue whether certan funds denomnated Insured s persona beneft fund
were reserve funds requred by aw and ssue whether the pettoner s abty on outstandng unsur-
rendered unpad coupons consttutes a reserve fund requred by aw.
1 cquescence pubshed n Cumuatve uetn II-2, page 2, wthdrawn.
state ta decson.
1 Nonacquescence reates to deductbty as e pense for year 1920 of amount for mantenance of ways and
G
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U
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2
0
1
3
-
0
1
-
2
2

0
4
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4
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24
Nonacqtnescences Contnued.
Ta| payor.
oard of Ta ppeas.
No.
oume.
Page.
3G32
28
285
73 2
30
4
014
28
11 8
41295
27
1091
52707
2
190
52707
2
190
19128
17
213
3805
1
41 47
22
793
45 1

7259
31
329
47415
31
111
58871
28
113
C9S03
29
109
42313
3741

1192
55902
2
9 2
53422
2
732
52221
29
580
52220
29
580
43150
2
8 0
4044
25
941
49891
29
8
49272
30
79
41472
43 29

1193
10 51
1
24912
28971
1193
3800

45714
24
259
457S0
23
1351
0899
29
987
41224
27
22
20353
27
77
20353
27
77
1229
31
2 9
85 0
31
70
47077
2
901
33343
25
31
4813
20
901
47 77
2
901
72713
31
927
72714
31
927
32584

44153
25
780
440S4
|
32584
44153
f 25
780
44 84

10075
1 07
23
439
artctt, . emp -
ass, rancs M
ay, Robert P --
e)b, Rchard ., estate of 1 -
cebe, unus, trustee
ecbc, Marcus, estate of
efast Investment Co.1
e Sons, Samue
eresford, ven een de a Poer, estate of1
erkeey a Schoo, Inc
ndey, Mary M., estate of
ar, Cec Chares
ar, dward T
ss, Sydney R
ss, aentne
um, esse
um, Davd
oard of re Underwrters of the Cty of Duuth.
oca Cega Deveopment Co
oerngcr, Rudoph 4
oston Safe Depost Trust Co. et a., e ecutors 3
owman- tmore otes Corporaton
owman ote Corporaton
rackuan, . W
radbury. C
rskey Co
rtsh- mercan Tobacco Co., Ltd
rookyn Cty R. R. Co
rookyn ueens Transt Corporaton
rookyn Rado Servce Corporaton
rooks, Regnad
rown, rank ., estate of
rown, . C
rown, arry
rown, Pear ., e ecutr
rownng, ohn N
rownng, S. P
uck, ohn ., estate of 4
uck ct a., Mary M., e ecutors1
uffao Unon Iron urnace Co.
1 state ta decson nonacnueseence reates to State Inhertance ta ssue.
Nonaoquescenee n ssue ns o whether pettoner s entted to deducton (or auorttaton o( the Lee
tract warehouse for 191S.
1 state ta decson.
N onacquesceuce reates to ssue Invovng reorganzaton.
state ta decson nonacquesoence reates to deducton of amount of a cam fed aganst the estate
and aowed by probate court.
Nonaoquescenee reates to ssue regardng deducton from gross ncome of fsca year ended pr 30,
1919, of reserve for renng bast furnaces.
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25
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
23
710
27
150
25
092
20
015
2
1401
10
1345
25
191
23
953
27
1078
2
075
2
075
27
5
27
5
31
07
28
23
28
23
27
5
27
5
27
5
27
5
27
5
27
5
27
5
2
1401
25
499
25
757
27
1312
27
1312
28
53
29
1255
30
178
20
301
32
231
22
1407
29
109
31
1082
28
1127
29
43
28
725
uock, George 1
unge North mercan Gran Corporaton.
urdette, Cara
urev, anche ., e ecutr
urr, dward L
usche, . C.
usness Rea state Trust of oston.
uter- ctch Co.
C.
Cadwaader, Mary een
Carey bre Products Co., merson.
Carev Sat Co
Carro, .
Carro, Lena Carter
Carson state Co
Carson, ohn
Carson, Rose L
Carter, . L
Carter, . L., admnstrator
Carter, Mrs. . L
Carter, .
Carter, Le N
Carter, Maude ., estate of
Carter, r., W. T
Casses, Robert
Centra Market Street Co. --.
Centra Unon Trust Co. of New York, e ecutor_
Champon, Davd .
Champon, T. Perre
Chapman, C.
Charavay, Marus
Chemca Natona ank of New York
Chcnowth, . C
Chcago Dock Cana Co
Chcago North Western Ry. Co.
Chdaw, arry
Cark, Percy
Cark Thread Co. .
31209
47800
37321
44909
58795
9447
10202
10755
334 9
42 84
50305
451 9
45170
4 327
3 381
3 382
51880
51881
47444
53489
45393
45392
51882
47 9
51883
51884
518S5
47 9
518 0
58793
24837
3173
555 9
3818
55508
5249
70005
71592
45 04
38349
482 8
3 343
09782
05177
f 38903
47974
335S5
40890
51197
39910
Ceand state Co., Inc., enry .7
Corporaton
1 Nonacqueseence reates to ssue 1 of decson.
1 acquescence pubshed n Cumuatve uetn -, page 10, wthdrawn.
1 Nonacqueseence reates to ssue regardng board s ursdcton of subsdares.
1 Nonacqueseence reates to ssue whether redempton of stock was equvaent to ta abe dvdend.
Nonacqu|escenoe reates to foowng ssues: Undenuuntenance proft and oss on bonds retred
tmortzaton of bond dscount.
1 onacquescence reates to ssue respectng deprecaton.
Nonacqueseence reates to bass for determnaton of gan or oss on the sae of property devsed sub|ect
to a fe estate.
G
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2

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2
NoN cqu sr NT Contnued.
Ta payer.
Cobegh, Margaret dwards, estate of 1
Cochrane, Davd .
Coumba Pacfc Shppng Co
Coumbus rck Te Co.3
Commerca Garage Co
Commerca Investment Trust Corporaton _
Communty ond Mortgage Corporaton-.
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames .5
Conney, L. .
Couner, Mary .
Cook, zabeth .
Cook, Sam
Cooper, . T. ----
Cosmopotan ond Mortgage Co.8.
Cre, Grace Mc rdc
Crspn, Mrs. gerton
Crosby, Oscar T
Cross, Maurce
Cunard Coa Oo. _
Cuppa, erome C
Curee, Sheby ., trustee-
Davdson, Watson P
Davs, C. R.
Davs, rederck
Davs, Thomas L
Degener, ohn ., estate of1
Degener, r., et a., ohn ., e ecutors .
De Lsser, orace, estate of11
Docket
No.
407 5
C0428
509 8
42707
41 4
43495
50051
43784
775 8
775 0
58777
44081
45833
4 2 7
519 7
05
948
44083
45 34
44082
38579
35014
3144
44 17
4313
452 7
51317
32735
2 874
2 875
28792
58545
48833
4 48
1021)9
32950
37324
37395
38500
38500
2459
onn of Ta p| s.
oume.
24
17
2
11 7
29
9 4
2
794
22
793
28
143
27
480
32
1 4
32
1 4
2
1401
30
331
30
331
30
331
25
1351
25
92
7
798
30
717
2
1020
28
23
27
1234
24
1079
2
234
2
1401
28
773
27
158
10
1233
20
931
24
405
24
405
2
185
2
185
2
102
state ta decson.
1 cquescence pubshed n Cumuatve uetn II-I, page 3, revoked.
Nonacquescence reutes to ncuson n consodated nvested capta of capta stock ssued for prom-
ssory notes.
Nonacquescence reates to deducton n 1020 of e cess of market vaue over sae prce of stock sod to
empoyees.
Nonacquescenco reates to ssue nvovng the amounts pad to stockhoders by . G. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to vaue of common stork of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the snne tme
and under the same agreement.
T cquescence pubshed n Cumuatve uetn II-1, page 1, wthdrawn.
1 Nonacquescenco reates to ssue nvovng commssons charged on rea estate oans.
Nonacquescence reates to e pendtures for mne equpment.
10 cquescence pubshed n Cumuatve uetn -, page 17, wthdrawn.
state ta decson acquescence pubshed n Cumuatve uetn -2, page 18, recaed.
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1
3
-
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1
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2

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0
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8
9
0
5
4
2
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4
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27
Nonacquescences Contnued.
Docket
No.
oard o Ta ppeas.
oume.
de Me, Cec . _._
de Me Productons, Inc., Cec .1
de Me Productons, Inc., Wam C.
Dennett, Mare G.
Depew, Ganson
Des Mones Improvement Co.
Dohmann, ndrew . C
Doomte, Inc
Donner, Carro
Donncr et a., Carro ., e ecutors
Donner et a., Carro ., guardans,..
Donner, oseph W
Donner, r., oseph W
Dort, . Daas, estate of 4
Dougass, oward W., estate of 4
Drawoh, Inc
Drumhecr, George
Duff, Robert C.
Dunham et a., Lucy ee, e ecutors 4
Dunham, Mary rgna, estate of 4
ast Coast O Co., S.
dson Securtes. Corporaton
dward Securtes Corporaton
fert, ar C
drdge, ce .
drdge, . S.
kns, ae D.
kns, Wam L., estate of
mery. Marv M., estate of
qutabe, Trust Co. of New York, ancary admn-
strator 4
rb et a. Rav L., e ecutors
the D. Co
venng Star Newspaper Co_
Wam
52995
1291
5122
71951
5299
1290
5123
53108
1321
72023
508 0
8573
20 58
239 9
0 1
0237
023
0235
023
0235
44735
40031
45014
41515
45752
37552
4 03
4 03
58180
52 2
71208
4.5781
4779
4778
39255
50449
40899
7259
292 0
32032
1870
855
2 75
31
31
30
30
27
7
19
19
28
32
32
32
32
32
2
30
28
27
23
2
2
31
29
30
23
30
30
24
28
25
31
2 .)
27
28
2
Nonacquescence does not reate to the case of Constance . de Me, Docket 71952, whch was ds-
1 of b| stpuaton.
.-Nonacquescence reates to deductbty of 10,000 because of the fact that a bond n whch pettoner
bad Invested became worthess n 1930, athough that fact was not ascertaned unt 1931.
cquescence pubshed In Cumuatve uetn f-1, page 9, wthdrawn
state ta decson.
Nonacquescence reates to Issue 2 of docson.
Nonacquescence reates to deducton of oss n transfer of securtes to a corporaton In whch pettoner
owned a the stock e cept quafyng shares.
cquescence pubshed n Cumuatve uetn I-2, page 3, revoked
cquescence pubshed In Cumuatve uetn I-2, pages 3 and ft, revoked.
. onacquescenoe reates to the foowng Issues Reducton of cost bass (March 1, 1913, vaue) of asseU
od by a partnershp n 1919 by deprecaton aowed In computng ncome for perod March 1, 1913, to
December 1, 1915 computaton of 1919 partnershp proft on sae of assets by consderng as part of the
a/o prce ta es of the partners pad n 1920 by the vendee.
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1
3
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2

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2S
NoN r T| C NC S Contnued.
Ta payer.
Docket
oard of Ta p| cas.
oume.
.
armotnt Cemetery ssocaton
anners Cotton O Co
anners Lfe Insurance Co.1
awsett, Chares
edman, enry O
dety Coumba Trust Co., trustee
dety Unon Trust Co. ct a., e ecutors
ed, Marsha
fth Street udng.
rst Natona ank n St. Lous
rst Natona ank of oston, admnstrator
rst Peopes Trust
sher sher, Inc
sher, Irvng
tzgerad, Thomas.
etmann, Wam M., estate of 5
etmann, r., et a., Wam M., e ecutors
emng, Wam
emng, Mrs. Wam
etcher, Saathe
oger Co., .
ogcr state Co
oster, Carone ., estate of -
oster ct a., Chares 11. W., e ecutors 2
oster, L. .4
ounders ssocates
o , ontane 5
o Rver Paper Co -
ranks, ack M
uhage, fred .
uer, van T
urnture Corporaton of merca, Ltd
G.
Gae, my
Gambe Stockton Co.7
Garcn, dward
30925
42811
42 79
43317
72057
45359
5041
5042
7223
3 908
1 27
292 4
45537
44278
48078
4474
45403
0929
1 22
2075
28449
28449
1042
5 7
1043
5077
33041
22212
30721
31200
35147
4 72
4 72
430S
2 84
710S4
20S78
53 S5
1754
73759
72S00
72S01
1 72
42707
21 57
25
27
7
30
28
30
31
2
24
23
2
2
32
30
29
22
22
31
31
24
27
27
2
2
2
29
30
2,-
32
32
31
30
27
2
22
1 Nonacfuesceuce docs not reate to ssue In connecton wth opton payment receved for purchase
of and.
1 state ta decson.
cquescence notce pubshed n Cumuatve uetn -2, pages 23 and 24, recaed.
Nonacquescence reates to deductons n IcM and 2S on account of osses resutng from aeged saes
of securtes.
1 Nonacquescence reates to ncuson n ncome of corporat on for years ended March 31.1 30, and March
31,1931, amounts representng renta of premses occuped by ts presdent.
Nonacquescence reates to ssue whether redempton of shares of stock represents payment n parta
qudaton of a corporaton or a ta abe dvdend.
1 Nonacquescence reates to ncuson n consodated Invested capta of capta stock ssued for proms-
sory notes.
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2
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1
3
-
0
1
-
2
2

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4
:
2
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8
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5
4
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29
Nonacquescenceb Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Gardner, Chares . ._
Game, Dane T., estate of
Garvan, ohn oseph, estate of .
Gary, rgna ., e ecutr 1
Gassncr, Lous
Genera Uttes Operatng Co.
Gerard, re
Gerach, Theodore R
Gaddng, Mary D., estate of
G. M. S. Co.
Goet|en Mctson Co
Godberg, arry S.
Godschmdt et a., Georgette, e ecutors
Godschmdt, eury P., estate of 1
Graham, M.
Grant, een .
Great Western Power Co. of Caforna-
Green, Robert D.
Greeneaf Te te Corporaton
Gregory, veyn
Grffs, Stanton
Grosvenor, Theodore P
Gutar Trust state
Guf Coast Irrgaton Co.
Guf, Mobe Northern R. R. Co.7 8.
ae, R. W.
ae, W. T.
II.
a, arry . R., estate of.
a, Martha M
ancock, G. an w ,
anson, Chares C
arbson, Raph W.
arbson, Wam bert . -
aran, George
arrs, en
arrs, Smon
arrson, ames M
38575
3173
4474
40031
4017
52770
45221
38042
41 41
31435
1 383
17875
5389
1 138
1 138
38335
2029
5577
8324
48 17
53 47
4 74
55299
38577
0381
35102
33 94
40081
41343
24887
42150
/ 70(
71/
7750
7751
70004
598
4501
3 8 7
15398
5434
54347
0500
10980
31 32
193
25
25
25
30
4
29
28
27
27
2
20
4
14
14
2
29
30
24
2
27
25
SI
28
24
22
32
32
29
31
25
23
2
20
30
10
24
30
1 Nonacquescence reates to vaue of common stock of mercan Chan Co , Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock ot sad company acqured at the same tme and
under the same agreement.
1 state ta decson.
cquescence pubshed n Cumuatve uetn -, prces 24, 27, wthdrawn.
state ta decson: acquescence pubshed n Cumuatve uetn -2, page 27, recaed.
1 Nonacqufescence reates to transacton 5.
1 Nonacquescence reates to afhton Issue.
7 Nonacquescence reates to ssues nvovng award of Interstate Commerce Commsson n 1020 for
transportaton of Unted States mas n 191 and 1917 and deducton In 1920 for deprecaton on ways
and structures.
Nonacquescence appes to th entre decson of the ord In so far as t Is adverse to the Commssoner.
Parta acquescence pubshed n uetn I-2R, prce 1, revoked.
cquescence pubshed n Cumuntve uetn I1-1, pace f, wthdrawn.
cqutescence pubshed n Cumuatve uetn -, pages 24, 27, wthdrawn.
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30
Nonacqubscenoes Contnued.
Ta payer.
Docket
No.
oard of Ta p| |as.
oume.
arrson, .
art, on
artey, Cavour, e ecutor-
artey, G. G., estate of-.
auser, W.
aw ey Investneut Co._
azetne Corporaton.
edrck, . T
eer, . G
emph, Cfford -
enn, . W
enrtze, .
enrtze, Ne...
enrtze, T. R
enrtze, T. W
ermann, ohn C
ertensten, reda M
erteusten, rederck.
ckman, oward C
eronymus, Car Rchard, estate of.
ghway Traer Co
gev Co., .
, t . ., estate of1
et a., Pau ., e ecutors3
nds, Water DeWtt, estate of ...
odges, gnes Wey, e ecutr
odges, W. L., estate of
odges, W. L., trustee
odng Corporaton, O. P. P
omes akery Confectonery...
omes, Car
omes, . ., trustee.
omes, Margaret .
onnod, W. L
ousehod Products, Inc.
ousman, Carence
ousman, rederck
ouston aseba ssocaton.
ouston ros.
ouston, George T.
ouston, orace .
453 1
5279
0115
42343
42343
43301
43302
451 9
45170
42277
47011
51931
0313
33533
40 34
38573
37102
0 09
0 07
0 08
0 0
51959
55938
5593
373 9
48930
14508
51003
29399
29399
498 0
3833
3833
38337
0 74
4 1913
528 1
51473
53395
44943
528 1
48 31
51570
53394
55211
44809
58798
58774
43985
45430
12052
13104
22008
22009
38
27
27
27
2
23
32
24
25
25
20
28
28
28
28
27
29
29
27
24
28
25
24
24
32
2
2
2
30
27
27
27
27
30
24
2
2
24
22
22
99
Nonacquescence reates to vaue of common stock of mercan Che h Co., Inc., am the bass of aoca-
ton of cost between sad common stock and preferred stock of sad comp.vy wured at the same tme and
under the same agreement.
1 state ta decson.
Nonacquescence reates to March 1,1913, vaue, and to the bass for the deducton for depeton and for
the computaton of gan or oss upon subsequent sae of the tmber.
G
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31
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ouston, Php D.1
uburd, Chares ., estate of
uburd, De orest, ndvduay and as e ecutor
and trustee
umme-Ross bre Corporaton
unter, G. W., estate of .
untngton, enry ., estate of
utchson Coa Co
yde, ames
Inos Lfe Insurance Co
Impera evator Co
Impera Investment Co
Indanapos, Crawfordsve Danve ectrc
Ry. Co
Indanapos Northwestern Tracton Co
Iten scut Co
Ives, Chares
Ives Dary. e
22007
22028
22028
598 5
335 4
45429
34939
5495
9952
7201
35 88
29291
33859
338 1
/ 43 7
451 4
51527
39873
.
ackson astern Ry. Co_
ackson, Wermch Trust
amson Coa Coke Co__.
/ 382
4214
anotta, Stea S.
efferson Standard Lfe Insurance Co
ohnson, . M
ohnston, ugh Mc rney, ndvduay and as e -
ecutor and trustee
ones, esse R
ones, Chester ddson
ansas Cty Sou
pancs 7
Co. and affated com-
38295
49
32307
31 90
34088
51172
43149
1345
22028
58285
5020
22 8
35527
35528
35529
35.530
35531
0789
453 0
70899
70899
897
58794
41549
22
27
27
31
25
28
24
31
30
25
23
24
24
2f
29
23
22
21
24
28
25
32
27
27
31
22
32
28
31
31
29
2
2
eener O Gas Co
ecys, dward L
ey, rancs ., e ecutor
ey, Rose ., estate of
erbaugh, enry S
errgan, rthur L
ng, ohn M
Nonacquescence reates to March 1, 1913, vaue, and to the bass for the deducton for depeton and
for the computaton of (tan or oss upon subsequent sae of the tmber.
1 state ta decson.
Nonacquescence reates to ssue whethor ta payer sustaned a net oss n any busness reguary carred
on n 1924 whch coud be carred forward and deductod from ta abe ncome n 1925.
Nonacquescence reates to Issue Invovng deducton for deprecaton on ways and structures.
Gft ta decson.
Nonacquesoence as to Issue re ardm deducton for depeton.
Nonacquescence reates to the foowng ssues: Deducton of amounts e pended to restore pettoner s
property notwthstandng the fact that the Drector enera of Raroads made payment to pettoner for
hs faure to mantan the property e cuson from gross Income of ntercompany freght charges on matera
and suppes used n makng addtons and betterments to pettoner s property.
G
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1
3
-
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1
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2
2

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32
Nonacquescences Contnued.
To| payer.
pp. tte .1.
arry _
ntze, Chares T
ountzc et a., Chares T., e ecutors.
ountze, Luther L., estate of
rause et a., rances ., e ecutors -
rug, George
ru, rancs
Lafayette Lfe Insurance Co
Langford Investment Co., trustee.
Langford, r., et a., Perce P
Langworthy, Mar|ore C
Laube, ustus
La n, fred
Laun, .
Leeper, rank ., estate of.
Leeper, Pear
Leetona urnace Co
Leon Son, Inc., bert
Levne, yman
Lebes Co.,
Lnderman, Wam S., e ecutor
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e ecutors 5.
Lvngood, Chares ., e ecutor
Loyd, Water
Loffand, . M. _
Loffand, T. S.
Lous, Cora .. .
Lousve Trust Co. et a., trustees
M.
Macrnec, D.
Maory, L. W., estate of
Manchester Coa Co
Manhattan Lfe Insurance Co.
Manus-Muer Co., Inc
Margay O Corporaton
Markham Irrgaton Co.
Marvn, Water S.
Docket
No.
2775
55318
37323
37535
37535
498 0
40713
10985
41721
42003
57203
57203
71901
70007
71595
45347
45348
452
452 5
32272
53440
7435
28544
35038
58871
51858
51858
40899
48120
13425
1342
49179
5040
03553
33231
33392
00827
59778
41891
41344
38578
oard of Ta ppeas.
oume.
7
2
24
405
24
405
24
405
32
254
30
1375
10
109
2
94
28
222
28
222
30
121
29
1255
2
7 4
2
7 4
28
23
28
23
23
979
29
251
8
298
23
787
28
113
25
21
25
21
25
585
30
331
10
14
10
14
29
1200
30
5 2
31
3
27
750
24
577
28
129
30
1015
2
199
24
958
25
1351
1 cquescence pubshed n Cumuatve uetn II-1, page 17, wthdrawn.
state ta decson.
cquescence pubshed n Cumuatve uetn -, pares 3f, 3S, wthdrawn.
Nonacquoswenee reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
state ta decson n on acquescence n respect to that part of decson whch hods that accrued nterest
pad on edera Income ta es for 1027 and 1928 from date of decedeut s death to November 5,1930, Is a proper
aowabe admnstratve e pense.
1 cquescence pubshed n Cumuatve uetn I-2, pages 3 and , revoked.
Nonacquescence reates to ssue Invovng the amounts pad to stockhoders by . G. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to deprecaton aowabe under the Revenue ct of 1913 ncquescence pub-
shed n Cumuatve uetn I I . page 27, wthdrawn n so far as t appes to ths ssue.
Nonacquescence reates to affaton ssue.
10 Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
G
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2
0
1
3
-
0
1
-
2
2

0
4
:
2
0

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2
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2
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/

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3
0
0
0
0
0
8
9
0
5
4
2
9
4
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33
Nonacqotescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Matagarda Cana Co.1
Matheson, ugh M
McCabe, on C
McCabe, George ., estate of
McCabe, ames
McCabe, ames Roscoe
McCabe, Mton Mathew ---
McCabe, Wam ohn
McCabe, r., Wam ohn
McCormck et a. Cyrus ., trustees
McCrory, Luke W., trustee
McCurdy, Wam ., estate of 1
McGrath, ames W. and ntonette
McGrath, Mare Louse
McGrath, Robert ... --
Mcvane et a., Wam ., trustees...
McLster, rank
McMan, Wam Northrup, estate of
Meyer, Robert R
Mchgan Centra R. R. Co.
Mgetta, Oga
Mes Reaty Co.. ---
Mer, bert t - -
Ms, . . Goadby
Mssour State Lfe Insurance Co.s
Mtche, Oscar --
Mtche, Wam
Mtten Management, Inc
Mod|esk, Raph -
Moore, ma
Moore read Co
Moore, G.
Moore, ohn R
Morgantc rush Co., Inc
Moro Reaty odng Corporaton
Morrss et a., ua L
40082
41345
71353
9783
9779
9778
9781
9777
9780
9784
44139
32444
7 81
5040
5042
5039
52931
5722
485 2
459
44032
19930
3 379
51394
453 8
58797
58241
238
41 80
41874
54 73
58799
42494
53990
18G1
49517
4790
8219
41 45
38351
4791
8218
2 3 9
3740
44759
50490
41023
41024
458 3
458 4
)
24
958
31
493
29
109
29
109
29
109
29
109
29
109
29
109
29
109
2
1172
25
994
31
379
30
2
30
5 2
30
5 2
29
304
27
155
27
318
27
44
28
437
25
243
31
443
28
23
2
1401
29
401
27
101
2
1401
29
57
28
1051
30
1197
22
793
2
301
30
1197
24
77
25
1135
23
1070
Nonacquosccnce reates to affaton ssue.
state ta decson.
1 stae ta decson nonacquescenee as to queston of stus.
Nonacquesccnce reates to foowng ssues: Whether ma pay receved n 1921 consttuted ncome n
1920 renta nterest receved on competed addton and betterments n fna settement wth the Drector
Genera.
1 Nonacquesornc reates to deducton for reserve set up to meet abty upon matured coupons ad|ust-
ment of ncome for renta of space occuped n home offce budng and deprecaton upon such budng.
Nonacqtescence reates to ssue regardng deducton from ncome of sprnkng ta .
G
e
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d

f
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1
3
-
0
1
-
2
2

0
4
:
2
0

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2
7
/

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3
0
0
0
0
0
8
9
0
5
4
2
9
4
P
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#
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34
Nov acquksce ces Contnued.
Tapu L-r.
Docket
No.
o U of I s v .
o u mo.
23
107
23
107
27
107O
29
21
27
513
30
104O
28
23
25
724
25
724
23
749
29
822
24
85
29
139
25
407
31

25
5 2
19
242
2
551
8
299
27
5
27
5
31
41
31
41
24
124
28
437
24
1217
30
408
2
978
24
54
2
125
2
223
24
419
24
307
31
1013
25
1351
Morrss Reaty Co. Trust No. 1.
Morrss Reaty Co. Trust No. 2.
Morse, mma ., estate of 1
Moser, Caroyn L
Mosscr, Chares
Mott, Chares Stewart
Mueer, ar W
Murphy et a., red T., trustees
Murphy Persona Property Trust
Mutua Lfe Insurance Co. of New York.
Myrck, uan S
N.
Nashve, Chattanooga St. Lous Ry.
Natona Casket Co., Inc.1
Natona Contractng Co.
Natona Grange Mutua Labty Co..
Natona Land Constructon Co
Natona Ppe oundry Co.
Nca et a., . enry, trustees
Ne, ames 5
Nems, rank aywood
Nems, Mrs. rank aywood
Netcher, Chares, estate of
Newbury, Moe Netcher, trustee
Newport Co
New York Centra R. R. Co.
New York Lfe Insurance Co
New York, Ontaro Western Ry.
Nbey-Mmnaugh Lumber Co
Nchos Co Lumber Co
Co.
Ncodemus, r., . C
Nesen Co., .
North mercan Investment Co.
Northern Coa Co.7
Northport Shores, Inc
Noyes, ansen 8
/ 41023
458 3
/ 41024
458 4
44 52
55937
55399
51585
5750
453 2
43795
43795
97 4
5152
337
33799
50320
24520
73099
4012
32997
45403
9290
51887
51888
42435
42435
35431
19932
34437
2040
38880
52 93
17527
23 01
5232
025 9
8899
30183
34945
4500
38574
1 state ta decson.
1 Nonacquescence reates to the appcaton of a net amount of operatng osses after appyng the profts
of a subsdary durng the perod of affaton to reduce the oss sustaned by a parent company on the
qudaton of a subsdary company.
1 Nonacquescence reates to ssue 1 of decson and ssue regardng deductbty of overhead costs n 1925.
cquescence pubshed n Cumuatve uetn I -2, page 43, revoked. Revocaton of pror acqu-
escence and present nonacquescence are due to the faure of the oard s decson to mt the word ds-
trbuted to the cash dstrbutons made to the stockhoders.
cquescence pubshed n Cumuatve uetn -. pago 48, wthdrawn.
Nonacquescence reates to foowng ssues: Whether ma pay receved n 1921 consttuted ncome n
1920 renta ntorest receved on compete: addton and betterments n fna settement wth the Drector
Genora.
Nonacquescence reates to statute of mtatons ssue.
a Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of aoca-
ton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
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35
Nonacqt|ebcences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
o.
Oakman et aL, Mame It
Ogden, ugh W
Od Msson Portand Cement Co
Od Natona ank n vansve, e ecutor
Onger Mortuary ssocaton
Over, Ove ume
Omsted, George W. .
Omsted, Iva C. .
Omaha Coca-Coa ottng Co.
O Rear, . C.
Oregon Termnas Co
Oswego as Corporaton.
Owens, . T
Owens, Mrs. . T.
Owens, 0. O
Pacfc Coast scut Co. et a.4
Pacfc Nash Motor Co
Pacfc Rock Grave Co
Parker, Cara ., e ecutr 5
Parker et a., my ng, trustees ..
Parker, George D., estate of5
Parker, erbert L., estate of 1
Parrott, . .
Peabody, Cornea aven, estate of .
Peabody et a., Stephen, e ecutors ..
Pctauma Santa Rosa R. R. Co.7__.
Pheps et a., Lus ames, e ecutors 8.
Phps, Wam S
Perce, dward
Pttsburgh Lake re R. R. Co. ...
42917
23943
38853
7 81
3 502
5 40
44090
45745
48121
54714
074
44089
4574
48143
54713
00745
52 41
32335
8893
28301
32 73
34352
3149
3150
3198
71588
451 9
45170
28770
58004
53320
58 04
53320
30989
39 47
39 47
13830
5033
2444
317 9
5879
427 4
24
24
25
31
23
30
30
30
2
28
29
2
27
27
20
32
23
2
31
30
31
30
28
24
24
11
27
24
2
28
1 state ta decson.
Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . 0. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to ssue regardng amount of oss sustaned by pettoner by reason of destruc-
ton by fre of hs resdence and furnture.
Nonacquescence wth respect to deducton of amounts e pended n connecton wth dssouton and
qudaton of a corporaton.
Nonacquescence reates to ssue regardng e stence of George D. Parker Co. partnershp.
Nonacquescence reates to nterpretaton of artce 1507, Reguatons 45, as apped to e change of stock
of Pttsburgh Te as O t Gas Co.
Nonacquescence reates to that part of decson concernng purchase of ta payer s own bonds at ess
than par whch were hed as an nvestment. cquescence notce as to ths ssue pubshed n Cumuatve
uetn TI-2, paPe 31, revoked.
state ta decson nonacquescence wth respect to the trusts for the son and daughter.
Nonacquescence reates to renta nterest queston and oard s decson wth respect to porton of
ma pay receved n 1921.
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3(3
Nonacquescences Contnued.
Ta payer.
Pans Reaty Co.
Pant, enry radey.
Pettner, Maude rown.
P-M- Petroeum Co. ..
Portand urnture Manufacturng Co.
Post Shedon Corporaton
Prce, arry
Proctor Shop, Inc.
Prosperty Co., Inc.
Prouty, Ove
Pryor Lockhart Deveopment Co
Purse, ames N
.
unn, Porte _
Randoph, ranke Carter-
Randoph, R. D
Randoph, rg P., trust.
Ray O Co.
Raymond, oward W
Reaty ssocates, as syndcate manager
Reed, Latham R
Reese, ugusta ss
Rehtam, Inc
Reybnc, pheus, estate of
Reybne, Martha ., e ecutr 4
Reynard Corporaton
Rchardson et a., orrest, e ecutors
Rchfed O Co -- ---
Rffe, enry 8
Rey, nna
Docket
No.
oard o( Ta ppeas.
oume.
48977
05492
7197
43889
48984
52094
55 59
00923
33345
5057
54779
1809
703 7
5 95
/ 70008
7159 1/
/ 58909 f
2G8 I
/ 45890 I
59408
57829
38872
450 8
51320
54124
07150
51890
51889
48833
43123
45219
48015
1554
58544
27921
58800
70110
4501
00 00
0 0
738
70795
44052
42921
357
10
31
30
25
24
30
28
29
30
27
30
2
27
31
27
27
28
28
2
17
20
30
L S
31
31
30
27
2.
3
2
Page.
412
133
31
3 0
878
2
1255
721
28
10 8
1054
725
142
05
5
773
1204
1401
1173
1401
1
GOG
314
314
451
1070
101
130
100
1 Nonacquescence reates to frst ssue of decson.
1 cquescence pubshed n uetn II1-33, page 1, revoked.
1 Nonacquescence reates to overstatement of oss sustaned as a resut of qudaton of subsdary.
1 Nonacquescence reates to ssue whether pettoner was ta abe for years 192 o 1929, ncusve, as
trust or as an assocaton.
cquescence pubshed n Cumuatve uetn -2, page 59, wthdrawn.
state ta decson.
7 Nonacquescence reates to ncuson n Income of corporaton for years ended March 31, 1930, and
March 31, 1931, amounts representng, renta of premses occuped by ts presdent.
state ta decson acquescence pubshed n Cumuatve uetn -2, page M, recaed.
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37
Nonacquescenceb Contnued.
Ta payer.
Rey Stoker Corporaton
Ro Grande Land Cana Co
Ro Grande Reservor 4 Dtch Co..
Roberts, Water . --
Robertson, . G
Rock wood, George O
Rockwood, Wam M
Rodeo- ae|o erry Co.1
Rormer, Lous
Roscnboom nance Corporaton _
Ross, anche S.
Ross, Water L -
Ro8ser|_ . M., e ecutor
Roth, W. . .
8.
8t. Lous Southwestern Ry. Co_
St. Lous Unon Trust Co., e ecutor
Saomon, Leon
San Caros Mng Co., Ltd.
Sand Sprngs Ry. Co
Sather Lease Thomas Sather Co
Schoen, Lous
Schwartz- asser Improvement Co
Scott, Thomas ., estate of
Scove, Cnton ., estate of
Seaconnet Coa Co.
Seatree, Wam rnest
Securty rst Natona ank of Los ngees et a.,
e ecutors 10
Securty Savngs 4 Commerca ank
ewyn ddy Co
Shaffer, C. . .
Shaffer, ohn C
Sheaffer Penn Co., W.
Shepherd Syndcate
3 584
71350
71351
37534
49552
52370
72711
72712
3 411
48528
58850
35778
40903
51171
73282
407 5
450 5
13319
277 8
33938
459
3725
12231
39525
32438
32439
31979
5 77
3 87
5033
49272
18089
22094
33 40
45429
59523
21 12
29259
5008
59511
3 04
48332
51327
oard of Ta ppeas.
oume.
2
31
31
24
28
31
31
24
27
24
28
30
24
22
24
27
4
8
24
21
2
30
2
27
30
24
25
28
29
2.
29
28
27
2G
Page.
749
507
507
405
53
927
927
93
871
7 3
39
5 2
17
587
917
318
1109
979
1132
1291
8
1075
322
1224
79
307
30
289
17
1341
1315
1293
105
10 2
Nonacquescence reates to frst ssue of decson.
Nonacquescence does not reate to the oard s hodng that dstrbutons receved from oseph .
nch - Co. were not parta qudatng dvdends.
Gft taz decson.
state ta decson.
cquescence pubshed n Cumuatve uetn -. paces 5 , 7, wthdrawn.
state ta decson nonacquescence as to queston of stus.
1 cquescence as to ssue 2 pubshed n Cumuatve uetn I-1, page , and nonacquescence as
to ssue 1 pubshed n Cumuatve uetn I-1, page 11, wthdrawn.
state ta decson nonacquescence wth respect to the trusts for the son and daughter.
Nonacquescence reates to statute of mtatons ssue.
Nonacquescence reates to ssue whether ta payer sustaned a net oss n any busness reguary car-
red on n 1W4 whch coud be carred forward and deducted from ta abe ncome n 1925.
u Nonacquescence reates to the foowng ssues: Reducton of cost bass (March f 1013, vaue) of assets
sod by a partnershp n 1919 by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1, 1915 computaton of 1919 partnershp proft on sae of assets by consder t
prce ta es of the partners pad n 1920 by the vendee.
sderng as part of the sae
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38
Nonacqotkscencbs Contnued.
Ta payer.
Shenkcr, Smon
S)cr)att, Soomon
Skewes-Co , dth Page
Skff, rank .
Sma s, Inc
Smathers, . ., estate of
Smth, Mrs. Grant-
oard of Ta ppea .
Smth, Mton, estate of
Smth, r., Mton, e ecutor
Sneed, r., . T.
Snyder, Inc., . S. M. W
Southern Caforna Rock Grave Co.
Southern Raway Co. ct a.-4
Spencer, George rnck, estate of 5.
Speyer, ames
Sprague Son Co., C. .
Sprng Cty oundry Co
Sredes, Inc
Staney Co. of merca.
Stearns, Marsha, admnstrator
Stern et a., Samue . ., e ecutors
Stetson, Ioa Wse
Stevens, yan
Stevens, Wam D
Stevenson Consodated O Co.
Stewart, ohn
Stewart, Wam Rhneander, estate of 10
Stewart, r., et a., Wam R uneander, e ecu-
tors 10 -
Stfe, rthur C
Stfe, dward W
58801
4 335
1 9
8335
51173
53701
292G0
43300
43305
4330
52132
52132
45 94
3 8
30898
21481
29951
37887-
37898
7223
5 435
3494
211 9
45015
3151
33142
40023
48930
2459
41743
7000
71593
70009
71594
4341
57531
777
777
0738
0739
29
2S
24
29
2
28
28
30
2
2
27
31
30
24
25
28
2
24
2
2
27
29
29
23
29
31
31
29
29
3
80
1315
1178
422
422
1121
92
29
73
171
517
307
822
705
2 9
102
390
173
1255
1255
10
809
201
201
1145
1145
1 Gft ta decson.
Nonacquescence reates to the foowng ssues: Reducton of cost bass (March 1,1 13, vaue) of a
sod by a partnershp n I ID by deprecaton aowed n computng ncome for perod March 1, 1913, to
December 1,1915 computaton of 191U partnershp proft on sae of assets by consderng as a part of the sae
prce ta es of the partners pad n 1920 by the vendee.
Nonacquescence reates to ssue whether certan nterest n rea estate stuated n Te as was acqured
by pettoner pror or subsequent to hs marrage: and that part of decson whch hods that deay rentas
receved are communty ncome notwthstandng that the ands from whch they arse may be the separate
property of ether spouse.
Nonacquescence reates to ssues nvovng addtona compensaton, renta nterest on addtons and
betterments, and back ma pay for use of propertes durng edera contro.
state ta decson.
Nonacquescence reates to statute of mtatons ssue.
state ta decson: acquescence pubshed n Cumuatve uetn -2, pape C 7, recaed.
g Nonacquescence reates to ssue regardng ncuson n Income for 192 of 0,823.35 receved upon
e change by pettoner of 2W.0OO shares of Sunburst O Gas Co. stock wth that corporaton.
state ta decson nonacquescence reates to far market vuue of nn undvded or fractona nterest
n certan rea property.
10 state ta decson nonacquescence reates to far market vaue of 3. 39 shares of stock of Rhneander
Rea state Co. as of September 4, 1929. cquescence as to ths ssue pubshed n uetn I -7, page
1, wthdrawn.
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39
Nonacquksoences Contnued.
Ta payer.
Stfe, enry G.
Stne, Doe M
Stne, M. osephne
Stockhorns n sk Ida ank
Stone, . C, estate of
Stone, Mrs. . C, e ecutr
Stone et a., Trvng ., e ecutors and trustees .
Stone, Irvng Lee, estate of
Stranb, Teca M. -
Straus, aron
Straver, Water
Streefkerk, Mrs. S_.
Strong, arod C.
Sturgoon- ubbard Trust
Sturgeon et a., Ro S., trustees
Suncrest Lumber Co
Swartz, Inc., I M ward G
Swft, Marv Dodson, estate of
Swsky, Tobv W
Docket
No.
Tabot, rederck C, estate of
Tabot, . .
Tabot et a., Susan D., e ecutors
Tabot, Wam ., estate of
Tayor, . Sedon, estate of4
Tayor, r., et a., . Sedon, e ecutors
Tayor, esse Carter
Tayor, udson L
Ten yck, Peter G
Tennessee Consodated Coa Co
Terre aute, Indanapos astern Tracton Co..
Terre aute Tracton Lght Co
Terry, nna Davs
Te as Irrgaton Co.
Te as Ppe Lne Co
Thatcher Son, ohn
The ub, Inc
Theman, Mrs. Leo .
353 Le ngton venue Corporaton
Tde Water O Co
Totson Manufacturng Co
Ttus, C. Dckson
Todd, Ws
Toerton Warfed Co.
Torrens, ames .7
Towers Suvan Manufacturng Co
state ta decson nonacquosoence reates to ssue nvnvnt property transferred by trust aereemcnt.
I N on acquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of no-
eaton of cost between sad common stock and preferred stock of sad company acqured at the same I mo
ard under the wme agreement. , , .
N onacquescenee reates to deprecaton aowance n computng oss In sae of a boat.
state ta decson.
1 N onacquescence reates to affaton ssue.
N onacuescence reates to Issue regardng deducton of oss sustaned by two affated companes
durng Psca year ended anuary 31, 1924, and the ta abe perod ebruary 1 to pr 25,1924, n computng
the consodated net Income for ta abe perod pr 2 to December 31, 1 24, and the year 1925.
Nonacqucseence reates to the trust and dvdend Issues.
0740
2 94
2 95
55755
3833
3833
43830
43830
55935
5091
485 4
453 3
3857
37095
37095
33244
3 50
44909
42032
20411
3 191
20409
20409
4144
4444
51891
51892
8197
33383
33858
338 0
4544
40083
4134
59457
5 888
5545
4 298
5041
5089
3993
441 7
20705
3753
45320
53778
40508
oard of Ta ppeas.
oume.
29
32
32
25
2
2
2
2
29
27
27
28
25
25
25
25
25
2
25
27
23
27
27
27
27
27
27
29
24
24
24
2
24
32
30
2
30
27
29
27
24
24
23
31
25
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40
Nonacqt|escences Contnued.
Ta payer-
Docket
No.
oard of Ta ppeas.
oume.
Transatantc Shppng Co., Inc.
Travecrs ank Trust Co
Traveers re Insurance Co
Traveers Indemnty Co.
Tro|an O Co.
Turney, W. W
Turnev, Mrs. W. W
Tutte Car
Twn e O Syndcate
Tyer et a., Sdney ., trustees.
U.
Uhen, oseph
Umann, manue Soomon
Umann, r., oseph
Umann, Samue, estate of
Umann et a., Theresa, e ecutors
Unon Guardan Trust Co., e ecutor1
Unon Pacfc R. R. Co. et a. _
Unon Trust Co., trustee.
Unted O Co
.
an Camp Packng Co., Inc
an orst Co., C.
aughan, Wam W
oebe, acob, estate of
oebe, Water W., e ecutor
ounteer State Lfe Insurance Co.
on Gunten, Chrstan W
onnegut ardware Co
Waggoner, a
Waggoner, W. T
Waker, Tabot C
Wa, rank .
Waters, ohn W
Ward et a., Dasy M.
Wardman, arry
W.
2
1 71

f
1932
2834
349
2833
71348
5791G
2832
71347
33757
5258
5257
70558
45052
5 449
51234
5 470
5 471
5 472
5 472
44735
C35 39-
35 49
35 84
35 85
400 0
400 1
400 2
42917
38082
42922
51 22
4 131
7030
7843
009
009
5417
1278
44940
33517
3351
20407
7359
f 70010
71597
2 44-1
2 49
22348
31
31
31
31
2
31
31
31
2
28
30
30
30
30
30
2
2
24
25
2
30
31
7
7
27
28
28
24
24
27
4
29
29
24
1 state ta decson.
Nor|rcru.scen.ee reates to ssue regardng renta nterest and ssue concernng net oss of Los ngees
Sc Sat .ako . R. Co. (or perod anuary 1 to pr SO, 1921.
state ta decson acquescence pubshed n Cumuatve uetn -2, page 73, recaed.
cquescence pubshed n Cumuatve uetn -, pafe 8, wthdrawn.
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41
Non acquesce nces Contnued.
Ta payer.
Coeres Co. of Deaware .
Watab Paper Co.
Watson-Moore Co .
Wes argo ank Unon Trust Co., admnstrator.
Wes, ames
West rgna-Pttsburgh Coa Co
Wheeng Mod oundry Co. (De.).
Whppe, rank
Whte, uet C
Whte Oak Transportaton Co.
Whte, Rta M. oher
Whte, Sdney ---
Wco 4 Sons, .
We, dwn
Wams et a., rank G., e ecutors..
Wson, ohn P
Wson, Luke ., estate of.
Wson Shpbudng Co.8..
Wnston ros. Co
Wobber ros
Wobbers, Inc
Wopert, Urban . --
Wood, en yer
Wood urnture Co., . .
Wood, eremah
Woodard, ohn S.4
Woodward, George 4
Yomgstown Sheet ft Tube Co.
Z.
Zcger, bert W
Zegor, Cfford
Zmmerman and wfe, Cavn.
Zobeen, George..
Zobeen, Mrs. dward
Docket
No.
34 79
24773
2S082
38 85
41733
4 07
51387
2179
20411
2948
20337
25030
23110
57532
58775
18088
3 112
5S77
40 19
54451
335 4
52931
5722
324 11
34337
59270
3 875
3 874
485 3
5211
405 5
/ 74090
74 88
719 2
42279
28149
35511
4 291
4 292
71145
45352
45353
oard of Ta ppeas.
oume.
2
27
30
27
29
24
27
29
2
24
25
2
28
31
25
29
25
25
29
2
2
27
29
21
31
30
23
24
23
23
31
28
28
1 Nonacquescence reates to statute of mtatons ssue.
1 Nonacquescence reates to the trust and dvdend ssues.
1 Nonacquescence reates to ssue 5 of decson.
onacqnescence reates to queston whether dstrbuton of stock had the effect of dstrbuton of ft
ta abe dvdend.
cquescence pubshed n Cumuatve uetn -2. p.ge 78, wthdrawn.
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INCOM T RULINGS. P RT L
R NU CT O 1934.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
I -1-722
I. T. 2842
The amount (2 per cent) deducted from the compensaton of em-
poyees of carrers tnder the provsons of the Raroad Retre-
ment ct (Pubc, No. 485. Seventy-thrd Congress, 48 Stat., 1283)
for the purpose of estabshng a retrement fund shoud be re-
ported as ta abe ncome, for edera ncome ta purposes, n the
return of the empoyee for the year n whch the deducton s
made.
The annuty receved by a retred raroad empoyee s not
sub|ect to edera ncome ta .
The ta payer, who s an empoyee of the M Raroad Co., re-
quests a rung whether the amount (2 per cent) deducted from the
compensaton of empoyees of carrers under the terms of the Ra-
road Retrement ct shoud be ncuded as ncome n hs edera
ncome ta return.
The retrement system for raroad empoyees was estabshed
under an ct of Congress approved une 27, 1934 (48 Stat, 1283),
and became effectve ugust 1 , 1934. nnutes are provded for
empoyees who have attaned the age of 5 years or have competed
a servce perod of 30 years. Wth respect to contrbutons to
the retrement fund, secton 5 of the Raroad Retrement ct pro-
vdes n part as foows:
Sbc. 5. ach empoyee sha pay an empoyee contrbuton n a percentage
upon hs compensaton. ach carrer sha pay a carrer contrbuton equa
to twce the contrbutons of each empoyee of such carrer. T nt
the board sha determne on a dfferent percentage the empoyee contrbuton
Iercentage sha be 2 per centum. mpoyee contrbutons sha be deducted
by the carrer from the compensaton of ts empoyees and sha be pad by
the carrer, together wth the carrer contrbutons, nto the Treasury of the
Cuted States quartery or at such other tmes as ordered by the board.
Upon retrement the empoyee s pad an annuty based upon hs
servce perod. In the event of hs death pror to or after retre-
ment, an amount computed n accordance wth the provsons of the
ct, ess any annuty payments receved by hm, s to be pad as he
may have desgnated or to hs ega representatve.
(43)
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22(a), rt. 22(a)-3.
44
Secton 11 of the Raroad Retrement ct provdes as foows:
Sec. 11. No annuty or death payment sha be assgnabe or be sub|ect to
any ta or to garnshment, attachment, or other ega process under any
crcumstances whatsoever.
The transacton whereby the percentage of the empoyee s compen-
saton s deducted by the carrer and pad nto the raroad retre-
ment fund s regarded, for edera ncome ta purposes, as though
the empoyee had actuay receved the compensaton n fu and
thereafter e pended 2 per cent of t as hs contrbuton toward the
purchase of an annuty payabe to hm upon hs retrement. Con-
sequenty, the amount of the empoyee s contrbuton pad nto the
radroad retrement fund shoud be reported as ta abe ncome n the
return of the empoyee for the year n whch the deducton s made.
(Cf. T. D. 3112, C. . 4, 7 .) In other words, the amount of the em-
poyee s compensaton to be reported n hs return shoud not be
reduced by the amount of hs contrbuton.
In vew of the specfc provsons of secton 11 of the Raroad
Retrement ct, the annuty receved by a retred raroad empoyee
s not sub|ect to edera ncome ta .
rtce 22(a)-3: Compensaton pad other than I -17-7450
n cash. G. C. M. 14710
R NU CTS O 1928, 1932, ND 1934.
owances for vng quarters, heat, and ght receved by offcers
n the oregn Commerce Servce of the ureau of oregn and
Domestc Commerce do not consttute addtona compensaton for
edera ncome ta purposes.
G. C. M. 13442 (C. . III-2, 119) s revoked.
Reference s made to G. C. M. 13442, n whch t was hed that
aowances for vng quarters, heat, and ght receved by offcers
n the oregn Commerce Servce of the ureau of oregn and
Domestc Commerce statoned n a foregn country consttute add-
tona compensaton sub|ect to edera ncome ta .
It s now stated that offcers n the foregn servce of the ureau
of oregn and Domestc Commerce are requred by the nature of
ther offca dutes to be avaabe for servce at ther respectve
posts 24 hours a day, ncudng Sundays and ega hodays. It s
aso stated that ncdents of vta commerca mportance requre
the attenton of members of the oregn Commerce Servce greaty
n e cess of the ordnary e gences of offce duty and that com-
merca attaches are requred to gve counse and advce to the
mercan ambassador or mnster wth respect to commerca prob-
ems whch may arse at any tme.
In G. C. M. 12300 (C. . II-2, 30) t was hed that aowances
to foregn servce offcers of the State Department for vng quar-
ters, ncudng heat, fue, and ght, are not compensatory n charac-
ter and such aowances do not consttute ncome sub|ect to edera
ncome ta . s ndcated n that memorandum, the prme pur-
pose of Congress n grantng the aowances was not to gve add-
tona compensaton to foregn servce offcers of the State Depart-
ment, but to nsure more compete servce to the Unted States and
ts ctzens tradng or traveng abroad.
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45
22(a), rt. 22(a)-3.
It appears from the nformaton submtted that the stuaton n
regard to the foregn servce offcers of the ureau of oregn and
Domestc Commerce s substantay the same as that of such offcers
and empoyees of the State Department. Ths offce, therefore, after
reconsderaton of the queston has reached the concuson that aow-
ances for vng quarters, heat, and ght granted to offcers of the
foregn servce of the ureau of oregn and Domestc Commerce
must be treated n the same manner for edera ncome ta purposes
as aowances granted to the State Department offcers and empoyees.
Consequenty, such aowances granted to foregn servce offcers of
the ureau of oregn and Domestc Commerce do not consttute
addtona compensaton for edera ncome ta purposes.
G. C. M. 13442 (C. . III-2, 119) s, therefore, revoked.
obebt . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 22(a)-3: Compensaton pad other I -20-7492
than n cash. G. C. M. 1483
R NU CTS O 1932 ND 1934.
owances for vng quarters granted under the ct of une
2 , 1930, to Treasury attaches and ther subordnates n the cus-
toms agency servce statoned n foregn countres shoud be e -
cuded from gross ncome for edera ncome ta purposes. G. 0.
M. 11453 (C. . II-1, 2 ) s revoked, together wth the statement
n G. C. SI. 12300 (C. . II-2, 30) that the concuson theren
reached s not n confct wth G. O. M. 11453.
Reconsderaton s requested of G. C. M. 11453, hodng that aow-
ances for vng quarters granted under the ct of une 2 , 1930
(4 Stat., 818), to an empoyee of the Unted States statoned abroad
consttute ncome to the recpent for edera ncome ta purposes.
The rung n queston (G. C. M. 11453), whch nvoved compen-
saton of an empoyee of the customs agency servce, was based on the
vew that such aowances consttute addtona compensaton for
servces rendered and are prmary for the beneft of the recpent
rather than for the beneft of the Unted States. In G. C. M. 12300,
supra, t was hed that aowances for vng quarters granted to
offcers and empoyees n the foregn servce of the State Department
under the ct of une 2 , 1930, are for the beneft of the Unted
States and not for the beneft of the recpent. It was concuded,
therefore, n that case that such aowances are not compensatory n
character and are not sub|ect to edera ncome ta . Comparng the
dutes performed by offcers and empoyees n the foregn servce of
the State Department wth those performed by Treasury attaches
and ther subordnates n the customs agency servce, t s contended
that there e sts no matera dfference n the character of the serv-
ces performed by the respectve groups, and that there s no bass
for dstncton for ncome ta purposes between the aowances
whch they receve for vng quarters. The facts upon whch ths
contenton s based are set forth as foows:
Treasury attaches and ther subordnates consttute a part of the customs
ageney servce. Ths servce Is a mobe force and the offcers thereof are
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22(a), rt. 22(a)-3.
4
sub|ect to transfer whenever the Interests of the servce requre. ( rtce 1378,
Customs Reguatons of 1931.) Therefore, the crcumstances under whch they
are empoyed rend r dffcut the estabshment of homes, and ths Is partcuary
true wth respect to those offcers n the foregn servce.
The dutes of Treasury attaches consst prncpay of nvestgatons on mat-
ters enterng nto the admnstraton of the customs and other aws affectng
the mportaton of merchandse nto the Unted States. These nvestgatons
cover a wde range of sub|ects and necesstate contact wth e porters, manu-
facturers, and other busness men, as we as foregn government offcas. In
order that such nvestgatons may be made successfuy, the quarters n whch
the Treasury attache1 resdes must be sutabe and approprate. ery fre-
quenty much nformaton s obtaned, drecty or Indrecty, n the resdence
of the Treasury attached and, conversey, at the homes of persons from whom
nformaton s sought.
ery tte dfference, f any, can be drawn between the character of the dutes
of mtary and nava attaches and Treasury attaches. The former are con-
cerned wth furnshng ther respectve departments wth mtary and nava
nformaton through nvestgatons, or otherwse the atter perform the same
functons, and athough t s true that the sub|ect matter n whch they are
concerned Is dfferent, t s |ust as Important and does not affect the common
prncpe appcabe to the three casses of servces.
Wth respect to the necessty of Treasury attaches beng avaabe for duty
at a hours, t s beeved that tte need be sad. It Is obvous from the char-
acter of ther work that they frequenty are requred to conduct ther nvest-
gatons and perform ther other dutes wthout regard to reguar offce hours
. In addton, they must be avaabe at a tmes to receve nformaton
from nformers, to gve advce on tarff matters to e porters, to confer wth
consuar offcers and commerca attaches, etc. Indeed, the avaabty of
Treasury attaches at a tmes Is no ess e actng than those governng offcers
of the Mtary and Nava stabshments on duty abroad, as we as those
governng representatves of the State Department n the foregn servce.
Wth respect to the aowances granted under the substantay
smar provsons of the ct of pr 12, 1930 (4 Stat., 1 3, ch.
142), to foregn servce offcers and empoyees of the ureau of
oregn and Domestc Commerce, t was hed n G. C. M. 14710
(page 44, ths uetn) that n vew of the facts presented, there
s no sound bass for the dstncton drawn n G. C. M. 13442
(C. . III-2, 119) between foregn servce offcers and empoyees
of the ureau of oregn and Domestc Commerce and foregn
servce offcers and empoyees of the State Department. Upon recon-
sderaton the concuson was reached that aowances for vng
quarters granted to foregn servce offcers and empoyees of the
ureau of oregn and Domestc Commerce must be treated n the
same manner for ncome ta purposes as aowances pad to foregn
servce offcers and empoyees of the State Department and that
such aowances shoud be e cuded from gross ncome for edera
ncome ta purposes.
It s apparent from the facts now presented that there s no
substanta bass for the dstncton made between Treasury attaches
and ther subordnates n the customs agency servce and foregn
servce offcers and empoyees of the State Department. ccord-
ngy, t s the opnon of ths offce that aowances for vng
quarters granted to Treasury attaches and ther subordnates n the
customs agency servce under the ct of une 2 , 1930, shoud be
e cuded from gross ncome for edera ncome ta purposes.
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47
22(a), rt. 22(a)-18.
0. C. M. 11453, spra, requrng that such aowances be ncuded
n gross ncome as addtona compensaton s, therefore, revoked,
together wth the statement n G. C. M. 12300, supra, that the con-
cuson theren reached s not n confct wth G. C. M. 11453.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 22(a)-18: Sae and purchase by cor- I --73 8
poraton of ts bonds. G. C. M. 14349
R NU CT O 1834 ND TRIOR R NU CTS.
Where a ta payer s on the accrua bass, e penses ncdenta
to the ssuance of bonds shoud be amortzed over the fe of the
bonds and aowed as annua deductons rrespectve of whether
the bonds were ssued pror or subsequent to March 1, 1913.
n opnon s requested whether e penses ncurred n connecton
wth the ssuance 01 bonds pror to March 1, 1913, shoud be amor-
tzed over the fe of the bonds.
The queston arses because of the decson of the Unted States
Supreme Court n everng v. Unon Pacfc Raroad Co. (293
U. S., 282, Ct. D. 901, C. . III-2, 305, affrmng 9 ed. (2d), 7,
whch reversed 2 . T. ., 112 ), hodng that dscount and com-
mssons pad or aowed n connecton wth bonds ssued pror to
March 1, 1913, shoud be amortzed over the fe of the bonds by
a ta payer on the accrua bass. The Supreme Court stated n part
as foows:
1. There Is no provson In ether the 1918 or 1921 Itevenue cts specfcay
authorzng the deducton from gross ncome of commssons or dscount pad
or aowed by the ta payer upon an ssue of bonds. Secton 234 of the 1918
and 1921 cts, ke the correspondng provsons of the cts before and snce,
aow deducton of e penses pad or ncurred, nterest pad or accrued, and
osses sustaned durng the ta abe year. Sectons 212(b) and 213(a) of the
1918 and 1921 cts, ke secton 13(d) of the 191C ct (ch. 403, 39 Stat, 75 ,
771), authorze the ta payer to make hs ncome ta returns on the accrua
bass where hs books are kept on that bass and refect true ncome they
requre t f he fas or s unabe to make hs return on a cash recepts and
dsbursements bass. The ta payer s thus enabed to charge aganst ncome
of the ta abe perod e penses ncurred n and propery attrbutabe to the
process of earnng ncome durng that perod, athough payabe n a ater
one. (See Unted States v. nderson, 2 9 U. S., 422, 440 T. D. 3839, C. .
-, 179 , umnum Castngs Co. v. Rouzahn, 282 U. S., 92 Ct.
D. 270, C. . -, 3521, Wes ement Pond Co. v. Unted States, 281 U. S.,
357 Ct. D. 185, C. . I -1, 295 .) It foows that when the return
s /Dade on the accrua bass, e penses or obgatons ncurred by the ta -
payer n connecton wth a bond ssue, whch are not dscharged unt the
payment of the bonds at maturty, mny propery be accrued or amortzed
over the perod of the fe of the bonds and aowed as annua deductons
from gross ncome.

ut even f the commssons, unke dscount, may, as the Govern-
ment nssts, be regarded as a contemporary e pense of procurng capta, t
s nne propery chargeabe to capta account.
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22(a), rt. 22(a)-18.
48
ere the commssons, when pad, were propery chargeabe aganst capta,
and reduced by ther amount the capta reazed by the ta payer from the
bond ssue. They come out of the pocket of the ta payer ony on payment of
the bonds ut maturty. Cut, unke the purchase and sae of property, the
transacton contempated from the begnnng a f ed date, the due date of
the bonds, at whch the dfference between the net amount of capta reazed
upon the ssue and the par vaue of the bonds must be pad to bondhoders
by the ta payer. We thnk that the Revenue cts, as they have been nter-
preted by ths court and the Treasury reguatons upon ths and reated sub-
|ects, requre (hat ths dfference between recepts and dsbursements of the
ta payer shoud, n some form, enter nto the computaton of hs ta abe
ncome. It s a oss to the ta payer, defnte as to ts date and amount, and
represents a part of the cost of the borrowed capta durng each year of
the fe of the bond ssue. (Cf. Unted States v. nderson, supra.) t east
where the ta payer s books are kept upon the accrua bass, ts fna dsburse-
ment may be antcpated by amortzaton and the amortzed amount deducted
annuay from hs gross ncome.
In the Unon Pacfc case the Government contended that the
amortzaton of such commssons was nconsstent wth the decson
n Od Coom| Raroad Co. v. Commssoner (284 U. S., 552, Ct. D.
45C, C. . I-1, 274), whch hed that premums receved upon the
sae of bonds before March 1, 1913, coud not be sub|ected to ncome
ta n ater years. The Supreme Court answered that contenton n
the foowng anguage:
2. Our decson n Od Coony Raroad Co. v. Commssoner, supra, does not
requre a dfferent concuson because the commssons n the present case were
aowed before 1 )13. It was recognzed n that case that premums on a bond
ssue receved after the s teenth amendment mght be prorated over the
perod of the fe of the bonds and ta ed annuay as ncome durng ths
perod. In refusng to aow premums receved before 1913 to be thus pro-
rated and ta ed, the court was moved by the consderaton that the premums,
whch were receved as ncome and had become a part of the ta payer s capta
before the s teenth amendment, coud not be ta ed as ncome by vrtue of that
amendment and egsaton under It.
No such consderaton s presented here, where the queston s ony of the
deducton of an e pense ncurred before the amendment. ence, the decson
n the Od Coony case can mtate aganst our concuson here ony f returns,
prepared n conformty to t, woud fa to refect true ncome f the rue
announced n the Od Coony case were aso comped wth. Pany such s
not the case. There can be no queston of recept of a premum where the bonds
are sod at a dscount. When sod at a premum, as n any other case, com-
mssons must be deducted from gross proceeds n arrvng at the capta
reazed u m the bond ssue. There s no occason for deducton of commssons
from gross ncome at a ater tme uness the tota amount reazed by the
ae of the bonds s ess than ther par vaue. In that case the dfference aone
s the amount to be amortzed and deducted from gross ncome n the annua
returns of the ta payer. Ths woud refect hs true ncome, where, as n
the present case, hs accounts are kept on the accrua bass.
Whe the Unon Pacfc case nvoved commssons pad or a-
owed to bankers n connecton wth bonds sod to thrd partes,
ths offce s unabe to draw any vad dstncton between e penses
of that nature and other e penses ncdenta to the ssuance of bonds,
such as prntng costs, ega e penses, etc. Such e pendtures aso
represent a part of the cost of borrowed capta and requre ke
treatment under the Revenue cts. It seems cear from the opnon
of the Supreme Court that the date March 1, 1913, has no sgnf-
cance wth respect to the proper treatment to be accorded dscount,
commssons, and other e penses pad or ncurred n connecton wth
the ssuance of bonds by a ta payer on the accrua bass.
In vew of the foregong, t s the opnon of ths offce that n
the case of a ta payer on the accrua bass e penses ncdenta to
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49
22(b), rt. 22(b)(2)-2.
the ssuance of bonds shoud be amortzed over the fe of the bonds
and aowed as annua deductons rrespectve of whether the bonds
were ssued pror or subsequent to March 1, 1913.
ccordngy, any rungs of ths offce whch are nconsstent wth
ths memorandum are revoked or modfed to conform herewth.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b) (2)-2: nnutes. I -12-7381
I. T. 2874
R NU ) CTS O 192 , 1928, 1932, ND 1934.
Ta abty for edera ncome ta purposes of amounts contrb-
uted by the M Unversty toward the purchase of retrement annu-
tes for ts teachers.
dvce s requested wth respect to the proper treatment for ed-
era ncome ta purposes of amounts pad by the M Unversty toward
the purchase of retrement annutes for ts teachers and amounts
receved by the teachers as annutes.
The M Unversty offered to ts teachers who were egbe an
opportunty to obtan retrement annuty contracts wth the N
nnuty ssocaton under whch the teacher and the unversty
each contrbute a sum equa to 5 per cent of the teacher s saary.
Upon retrement of the teacher, the unversty w make up from ts
own funds the dfference between the amount of the annuty pur-
chased by the prevous payments and an amount necessary to brng
the teacher s tota annuty up to what he woud have receved under
the orgna Carnege scae.
It s hed that contrbutons made by the M Unversty to the fund
to provde retrement annutes for ts teachers do not consttute
ncome constructvey receved by the teachers n the years n whch
such contrbutons are made. Such payments are not, therefore,
requred to be ncuded n the gross ncome of the teacher n the year
n whch they are made by the M Unversty. The amount contrb-
uted by the. teacher toward the purchase of a retrement annuty
consttutes the aggregate premums or consderaton pad for such
r.nnuty wthn the meanng of secton 22(b)2 of the Revenue ct
of 1934 and the correspondng provsons of the Revenue cts of
192 ,1928, and 1932. The amount contrbuted by the M Unversty
shoud not be treated as a part of such aggregate premums or con-
sderaton pad.
mounts receved by the teacher n the form of annutes are to
be returned for edera ncome ta purposes n the manner and to
the e tent provded n secton 22(b)2 of the Revenue ct of 1934
and the correspondng provsons of the Revenue cts of 192 , 1928,
and 1932.
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22(b), rt. 22(b)(2)-2.
50
rtce 22(b) (2)-2: nnutes. I -1 -7437
G. C. M. 14593
R NU CT O 1934.
Ta abty of annutes and od-age pensons under the pro-
vsons of secton 22(b)2 of the Revenue ct of 1934.
dvce s requested wth respect to the ta abty of annutes and
od-age pensons under the provsons of secton 22(b)2 of the
Revenue ct of 1934.
Under secton 22(b) 2 of the Revenue ct of 1934, t s provded n
part that amounts receved as an annuty under an annuty or
endowment contract are to be ncuded n gross ncome, e cept that
there sha be e cuded from gross ncome the e cess receved n the
ta abe year over an amount equa to 3 per centum of the aggregate
premums or consderaton pad for such annuty. The same secton
further provdes that when the amounts receved and e cuded from
gross ncome equa the aggregate premums or consderaton pad for
such annuty, the entre amount thereafter receved must be ncuded
n gross ncome.
It s apparent, therefore, that the Revenue ct of 1934 permts the
annutant to recover ta -free the aggregate premums or consdera-
ton pad for the annuty but requres hm to ncude n hs annua
return of ncome a porton of the annua payments n an amount
equa to 3 per centum of such orgna cost of the annuty. The ag-
gregate premums or consderaton pad, n the case of an annuty
purchased pror to 1934, upon whch such 3 per cent return s to be
made s the orgna consderaton or premums pad, not the net
worth of the annuty to the annutant as of the year 1934. In the
case of an annuty whch s payabe n two or more nstaments
over each 12-month perod, such porton of each nstament sha
be ncuded n gross ncome as s equa to 3 per cent of the aggre-
gate premums or consderaton pad for such annuty (whether or
not pad durng the ta abe year), dvded by the number of nsta-
ments so payabe.
Od-age pensons, granted wthout consderaton movng to the
grantor other than past servces, are not to be regarded as annutes
wthn the meanng of the annuty provsons of the Revenue ct
of 1934. Such pensons shoud be treated as compensaton for past
servces and the entre amount thereof ncuded n gross ncome.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 22(b) (2)-2: nnutes. I -19-7478
I. T. 2891
R NU CT O 1934.
Ta abty for edera ncome ta purposes of amounts pad by
an empoyer toward the purchase of retrement annuty contracts
for the beneft of hs empoyees.
dvce s requested reatve to the treatment under the Revenue
ct of 1934 of amounts pad by an empoyer toward the purchase of
retrement annuty contracts for the beneft of hs empoyees.
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51 22(b), rt. 22(b)(4)-4.
It s hed that contrbutons made by an empoyer for the purpose
stated do not consttute ncome constructvey receved by the
empoyees. Such amounts are not, therefore, requred to be ncuded
n the edera ncome ta returns of the empoyees for the year or
years n whch pad. The aggregate of the amounts contrbuted by
the empoyee benefcary toward the purchase of a retrement annu-
ty, but not the amount contrbuted by the empoyer, consttutes the
aggregate premums or consderaton pad for such annuty wthn
the meanng of secton 22(b) of the Revenue ct of 1934. mounts
receved by empoyees n the form of annutes arc to be returned for
edera ncome ta purposes n the manner and to the e tent
provded n that secton.
rtce 22(b)(4)- : Interest upon Unted States I -12-7382
obgatons. I. T. 2873
R NU CT O 1034.
Interest on obgatons of the ome Owners Loan Corporaton
s e empt from ta aton ony to the e tent provded n the ome
Owners Loan ct of 1933, as amended. Such nterest s not e empt
from, surta .
dvce s requested reatve to the ta abty under the Revenue
ct of 1934 of nterest on bonds of the ome Owners Loan Cor-
poraton.
Secton 4 of the ome Owners Loan ct of 1933. as amended (48
Stat., 128),-whch provdes for the creaton of the ome Owners
Loan Corporaton and (under subdvson (c)) authorzes t to ssue
bonds, reads n part as foows:
The bonds ssued by the Corporaton under ths (subsecton sha
be e empt, both as to prncpa and nterest, from a ta aton (e cept sur-
ta es, estate, nhertance, and fft ta es) now or hereafter mposed by the
Unted States or any Dstrct, Terrtory, dependency or possesson thereof,
or by any State, county, muncpaty, or oca ta ng authorty.
Secton 22(b)4 of the Revenue ct of 1934 provdes for the
e empton from ta aton of
Interest upon ( ) obgatons of a corporaton organzed
under ct of Congress, f such corporaton s an nstrumentaty of the Unted
States and n the case of obgatons of a corporaton organzed
under ct of Congress, the nterest sha be e empt ony f and to the e tent
provded n the respectve cts authorzng the ssue thereof as amended and
suppemented, and sha be e cuded from gross ncome ony f and to the
e tent t s whoy e empt from the ta es mposed by ths tte.
The queston has arsen whether nterest upon bonds of the ome
Owners Loan Corporaton s e empt from both norma ta and
Urta on the ground that cause ( ) of secton 22(b)4 of the Reve-
nue ct of 1934 reates to a cass of obgatons to whch the ast
sentence of secton 22(b)4 does not appy, snce such sentence spec-
fes obgatons of a corporaton organzed under ct of Congress
wthout specfyng the further mtaton ncuded n cause ( ),
that s, f such corporaton s an nstrumentaty of the Unted
States.
It s cear from the report of the Commttee on Ways and Means
and the report of the Commttee on nance reatve to secton
22(b) 4 of the ct that there was no ntent to make tho dstncton

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23(a), rt. 23(a)- .
52
suggested, but that t was ntended that the mtaton n the ast
sentence of secton 22(b)4 shoud refer to the obgatons specfed
n cause ( ) of such subsecton. It foows, therefore, that nterest
on the obgatons of the ome Owners Loan Corporaton s e empt
from ta aton ony to the e tent provded n the ome Owners
Loan ct of 1933, as amended, and that such nterest s not e empt
from surta .
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
htce 23 (a)-: usness e penses. I -9-7338
G. C. M. 14375
R NU CT O 1934 ND PRIOR R NU CTS.
Whether a ta payer (credtor) to whom hs debtor has assgned
an nsurance pocy on the debtor s fe as securty for a debt s
entted to deduct n the year of payment amounts pad by the ta -
payer as current premums on the pocy depends upon two fac-
tors (1) whether the ta payer has a rght of rembursement
therefor, and (2), f so, whether such rght Is worthess.
Recommended that I. T. 1511 (C. . 1-2, 88) be modfed.
The queston s presented whether a ta payer to whom hs debtor
has assgned an nsurance pocy on the debtor s fe as securty for a
debt s entted to deduct n the year of payment amounts pad by the
ta payer as current premums on the pocy.
In . R. R. 7895 (C. . III-2, 114) t was hed that the premums
pad by the assgnee-credtor (the debtor beng unabe to pay) to
keep ave nsurance poces on the fe of the debtor are not deduct-
be as busness e penses but shoud be treated as addtona advances
whch further ncrease the debt. In that memorandum t was stated
n part as foows:
(2) Wth respect to the deductbty of premums pad by the estate upon
fe nsurance poces assgned to sad estate ns securtes for a debt due t, the
commttee s of the opnon that the acton of the Income Ta Unt s correct.
In vew of the fnanca stuaton of the debtor the e ecutors have pad the
premums on certan poces whch they hed as securty and n addton have
mot nterest obgatons on certan oans aganst the poces. The nterest on
the onns has been aowed as a deducton by the Unt the premums pad by
the estate on the nsurance poces have been dsaowed. The premums on
the poces pad by the estate are not deductbe as busness e penses. Pay-
ment of the premums to keep the poces ave shoud be consdered as
addtona advances to , whch further ncrease hs debt to the estate.
In Domnon Natona ank v. Commssoner (2 . T. ., 421,
acquescence, C. . I-2, 3), the facts stated by the oard were as
foows:
In 1022 pettoner hed unsecured notes of three Smth brothers, ert .,
Cyde ., and Water . Smth, coverng the ndebtedness of the brothers to
pettoner. In that year the Smth brothers assgned to pettoner nsurance
poces on ther ves n the aggregate face amount of 17,000. y 1923 the
Smth brothers were bady nvoved fnancay and pettoner wrote off a part
of ther Indebtedness to t. In 1928 the baance of ther Indebtedness to pet-
toner was 7,00(. In that year the cash surrender vaue of the nsurance po-
ces hod by pettoner was 3,948.45. nnua premums on the poces amounted
to 59 .5 and these have been pad by pettoner each year snce the poces
were assgned to t. The ndebtedness of the Smth brothers to pettoner was
ascertaned to be worthess n 1928 to the e tent that t e ceeded the cash
surrender vaue of the nsurance poces.
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53
23(a), rt. 23(a)-.
In Its return for 1028 pettoner camed as a bad debt deducton the baance
of the Smth brothers Indebtedness of 7,090 and a deducton of 7 4.09 as fe
Insurance premums. The respondent restored both of these tems to ncome.
The oard hed that the unpad baance of 7,09 was deductbe
to the e tent that t e ceeded the then cash surrender vaue of the
poces, and that the premums pad n 1928 ( 59 .5 ) were deduct-
be as ordnary and necessary e penses.
In the opnon of ths offce premums pad under such crcum-
stances are not deductbe as a matter of course, but ther deduct-
bty depends upon two factors (1) whether the ta payer has a
rght of rembursement therefor, and (2), f so, whether n the
ta abe year of payment of such premums ths rght s worthess.
Such rght may rest upon the e press contract of the assgnor-debtor
or t may arse by mpcaton. The e press contract may be an
agreement to remburse the credtor at a events regardess of the
amount coected from the pocy, or t may be merey an e press
agreement that the assgnee may remburse hmsef out of the
proceeds of the pocy.
Where a debtor assgns a fe nsurance pocy as securty for hs
debt and n the agreement of assgnment nothng s sad as to re-
mbursng the credtor for premums pad by hm, he has an mped
rght to pay them and to rembursement out of the proceeds of the
pocy. (Cammack v. Le cs, 15 Waace, 43 Page v. urnstne,
102 U. S-, 4 Morrs v. Georga Loan, Savngs ank Go. et a., 109
Ga., 12, 34 S. ., 378, 4 L. R. ., 50 rst Natona ank of Roa-
noke v. Sveece, 99 a., 194, 37 S. ., 843 37 C. ., 571-572, and
cases cted n note 12 on page 572.)
s prevousy stated, the premums currenty pad are deductbe
n the year of payment ony f the rght of rembursement s worth-
ess. Therefore, f there s by contract a persona obgaton to re-
mburse, the facts must show that coecton from the debtor s m-
possbe f the rght s merey to remburse from the proceeds, the
facts must show the proceeds nsuffcent n amount and f both
rghts e st, both must be shown to be worthess.
Whe the reason assgned by the oard n Domnon Natona
ank v. Commssoner, supra, for aowng tho premums to be de-
ducted s at varance wth ths opnon, the resut reached s en-
trey consstent, because, even f there e sted both a persona ob-
gaton on the part of the debtors to remburse the ta payer (cred-
tor) and a rght to retan the amount of the premums from the pro-
ceeds of the poces (the then cash surrender vaue), ths rght was
worthess. Nothng coud have been coected from the debtors and
the unpad debt tsef e ceeded the cash surrender vaue of the
poces.
The facts stated n . R. R. 7895 are not suffcent to determne
whether the premums there nvoved woud be deductbe under
the tests ad cown n ths memorandum. On the other hand, there
s nothng n that rung whch s necessary nconsstent wth ths
opnon. It s deemed unnecessary, therefore, to revoke . R. R.
7895.
In I. T. 1511 (C. . 1-2, 88) t was stated that Premums pad
W a ta payer on an nsurance pocy, where
the pocy has been assgned to the ta payer as securty or addtona
securty for a oan granted by the ta payer to the assgnor of the
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23(a), rt. 23(a)- .
54
pocy and the ta payer fnds t necessary to pay the premums n
order to protect the oan, are deductbe as an ordnary and necessary
busness e pense. Snce the concuson reached n I. T. 1511 that
such premums are deductbe as ordnary and necessary busness
e penses (wthout regard to the tests mentoned above) s ncon-
sstent wth the prncpes ad down n ths memorandum, t s
recommended that I. T. 1511 be modfed to accord wth the concu-
sons reached heren.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 23(a)-: usness e penses. I -9-7339
I. T. 28
R NU CT OP 1934.
Deductbty for edera ncome ta purposes of reserves and
contrbutons of empoyers under the Wsconsn unempoyment
reserves and compensaton act.
dvce s requested wth respect to the deductbty, for edera
ncome ta purposes, of reserves and contrbutons made by em-
poyers under the Wsconsn unempoyment reserves and compen-
saton act, whch became effectve uy 1, 1934.
or edera ncome ta purposes, deductons w be aowed as
ordnary and necessary e penses, on account of the abtes of em-
poyers for contrbutons under the act, as foows:
(1) mounts pad or ncurred durng the ta abe year (dependent
upon the method of accountng reguary empoyed) to the unem-
poyment admnstraton fund on account of actua and uncontested
abtes, and
(2) mounts pad or ncurred durng the ta abe year to em-
poyees out of or aganst bookkeepng reserves n the case of qua-
fed empoyers, or amounts pad or ncurred durng the ta abe
year to empoyees out of or aganst unempoyment reserve funds n
the hands of the State or other fducares, provded such payments
or charges represent actua and uncontested abtes.
Reserves set up by empoyers, or contrbutons made to unempoy-
ment reserve funds n the hands of the State or other fducares, are
not deductbe as such but, as prevousy stated, the amounts of actua
and uncontested abtes for such e penses pad from or ncurred
aganst such reserves or unempoyment reserve funds are deductbe.
rtce 23(a)-: usness e penses. I -18-74
L T.2888
R NU CT O 1934.
Certan monthy dues and assessments pad by members of a
abor unon are deductbe. ssessments eved and pad on ac-
count of the deat of a member are not deductbe. ssessments
for beneft payments to unempoyed members, to the e tent apped
to out-of-work beueft payments, are deductbe, but such as-
sessments are nondeductbe to the e tent used for sck, accdent,
or death benefts.
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55 23(a), rt. 23(a)-.
dvce s requested whether dues and assessments pad by members
of the M Labor Unon are aowabe deductons n computng net
ncome.
Dues and assessments of members for one month n 1934 were as
foows:
Doars.
Monthy does 3. 5
Internatona assessment
Loca assessment:
u tme empoyment on houry bass 43. 2
Overtme per hour assessment . 5
Death assessment (for a member who ded) 1. 2as
The oca assessment for that month was based on the shop s weeky
schedue of hours and was f ed at cents per hour for every hour
of empoyment e ceedng 20 hours per week. It appears that ths
assessment was made to provde funds for the payment of benefts
to members who were not empoyed. The rate of such assessment s
f ed by the oca unon each month and s sub|ect to substanta var-
aton. The weeky beneft aowed members n 1934 was 15a doars
per week or the frst 20 weeks, O doars per week for the reman-
der of the frst three years of unempoyment, 8 doars per week for
the fourthyear of unempoyment, and 5 doars per week for the
ffth yearrof unempoyment, benefts thereafter beng sub|ect to the
dscreton of the e ecutve board. Payment of a of the above-men-
toned dues and assessments was necessary to avod suspenson from
the unon.
There s no provson n the Revenue ct of 1934 aowng deduc-
tons for dues and assessments as such. ccordngy, f the pay-
ments n queston are deductbe, they must quafy as ordnary and
necessa f e penses pad or ncurred n carryng on any
trade or busness as provded by secton 23(a) of the Revenue ct
of 1934. Reatve to the meanng of ordnary and necessary e -
penses, the Supreme Court of the Unted States n Wech v. e-
verng (290 U. S., I, Ct. D. 755, C. . II-2, 112), sad:
We may assume that the payments were necessary for the deve-
opment of the pettoner s busness, at east n the sense that they were appro-
prate and hepfu. e certany thought they were, and we shoud
be sow to overrde hs |udgment. ut the probem s not soved when the
payments are characterzed as necessary. There s need to determne
whether they are both necessary and ordnary. Now, what s ordnary, though
there must aways be n stran of constancy wthn t, s none the ess a varabe
affected by tme and pace and crcumstance. Ordnary n ths conte t does not
mean that the payments must be habtua or norma n the sense that the same
ta payer w have to make them often. awsut affectng the safety of a
busness may happen once n a fetme. The counse fees may be so heavy
that repetton s unkey. None the ess, the e pense s an ordnary one be-
cause we know from e perence that payments for such a purpose, whether
the amount s arge or sma, are the common and accepted means of defense
aganst attack. (Cf. ornhauser v. Unted States, 27 U. 8.. 145 T. D. 4222,
C. . II-2. 2 7 .) The stuaton s unque In the fe of the ndvdua affected,
hut not n the fe of the group, the communty, of whch e s a part. t such
tmes there are norms of conduct that hep to stabze our |udgment, and make
It certan and ob|ectve. The nstance s not erratc, but s brought wthn
a known type.
t 3 35 3
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23(a), rt. 23(a)-.
5
Tat the deductbty of contrbutons or payments to an organ-
zaton of busness assocates depends upon the reaton of the pur-
pose or use of such funds to the busness of the contrbutor thereto,
rrespectve of whether such contrbutons are caed contrbutons,
duos, or assessments, s evdent from a comparson of such cases
as ppea of Independent rewng Co. of Pttsburgh (4 . T. ..,
870, acquescence, C. . I-1, 3), nvovng ta payer s pro rata
share of fees pad by a brewers assocaton to attorneys to test te
consttutonaty of the eghteenth amendment rst Natona ank
of Omaha v. Commssoner (17 . T. ., 1358, acquescence, C. .
1 -2, 20), hodng that contrbutons made through a cearng house
assocaton shoud be ooked upon as made drecty by the ta payers
to the utmate recpent for the purpose of determnng whether
they are deductbe busness e penses and The Mchgan Centra
Raroad Co. et a. v. Commssoner (28 . T. ., 437, 458), hodng
that an assessment by the ssocaton of Raway ecutves for the
purpose of estabshng at Yae Unversty a char of transportaton
s not deductbe. These cases are to the genera effect that the
nature of the assocaton does not contro. Upon ths pont see aso
Maurce . Wnger v. Commssoner (G . T. ., 945), hodng that
dues pad by attorneys to a cub used by ts members for uncheon
purposes and for conferences wth cents were not deductbe and
Mrs. . . en et a. v. Commssoner (7 . T. ., 125 , acques-
cence, C. . -2, 2), hodng that amounts pad by empoyers of
nonunon abor to an assocaton organzed to protect such empoyers
aganst what they conceved to be the dangers of unon abor were
deductbe as busness e penses.
ppyng the above prncpes to the nstant case, t seems cear
that the monthy dues of 3.5a doars and the nternatona assess-
ment of doars per month are deductbe as busness e penses, f
such dues and assessments are used to meet the e penses of strcty
abor unon actvtes.
ssessments eved and pad because of the death of a member
are not aowabe deductons, snce such assessments are not ordnary
and necessary e penses pad or ncurred n carryng on a trade or
busness. The benefts to the famy of a deceased member do not
have such a drect reatonshp to ether the trade or busness of
the survvng members as to make the payment of the death assess-
ment deductbe as a busness e pense.
The oca assessments for out-of-work beneft payments to
unempoyed members arose as the resut of wdespread unempoy-
ment n the trade. Such assessments, to the e tent they are apped
(o out-of-work beneft payments to unempoyed members of the
trade vho are capabe of workng, are deductbe as ordnary and
necessary busness e penses. To the e tent that such assessments
death benefts, they are n the nature of nsurance premums whch
are nondeductbe persona e penses under secton 24(a) 1 of the
Revenue ct of 1034.
payment of sck, accdent, and
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57
23(c), rt. 23(c)-.
S CTION 23(b). D DUCTIONS OM GROSS
INCOM : INT R ST.
rtce 23(b)-: Interest.
( so Secton 115, rtce 115-1.)
R NU CT O 1934.
The nterest pad upon ncome debentures ssued by a bank to
evdence ndebtedness to the Reconstructon nance Corporaton s
deductbe for edera ncome ta purposes.
Dstrbutons on preferred stock ssued by a bank to that corpora-
ton consttute dvdends and are not deductbe for edera ncome
ta purposes.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23 (c)-: Ta es. I -2-7240
1 I. T. 2845
R NU CTS O 1932 ND 1934.
The. mport dutes mposed on sprts, wnes, beer, and other
beverages under Schedue 8 of Subtte 1 of the Tarff and Reated
Provsons (chapter 3, Tte 19, secton 121, U. S. C. .) are deduct-
be as a ta by the mporter who pays the duty. In the event
the duty s pad by an ndvdua consumer on such artces
mported by hm for hs own use, the amount s deductbe as a
ta n hs edera ncome ta return but f, as an utmate
purchaser, he acqures the mported artce on whch the duty has
been prevousy pad, the amount of the duty to hm s merey an
addtona cost of the artce purchased.
rung s requested reatve to the deductbty, for edera
ncome ta purposes, of the mport dutes on sprts, wnes, beer, and
other beverages.
The mport dutes n queston are mposed under Schedue 8 of
Subtte 1 of the Tarff and Reated Provsons. (Chapter 3, Tte
19, secton 121, U. S. C. .) Paragraph 801 states that the dutes
prescrbed n schedue 8 and mposed by Subtte 1 sha be n add-
ton to the nterna revenue ta es mposed under e stng aw, or
any subsequent ct. Dutes are mposed as foows:
Par. 802. randy and other sprts manufactured or dsted from gran or
other materas, cordas, queurs, arrack, absnthe, krschwasser, ratafa, and
btters of a knds (e cept ngostura btters) contanng sprts, and com-
pounds and preparatons of whch dsted sprts are the component matera
of chef vaue and not specay provded for, D per proof gaon ngostura
btters, 2.00 per proof gaon.
Par. 803. Champagne, and a other sparkng wnes, per gaon.
Par. 804. St wnes, ncudng gnger wne or gnger corda, vermuth, and
Tce wne or sake, and smar beverages not specay provded for, 1.25 per
gaon: Provded, That any of the foregong artces specfed n ths paragraph
when mported contanng more than 24 per centum of acoho sha be cassed
as sprts and pay duty accordngy.
Pas. S05. e. porter, stout, beer and fud mat e tract, 1 per gaon mat
e tract, sod or condensed, GO per centum ad vaorem.
I -14-7409
I. T. 2878
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23(c), rt. 23(c)- .
Par. 80 . Cherry |uce, prune |uce, or prune wne, and a other frut |uces
and frut srups, not specay provded for, contanng ess than one-haf of 1
per centum of acoho, 70 cents per gaon contanng one-haf of 1 per centum
or more of acoho, 70 cents per gaon and n addton thereto 5 per proof
gaon on the acoho contaned theren grape |uce, grape srup, and other
smar products of the grape, by whatever name known, contanng or capabe
of producng ess than 1 per centum of acoho, 70 cents per gaon contanng
or capabe of producng more than 1 per centum of acoho, 70 cents per guon,
and n addton thereto 5 per proof gaon on the acoho contaned theren or
that can be produced therefrom.
Par. 807. (nger ae, gnger beer, emonade, soda water, and smar bever-
ages contanng no acoho, and beverages contanng ess than one-haf of 1
per centum of acoho, not specay provded for, 15 cents per gaon.
Par. 808. mnera waters and a mtatons of natura mnera waters,
and a artfca mnera waters not specay provded for, 10 cents per gaon.
Par. S09. When any artce provded for n ths schedue s mported n
bottes or |ugs, duty sha be coected upon the bottes or |ugs at one-tur
the rate provded on the bottes or |ugs f mported empty or separatey.
Secton 23(c) of the Revenue cts of 1932 and 1934 provdes
that h computng net ncome there sha be aowed as deductons
ta es pad or accrued wthn the ta abe year, wth certan e cep-
tons not hero matera. rtce 151 of Reguatons 77, reatng to
the Revenue ct of 1932, provdes that n genera ta es are de-
ductbe ony by the person upon whom they are mposed. rtce
1 2 states that Import or tarff dutes pad to the proper customs
offcers arc deductbe as ta es mposed by the authorty of
the Unted States, provded they are not added to and made a part
of the e penses of the busness or the cost of artces of merchan-
dse wth respect to whch they are pad, n whch case they can not
be separatey deducted.
The mport dutes on sprts, wnes, beer, and other beverages
mposed on the artces as stated are deductbe as a ta by the m-
porter who pays the duty, provded such dutes are not otherwse
used to reduce net ncome. In the event the duty s pad by an
ndvdua consumer on such artces mported by hm for hs own
use, the amount s deductbe as a ta n hs edera ncome ta
return but f, as an utmate purchaser, he acqures the mported
artce on whch the duty has been prevousy pad, the amount of
the duty to hm s merey an addtona cost of the artce purchased.
rtce 23(c)-: Ta es. I -3-7254
G. C. M. 13 81
R NU CT O 1934.
The capta stock ta mposed by secton 701 of the Revenue ct
of 1934 for the year ended une 30, 1934, accrued on May 10, 1934,
the date of te enactment of the Revenue ct of 1934, n the case
of a corporaton engaged n busness on that date. s the ta
s eved wth respect to (and s contngent upon) carryng on or
dong busness, the ta for the fsca year endng une 30, 1935,
accrued on uy 1, 1934. the begnnng of that fsca year, n the
case of a corporaton dong busness on that date.
n opnon s requested as to the accrua date of the capta stock
ta mposed by secton 701 of the Revenue ct of 1934.
Secton 701 of the Revenue ct of 1934 mposes a capta stock
ta upon domestc corporatons, uness they are e empt from such
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59
23(c), rt. 23(c)-
ta under secton 701(c) (1), (2), and (3). The pertnent prov-
sons of secton 701 read as foows:
(a) or each year endng une 30, begnnng wth the year endng une 30,
1934, there s hereby mposed upon every domestc corporaton wth respect to
carryng on or dong busness for any part of such year an e cse ta of 1
for each 1,000 of the ad|usted decared vaue of ts capta stock.

(c) The ta es mposed by ths secton sha not appy

(3) to any domestc corporaton n respect of the year endng une 30, 1034,
f t dd not carry on or do busness durng a part of the perod from to
date of the enactment of ths ct to une 30, 1934, both dates ncusve

(f) or the frst year endng une 30 n respect of whch a ta s mposed
by ths secton upon any corporaton, the ad|usted decared vaue sha be the
vaue, as decared by the corporaton n ts frst return under ths secton
(whch decaraton of vaue can not be amended), as of the cose of ts ast
Income-ta ta abe year endng at or pror to the cose of the year for whch
the ta s mposed by ths secton (or as of the date of organzaton n the
case of a corporaton havng no ncome-ta ta abe year endng at or pror
to the cose of the year for whch the ta s mposed by ths secton). or
any subsequent year endng une 30, the ad|usted decared vaue n the ense
of a domestc corporaton sha be the orgna decared vaue pus (1) the
cash and far market vaue of property pad n for stock or shares, (2) pad
n surpus and contrbutons to capta, (3) ts net Income, (4) the e cess of
ts ncome whoy e empt from the ta es mposed by Tte I over the amount
dsaowed as a deducton by secton 24(a)(5) of such tte, and (5) the
amount of the dvdend deducton aowabe for ncome ta purposes, and
mnus ( ) the vaue of property dstrbuted n qudaton to sharehoders,
( ) dstrbutons of earnngs or profts, and (C) the e cess of the deductons
aowabe for ncome ta purposes over ts gross Income ad|ustment beng
made for each ncome-ta ta abe year ncuded n the perod from the date
as of whch the orgna decared vaue was decared to the cose of ts ast
ncome-ta ta abe year endng at or pror to the cose of the year for whch
the ta s mposed by ths secton.
y secton 703 of the Revenue ct of 1934, t was provded that
the capta stock ta mposed by secton 215 of the Natona Indus-
tra Recovery ct sha not appy to any ta payer n respect of any
year e cept the year ended une 30, 1933.
In I. T. 272 (C. . II-2, 42), t was hed that the capta stock
ta mposed by secton 215 of the Natona Industra Recovery ct
for the fsca year ended une 30, 1933, accrued on the date of the
enactment of the ct ( une 1 , 1933) where a domestc corporaton
was engaged n busness on that date, and that the ta for the fsca
year ended une 30, 1934, accrued on uy 1, 1933, the begnnng of
that fsca year. s the pertnent provsons of secton 701 of the
Revenue ct of 1934 and secton 215 of the Natona Industra
Recovery ct are smar, t foows that the rue announced n I. T.
272 , supra, s appcabe n the nstant case. The Revenue ct of
1934, whch mposed an e cse ta upon every corporaton wth re-
spect to carryng on or dong busness measured by the ad|usted
decared vaue of ts capta stock, was approved on May 10, 1934.
Inasmuch as the abty for capta stock ta mposed by secton
215 of the Natona Industra Recovery ct for the fsca year
ended une 30, 1934, was e tngushed by secton 703 of the Revenue
ct of 1934 and a new capta stock ta was provded for n secton
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823(c), rt. 23(c)- .
CO
701, whch s dfferent n ts provsons fnd under an entrey dffer-
ent ct of Congress, the ta for the fsca year ended une 30, 1934,
must be hed to have accrued on May 10, 1934, the date of enactment
of the Revenue ct of 1934, provded the corporaton was engaged
n busness on that date. Not unt then had the event (the enact-
ment of the Revenue ct of 1934) occurred whch woud permt the
accrua of the new capta stock ta . s the ta s eved wth re-
spect to (and s contngent upon) carryng on or dong busness, the
ta for the fsca year endng une 30, 1935, accrued on uy 1, 1934.
the begnnng of that fsca year, n the case of a corporaton dong
busness on that date. (Compare I. T. 2827, C. . III-2, 130.)
Robert . ackson,
ssstant Genera, Counse for the
ureau of Interna Revenue.
rtce 23 (c)-: Ta es. I -3-7255
I. T. 2848
R NU CTS O 19.(2 ND 1934.
Deductbty of 1 e tu eved on acohoc beverages by the
State of Maryand.
or edera ncome ta purposes, the ta eved on acohoc bev-
erages by the State of Maryand under chapter 2 of the Laws of
Maryand, speca sesson, 1933, approved December 5, 1933, s de-
ductbe as a ta ony by the manufacturer, whoesaer, or person
upon whom t s mposed and by whom t s requred to be pad
pror to sae or devery to the reta deaer. The amount, however,
may not be deducted separatey as a ta f t has been ncuded as a
part of the busness e pense of the one upon whom t s mposed
or otherwse used to reduce hs net ncome. If the one upon whom
the ta s mposed passes t on to the reta deaer and uses the
amount of the ta to reduce hs net ncome, that amount must be
ncuded n gross ncome. If the ta s passed on to the reta
deaer, the amount s not deductbe by hn as a ta but forms a
part of hs busness e pense. To the consumer, the amount of the
fa s merey addtona cost of the artce purchased.
rtce 23(c)-1 : Ta es. I -4-T- tS
I. T. 2849
R NU CTS O 1 )L 8, 1032, ND 1034.
Rea and orsona property ta es n the State of Nebraska accrue
on pr 1 of each year for edera ncome ta purposes.
rung s requested as to the correct accrua date, for edera
ncome ta purposes, of rea and persona property ta es mposed by
the State of Nebraska.
The pertnent provsons of the Nebraska aw are found n the
foowng sectons of the Comped Statutes of Nebraska, 1929:
77-1001. Rea property, assessment, cassfcaton, rea estate cassfcaton
boards. rea property n ths State sub|ect to ta aton sha be assessed on
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1
23(c), rt. 23(c)-.
the 1st day of pr, 192 , and every fourth year thereafter, whch assessment
ha be used as a bass of vauaton for ta aton unt the ne t reguar assess-
ment .

77-1 0 . ddtona ands and mprovement, ncuded n return, decreased
vaues. ach assessor sha annuay, at the tme of takng the st and vaua-
ton of persona property, aso take a st of a rea property that sha have
become sub|ect to ta aton snce the ast prevous stng and sha
make return thereof to the county assessor at the same tme he Is requred to
make hs returns of persona property.
In the syabus by the court n Wood, County Treasurer, v. McCook
Waterworks Co. et a. (97 Neb., 215,149 N. W., 417), t s stated that
the aw as to the assessment of persona property s construed to
mean that such property sha be sted and assessed wth reference
to the quantty hed or owned on the 1st day of pr n the year
for whch the property s requred to be sted.
In Unted States v. nderson, et a. (2 9 U. S., 422, T. D. 3839, C. .
1, 179), t was stated wth respect to the proper accrua date of
ta es for ncome ta purposes that:
In a technca ega gense t may be argued that a ta does not
accrue unt t has been assessed and becomes due but t s aso true that n
advance of the assessment of a ta , a the events may occur whch f the
amount of the ta and determne the abty of the ta payer to pay t.
The event whch determnes the abty for property ta es s
the ownershp of the property on the day as of whch the assessment
s made under the State aw. (See generay G. C. M. 9793, C. . -2,
142, and the rungs cted theren.) s abty for rea and persona
property ta es n the State of Nebraska s ncurred by reason of
ownershp of property on pr 1 of each year, such ta es accrue on
that date for edera ncome ta purposes.
The modfcatons n the property ta aw made by the 1933 sesson
of the Nebraska Legsature do not change ether the month or day
of the month as of whch persona and rea property sha be assessed.
The foregong rung s, therefore, equay appcabe to years subse-
quent to 1929.
rtce 23(c)-1: Ta es. I -4-72 9
I. T. 2850
R NU CTS O 1928, 1032, ND 1034.
Rea and persona property ta es n the State of South Dakota
accrue on May 1 of each year for edera Income ta purposes.
rang s requested as to the correct accrua date, for edera
ncome ta purposes, of rea and persona property ta es mposed
by the Stat of South Dakota.
The pertnent provsons of the South Dakota aw, Comped Laws,
South Dakota, 1929, are as foows:
Seo. 71. When property s assessabe. rea and persona property In
ths State sub|ect to ta aton sha be assessed every year wth reference to
ts vaue on the 1st day of May precedng the assessment.
The date for determnng ta abty, ownershp, and vaue of rea
and persona property s the same. (Gaar, Scott Co. v. Sorvm,
Sherff, 11 N. D., 1 4, 90 N. W., 799, and State v. Mnneapos ct- N.
evator Co., N. D., 41, 8 N. W., 81.)
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23(c), rt. 23(c)- .
2
The ureau, n pursuance of the rue ad down n Unted States
v. nderson et a. (2 9 U. S., 422, T. D. 3839, C. . -, 179), has
consstenty hed that the event whch determnes the abty
for property ta es s the ownershp of the property on the day as
of whch the assessment s made under the State aw. s the abty
for rea and persona property ta es n South Dakota s ncurred
by reason of ownershp of property on May 1 of each year, such
ta es accrue on that date for edera ncome ta purposes.
The modfcatons n the property ta aw made by the South
Dakota Legsature n 1931 and 1933 do not change ether the
month or day of the month as of whch rea and persona property
sha be assessed. Consequenty, the foregong rung s equay
appcabe to years subsequent to 1929.
rtce 23(c)-1: Ta es. I -4-7270
I. T. 2851
R NU CTS O 1932 ND 1934.
or edera ncome ta purposes, te gross ncome tu mposed
by the State of South Dakota under chapter 184, Laws of South
Dakota, 1933, Is an aowabe deducton as a ta under secton
U3(e) of the Revenue cts of 1932 and 1934.
rung s requested as to the deductbty for edera ncome
ta purposes of the gross ncome ta mposed by the State of South
Dakota.
The South Dakota gross ncome ta s eved under the provsons
of chapter 184, Laws of South Dakota, 1933, mposng a ta on gross
ncomes as an emergency measure. The aw became effectve on
the 1st day of uy, 1933, and w e pre on une 30, 1935. Secton
2 of the aw provdes n part as foows:
Sec. 2. That from and after the 1st day of uy, 1933, there s hereby annuay
eved upon every person, ndvdua, frm, copartnershp, ont adventure,
assocaton, corporaton, trust, estate or other group or combnaton actng as
a unt, ocated n or transactng busness n the State of South Dakota, or
recevng a gross ncome, as defned n ths act, a ta wth respect to hs or
ts entre gross ncome, as defned heren, at the rates herenafter specfed,
uch ta beng hereby eved for each ta abe year at such specfed rate upon
and wth respect to the entre gross ncome, as heren defned, for the purposes)
of ta aton
Secton 23(c) of the Revenue cts of 1932 and 1934 provdes that
n computng net ncome there sha be aowed as deductons ta es
ad or accrued wthn the ta abe year, wth certan e ceptons not
ere matera. The gross ncome ta mposed by the State of South
Dakota s, therefore, an aowabe deducton as a ta n the edera
ncome ta return of the person upon whom t s mposed and by
whom t s requred to be pad.
rtce 23(c)-1: Ta es. I -14-7410
G. C. M. 14 07
R NU CT O 1934.
The gross recepts ta , effectve uy 1, 1934, mposed by the
State of entucky upon the sae of persona property at reta s
deductbe by the vendee for edera ncome ta purposes.
Recommended that I. T. 2840 ( 0. . I1I-2, 53) be revoked.
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3
23(c), rt. 23(c)-.
Reconsderaton s requested wth respect to the rung pubshed
as I. T. 2840, n whch t was hed that for edera ncome ta
purposes the gross recepts ta , effectve uy 1, 1934, mposed under
the aw of the State of entucky s deductbe by the vendor at
reta. The attenton of the ureau has been nvted to a recent
decson of the Court of ppeas of entucky n whch t was hed
that the ta s a ta on the purchaser.
The deductbty of the entucky gross recepts ta , whch s m-
posed upon saes of persona property at reta, was consdered by
the ureau n I. T. 2840, supra, whch reads as foows:
or edera ncome ta purposes, the gross recepts ta mposed by the aw
of the State of entucky (enacted by the genera assemby, speca sesson,
1934, effectve uy 1, 1934, and e prng une 30, 193 ), s deductbe as a ta
under secton 23(c) of the Revenue ct of 1934 by the vendor at reta, the
payor of the ta , provded the amount coected by hm as ta es has been n-
cuded n hs gross ncome and the ta has not been refunded to hm, has not
been added to or made a part of hs busness e pense, or otherwse used to
reduce hs net ncome.
In the case of a vendor whose books are kept on the accrua bass, the amount
of the ta accrued durng the perod covered by hs edera ncome ta return,
ess the 3 per cent aowance granted the vendor under secton 4 of the gross
recepts ta act, may be deducted n determnng hs net ncome. If the
vendor s books are kept on the cash recepts and dsbursements bass, ony the
amount of the ta actuay pad durng the perod covered by hs edera ncome
ta return may be deducted n determnng hs net ncome.
The nature of the ta was consdered by the Court of ppeas of
the State of entucky n Cty of Covngton v. State Ta Commsson
(77 S. W. (2d), 38 ). fter dscussng the provsons of the State
aw, the court made the foowng statement n ts opnon handed
down December 21, 1934:
In the ght of such requrements contaned n the act, as e pressed and em-
boded n such pan and unambguous anguage, there woud appear to be no
room for the theory that the ta s prmary one eved on the busness of se-
ng the ta ed commodtes, notwthstandng the evyng sectons woud appear
to so ndcate, snce under the rue supra the statute shoud be nterpreted n
the ght of what the egsature unmstakaby provded for theren, rather
than on e pressons found n It ndcatng a contrary purpose. That beng true,
the tra court propery nterpreted the statute (though not so stated n e press
terms) as mposng the ta on the purchaser of the ta ed artces by requrng
the seer to add the amount thereof to the purchase prce, and n turn, makng
the atter the coector of the ta from the purchaser.
Inasmuch as the Court of ppeas of the State of entucky, whch
s the hghest trbuna of the State, has decded that the gross re-
cepts ta n queston s mposed upon the vendee nstead of the
vendor and that the atter s merey a coectng agent, t s hed that
for edera ncome ta purposes the ta s deductbe as a ta under
secton 23(c) of the Revenue ct of 1934 by the vendee. It s rec-
ommended that I. T. 2840, wheren the ureau took the poston that
the ta s deductbe by the vendor, be revoked.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
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23(o), rt. 23(c)- .
4
rtce 23 (c)-: Ta es. I -14-7411
I. T. 2879
R NU CT O 1934.
I. T. 2840 (C. . III-2, 53), whch hods that the gross recepts
ta , effectve uy 1, 1934, mposed by the State of entucky, s
deductbe for edera ncome ta purposes by the vendor, s revoked,
n vew of G. C. M. 14 07. (See page 2.)
rtce 23(c)-: Ta es. I -15-7421
I. T. 2882
R NU CT O 1034.
or edera ncome ta purposes, the saes ta mposed by the
Oho reta saes ta act of December 13, 1934, s deductbe n the
return of the consumer as a ta under secton 23(c) of the Revenue
ct of 1934.
rtce 23(c)-: Ta es. I -1 -7438
- I. T. 2885
R NU CTS O 1028, 1032. ND 1934.
Under the aws of Mssour the abty for rea and persona
property ta es s ncurred by reason of ownershp of property
on the 1st day of uno of each year. Such ta es accrue on that
date for edera ncome ta purposes.
dvce s requested reatve to the accrua date for edera ncome
ta purposes of rea and persona property ta es n the State of
Mssour by ta payers whose books of account are kept on the
accrua bass.
The pertnent provsons of the State aw are found n the foow-
ng sectons of the Revsed Statutes of Mssour, 1929, oume II,
chapter 59:
Seo. 9740. Property hed une 1 abe for ta es. very person ownng or
hodng property on the 1st day of une, ncudng a such property purchased
on that day, sha he abe for ta es thereon for the ensung year.

Sec. 9779. Rea estate, when as esned-. Rea estate sha be assessed at the
assessment whch sha commence on the 1st day of une, 1893, and sha be
requred to be assessed every year thereafter.
Under the foregong sectons, the person who owns the property
on the 1st day of une s abe for the ta for the ensung year.
(State e re. aydes v. Snyder, 139 Mo., 549, 41 S. W., 21 .) If a
person owns and on the 1st day of une and subsequenty conveys t,
he s abe on hs covenant aganst encumbrances for the ta es
assessed for that year. ( ossom v. an Court, 34 Mo., 390, and
McLaren v. Shebe, 45 Mo., 130.) Under the statute both rea and
persona property ta es n the State of Mssour are assessed as of
the 1st day of une annuay, though they are not due and payabe
unt some tme wthn the foowng caendar year.
The ureau, n pursuance of the rue ad down n Unted States
v. nderson (2 9 U. S., 422 T. D. 3839, C. . -, 179 ) has con-
sstenty hed that the event whch determnes the abty for
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23(c), rt. 23(c)- .
property ta es s the ownershp of the property on the day as of
whch the assessment s made under the State aw. s the abty
for rea and persona property ta es n Mssour s ncurred by reason
of ownershp of property on the 1st day of une of each year, such
ta es accrue on that date for edera ncome ta purposes.
rtce 23 (c)-: Ta es. I -18-74 7
I. T. 2889
R NU CT O 1934.
Deductbty for edera ncome ta purposes of the cotton gn-
nng ta mposed under the provsons of the Cotton ct (Pubc,
No. 1 9, Seventy-thrd Congress, effectve pr 21, 1934, 48 Stat.,
598).
dvce s requested as to the deductbty of the cotton gnnng
ta for edera ncome ta purposes. If the ta s deductbe, the
queston s presented as to the bass to be used where e empton cer-
tfcates have been purchased at 4 cents a pound.
The ta n queston s mposed under the provsons of the Cotton
ct (Pubc, No. 1 9, Seventy-thrd Congress, effectve pr 21,
1934, 48 Stat., 598), pursuant to the provsons of whch Regua-
tons 84, reatng to the ta on cotton gnnng, were promugated.
The sectons of the aw pertnent to the questons under consderaton
read n part as foows:
Sec. 4. (a) There s hereby eved and assessed on the gnnng of cot-
ton a ta at the rate per pound of the nt cotton produced from
gnnng, of 50 per centum of the average centra market prce per pound of nt
cotton, but n no event ess than 5 cents per pound.

(c) very person gnnng any cotton sub|ect to ta under ths ct
and every other person abe for ta under ths ct sha make monthy
returns and pay the ta es mposed by ths ct to the coector for
the dstrct n whch the gnnng s done . The ta sha be
Cue and payabe to the coector at the tme so f ed for fng the return.

(e) No ta sha be mposed under ths ct wth respect to

(2) n amount of cotton harvested n any crop year from each farm equa
to ts aotment.

(f) The ta sha not be coected upon the gnnng of cotton whch s to
be stored by the producer thereof ether on the farm or at such other pace
as may be permtted by reguatons prescrbed by the Secretary of grcuture
and the Secretary of the Treasury. In such cases, the payment of the ta sha
be postponed, but sha be pad at the tme when bae tags are secured for
Uch cotton. ae tags may be secured for any of such cotton at any tme after
gnnng (1) upon the payment to such person as the Commssoner may d-
rect, of the amount of ta whch woud have been payabe at the tme of
gnnng, or (2) upon the surrender of certfcates of e empton coverng an
amount of cotton not ess than the amount of such cotton. The rght
to postponement of the payment of the ta sha be estabshed
In accordance wth such reguatons as the Secretary of grcuture and the
Secretary of the Treasury may prescrbe.
The pertnent provsons of Reguatons 84 are as foows:
bt. 4. Nature of the ta . The ta s an e cse ta , not a property ta .
It s a ta on the gnnng of cotton.
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rt. 8. Labty for the ta . cept whore payment of the ta Is post-
poned, as provded for n artce 13, abty for the ta attaches to the
gnner mmedatey upon the gnnng of cotton. Where payment of the ta
s postponed, as provded for n artce 13, abty for the ta does not at-
tach to the gnner. (See artce 21.)
rt. 13. Postponement of tme of payment. Where a producer ntends to
store nt cotton resutng from the gnnng of cotton produced by hm,
the ta sha not be coected uwn the gnnng of such cotton, but payment may
be postponed unt the tme f ed for the producer to fe hs return coverng
such cotton.
rt. 21. Returns of poduce.rs. very producer who has had cotton returned
to be stored by hm n accordance wth the provsons contaned n artce 13
sha, at east 15 days pror to transportng, seng, or openng any bae of
such cotton, fe a return on the prescrbed form.

t the tme of fng the return, the producer may surrender e empton
certfcates coverng any part of the cotton covered by the return, and sha
pay the ta on any part of such cotton not covered by such e empton cer-
tfcates.
rtce 23(c)-2, Reguatons 80, provdes n part as foows:
edera dutes and e cse ta es. e cse, ta es pad to
nterna revenue coectors, are deductbe as ta es mposed by the authorty
of the Unted States, provded they are not added to and made a part of the
e penses of the busness or the cost of artces of merchandse wth respect to
whch they are pad, n whch case they can not be separatey deducted.
The ta t queston s an e cse ta on the gnnng of cotton,
abty for whch attaches to the gnner mmedatey upon the
gnnng of cotton, e cept where payment of the ta s postponed as
provded n artce 13, n whch event abty therefor attaches to
the producer. In genera, ta es are deductbe from gross ncome
ony by the person upon whom they are mposed. ( rtce 23(c) 1,
Reguatons 8 .) It foows that where payment of the ta s post-
poned as provded n artce 13, Reguatons 84, the producer s the
ta payer who, f anyone, s entted to the deducton, and that n
a other cases the gnner s the ta payer who, f anvone, s entted
to the deducton. It s observed that no ta s mposed on the
gnnng of cotton whch s not n e cess of the aotment for the
farm on whch t was harvested. The rght to e empton from the
ta s to be evdenced by e empton certfcates, the transfer of whch
s authorzed by secton 9(d) of the Cotton ct, effectve pr 21,
1934. When a gnner gns cotton not n e cess of the amount for
whch a producer has e empton certfcates, the producer sur-
renders to the gnner e empton certfcates n the correct amount,
whch are then turned over to the coector by the gnner n eu of
the ta . Lkewse, when a gnner gns cotton n e cess of the amount
for whch a producer has e empton certfcates, the gnner coects
from the producer an amount over and above the reguar gnnng
charge equa to the ta for whch the gnner became abe upon the
gnnng of the cotton.
ccordngy, t s hed for edera ncome ta purposes that the
producer of cotton who had the payment of ta postponed as pro-
vded n artce 13, Reguatons 84, may deduct the amount pad or
accrued as a ta under secton 23(c) of the Revenue ct of 1934 n
determnng hs net ncome. The ta pad by the producer mav not,
however, be deducted separatey as a ta f t has been ncuded as a
part of hs busness e penses or otherwse used to reduce hs net n-
come. The gnner of the cotton whch was not stored by the pro-
ducer as provded n artce 13, Reguatons 84, may deduct the
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23(c), rt. 23(c)- .
amount pad or accrued as a ta under secton 23(c) of the Revenue
ct of 1934 n determnng hs net ncome, provded he reported n
hs gross ncome the tota amounts coected from the producers,
ncudng the amounts coected over and above the reguar gnnng
charge to ndemnfy hm for hs gnnng ta abty, and provded
further that the ta pad was not ncuded as a part of hs busness
e penses or otherwse used to reduce hs net ncome.
Reatve to the nqury as to the bass to be used where e emp-
ton certfcates have been purchased at 4 cents a pound, e empton
certfcates, whether orgna aotment certfcates or certfcates
whch have been purchased, are used, as the name mpes, n eu
of the payment of ta therefore, the consderaton pad n e change
for e empton certfcates can not be consdered a ta n any sense
of the word. It s, accordngy, hed that no ta s pad upon the
surrender of e empton certfcates consequenty, the provsons of
the aw reatng to deductons from gross ncome have no appcaton.
rtce 23(c)-: Ta es. I -25-7 53
I. T. 2899
R NU CT OP 1934.
Deductbty of the tu on transfers of nterests n sver buon
Imposed by Tte III, Schedue . subdvson 10, of the Revenue
ct of 192 , as added by secton 8 of the Sver Purchase ct of
1934 (48 Stat., 1178).
dvce s requested whether the ta pad on transfers of nterests
n sver buon under Tte III, Schedue , subdvson 10, of the
Revenue ct of 192 , as added by secton 8 of the Sver Purchase
ct of 1934, s deductbe for edera ncome ta purposes.
The Sver Purchase ct of 1934, approved une 19, 1934 (48
Stat., 1178), provdes n part as foows:
Skc. 8. Schedue of Tte III of the Revenue ct of 192(1, as amended
(reatng to stamp ta es), s amended by addng at the end thereof a new
subdvson to read as foows:
10. Sver, and so forth, saes and transfers.- On a transfers of any n-
terest n sver buon, f the prce for whch such nterest s or s to he trans-
ferred e ceeds the tota of the cost thereof and aowed e penses, 50 per
centum of the amount of such e cess.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons:
(c) Ta es generay. Ta es pad or accrued wthn the ta abe year,
e cept
(1) edera ncome, war-profts, and e cess-profts ta es
(2) ncome, war-profts, and e cess-profts ta es mposed by the authorty
of any foregn country or possesson of the Unted States hut ths deducton
sha be aowed n the case of a ta payer who does not sgnfy n hs return
hs desre to have to any e tent the benefts of secton 131 (reatng to credt
for ta es of foregn countres and possessons of the Unted States)
(3) estate, nhertance, egacy, successon, and gft ta es and
(4) ta es assessed aganst oca benefts of a knd tendng to ncrease the
vaue of the property assessed but ths paragraph sha not e cude the
aowance as a deducton of so much of such ta es as s propery aocabe to
mantenance or nterest charges.
The 50 per cent ta mposed by the Sver Purchase ct on a trans-
fers of nterests n sver buon does not come wthn any of the
e ceptons specfed n secton 23(c) of the Revenue ct of 1934.
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23(e), rt. 23(e)- .
G8
Whe the ta s 50 per cent of tho amount by whch the prce for
whch the nterest n sver buon s or s to be transferred e ceeds
the tota of the cost thereof pus the aowed e penses (artce 40,
Reguatons 85), t s n effect a documentary stamp ta . or edera
ncome ta purposes, ths stamp ta consttutes an aowabe deduc-
ton from the gross ncome of a ta payer whose accounts are kept on
the cash recepts and dsbursements bass to the e tent of the tota
amount of the stamps actuay aff ed to the documents whch are sub-
|ect to the ta and canceed durng the ta abe year, and aso to the
e tent of the ta pad n cash durng the ta abe year on transfers
of sver buon durng the perod May 15, 1934. to une 19,1934, n-
cusve. If the ta payer s accounts are kept on the accrua bass ony
the amount of the ta accrued durng the perod covered by hs ta
return may be deducted from the gross ncome for such perod.
deducton for the ta s aowabe ony f the amount camed has not
been ncuded as a part of the busness e pense of the ta payer or
otherwse used to reduce hs net ncome. No deducton may be taken
as to any amount refunded. Where ether the transferor or the trans-
feree takes such a deducton and subsequenty coects the amount of
the ta from the other party to the transfer, the party so coectng
must ncude the amount of such ta n hs gross ncome.
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 23(e)-: Losses by ndvduas. I -7-7311
G. C. M. 14207
NC CT O 1934.
Tho stockhoders of the M Company, whch was In qudaton
n 1932, surrendered ther stock n that corporaton n that year
and receved the prncpa assets of the company together wth
partcpaton certfcates n the remanng assets. na payment
on te partcpaton certfcates was receved n 1934. If the
tota amount reazed by a stockhoder was oss than the bass of
ds stock, a oss was sustaned by hm n 1934.
n opnon s requested reatve to the year n whch a deducton
for osses resutng from the qudaton of the M Company may be
camed by ts stockhoders for edera ncome ta purposes.
It s stated that n 1932 the assets of the M Company conssted
of bonds of another company and cash. Pursuant to the pan of
qudaton, the stockhoders n that year surrendered ther stock
and receved from the corporaton the bonds of the other company
together wth partcpaton certfcates enttng the stockhoders
to proportonate nterests n fna dstrbuton. It was estmated
that the amount of cents per share woud be pad to hoders of
tho partcpaton certfcates and that amount was pad on anuary
, 1934. The queston s whether the stockhoders sustaned osses
due to qudaton of the corporaton n 1932 or 1934.
Secton 23(e) of the Revenue cts of 1932 and 1934 provdes that
certan osses sustaned by ndvduas durng the ta abe year, n-
cudng osses ncurred n any transacton entered nto for proft,
sha be aowed as deductons Secton 115 of the Revenue cts or
1932 and 1934, reatng to dstrbutons by corporatons, ncudng
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9
23(e), rt. 23(e)- .
dstrbutons n qudaton, does not specfy the ta abe year n
whch a oss s sustaned by a stockhoder due to qudaton of a
corporaton, but provdes that amounts dstrbuted n compete
qudaton of a corporaton sha be treated as n fu payment n
e change for the stock, and that the gan or oss to the dstrbutee
resutng from such e change sha be determned under secton 111
of those cts, but sha be recognzed ony to the e tent provded n
secton 112.
The ta abe year n whch a oss s sustaned by a stockhoder due
to qudaton of a corporaton was consdered by the Court of
Cams n Dresser et a. v. Unted States (55 ed. (2d), 499, C. .
I-1,2 7, certorar dened, 287 U. S., 35). In that case the stock-
hoder contended that he had sustaned a deductbe oss at a tme
when the corporaton had not dsposed of a ts assets and there was
no proof of the vaue or ack of vaue thereof at that tme, but the
court hed that the aeged oss was not at such tme susceptbe of
determnaton snce the stock was not wthout vaue. (Compare ar-
tce 174, Reguatons 77.) The evenue ct of 1918 whch gov-
erned that case contans provsons for oss deductons substantay
the same as the provsons of ater cts. The court sad n that
case:
ut we are of opnon that when t appears, as here, that t s
reasonaby certan that the stockhoders w receve a further qudatng dv-
dend, a oss may not be aowed under the ta ng ct unt there s a dstrbu-
ton of such dvdend n property or money. Unt ths s done the stock has
a vaue to ts owner, and the mere fact that because the corporaton s n
process of qudaton ts vaue has decned n a partcuar ta abe year to a
fgure whch s ess than cost does not entte the stockhoder to eect n whch
year he w take hs oss.
Losses are sustaned wthn the meanng of the ta ng ct when
the events defntey occur whch gve rse thereto. The statute
aows the deducton of a oss when t has been sustaned, and we thnk t s
the cear purpose of the ct to aow the deducton n the year n whch t may
appear that the ta payer has receved from the property a that t s possbe
or hm to receve. stock oss s no dfferent from a oss on any other
property, and f a ta payer acqures property at a certan cost whch has not
been dsposed of he may not take a deducton from gross ncome as a oss of
any amount merey because t may appear that when the property s fnay
dsposed of he w receve ess than what he pad for t. Parta
osses are not aou be as deductons from gross ncome so ong as the stock
as a vaue and has not been dsposed of. Of course, where a corporaton s
n process of qudaton and there are assets of substanta vaue upon whch
arge amounts may be reazed by the qudatng trustees, a oss may be
taken by the stockhoder upon defnte proof that outstandng abtes and
cams superor to those of the stockhoder w more than absorb the ma mum
amount that can be receved from the dsposton of the assets, thereby eavng
nothng for the stockhoder. ut such a stuaton s |ust the reverse
of the cam presented by the pantffs n ths case.
The petton s dsmssed. Itacs supped.
In that case t does not appear defntey whether the stock was
surrendered or canceed or whether the stockhoder receved a par-
tcpaton certfcate n eu of hs stock, but n the vew taken by ths
offce that factor s not concusve. The stockhoder who receved
bonds and a partcpaton certfcate n the nstant case had a con-
tnung nterest whch was not worthess and whch was termnated
ether when the partcpaton certfcate was dsposed of or when he
receved the fna dstrbuton n qudaton n 1934. t such tme
the stockhoder sustaned a oss f the tota amount reazed was ess
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23(n), rt. 23(m)-.
70
than the bass of hs stock. Unt then hs property was not
dsposed of, and ony then, dd he receve from the property a
that t s possbe for hm to receve, wthn the meanng of te
decson n the Dresser case. Ony then was there a cosed transac-
ton. ( rtce 171, Reguatons 77.) Ths resut s not changed by
the fact that the fna dstrbuton n qudaton was prevousy
correcty estmated.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 23(e)-: Losses by ndvduas. I -24-754
I. T. 2898
R NU CT O 1934.
ta payer may not deduct as a oss n computng hs net
Income the cost or otor bnss of property turned over by Mm to a
trustee n bankruptcy to be apped u payment of hs ndebtedness
In accordance wth tbe provsons of tbe Natona ankruptcy ct.
dvce s requested reatve to the deductbty as a oss by a bank-
rupt ta payer of the cost or other bass of assets transferred by hm
to the trustee n bankruptcy.
was ad|udcated bankrupt n the year 1934. In that year he
transferred to the trustee n bankruptcy rea estate, stocks, and bonds
to be apped n payment of hs ndebtedness and desres to deduct as
a oss for that year the cost or other bass of the property so
transferred.
In the opnon of ths offce, the fact that n a partcuar year a
ta payer goes nto bankruptcy under the provsons of the Natona
ankruptcy ct for the purpose of appyng hs property n sats-
facton of hs unpad obgatons through the medum of a bank-
ruptcy court, and for the further purpose of obtanng a dscharge
from such ndebtedness, does not affect the computaton of hs net
ncome, whch nvoves merey the current recept or accrua of tems
of ncome and the payment or ncurrng of tems of e penses and
other statutory deductons. ccordngy, t s hed that the ta -
payer may not deduct as a oss n computng hs net ncome, ether
for the year n whch he was ad|udcated bankrupt or for the year
n whch he receved a dscharge n bankruptcy under the Natona
ankruptcy ct, the cost or other bass of the property turned over
by hm to the trustee n bankruptcy to be apped n payment of hs
ndebtedness n accordance wth the provsons of that ct.
S CTION 23 (m). D DUCTIONS ROM GROSS
INCOM : D PL TION.
rtce 23(m)-: Depeton of mnes, o and gas I -1 -7447
wes, other natura deposts, and tmber depre- T.D.4540
caton of mprovements.
INCOM T .
Percentage depeton mendment of tbe defnton of gross
ncome from the property n the case of o and gas rtce
121(g), Reguatons 77, and artce 23(m)- ( /), Reguatons 8 .
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71 23 (o), rt. 23(o)-,
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 221 (g) of Reguatons 77 nnd artce 23(m)-( 7) of Regu-
atons 8 are amended by makng the ast two sentences thereof a
paragraph, and by nsertng mmedatey before such paragraph a
new paragraph as foows:
In the ease of o and gus, f the crude mnera product s not sod on the
property but Is manufactured or converted nto a refned product or s trans-
ported from the property pror to the sae, then the gross ncome from the
property sha be assumed to be equvaent to the market or fed prce of the
o or gas before converson or transportaton.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved pr 12, 1935.
T. . COOLID ,
ctng Secretary of the Treasury.
rtce 23(m)-10: Depeton d|ustments of accounts
based on bonus or advanced royaty.
R NU CT O 1934.
Restoraton of bonus depeton deducton on percentage of ncome
bass to ncome at termnaton of ease n case of no producton from
eased premses. (See G. C. M. 14448, page 98.)
S CTION 23(o). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 23 (o)-: Contrbutons or gfts by ndvduas.
R NU CT O 1034.
Contrbutons made by a partnershp. (See I. T. 2854, page 130.)
rtce 23(o)-: Contrbutons or gfts by I -11-73 9
ndvduas. I. T. 2872
R NU CT O 1934.
ppcaton of the 15 per cent mtaton on contrbutons.
The mtaton of 15 per cent prescrbed by secton 23 (o) of the
Revenue ct of 1934 on the amount of contrbutons deductbe
from net ncome s n respect of the contrbutons of each ndvdua
and s based on the separate net ncome (before deductng contr-
butons) of the spouse makng the contrbutons, regardess of
whether the husband and wre fe a |ont return or separate
returns.
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25, rt. 25-2.
72
S CTION 25. CR DITS O INDI IDU L
G INST N T INCOM .
rtce 25-1: Credts of ndvdua
aganst net ncome.
R NU CT O 1934.
I -S-7295
I. T. 2855
Credts under secton 23(a) of the Revenue ct of 1934 n the
case of husband and wfe.
The earned ncome credt under secton 25(a) of the Revenue ct
of 1934 s aganst the net ncome of each ndvdua n the case of a
husband and wfe and ther earned ncome credts under that ct
may be computed separatey even though they fe a |ont return.
The credt for nterest on Unted States obgatons under secton
25(a) of the Revenue ct of 1934 may aso be computed separatey
n the case of husband and wfe even though a |ont return s fed.
In order to permt aowance of separate earned ncome credts
n |ont returns, the earned ncome, earned ncome deductons, earned
net ncome, and net ncome of husband and wfe must be shown sepa-
ratey. Lkewse, compete nformaton must aso be contaned n the
eturn wth reference to nterest on Unted States obgatons.
rtce 25-2: arned ncome credt. I -4-7271
Where the net ncome of a ta payer, ncudng ncome sub|ect
ony to surta , s not more than 3,000, the earned ncome credt
shoud be computed on the entre net ncome.
dvce s requested reatve to the appcaton of secton 25(a)5(C)
of the Revenue ct of 1934 to net ncomes of 3,000 or ess when a
porton of such net ncome conssts of ncome sub|ect ony to surta .
The partcuar nqury nvoves the case of a ta payer who re-
ceved a saary of 2,800 and dvdends of 200 from a domestc
corporaton sub|ect to ta aton. The net ncome of the ta payer
was 3,000. The queston s asked whether the earned ncome credt
s 10 per cent of 2,800 or 10 per cent of 3,000.
Secton 25(a)5(C) of the Revenue ct of 1934 reads as foows:
arned net ncome means the e cess of the amount of the earned
ncome over the sum of the earned ncome deductons. If the ta payer s net
ncome Is not more than 3,000, hs entre net ncome sha be consdered to
be earned net ncome, and f hs net ncome s more than 3,000, bs earned
net ncome sha not bo consdered to be ess than 3,000. In no case sha
the earned net Income be consdered to be more than 14,000.
Inasmuch as n the nstant case the net ncome of the ta payer,
ncudng dvdends, dd not e ceed 3,000, hs entre net ncome must
be consdered to be earned net ncome under the specfc provsons
of the statute. ccordngy, the earned ncome credt s 10 per cent
of 3,000. In other words, n the ustraton gven the earned
ncome credt shoud be computed on the entre net ncome of the
ta payer, ncudng dvdends of 200, regardess of the fact that
uch dvdends are not sub|ect to norma ta .
I. T. 2852
R NU CT O 19.14.
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73
41, rt. 41-1.1
rtce 25-2: arned ncome credt.
R NU CT O 1934.
arned ncome credt of husband and wfe fng |ont returns.
(See I. T. 2875, page 81.)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
rtce 41-1: Computaton of net ncome.
I -8-7327
I. T. 28 :5
R NU CT O 1934.
The foowng rates of e change are accepted by the ureau of
Interna Revenue as the current or market rates of e change preva-
ng as of December 31, 1934:
Country or cty.
rgentna
rgentna.
ustraa.
ustra
egum..
raz.
ugara --
Canada.
Che
Chna (Shangha)...
Coomba.
Cubs.
Czechosovaka
Dfnmrk.
.ngand
nand
rance
fezmany
Oreece
ong ong
Monetary unt.
Pew (god)
SO.747443
Peso (paper)
.328875
Pound (sterng).
3.915000
Schng
. 187810
ega
. 231853
Mres
.08182. )
Lev
.012125
Doar
1. 005482
Peso
.102125
Yuan Doar
.345312
Peso
.415200
Peso
.O OPO
oruna
.04185
rone
.2204
Pound (sterng).
4.8I0I1()
Markka
. 021831
ranc
.0 15
Rechsmark
.402838
Drachma
. 009375
Doar
.42 S75
aue n
term of
Unted
Staes
money.
Country or cty.
ITuntrnry
Inda
Itay
apan
Me co
Netherands
New Zeaand
Norway
Peru
Phppne Isands
Poand
Portuga
Rumana
Span
Strats Settements...
Sweden
Swtzerand
Unon of South frca
Uruguay
Yugosava
Monetary unt.
Pengo...
Rupee
Lra
Yen
Peso
orn
Pound (sterng).
rone
So
Peso
Zoy
sctdo
I n
Peseta
Doar
rona
ranc
Pound (sterng)
Peso (god)
Dnar
aue n
terms of
Unted
States
money.
0. 29 75
.371130
. 085705
.287290
. 277 5
. 77892
3. 93 137
.248134
. 210000
.500000
.I89200
. 045000
. OOO .O
.137125
. 78500
. 2.14 00
.324 5
4. 8 -f5 10
.803001
.022711
rtce 41-1: Computaton of net ncome. I -20-7493
G. C. M. 14839
L Nr CTS O 1918, 1921, 1924, 192G, 1928, 1932, ND 1934.
Soctors Memorandum 3820 (O. R. I -2, 32) s modfed to
hod that dscounts and commssons are ncome to bonks, oan
companes, etc., empoyng the cash recepts and dsbursements
method of accountng, when and to the e tent that the dscounts
and commssons ore actuay receved or reazed upon the pay-
ment, sae, or other dsposton of the notes n the face amounts of
whch the dscounts and commssons are ncuded.
The queston s presented whether n vew of the decson rendered
by the Crcut Court of ppeas for the Seventh Crcut n Com-
mssoner v. Centra Repubc Trust Co. and Mc ey, Trustee n
ankruptcy of Noe Securtes Corpo raton (75 ed. (2d), 708,
decded ebruary 23, 1935), Soctor s Memorandum 3820 (C. .
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41, rt. 41-1.
74
I -2, 32) shoud be modfed n so far as t hods that commssons
or fees, charged by banks for ther servces n makng nterest-
bearng oans am deducted from the face amounts of the oans
when made, are ncome at the tme the oans are made n the case
of banks whch empoy the cash recepts and dsbursements method,
of accountng.
In the above-mentoned decson, whch affrmed memoranda opn-
ons of the oard of Ta ppeas dated ebruary 8, 1933, and
anuary 23, 1934, the court sad n part:
The Commssoner sought to charge the amount of such commssons ns a part
of the annua gross ncome for each of those years, rrespectve of how much of
the same had been reazed n cash. The oard hed that nasmuch as the
ta payer kept ts books upon a cash bass, t had propery accounted for the
tems, n reportng ony such part of the commssons as had been reazed n
cash durng the year. The correctness of that rung s the ony queston
submtted.
In two cases the precse queston has been decded adversey to the conten-
ton of pettoner. In ar v. rst Trust Savngs ank (39 . (2d), 402 (C.
C. . 5), March 25, 1930), n decdng a smar queston, the court sad:
It s pan that unt the oan s pad or redscounted the respondent has
earned no proft, but has smpy parted wth ts funds on the fath of the se-
curty. The commsson s not actuay receved unt respondent gets back
what t has prevousy pad out pus the commsson. The deducton of the
commsson from the face of the oan brngs nothng nto the coffers of the
bank.
Certorar was dened by the Supreme Court on October 13, 1930 (
282 U. S., 851 ).
In everng v. Martn-SStubbefed, Inc. (71 . (2d), 944) (C. C. . 8), meet-
ng a smar stuaton, the court sad:
The oard of Ta ppeas hed that the Commssoner erred n ncreasng
respondent s gross ncome by the amount of the commssons here n contro-
versy, and redetermned the (a abty for the years 1927 and 1923 accord-
ngy. The soe queston presented s whether the commssons so deducted
when the oans are made consttute ta abe Income as of that year.
It s evdent that ncome from ths source s uncertan unt the notes are
pad or sod before maturty. The evdence estabshes that t was respondent s
practce to redscount these notes before the oans matured. It seems cear,
therefore, that the ncome actuay earned co d not be defntey ascertaned
at the tme the oan was made, but ony wfce the oan was actuay repad or
the notes were sod.
We are n thorough accord wth the reasonng of these cases.
In Soctor s Memorandum 3820, supra (paragraph 2), t was
hed that under both the cash recepts and dsbursements and the ac-
crua methods of accountng such commssons are ncome at the
tme the oans are made. It was aso hed n that memorandum
(paragraph 1) that dscounts on nonnterest-bearng oans deducted
from the face amounts of the oans when made are not ncome under
the cash recepts and dsbursements method of accountng unt the
oan s pad. The concuson reached n Soctor s Memorandum
3820 (paragraph 2) that commssons on oans deducted from the
face amounts of the oans when made are ncome at that tme under
the accrua method of accountng has been sustaned n Coumba
State Sav. ank v. Commssoner (41 ed. (2d), 923, Ct, D. 210, C. .
I -2, 332, affrmng 15 . T. ., 219) Southern bstract Loan
Co. v. Commssoner (72 ed. (2d), 130, affrmng 25 . T. ., 1095)
and onded Mortgage Co. of atmore v. Commsso-ner (70 ed.
(2d), 341, affrmng on ths ssue 27 . T. ., 9 5).
It s doubtess true, as stated n Soctor s Memorandum 3820, that
dscounts, beng charges for the use of money oaned and consttutng
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41, rt. 41-2.
nterest on the oans, are dstngushabe from commssons n that
the atter consttute compensaton for servces n arrangng, obtan-
ng, handng, and/or makng the oans and that commssons are
earned when the oans are made whereas dscounts are not earned at
that tme. owever, where dscounts and commssons are merey
deducted from the face amounts of the oans, nether the comms-
sons nor the dscounts are receved when the oans are made.
Therefore, under the cash recepts and dsbursements method of ac-
countng, nether the dscounts nor the commssons are ncome unt
actuay receved. though such commssons, as dstngushed
from dscounts, are earned when the oans are made, they are not
avaabe so that they may be drawn at any tme snce they are n-
cuded n notes payabe n the future and are not, therefore, con-
structvey receved.
When such dscounts and commssons shoud be ncuded n the
gross ncome of a ta payer who empoys the cash recepts and ds-
bursements method of accountng s not governed by the tme such
tems are earned n whoe or n part but by the actua recept thereof.
s prevousy stated, nether the dscounts nor the commssons n
queston are receved actuay or constructvey when the oans are
made. ccordngy, such commssons and dscounts shoud be n-
cuded n the gross ncome of ta payers empoyng the cash recepts
and dsbursements method of accountng ony when and to the e -
tent that the tems are actuay receved or reazed upon the payment,
sae, or other dsposton of the notes n the face amounts of whch they
are ncuded.
In vew of the foregong, Soctor s Memorandum 3820, supra, s
modfed to hod that dscounts and commssons are ncome to banks,
oan companes, etc., empoyng the cash recepts and dsbursements
method of accountng, when and to the e tent that the dscounts and
commssons are actuay receved or reazed upon the payment, sae,
or other dsposton of the notes n the face amounts of whch the
dscounts and commssons are ncuded.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
I -2-7252
changes n accountng methods. T. D. 4508
ncome ta .
ases of computaton of net Income under Revenue ct of 1934
and changes n accountng methods.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton., D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 41 (Tte I Income Ta ) of the Revenue
ct of 1934 provdes:
The net ncome sha be computed upon the bass of the ta payer s annua
accountng perod (fsca year or caendar year, as the case may be) n accord-
ance wth the method of accountng reguary empoyed n keepng the books
of such ta payer but f no such method of accountng as been so empoyed.
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41, rt. 41-2.
7
or If the method empoyed does not cenry refect the Income, the computa-
ton sha be made n accordance wth such method as n the opnon of the
Commssoner does ceary refect the ncome. If the ta payer s annua ac-
countng perod s other than a fsca year as defned n secton 48 or f the
ta payer has no annua accountng perod or does not keep books, the net
ncome sha be computed on the bass of the caendar year. ( or use of nven-
tores, see secton 22(c).)
Par. . Secton 2 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons of the ct the foowng
reguatons are hereby prescrbed:
pproved standard methods of accountng w ordnary be re-
garded as ceary refectng ncome. method of accountng w
not, however, be regarded as ceary refectng ncome uness a tems
of gross ncome and a deductons arc treated wth reasonabe con-
sstency. In genera, a tems of gross ncome sha be ncuded n
the gross ncome for the ta abe year n whch they are receved by
ceary to refect ncome such amounts are to be propery accounted
for as of a dfferent perod. or nstance, n any case n whch t s
necessary to use an nventory, no accountng n regard to purchases
and saes w correcty refect ncome e cept an accrua method.
ta payer s deemed to have receved tems of gross ncome whch
have been credted to or set apart for hm wthout restrcton. On
the other hand, apprecaton n vaue of property s generay not
an accrua of ncome to a ta payer pror to the reazaton of such
apprecaton through sae or converson of the property.
The true ncome, computed under the Revenue ct of 1934 and,
where the ta payer keeps books of account, n accordance wth the
method of accountng reguary empoyed n keepng such books
(provded the method so used s propery appcabe n determnng
the net ncome of the ta payer for purposes of ta aton), sha n
a cases be entered n the return. If for any reason the bass of re-
portng ncome sub|ect to ta s changed, the ta payer sha attach
to hs return a separate statement settng forth for the ta abe year
and for the precedng year the casses of tems dfferenty treated
under the two systems, specfyng n partcuar a amounts dup-
cated or entrey omtted as the resut of such change.
ta payer who changes the method of accountng empoyed n
keepng hs books sha, before computng hs ncome upon such new
method for purposes o ta aton, secure the consent of the Comms-
soner. or the purposes of these reguatons, a change n the
method of accountng empoyed n keepng books means any change
n the accountng treatment of tems of ncome or deductons, such
as a change from cash recepts and dsbursements method to the
accrua method, or vce versa a change nvovng the bass of vaua-
ton empoyed n the computaton of nventores a change from the
cash or accrua method to the ong-term contract method, or vce
versa a change n the ong-term contract method from the percentage
of competon bass to the competed contract bass, or vce versa or
a change nvovng the adopton of, or a change n the use. of, any
other specazed bass of computng net ncome such as the crop bass.
the ta payer, and deductons
accordngy, uness n order
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43, rt. 43-1.
ppcaton for permsson to change the method of accountng em-
poyed and the bass upon whch the return s made sha be fed
wthn 90 days after the begnnng of the ta abe year to be cov-
ered by the return, e cept that n respect of the frst ta abe year
begnnng after December 31,1933, n the case of a corporaton whch
s not permtted by the Revenue ct of 1934 to be ncuded n a con-
sodated return under secton 141 of that ct, but whch was prop-
ery ncuded n a consodated return under secton 141 of the
Revenue ct of 1932, as amended by the Natona Industra Re-
covery ct, for the ast perod for whch t was requred to make a
return under the Revenue ct of 1932, as amended, such appcaton
sha be fed wthn 90 days after the begnnng of the ta abe year
to be covered by the return or wthn 30 days after the date of the
weeky Interna Revenue uetn n whch ths Treasury decson
s pubshed, whchever s ater. The appcaton sha be accom-
paned by a statement specfyng the casses of tems dfferenty
treated under the two methods and specfyng a amounts whch
woud be dupcated or entrey omtted as a resut of the proposed
change. Permsson to change the method of accountng w not be
granted uness the ta payer and the Commssoner agree to the terms
and condtons under whch the change w be effected.
The foregong requrements reatve to a change of accountng
method are not appcabe f a ta payer desres to adopt the nsta-
ment bass of returnng ncome, but are appcabe f a ta payer de-
sres to change from such bass to a straght accrua bass. In cases
where permsson to make such change s granted, the ta payer w
be requred to return as addtona ncome for the ta abe year n
whch the change s made a the proft, not theretofore returned as
ncome, pertanng to the payments cue on nstament saes con-
tracts as of the cose of the precedng ta abe year.
Wrght Matthews,
ctng Commssoner.
pproved anuary 9, 1935.
T. . CoOLI ,
ctng Secretary of the Treasury.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 43-1: Pad or ncurred and pad I -1-7227
or accrued. I. T. 2843
R NU CTS O 191:8, 1032, ND 1934.
Where a bank s n qudaton and assessment s made aganst
the stockhoders because of ther statutory abty under the
State bankng aw, the assessment Is deductbe n the year n
whch pad by a stockhoder who keeps ha accounts and computes
hs ncome on the cash recepts and dsbursements bass. Where
the accounts of a stockhoder are kept on the accrua bass and hs
net ncome s computed on that bass, such an assessment s deduct-
be n the year of assessment provded abty s admtted rather
than dened or contested. If abty s dened or contested, the
assessment Is deductbe when abty s fnay admtted or
ad|udcated.
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43 rt. 43-1.
78
rung s requested reatve to the deductbty of amounts
assessed aganst stockhoders of the M unk because of ther statu-
tory abty under the State bankng aw.
It appears that on December , 1930, the superntendent of banks
of the btate of R took possesson of the busness and property of
the M ank and n 1931 began to qudate the affars of the bank.
e determned that the assets of the bank, based on a reasonabe
vaue, were nsuffcent by a sum n e cess of 00a doars to pay ts
credtors n fu, and decded that an assessment aganst stockhoders
of 100 per cent of ther statutory abty under the State bankng
aw was necessary to provde money for the payment of credtors.
On or about uy , 11)32, he made a demand upon the stockhoders
for the payment on ugust , 1932, of the respectve amounts of
ther abtes as stockhoders of the bank. Parta payments upon
these abtes have been made by ta payers n 1932 and subsequent
years.
Under secton 43 of the Revenue cts of 1928. 1932, and 1934
deductons of osses must be taken n the ta abe year n whch pad
or accrued or pad or ncurred, dependent upon the method of
accountng reguary empoyed by the ta payer n keepng hs books
and computng hs net ncome, uness n order to ceary refect the
ncome the deducton shoud be taken as of a dfferent perod. (See
aso secton 41 of the Revenue cts of 1928, 1932, and 1934 S. R. 84,
C. . I -1, 118 and M. . urns Mfg. Co. v. Commssoner, 59 ed.
(2d), 504.) stockhoder of the M ank keepng hs accounts on the
cash recepts and dsbursements bass s entted to deduct as a oss
the amount of hs abty actuay pad durng the ta abe year.
stockhoder of the M ank who reguary empoys the accrua method
of accountng and computes hs net ncome upon that bass may
deduct hs stockhoder s abty whch accrued durng the ta abe
year. ssessment reasonaby evdences the e stence of the abty
and the amount thereof. If the abty s admtted n the year of
assessment and the amount thereof s accrued as a oss (as dstn-
gushed from a dena or a contest of the aeged abty), the deduc-
ton s aowabe (on the accrua bass) n such perod even though
payment s made n a ater year. If abty s dened or contested,
the assessment s deductbe when abty s fnay admtted or
ad|udcated.
I. T. 2 17 (C. . I-1, 29), whch recognzes the deductbty of
a oss sustaned by a ta payer by reason of hs abty as a stock-
hoder of an nsovent bank whch s n qudaton, contans the
foowng statement:
Of te amount pad by the stockhoders because of ther addtona
abty, ony the porton determned to be necessary to pay credtors may be
deducted as a oss for the year n whch such determnaton s made.
The concuson reached n I. T. 2 17, supra, s modfed n so far as
t s nconsstent wth ths rung.
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79 51, rt. 1-
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 51-1: Indvdua returns. I -3-72 5
T. D.4512
INCOM T .
Returns of ndvduas.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 51 (Tte I Income Ta ) of the Revenue
ct of 1934 provdes:
Indvdua Retubns.
(a) Requrement. The foowng ndvduas sha rach make under oath
a return statng specfcay the Items of hs gross ncome and the deductons
and credts aowed under ths tte
(1) very ndvdua havng a net ncome for the ta abe year of 1,000
or over, f snge, or f marred and not vng wth husband or wfe
(2) very ndvdua havng a net ncome for the ta abe year of 2,500 or
over, f marred and vng wth husband or wfe and
(3) very ndvdua havng a gross ncome for the ta abe year of 5,000
or over, regardess of the amount of hs net Income.
(b) utand and wfe. If a husband and wfe vng together have an
aggregate net ncome for the ta abe year of 2,500 or over, or an aggregate
gross Income for such year of 5,000 or over
(1) ach sha make such a return, or
(2) The Income of each sha be ncuded n a snge |ont return, n whch
ease the ta sha be computed on the aggregate Income.
(c) Persons under dsabty. If the ta payer s unabe to make hs own
return, the return sha be made by a duy authorzed agent or by the guardan
or other person charged wth the care of the person or property of such
ta payer.
(d) ducares. or returns to be made by fducares, see secton 14-.
Par. . Secton 2 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons of the ct, the foowng
reguatons are hereby prescrbed wth respect to ncome returns
of ndvduas:
btcb 1. Indvdua returns. or each ta abe year every snge person
and every marred person not vng wth husband or wfe for any part of the
ta abe year, whose gross ncome as defned n sectons 22 and 11 of the
Revenue ct of 1034 s 5,000 or over, or whose net ncome as defned n secton
21 of the Revenue ct of 1934 s 1,000 or over, must make a return of ncome.
very marred person vng wth husband or wfe for any part of the ta abe
year, but not at the cose of the ta abe year, must make a return f hs gross
ncome for the ta abe year s 3,000 or more, or hs net ncome s equa to,
or n e cess of, the credt aowed hm by secton 25(b) (1) and (3) of the
Revenue ct of 1934 (computed wthout regard to hs status as the head of a
famy). husband and wfe vng together for the entre year need make no
returns uness ther aggregate gross ncome for the ta abe year s at east
5,000, or ther aggregate net ncome s at east 2,500. If ther aggregate net
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51, rt. 51-1.
80
neome for the ta abe year Is 2,500 or more, or ther aggregate gross ncome
s 5,000 or more, ether each must make a return, or the ncome of each must be
ncuded n a snge |ont return. husband and wfe vng together at the
cose of the ta abe year but not durng the entre ta abe year must make a
return or returns f ther aggregate gross ncome for the ta abe year a
5,0(10 or more, or ther aggregate net ncome s equa to, or n e cess of, the
credt aowed them by secton 25(b) (1) and (3) of the Revenue ct of
1034 (computed wthout regard to the status of ether of them as the head
of a famy). If the ncome of each Is ncuded n a snge |ont return, the
ta s computed on the aggregate ncome and a deductons and credts to
whch ether s entted sha bp taken from such aggregate ncome. |ont
return of husband and wfe may be fed ony f they were vng together at
the cose of ther ta abe year. If one spouse des pror to the ast day
of the ta abe year, the survvng spouse may not ncude the ncome of the
deceased spouse In a |ont return for such ta abe year.
The |ont return of a husband and wfe (f not made by an agent other than
husband or wfe, see artce 2) must be sgned by bot spouses, e cept that one
spouse may sgn the return as the agent for the other, f the return s accom-
paned by a power of attorney on orm 930, authorzng such acton. The
spouse actng as agent sha, wth the prncpa, assume the responsbty for
makng the return, and ncurs abty for the penates provded for erroneous,
fase, or frauduent returns.
The |ont return of a husband and wfe must be sworn to before an offcer
duy authorzed to admnster oaths (see artce 4) by the spouse preparng
the return. The spouse who fs out the return sha be consdered to have
prepared the return wthn the meanng of ths paragraph. If the return s
prepared by bott spouses, or s prepared by nether spouse, then both spouses
sha swear to the return, e cept where one spouse acts for the other spouse
under a power of attorney submtted on orm 93G, or the return s made by
an agent by reason of ness or absence, as provded n artce 2.
Whether or not an ndvdua s the head of a famy or has dependents s
mmatera n determnng hs abty to render a return.
rt. 2. orm of return. The return sha he on orm 1040, e cept that It
may be ou short orm 1W0 f the net ncome does not e ceed 5,000, and s
derved chefy from saares and wages. The forms may be had from the co-
ectors of the severa dstrcts. The return may be made by an agent f, by
reason of ness, the person abe for the makng of the return s unabe to
make t. The return may aso be made by an agent f the ta payer s unabe
to make the return by reason of contnuous absence from the Unted States
for a perod of at east GO days pror to the date prescrbed by aw for makng
the return. Whenever a return Is made by an agent t must be accompaned
by the prescrbed power of attorney, orm 935. The ta payer and hs agent,
f any, are responsbe for the return as made and ncur abty for the pena-
tes provded for erroneous, fase, or frauduent returns.
rt. 3. Return of ncome of mnor. n ndvdua, athough a mnor, s re-
qured to render a return of ncome f he has a net ncome of hs own of 1,000
or over, or a gross ncome of 5,000 or over, for the ta abe year. If he s
marred, see artce 1. If under the aws of a State the earnngs of a mnor
beong to the mnor, such earnngs, regardess of amount, are not requred to be
Incuded n the return of the parent. If the aggregate of the net Income of a
mnor from any property whch he possesses, and from any funds hed n trust
for hm by a trustee or guardan, and from hs earnngs whch beong to hm,
s at east 1,000. or hs gross ncome s at east 5,000, a return, as n the case
of any other ndvdua, must be made by hm or for hm by hs guardan, or
other person charged wth the care of hs person or property. In the absence
of proof to the contrary, a parent w be assumed to have the ega rght to
the earnngs of the mnor and must ncude them n hs return.
rt. 4. erfcaton of returns:. ncome ta returns must be verfed
under oath or affrmaton. The oath or affrmaton may be admnstered by
any offcer duy authorzed to admnster oaths for genera purposes by the
aw of the Unted States or of any State, Terrtory, or possesson of the Unted
States, wheren such oath s admnstered, or by a consuar offcer of the
Unted States. Persons n the nava or mtary servce of the Unted States
may verfy ther returns before any offca authorzed to admnster oaths
for the purposes of those respectve servces. Income ta returns e ecuted
abroad may he attested free of charge before Unted States consuar offcers.
If a foregn notary or other offca havng no sea sha act as attestng offcer,
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81
51, rt. 51-1.
the authorty of such attestng offcer shoud be certfed to by some |udca
offca or other proper offcer havng knowedge of the appontment and offca
character of the attestng offcer.
kt. 5. Use of prescrbed forms. Copes of the prescrbed return forms w
so far as possbe be furnshed ta payers by coectors. ta payer w not
be e cused from makng a return, however, by the fact that no return form has
been furnshed to hm. Ta payers not supped wth the proper forms shoud
make appcaton therefor to the coector n ampe tme to have ther returns
prepared, verfed, and fed wth the coector on or before the due date. ach
ta payer shoud carefuy prepare hs return so as fuy and ceary to set forth
the data theren caed for. Imperfect or ncorrect returns w not be accepted
as meetng the requrements of the ct. In ack of a prescrbed form a state-
ment made by a ta payer dscosng hs gross ncome and the deductons
therefrom may be accepted as a tentatve return, and f fed wthn the pre-
scrbed tme the statement so made w reeve the ta payer from abty to
penates, provded that wthout unnecessary deay such a tentatve return s
suppemented by a return made on the proper form.
Wrght Matthews,
ctng Comms wner of Interna Revenue.
pproved anuary 12, 1935.
T. . Coodgb,
ctng Secretary of the Treasury.
rtce 51-1: Indvdua returns. I -13-7395
( so Secton 25, rtce 25-2.) I. T. 2875
R. NU CT O 1934.
What consttutes a |ont return earned Income credt aowabe
n the case of a husband and wfe.
statement n an ncome ta return to the effect that the return
s a |ont return does not necessary consttute t a |ont return.
In order for a |ont return, propery cassfed as such, to be fed
by a husband and wfe, both spouses must have had some ncome
or deductons n the year for whch the return s fed and the return
must ncude the ncome and deductons of both spouses. |ont
return of husband and wfe may be fed ony f they were vng
together at the cose of ther ta abe year.
Where a husband and wfe, are vng together, ether spouse may
make a return and cam the tota |ont persona e empton of
2,500, regardess of the fact that the other spouse had no ncome
or deductons.
statement on a return to the effect that the return s a |ont
return rases the presumpton that ncome and deductons of both
the husband and vfe are ncuded n the return, and, hence, t must
be sgned by both spouses. owever, f t s shown that the ncome
and deductons of ony one spouse are ncuded n the return, t s
necessary that the return be sgned by that spouse, ony.
The earned ncome credt aowabe (for the purpose of the nor-
ma ta , but not for the surta ) under the Revenue ct of 1934 s
aganst the net ncome of each ndvdua and s based on the earned
net ncome of the respectve ndvdua even though a husband and
wfe fe a |ont return. ccordngy, n such a case, where ony the
husband had ncome but the wfe had an aowabe deducton or
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53, rt. 53-2.
82
deductons, the husband ony s entted to an earned ncome credt
and t s based on hs earned net ncome.
The rue that the earned ncome credt aowabe under the Reve-
nue ct of 1934 s aganst the net ncome of each ndvdua and s
based on the earned net ncome of the respectve ndvdua appes
aso to the case of a husband and wfe domced n a communty
property State. ccordngy, the earned ncome credt aowabe to
eac spouse n a |ont return s the same as s aowabe to each
spouse n separate returns.
owever, n order to permt aowance of separate earned ncome
credts n a |ont return, the earned ncome, earned ncome deduc-
tons, earned net ncome, and net ncome of each spouse must be
shown separatey n the return.
S CTION 53. TIM ND TL C OR
ILING R TURNS.
rtce 53-2: tensons of tme for fng I -10-73
returns. T. D. 4529
( so Secton 5 (c), rtce 5 -2.)
SURT P RSON L OLDING COMP NI S.
INCOM T MUTU L INSUR NC COMP NI S OT R T N LI .
tensons of tme for fng returns and payment of the ta es.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
In accordance wth the provsons of secton 53 and secton 5 (c)
of the Revenue ct of 1934, e tensons of tme for such perods as
may be necessary, but not ater than pr 15, 1935, are granted to
(1) Persona hodng companes for the fng of surta returns,
orm 1120 , Return of persona hodng company sub|ect to sur-
ta under secton 351 of the Revenue ct of 1934, and for the
payment of the ta shown to be due thereon, for the caendar
year 1934
(2) Mutua nsurance companes other than fe for the fng of
ncome ta returns, orm 1030, Income return of a mutua nsur-
ance company other than fe, and for the payment of the ta
shown to be due thereon, for the caendar year 1934.
In accordance wth the provsons of secton 295 of the Revenue
ct of 1934, nterest on one-fourth of the amount of the ta shown
on any return, for the payment of whch an e tenson of tme s
heren granted, w accrue at the rate of per cent per annum from
March 15, 1935, to the date of payment.
Gut T. everng,
Corwrnssoner of Interna Revenue.
pproved March 7, 1935.
T. . Coo|dge,
ctng Secretary of the Treasury.
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83
53, rt. 53-2.
rtce 53-2: tensons of tme for fng I -17-7457
returns. T. D. 4543
( so Secton 5 , rtce 5 -2.)
INCOM T MUTU L INSUR NC COMP NI S OT R T N LI .
urther e tenson of tme for fng returns and payment of the
ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In accordance wth the provsons of secton 53 and secton 5 (c)
of the Revenue ct of 1934, a further e tenson of tme for fng
ncome ta returns, orm 1030, Income return-of a mutua nsurance
company other than fe, and for the payment of the ta shown to
be due thereon, for the caendar year 1934, s hereby granted for such
perod as may be necessary, but not ater than May 15, 1935.
In accordance wth the provsons of secton 295 of the Revenue
ct of 1934, nterest on one-fourth of the amount of the ta on any
return, for the payment of whch an e tenson of tme s heren
granted, w accrue at the rate of per cent per annum from March
15, 1935, to the date of payment.
Gut T. evernq,
Commssoner of Interna Revenue.
pproved pr 19, 1935.
L. W. Robert, r.,
ctng Sccreta|-y of the Treasury.
rtce 53-2: tensons of tme for fng I -21-7514
returns. T. D. 4548
( so Secton 5 , rtce 5 -2.)
INCOM T MUTU L INSUR NC COMP NI S OT R T N LI .
urther e tenson of tme for fng returns and payment of
the ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, . C.
To Coectors of Interna Revenue and Others Concerned:
In accordance wth the provsons of secton 53 and secton 5 (c)
of the Revenue ct of 1934, a further e tenson of tme for fng
ncome ta returns, orm 1030, Income return of a mutua nsurance
company other than fe, and for the payment of the ta shown
to be due thereon, for the caendar year 1934, s hereby granted for
such perod as may be necessary, but not ater than une 15, 1935.
In accordance wth the provsons of secton 295 of the Revenue
ct of 1934, nterest on one-fourth of the amount of the ta shown
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554, rt. 54-1. 84
on any return, for the payment of whch an e tenson of tme s
heren granted, w accrue at the rate of per cent per annum from
March 15, 1935, to the date of payment.
Guy T. everng,
Commssoner of Interna Revenue.
pproved May 20, 1935.
T. . Coouge,
ctng Secretary of the Treasury.
S CTION 54. R CORDS ND SP CI L R TURNS.
rtce 54-1: ds to coecton of ta . I -G-7297
I. T. 285
orm 10 O, Statement of ncome, and proft and oss accounts.
orm 1090, Statement of ncome, and proft and oss accounts,
has been revsed and s now n process of beng prnted . It s1
e pected that the dstrbuton of these forms w be made to co-
ectors of nterna revenue n the near future.
The ma|or change n the form s n regard to deprecaton, whch
must conform to the provsons of Treasury Decson 4422 (C. .
III-1, 58) and Mmeograph 4170 (C. . III-1, 59). orms
1090 must be fed by a raroad corporatons fng consodated
returns and aso by raroad corporatons fng snge returns, n
the event such corporatons are requred to fe annua reports wth
the Interstate Commerce Commsson. orm 1090 shoud be com-
ped for each raroad company ncuded n the ncome ta return
on orm 1120 and fed therewth.
rtce 54-1: ds to coecton of ta . I -13-739
G. C. M. 14509
R NU CT OP 1934. I
The afdavt requred by Treasury Decson 447 (C. . III-2,
57) and Department Crcuar 230 (C. . III-2, 593) to be fed
by a person preparng a return for another person s desgned to
make the attorney or agent preparng the return responsbe for
an accurate, true, and compete report n the return of a the nfor-
maton of whch the attorney or agent has any knowedge but t.
s not ntended to make hm responsbe for the truth and accuracy
of nformaton furnshed to hm for use n preparng the return
where the verfcaton of the nformaton by the attorney or agent
was not embraced n hs empoyment to prepare the return.
dvce s requested reatve to the form of affdavt requred by
Treasury Decson 4470 and secton 2(h) of Department Crcuar 230
where returns arc prepared for a ta payer by an attorney or agent.
It appears that , an attorney enroed to practce before the
Treasury Department, s reuctant to e ecute the requred affdavt
n certan cases, statng that n hs opnon the form of affdavt
tends to ndcate greater knowedge than he actuay has or coud
have under the character or purpose of the partcuar empoyment,
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85
54, rt. 54-1.
and that t makes hm responsbe for the correctness of nformaton
whch he s not permtted to verfy.
The modfcaton by Treasury Decson 447 of the affdavt pro-
vded for n Treasury Decson 441 (C. . III-1, 8) was made
after due regard and consderaton for the mtatons of respons-
bty propery to be paced upon attorneys or agents preparng
returns for ta payers. The affdavt s desgned to make such
attorneys or agents responsbe for an accurate, true, and compete
report n the return of a nformaton of whch the attorney or
agent has any knowedge but t s not ntended to make hm respon-
sbe for the truth and accuracy of nformaton furnshed to hm
for use n preparng the return where the verfcaton of the nforma-
ton by the attorney or agent was not embraced n hs empoyment
to prepare the return.
It appears that the attorney s reuctance to e ecute the affdavt s
nduced by the constructon whch he paces upon the word know-
edge contaned n the affdavt. The term s not used n a technca
sense but s to be consdered n the ght of, and as quafed by, the
provsons of paragraphs (c) and (d), artce 2, of Treasury Decson
447 , whch requre the ta payer to make a statement n hs return
showng (1) the nature and e tent of the assstance or advce (f
any) receved and the tems or schedues n respect of whch the
assstance or advce was receved, and (2) the source of the nforma-
ton reported n the return and the manner n whch t was furnshed
to or obtaned by the person or persons preparng the return.
The affdavt n queston s to be e ecuted ony n those cases where
the return s actuay prepared by an attorney or agent. In ths
connecton, attenton s nvted to queston 11, page 1, of orm 1040,
and queston 8, page 3, of orm 1120. The requrements of the
returns appear to afford ampe opportunty for statements or
e panatons of the character whch the attorney desres to make.
Wth respect to the attorney s statement that n some cases t
woud be a physca mpossbty to revew, e amne, and consder
the tems n an audt made by some other ndvdua as an ncdent
to the preparaton of a ta return, t s deemed suffcent to ca atten-
ton to the provson n the affdavt for more than one sgnature.
Treasury Decson 447 does not requre the ta payer to empoy
an attorney or agent to make a compete audt n the preparaton of
hs return, or deny to the attorney or agent the prvege of render-
ng servce n cases where a compete audt s not made. urther-
more, t does not appear that there s any provson of Treasury
Decson 447 whch makes t mpossbe or nadvsabe on the part of
an attorney or agent to serve a cent to any degree, no matter how
mted, on a egtmate bass.
In vew of the foregong, t does not appear that any undue or
unreasonabe burden s paced upon the attorney or agent by requr-
ng the e ecuton of the affdavt n the form provded. ccordngy,
the affdavt shoud be e ecuted n the form provded and e pana-
ton thereof shoud be made n the statements requred by artce 2
of Treasury Decson 447 .
erman Ophant,
Genera Counse, for the Department of the Treasury.
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rtce 54-1: ds to coecton of ta . I -15-7422
I. T. 2883
R NU CT OP 1934.
n accountant, , who made an audt and report for the specfc
purpose of the preparaton by of the ncome ta return of C,
shoud e ecute wth the affdavt requred by Treasury Decson
447 (C. . III-2, 57).
dvce s requested reatve to the affdavt requred by Treasury
Decson 447 to be e ecuted by a person or persons preparng ncome
ta returns for ta payers.
s empoyed n the ta department of a partnershp. The edera
ncome ta return of C was prepared by from an audt report made
by , an accountant assgned to the partcuar case. The accountant
aso prepared the ta payer s baance sheet, ncome and e pense state-
ment, and supportng schedues requred by the return. states that
f the wordng of Treasury Decson 447 s to be taken teray, then
t woud appear that the sgnng by hm of a return prepared under
such crcumstances woud be wthn the provsons thereof, but that
f the provsons are to be nterpreted to mean that he had access to
the books and records and personay saw them, the queston arses
whether he shoud sgn such a return even though he prepared t and
beeved the statements of fact contaned n the audt report were
true.
Treasury Decson 447 ceary contempates the e ecuton by of
the affdavt prescrbed thereby. It aso contempates e ecuton of
the affdavt by anyone who worked n con|uncton wth hm n the
preparaton of the ta return. Inasmuch as t appears from s
statement that the accountant made the audt and report for the
specfc purpose of the preparaton by of a partcuar mwme ta
return, the accountant. , s deemed to have worked n con|uncton
wth and shoud e ecute wth hm the prescrbed affdavt.
S CTION 55. PU LICITY O R TURNS.
Secton 55(a). I -1-723
( so Sectons 701 and 702.) T. D. 4504
Income, capta stock, and e cess-profts ta returns. T .se of
orgna returns and furnshng of copes of returns, made under
sectons 215 and 210 of the Natona Industra ecovery ct and
under te Revenue ct of 1934.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 257, Tte II, of the Revenue ct of 192 ,
provdes, n part:
(a) Returns upon whch the ta has been determned by the Commssoner
sha consttute pubc records but, e cept as herenafter provded n ths sec-
ton and secton 1203, they sha be open to nspecton ony upon order of the
Presdent and under rues and reguatons prescrbed by the Secretary and
approved by the Presdent.
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87
(c) The proper offcers of any State may, upon the request of the governor
thereof, have access to the returns of any corporaton, or to an abstract thereof
showng the name and ncome of the corporaton, at such tmes and n such
manner as the Secretary may prescrbe.
(d) bona fde sharehoders of record ownng 1 per centum or more of the
outstandng stock of any corporaton sha, upon makng request of the Com-
mssoner, be aowed to e amne the annua ncome returns of such corpora-
on and of ts subsdares.
Par. . Secton 215(e) of the Natona Industra Recovery ct
makes the above-quoted provsons appcabe to capta stock ta
returns under the Natona Industra Recovery ct.
Par. C. Secton 21 (b) of the Natona Industra Recovery ct|
and secton 55 of the Revenue ct of 1932, make the above-quoted
provsons appcabe to e cess-profts ta returns under the Natona
Industra Recovery ct.
Par. D. Secton 55(a) and secton 351 of the Revenue ct of 1934
make the above-quoted provsons appcabe to ncome ta returns
made under the Revenue ct of 1934, and sectons 701 and 702 of the
Revenue ct of 1934 make the same provsons appcabe, respec-
tvey, to capta stock ta returns and e cess-profts ta returns.
Par. . Secton 2, Tte I Income Ta , of the Revenue ct of
1934 provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons of aw, the foowng
reguatons are hereby prescrbed wth respect to the use of orgna,
or the furnshng of copes of, ncome ta returns made under the
provsons of the Revenue ct of 1934, and capta stock ta and
e cess-profts ta returns made under the provsons of secton 215 or
21 of the Natona Industra Recovery ct or secton 701 or 702
of the Revenue ct of 1934, and wth respect to access to and e am-
naton by State offcers and sharehoders of returns of corporatons
ktcb 1. Defnton of return. s used n these reguatons, the term
return means the orgna return, or a copy thereof, made for ncome ta
purposes, under the provsons of Tte I or I of the Revenue ct of 1934, or
for capta stock ta or e cess-profts ta purposes, made pursuant to the pro-
vsons of secton 215 or 21 of the Natona Industra Recovery ct or the
provsons of secton 701 or 702 of the Revenue ct of 1934.
bt. 2. urnshng of copes of ncome returns. (1) The orgna return of
an ndvdua, partnershp, corporaton, or fducary, or a copy thereof, may be
furnshed by the Commssoner to a Unted States attorney for use as evdence
before a Unted States grand |ury or n tgaton n any court, where the Unted
States s nterested n the resut, or for use n the preparaton for such tga-
ton, or to an attorney connected wth the Department of ustce, desgnated
to hande such matters, upon wrtten request of the ttorney Genera, the
ssstant to the ttorney Genera, or an ssstant ttorney Genera.
When a return or copy thereof s thus furnshed, t must be mted n
use to the purpose for whch t s furnshed and s under no condtons
to be made pubc e cept where pubcty necessary resuts from such use.
If the return s n the custody of a coector or of an nterna revenue agent n
charge, a copy thereof may be furnshed by the coector or by the nterna
revenue agent n charge to a Unted States attorney for use as evdence before
a I nted States grand |ury or n tgaton n any court where the Unted States
s nterested n the resut, or for use n the preparaton for such tgaton.
Where a photostat s requested and the coector or the nterna revenue agent
n charge has not the avaabe factes for makng such copy, wrtten request
for the copy must be sent to the Commssoner at Washngton. In case the
8083 33 4
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55.
88
orgna return s necessary, t sha be paced n evdence by the Commssoner
or by some other offcer or empoyee of the Interna Revenue ureau desgnated
by the Commssoner for that purpose, and after t as been paced n evdence
t sha be returned to the fes from whch t was wthdrawn. n orgna
return w be furnshed ony n e ceptona cases, and then ony when t s
made to appear that the ends of |ustce may otherwse be defeated. Nether
the orgna nor a copy of the return desred for use n tgaton n court w
e furnshed, where the Unted States Government s not nterested n the
resut and where such use mght resut n makng pubc the nformaton con-
taned theren, whether or not the request for the copy s contaned n an order
of the court. Ths provson s not a mtaton on the use of copes of returns
by the persons entted to such copes under the provsons of the succeedng
paragraph.
(2) copy of a return may be furnshed by the Commssoner to the
pe-son who made the return or to hs duy consttuted attorney or If the
person s deceased, to hs e ecutor or admnstrator or f the property of
the person s n the hands of a recever, trustee n bankruptcy, guardan, or
smar ega custodan, to such recever, trustee, guardan, or other smar
custodan upon wrtten appcaton for same, accompaned by satsfactory
evdence that the appcant comes wthn ths provson. The person who
made the return, as heren used, refers n the case of an ndvdua return
to the ndvdua, a copy of whose return s desred, and n the case of a
return of a corporaton or fducary, to the corporaton or fducary, a copy of
whose return s desred. corporaton may desgnate by proper acton of ts
board of drectors or other smar governng body, the offcer or ndvdua
to whom a copy of a return made by the corporaton may be furnshed, and
upon suffcent evdence of such acton and of the dentty of the offcer or
ndvdua, a copy may he furnshed to such person. copy of a partnershp
return may be furnshed to any ndvdua (or hs duy consttuted attorney
n fact or ega representatve) who was a member of such partnershp durng
any part of the tme covered by the return, upon satsfactory evdence of such
fact beng furnshed. copy of a corporaton return may be furnshed to a
sharehoder entted to nspect the return upon submsson of the evdence
requred by artce 4. The copy of the return w, however, be furnshed ony
to (he sharehoder and he w not be permtted to deegate another to receve
t n hs behaf. In the case of a corporaton whch has been dssoved, a
copy of the return of the corporaton may be furnshed to any person who
coud have receved a copy at the date of dssouton. copy of a return
n the custody of a coector or of an nterna revenue agent n charge may
be furnshed by the coector or by the nterna revenue agent n charge to a
person entted to receve a copy of such return under ths paragraph upon
wrtten appcaton for same, accompaned by satsfactory evdence that the
appcant comes wthn ts provsons. Where a photostat s requested and
the coector or the nterna revenue agent n charge has not the avaabe
factes for makng such copy, the wrtten request for the copy must be sent
to the Commssoner at Washngton.
(3) copy of a return may be furnshed to any person who may be permtted
to nspect such return.
(4) Certfed copes of returns w be furnshed to the persons entted
thereto ony upon wrtten request for same sent to the Commssoner at
Washngton.
(5) The Commssoner may prescrbe a reasonabe fee for furnshng copes
of returns.
rt. 3. cees to returns by State offcers. (1) The proper offcers of a
State arc entted as of rght upon the request of ts governor to have access
to the returns of a corporaton or to an abstract thereof, showng ts name and
Income.
(2) The request or appcaton of the governor must he n wrtng, sgned by
hm under the sea of hs State, and must show: (a) The name and address
of the corporaton makng the returns to whch access s desred ( ) why ac-
cess s desred (c) the names and offca postons of the offcers desgnated
to have the access.
(3) The request or appcaton of the governor may he addressed ether to
the Secretary of the Treasury or to the Commssoner, but shoud he trans-
mtted to the Commssoner, who w set a convenent tme and pace for the
access to the returns (or to an abstract thereof as he may determne).
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89
55.
(4) ccess sha be gven ony In the offce of the Commssoner, uness such
returns are n the custody of a coector of nterna revenue or nterna revenue
agent n charge, n whch event the return may be nspected n the offce of
such coector or agent, but ony n the presence of an nterna revenue offcer
desgnated by the coector or agent for that purpose.
(5) The offcers desgnated by the governor w not be permtted to name
another person or persons to e amne the returns (or abstracts) for them.
( ) The offcers desgnated may have access to sts furnshed to suppement
and become a part of the returns to whch they are gven access.
kt. 4. amnaton of returns by sharehoder. bona fde sharehoder of
record ownng 1 per cent or more of the outstandng stock of a corporaton
sha be entted as of rght, upon makng request of the Commssoner, to
e amne the annua returns of such corporaton and of ts subsdares. s
request for permsson to e amne such returns must be made n wrtng, and
must be n the form of an affdavt showng hs address, the name of the
corporaton, the perod of tune covered by the return he desres to nspect, the
amount of the corporaton s outstandng capta stock, the number of shares
owned by hm, the date when he acqured them, and whether he has the bene-
fca as we as the record tte to such shares. It must aso show that he has
not acqured hs shares for the purpose of the e amnaton of the returns of
the corporaton. If he has acqured them for such purpose, he s not a bona
fde sharehoder wthn the meanng of the statute. The appcaton must be
supported by satsfactory evdence showng that the appcant s a bona fde
. sharehoder of record of the requred amount of stock of the corporaton. The
supportng evdence may be party n the form of a certfcate sgned by the
presdent or vce presdent of the corporaton and countersgned by the secretary
under the corporate sea. Upon beng satsfed from the evdence presented that
the appcant has fuy met these condtons, the Commssoner w grant the
permsson to e amne the returns and set a convenent tme and pace for the
e amnaton. Ths prv:ege s persona and w be granted ony to the share-
hoder, who can not deegate t to another.
rt. 5. Penates for dscosure of returns. sharehoder who e amnes the
return of a corporaton and reveas wthout e press authorty of aw any par-
tcuar thereof s guty of a msdemeanor and abe to fne and mprsonment.
Secton 31G7 of the Revsed Statutes, as amended by the Revenue ct of 1918
and reenacted wthout change by secton 1115 of the Revenue ct of 192 ,
provdes as foows:
It sha be unawfu for any coector, deputy coector, agent, cerk, or other
offcer or empoyee of the Unted States to dvuge or to make known n any
manner whatever not provded by aw to any person the operatons, stye of work
or apparatus of any manufacturer or producer vsted by hm n the dscharge
of hs offca dutes, or the amount or source of ncome, profts, osses, e pend-
tures, or any partcuar thereof, set forth or dscosed n any ncome return,
or to permt any ncome return or copy thereof or any book contanng any
abstract or partcuars thereof to be seen or e amned by any person e cept as
provded by aw and t sha be unawfu for any person to prnt or pubsh n
any manner whatever not provded by aw any ncome return, or any part
thereof or source of ncome, profts, osses, or e pendtures appearng n any
ncome return and any offense aganst the foregong provson sha be a ms-
demeanor and be punshed by a fne not e ceedng 1,000 or by mprsonment
not e ceedng one year, or both, at the dscreton of the court and f the
offender be an offcer or empoyee of the Unted States he sha be dsmssed
from offce or dscharged from empoyment.
n Interna revenue offcer dscoverng n the course of hs duty nformaton
eadng hm to suspect a possbe voaton of any aw wth the enforcement of
whch he s not drecty concerned shoud mmedatey report the matter to the
Commssoner, who s authorzed to communcate wth the proper department
nvoved.
Gut T. IIeverng,
Commssoner.
pproved December 29, 1934.
T. . Coodge,
ctng Secretary of the Treasury.
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55, rt. 55(b)- .
90
Secton 55(a). I -25-7554
ecutve order uthorzaton of Speca Commttee Invest-
gatng the Muntons Industry, Unted States Senate, to nspect
ncome and profts ta returns and capta stock ta returns.
y vrtue of and pursuant to the authorty vested n me by sec-
ton 55 of the Revenue ct of 1932 (ch. 209, 47 Stat, 1 9, 189),
as amended bv secton 218(h) of the Natona Industra Recovery
ct (ch. 90. 48 Stat.. 195, 209). and secton 55(a) of the Revenue ct
of 1934 (ch. 277, 48 Stat., 80, 98), t s hereby ordered that ncome
and profts ta returns made under the Natona Industra Recovery
ct, the Revenue ct of 1932, as amended by the Natona Industra
Recovery ct, and the Revenue ct of 1934, and capta stock ta
returns made under the Revenue ct of 1934, sha be open to n-
specton by the Speca Commttee Investgatng the Muntons
Industry, Unted States Senate, authorzed by Senate Resouton 20 ,
Seventy-thrd Congress, to nvestgate the manufacture of and traffc
n arms, muntons, and other mpements of war, such nspecton to
be n accordance and upon compance wth the rues and reguatons
prescrbed bv the Secretary of the Treasury n Treasury Decson
4440 (C. . III-I, 305), and approved by the Presdent une 15,
1934.
rankn D. Roosevet.
The Whte ouse,
May U, 1935.
rtce 55(b)-1: Defntons. I -24-7547
G. C. M. 14987
R NL CT O 1934.
orm 1004, Statement of tems shown upon ncome return,
s not requred to be red wth an ncome ta return for the ca-
endar year 1934, fed after pr 10, 1035 (the dae of the amend-
ment of secton 55(b) of the Revenue ct of 1934), under an
e tenson of tme.
Such statements ( orm 10941 fed for the year 1934 n accord-
ance wth the provsons of secton 55(b) of the Revenue ct of
1934 as orgnay enacted may not be made avaabe for e amna-
ton and nspecton by any persons who are not gven the rght to
e amne returns by other provsons of the statutes and reguatons.
Inqury s made whether orm 1094. Statement of tems shown
upon ncome return, must be fed wth a return for the caendar
year 1934, fed after pr 19, 1935 (the date of the amendment of
secton 55(b) of the Revenue ct of 1934), under an e tenson of
tme, and whether such statements fed wth returns for the year
1934 n accordance wth the provsons of secton 55(b) of the Reve-
nue ct of 1934 as orgnay enacted may be made avaabe for
pubc e amnaton and nspecton.
orm 1094 s the form prepared for the use of ta payers n fng
the statements of gross and net ncome, deductons, credts, and ta
|ayabe requred by secton 55(b) of the Revenue ct of 1934 as t
orgnay appeared n that ct. That secton was amended by the
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91
55, rt. 55(b)-.
ct approved pr 19, 1935 (Pubc, No. 40, Seventy-fourth Con-
gress, . R. 359), whch provdes:
That secton 55(b) of the Revenue ct of 1934 reatng to fng
and makng pubc certan ncome statements s amended to read as foows:
(b) (1) ncome returns fed under ths tte for any ta abe year begn-
nng after December 31, 1934 (or copes thereof, f so prescrbed by reguatons
made under ths subsecton), sha be open to Inspecton by any offca, body,
or commsson, awfuy charged wth the admnstraton of any State ta aw,
f the nspecton s for the purposes of such admnstraton or for the purpose
of obtanng nformaton to be furnshed to oca ta ng authortes as provded
In paragraph (2)
The b coverng the ct of pr 19, 1935, as t was ntroduced,
merey provded for the repea of secton 55(b) of the Revenue ct
of 1934. fter passage n that form by the ouse, the b was
amended n the Senate by strkng out a provsons foowng the
enactng cause and nsertng the matter now appearng n the ct.
The amendng ct contans none of the provsons whch were n
the orgna secton 55(b). It appears throughout the debate on
the. amended b n both the Senate and the ouse that the prmary
purpose of the b was to repea such provsons. Moreover, t s
a we estabshed rue of aw that where a secton e pressy amenda-
tory of another secton of a statute purports to set out n fu a
t s ntended to contan, any matter whch was n the orgna sec-
ton, but not n the amendatory secton, s repeaed by the omsson.
(See Sutherand on Statutory Constructon (2d ed.), secton 237
59 Corpus urs, 923, secton 524.)
In Great Northern Ry. Co. v. Unted States (155 ed., 945), ths
rue s stated as foows:
Generay speakng, where a statute s amended so as to read as foows,
or s reenacted wth changes, or s n terms repeaed and smutaneousy
reenacted wth changes, the amendatory or reenactng act becomes a substtute
for the orgna, whc then censes to have the force and effect of an ndepend-
ent enactment but ths does not mean that the orgna s abrogated for a
purposes, or that everythng n the ater statute s to be regarded as f frst
enacted theren. On the contrary, the better and prevang rue s that so
much of the orgna as s repeated n the ater statute wthout substanta
change Is affrmed and contnued n force wthout nterrupton, that so much
as s omtted s repeaed, and that any substanta change n other portons, as
aso any matter whch s entrey new, s operatve as new egsaton.
In Contnenta Ins. Co. v. Smpson (8 ed. (2d), 439), t s stated
that:
The rue s we estabshed, and the reason for It pan, that the
frst amendment of a statute s repeaed when the statute referred to s agan
amended and whoy reenacted wth the omsson of the frst amendment.
The rue s apped n Unted States e re. rown v. Prents (182
ed., 894, 897), wheren t s stated:
Where the egsatve body, n amendng an act, omts certan mtatons
e pressed n the orgna act n smpe anguage, pan n ts meanng, the
presumpton of aw s that the mtaton no onger e sts, at east n the
absence of other e press words showng that t was ntended to contnue.
Nether ambguous nor uncertan anguage w preva aganst such an e press
omsson. ( uoted wth approva n Unted States v. One Ice o (37 ed.
(2d), 120.)
There s no doubt, therefore, that the orgna secton 55(b) was
repeaed by the ct of pr 19,1935, and the ony queston s whether
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55, rt. 55(b)-2.
92
the repeaed provsons contro as to the fng of such statements wth
returns for 1934, whch, because of e tensons of tme, are not fed
unt after pr 19, 1935, the date of approva of the repeang ct,
and as to the e amnaton of such statements fed pror to the repea
of secton 55(b) as orgnay enacted.
In ertz v. Woodman (218 U. S., 205), t s stated:
There are cases whch go so far as to say that the unquafed repea of a
aw as effectuay destroys rghts and abtes dependent upon t, not past
and concuded, as f the statute had never e sted. It Is, however, puttng
t strongy enough to say, that an unquafed repea operates to destroy Inchoate
rghts, as a reease of mperfect obgatons and as a remsson of penates and
forfetures dependent upon the destroyed statute.
It mght be argued that the provson n the amendng ct, mak-
ng ts provsons appcabe ony to returns fed for any ta abe
year begnnng after December 31, 1934, ndcates an ntent to eave
tbe repeaed provsons appcabe to a returns for 1934. It appears,
however, throughout the debates on the b that the reason for the
repea of the provson for pubcty of the nformaton contaned n
the statements requred by secton 55(b) as orgnay enacted was
the beef that such pubcty woud produce harmfu resuts. That
reason appes |ust as strongy to ncome returns for 1934 as to returns
for subsequent years, and t s evdent that Congress ntended by the
repeang ct to prevent the makng of the statements for 1934 ava-
abe to pubc e amnaton and nspecton. The repeang ct became
effectve before the statements requred by the repeaed secton had
been made avaabe to pubc e amnaton and nspecton n a man-
ner to be determned by the Commssoner, and there s now no pro-
vson of aw whch authorzes the makng of the statements ava-
abe to such e amnaton and nspecton.
It s, therefore, the opnon of ths offce that the statements re-
qured by secton 55(b) of the Revenue ct of 1934 as orgnay
enacted need not be fed wth returns for 1034, fed after pr 19,
1935, under granted e tensons and that such statements fed n
accordance wth the provsons of secton 55(b) of the Revenue ct
of 1934 as orgnay enacted may not be made avaabe for e am-
naton and nspecton by any persons who are not gven the rght
to e amne returns by other provsons of the statutes and reguatons.
Robert . ackson,
ssstant Genera. Counse for the
ureau of Interna Revenue.
rtce 55(b)-2: orm of statement. I -5-7283
Mn. 4281
Preparaton of orm 1094, Statement of tems shown upon
ncome return.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuary 2, 1935.
Coectors of Interna Revenue:
In vew of the numerous questons arsng as to the tems shown
upon ncome returns whch shoud be entered on orm 1094, there
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93
55, rt. 55-(b)2.
s shown beow a schedue of the varous forms n queston, together
wth the number of the tems thereon whch correspond to the tems
on orm 1094:
orms.
Items on forms.
Tota gross
ncome.
Tota de-
ductons.
Net n-
come.
Credts, etc.
Ta payabe.
orm 1094
2
3
4
5

orm 1040
12
19
20
Tota of
22,
34
23, 25,
2 ,
and 27.
orm 1040 -
5
9
10
Tota of
11,
18
12, and
13.
orm 1040 - ... ..
12
21
24
Tota of
2 ,
37
27, 29,
30,
and 31.
orm 1040C
5
9
10
Tota of 1
2 to
19
15.
orm 1041
9
1
17
Not ta abe...
None.
orm 10 5
12
23
24
Not ta abe
None.
orm 1120
14
2
27
29
Tota of 34
and 38.
orm 1120L-.
4
14
15
17 or 23
21 or 27.
Coectors may use the schedue shown above for the purpose of ad-
vsng ta payers reatve to the preparaton of orm 1094, State-
ment of tems shown upon ncome return.
Correspondence n regard to the procedure outned heren shoud
refer to the number of ths mmeograph and to the symbos C: Co.
Wrght Matthews,
ctng Commssoner.
rtce 55(b)-2: orm of statement. I -9-7350
Mn. 4299
Preparaton of orm 1094, Statement of tems shown upon n-
come return orm 1120 . (SunpemontnR Mn. 4281.)
Treasury Department,
Offce of Commssoner of Interna event|e,
Washngton, D. C, cruan| 2 , 1935.
Coectors of Interna Revenue:
Reference s made to the schedue contaned n Mmeograph 4281
page 92, ths uetn , dated anuary 22, 1935, showng by number
the tems on varous ncome returns whch correspond to the tems on
orm 1094. orm 1120 , Return of persona hodng company
sub|ect to surta under secton 351 of the Revenue ct of 1934, was
not ncuded n that schedue for the reason that the fna draft of
the form had not been competed at the tme the mmeograph was
ssued.
The preparaton of orm 1120 has been competed and there s
gven beow a schedue showng by number such of the tems on that
form whch correspond to tems on orm 1094, and the notaton to
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5 , rt. 50-2.
94
be made n the bank spaces opposte tems 2, 3, and 5 on orm 1094,
for whch there are no correspondng tems shown on orm 1120 :
Items on forms.
orms.
Tots
gross n-
come.
Tota de-
ductons.
Net n-
come.
Credts,
etc.
1094
2
3
4
5
s
2on____
( )
0)
1
(0
23
1 Persona hodng company. None aowed.
Coectors may use the schedue shown above for the purpose of
advsng ta payers reatve to the preparaton of orm 1094, State-
ment of tems shown upon ncome return, requred to be fed wth
orm 1120 .
It s antcpated that orm 1120 w be prnted and dstrbuted
at an eary date. owever, n vew of the comparatvey short tme
remanng before March 15, 1935, consderaton s beng gven to thcf
grantng of a genera e tenson of tme for fng returns on that
form for the caendar year 1934.
Correspondence n regard to the procedure outned heren shoud
refer to the number of ths mmeograph and to the symbos C: Co.
Gut T. evektng,
Commssoner.
rtce 55(b)-3: Persons requred to fe I -8-7328
orm 1094. I. T. 28 4
R NU CT OP 1934.
orm 1094. Statement of tems shown upon ncome return, s
not requred to be fed wth orm 1013. annua return of ncome
ta to be pad at the source on bond nterest, and orm 1042, annua
return of ncome ta to be pad at the source on saares, etc.
S CTION 5 . P YM NT O T .
rtce 5 -2: tenson of tme for payment of the ta
or nstament thereof.
R NU CT OP 1934.
tenson of tme for payment of ta of persona hodng com-
panes shown to be due on orm 1120 and ta of mutua nsurance
companes other than fe shown to be due on orm 1030 for caendar
year 1934. (See T. D. 4529, page 82.)
rtce 5 -2: tenson of tme for payment of the ta
or nstament thereof.
R NU CT O 1934.
Rues governng consderaton of appcaton for e tenson of
tme to pay nstaments of ncome ta . (See Mn. 4303, page 133.)
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95
101, rt. 101(7)-1.
rtce 5G-2: tenson of tme for payment of the ta
or nstament thereof.
R NU CT O 1034.
urther e tenson of tme for pa|ment of ta of mutua nsurance
companes other than fe shown to be due on orm 1030 for caen-
dar year 1934. (See T. D. 4543, page 83.)
rtce 5G-2: tenson of tme for pa37ment of the ta
or nstament thereof.
R NU CT O 1034.
urther e tenson of tme for payment of ta of mutua nsurance
companes other than fe shown to be cue on orm 1030 for caendar
year 1934. (See T. D. 4548, page 83.)
SU TITL C SUPPL M NT L PRO ISIONS.
SU TITL . R T S O T .
S CTION 101. MPTIONS OM T
ON CORPOR TIONS.
rtce 101(7)-1: usness eagues, chambers I -14-7412
of commerce, rea estate boards, and boards I. T. 2880
of trade.
R NU CT O 1034.
The M oard, Inc., and the O Code uthorty are not engaged
In a busness ordnary curred on for proft but are prmary
engged n actvtes drected to the mprovement of busness con-
dtons and the promoton of the genera ob|ects of ther ne of
busness. They are not engaged n partcuar servces for nd-
vdua persons. o part of the net ncome nures to the beneft of
any prvate sharehoder or ndvdua.
ed, the organzatons are e empt from edera ncome ta
under the provsons of secton 101 of the Revenue ct of 1934.
The queston s presented whether certan code authortes, namey,
the M oard, Inc., whch s ncorporated n the State of R, and the
0 Code uthorty, whch s unncorporated, are e empt from ed-
era ncome ta .
The essenta functons of each of these code authortes are the
same. ach s organzed pursuant to codes of far competton as
provded n secton 3 of Tte I of the Natona Industra Recovery
ct (Pubc, No. 7, Seventy-thrd Congress, 48 Stat., 195). The
code authortes are an ntegra part of the code system and are quas
pubc and semoffca bodes to ad n the enforcement of the respec-
tve codes and to cooperate wth the Natona Recovery dmnstra-
ton n ts actvtes. The code authortes are not operated for proft.
Ther ony ncome s derved from assessments upon members of a
partcuar ndustry and ther e pendtures are soey to assst n
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112(b), rt. 112(b)(1)- .
9
pannng for the ndustry and nsurng equtabe admnstraton of,
and compance wth, the code for such ndustry. The code author-
tes coect reports requred by the edera admnstrator. Ther
e pense budgets and the bass of contrbuton by the members are
submtted to the admnstrator for approva. Certan cost and saes
fgures are coected by the code authortes and made avaabe to
the ndustry as a whoe. In the case of the M oard, Inc., the cor-
poraton s organzed specfcay as a nonproft corporaton wthout
shares of stock.
Snce these two code authortes are not engaged n busness ord-
nary carred on for proft but are prmary engaged n actvtes
drected to the mprovement of busness condtons and the promo-
ton of the genera ob|ects of ther ne of busness, are not engaged
n partcuar servces for ndvdua persons, and no part of the net
ncome nures to the beneft of any prvate sharehoder or ndvdua,
t s hed that they are entted to e empton as busness eagues
organzed to promote the common nterests of the partcuar ndustry.
It s stated that there are more than 540 basc and 180 suppemen-
ta codes whch have been approved by the Natona Recovery d-
mnstraton wth a code authorty representng each trade or ndus-
try nvoved. In so far as the code authortes are essentay en-
gaged n the same character of functons and actvtes as the organ-
zatons here under consderaton, they are entted to e empton.
Under artce 101-1 of Reguatons 8 , t s ncumbent upon each
of these code authortes, n order to be reeved of the duty of fng
returns of ncome, to fe an affdavt wth the coector for the ds-
trct n whch the partcuar code authorty s ocated settng forth
the nformaton requred n that artce of the reguatons.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112(b). R COGNITION O G IN OR LOSS :
C NG S SOL LY IN IND.
rtce 112 (b) (1)-1: Property hed for produc- I -22-7520
tve use n trade or busness or for nvestment. I. T. 289
( so Secton 117, rtce 117-2.)
R NU CT O 1934.
Where under a refundng pan the M Trust Co., a hoder of de-
fauted bonds of the cty of R, e changed such bonds and unpad
nterest coupons for new bonds of that cty havng a market vaue
beow the cost of the od bonds and not substantay dentca
wth the od bonds, a deductbe oss was sustaned, mted by sec-
ton 117(d) of the Revenue ct of 1934 to 2,000 pus the sans
from such saes or e changes.
dvce s requested reatve to the proper treatment for edera
ncome ta purposes of the e change by the M Trust Co. of bonds of
the cty of R for other bonds of that cty under a refundng pan
adopted by the cty.
The pan provded n genera for the refundng of bonds maturng
on or before une , 1943, by the ssuance of new bonds dated as of
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97 112(b), rt. 112(b)(1)- .
the nterest payment date ne t precedng une , 1933, and matur-
ng on ebruary , 19 3, sub|ect to redempton at an earer date at
par and accrued nterest. The pan was adopted by reason of the
faure of the cty to pay the prncpa of any of ts bonded ndebted-
ness whch matured on or after ebruary , 1933, and by reason
of the defaut n the payment of nterest from that date on a ts
outstandng bonds e cept street raway bonds. The M Trust Co.
was the hoder of bonds of the cty of R whch were e changed for
new bonds of the same par or face vaue bearng the same rate of
nterest but havng a ater maturty date. The market vaue of the
new bonds as of the date of the e change was ess than the cost of the
od bonds e changed therefor. New bonds totang 9a doars,
representng unpad nterest coupons whch became due on or before
ugust , 1934, were aso receved under the terms of the pan. The
queston nvoved s whether a deductbe oss was sustaned from
the e change.
Under the provsons of secton 112(a) of the Revenue ct of
1934, every e change resuts n a gan or oss for ncome ta purposes
uness the e change comes wthn one of the statutory e ceptons.
The nstant e change does not come wthn any of the e ceptons
enumerated n secton 112(b) of the Revenue ct of 1934. urther-
more, secton 118 of that ct, whch denes a deducton for osses
n the case of wash saes, s not appcabe, snce the bonds receved
were not substantay dentca wth those e changed wthn the
meanng of that secton. (See I. T. 13 5, C. . 1-1, 151, and I. T.
2 72, C. . II-1, 72.) ccordngy, the transacton n the nstant
case must be recognzed as resutng n a gan or oss for ncome
ta purposes. Snce the vaue of the new bonds receved n e change
was ess than the cost of the od bonds, the transacton resuted
n a oss n the amount by whch the cost of the od bonds e ceeded
the market vaue of the new bonds as of the effectve date of the
e change.
The amount of the oss whch s deductbe for ncome ta pur-
poses remans to be consdered. Secton 117(d) of the Revenue
ct of 1934 reads as foows:
(c Lmtaton on capta osses. Losses from saes or e changes of capta
assets sha be aowed ony to the e tent of 2,000 pus the gans from such
saes or e changes. If a bank or trust company ncorporated under ta
aws of the Unted States or of any State or Terrtory, a substanta part
of whose busness s the recept of deposts, ses any bond, debenture, note,
or certfcate or other evdence of ndebtedness ssued by any corporaton (n-
cudng one ssued by a government or potca subdvson thereof), wth
nterest coupons or n regstered form, any oss resutng from such sae (e cept
such porton of the oss as does not e ceed the amount, f any, by whch the
ad|usted bass of such nstrument e ceeds the par or face vaue thereof)
sha not be sub|ect to the foregong mtaton and sha not be ncuded
u determnng the appcabty of such mtaton to other osses.
In accordance wth the provsons of the frst sentence of secton
117(d), the oss whch was ncurred upon the e change of a capta
asset s mted to 2,000 pus the gans from such saes or e -
changes. The oss may not be taken n fu under the provsons
of the second sentence of that secton for the reason that the e emp-
ton of banks and trust companes from the mtaton on capta
osses appes ony n the case of a sae and not n the case of an
e change.
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114, rt. 114-1.
98
The new bonds of the par or face vaue of 9,v doars receved
n payment of nterest shoud be treated as nterest ncome. The
amount thereof s to be determned by takng the new bonds nto
account at ther market vaue on the date of ther recept n payment
of the nterest. The market vaue of such bonds as of the date of
recept consttutes the bass on whch to compute gan or oss from
ther subsequent sae or other dsposton.
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 114-1: ass for aowance of depreca- I -12-7383
ton and depeton. G. C. M. 14448
( so Secton 23(n), rtce 23(m)-10.)
R NU CTS O 1 2G, 1928, 1932, ND 934.
Where a bonus payment s receved by a essor for an o and
gas ease, a depeton deducton on the percentage of ncome
bnss s aowabe aganst such payment n the year of recept
athough n such year there was no e tracton of o or gas, and
no practca assurance of producton n the future. In such a
case, f there s no producton from the eased premses, the
ta payer uusrt restore the amount of the deducton to ncome
as of the year of the termnaton of the ease.
G. C. M. 11384 (O. . II-1, 4) Is revoked.
dvce s requested reatve to bonus depeton aowances com-
puted on the percentage of ncome bass n the case of bonus pay-
ments receved by essors for o and gas eases n advance of the
actua producton of o or gas. The request requres reconsdera-
ton of G. C. M. 11384 (C. . II-1, 4) n the ght of the opnon
of the Unted States Supreme Court n Wam . errng v. Com-
mssoner, decded December 3, 1934 (203 U. S., 322, Ct. D. 904,
page 303. ths uetn).
The opnon of the court n Wam . errng v. Commssoner,
supra (whch arose under the Revenue ct of 192 ). may be sum-
marzed as foows:
1. bonus s payment n advance for o and gas to be e tracted
(advance royaty) and s, therefore, ta abe ncome urnet v.
arme, 287 U. S.. 103, Ct. D. 11, C. . I-2, 210 Murphy O
Co. v. urnet, 287 U. S., 299, Ct. D. 19, C. . II-1, 231 and
ankers Pocahontas Coa Co. v. urnet, 287 U. S.. 308) as such,
t s a part of the gross ncome from the property as that phrase
s used n secton 204(c)2 of the Revenue ct of 192 to desgnate
the base for the appcaton of the percentage depeton deducton.
Gven gross ncome from the property, whch s the base, and the
authorty as provded n secton 204(c)2, n the case of o and gas
wes, to compute the depeton aowance at a per cent of such
base, the queston whether the amount so computed comes wthn
the (/rant n the statute (secton 214(a)9 of the Revenue ct of
192 , for the purposes of ths case) of a reasonabe aowance for
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99
114 rt. 114-1.
depeton s not controed by the fact that there was no e trac-
ton of o or gas n the year for whch the aowance s camed, or
by the fact that n such year there was no practca assurance of
producton n the future.
2. The condtons prescrbed for the aowance of bonus depe-
ton on the cost bass and on the percentage of ncome bass must
be the same for the reason that the nature and purpose of the
aowance s the same n both cases. (Unted States v. Dakota-
Montana O Co., 288 U. S., 459.)
3. The grant as a deducton from gross ncome of a reasonabe
aowance for depeton n the case of o and gas wes has b en
the same under a the Revenue cts, 191 to 1934, ncusve. s to
cost depeton, the reguatons of the ureau under the Revenue ct
of 192G and pror Revenue cts treated a bonus or advance royaty
as sub|ect to depeton and those reguatons have been approved by
the reenactment of the statutory provsons wthout ateraton.
Murphy O Co. v. urnet, supra.) It has never been hed here
n the Supreme Court that the e stence of a we condtoned the
aowance. Nor, unt recenty, has the Treasury so rued. The st-
uaton presented by recent admnstratve rungs (ncudng dec-
sons of the oard of Ta ppeas) s that f the ta payer computes
depeton upon the bass of cost or March 1, 1913, vaue, he may de-
duct depeton from a bonus payment rrespectve of the snkng
of a we or the producton of any o or gas (see reguatons of the
ureau dscussed n Murphy O Co. v. urnet, supra) but f the
ta payer eects to ava hmsef of the aternatve method of com-
putng the deducton at a per cent of gross ncome, though the
nature of the deducton s unchanged (Unted States v. Dakota-
Montana O Co., supra), he s not entted to any deducton for de-
peton uness there s producton wthn the ta abe year, no matter
how sma such producton may be. owever, f there s a base
provded by statute for the computaton of the aowance, t s m-
proper n the one case, . e., when computed on the percentage of
ncome bass, to condton the bonus depeton aowance by the test
of actua producton, or the mmnent probabty of producton, or
by any refnements as to the degree of probabty of future produc-
ton, and at the same tme to aow the deducton f computed on
the cost bass rrespectve of the producton of any o
or gas. The court concuded that there s no statutory authorty
or ogca |ustfcaton for wthhodng t n the one and grantng
t n te other.
4. Therefore, a depeton deducton on the percentage of ncome
bass s aowabe aganst a bonus payment n the year of the re-
cept of the payment rrespectve of the fact that n such year there
was no e tracton of o or gas, and no practca assurance of pro-
ducton n the future.
II.
The purpose of the depeton aowance on the cost bass s to
provde for the return to the owner of mnera deposts, whether
freehod or easehod, the vaue of Ms property on the basc date
(pus subsequent aowabe capta addtons), but not ncudng
and vaues for purposes other than the e tracton of mneras.
(Sec artce 201, Reguatons 9, and the correspondng provsons
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114, rt. 114-1.
100
of subsequent reguatons.) Therefore, a condton precedent to the
aowance of bonus depeton on that bass (under artce 21 (a),
Reguatons 09, and the correspondng provsons of subsequent regu-
atons) s a determnaton of a mnera vaue n the property at
the date of acquston (f depeton s to be based on actua cost),
or at a basc dae otherwse prescrbed by aw (as n the case of
depeton based on March 1, 1913, vaue). If no mnera vaue n
the eased premses can be shown as of the basc date, there s no
capta sum returnabe through depeton and there s no base for
the aowance of depeton aganst a bonus payment or any other
ncome from mnera e tracton. rom ths there was deveoped
the. admnstratve rue set forth n I. T. 2301 (1927) (C. . I-1,
73), to the effect that artce 210(a), of Reguatons 09 (reatng to
bonus depeton), has no appcaton to a bonus receved by the
essor of an unproven area and s appcabe ony to a ease of prop-
erty n a proven area where the mnera content was capabe of beng
estmated at the tme the bonus was receved even though the prop-
erty was nonproducng at that tme. If, at the tme of the e ecuton
of the ease, the eased premses were n an unproven area, t fo-
ows that a mnera vaue at the basc date can rarey, f ever, be
estabshed. Where a mnera vaue can be estabshed as of the
basc date, a capta sum returnabe through depeton can be ascer-
taned at the e ecuton of the ease, and, therefore, a bonus (beng
royaty n advance of e tracton) may be treated as sub|ect to depe-
ton though t s receved n advance of actua producton. (Murphy
O Co. v. urnet, supra.)
or the computaton of depeton on the percentage of ncome
bass, the base s the gross ncome from the property. Snce the
Supreme Court has hed that a bonus receved n advance of pro-
ducton s gross ncome from the property n the case of o
and gas wes, wthn the meanng of secton 204(c)2 of the Revenue
ct of 1920, and as such s a part of the base for the computaton
of the aowance, t foows that nasmuch as depeton may be
aowed n antcpaton of producton, such a bonus s sub|ect to
depeton wthout the estabshment of any other base. Under these
crcumstances, the dstncton between bonuses for eases n proven
and unproven areas (compare I. T. 23 1, supra), whch was carred
forward by G. C. M. 11384, supra, and apped to cams for bonus
depeton deductons on the percentage of ncome bass, can not
now be sustaned. depeton deducton on the percentage of n-
come bass s. therefore, aowabe n every case of a bonus payment
receved n advance of producton. G. C. M. 11384 s hereby
revoked.
III.
In ts opnon n Wam . errng v. Commssoner, supra,
the Supreme Court made the statement that t e presses no opnon
as to whether the amount aowed as a depeton deducton from the
bonus payment n the year of the e ecuton of the ease may be
ta ed as ncome to the essor n the year of the termnaton of the
ease where there has been no e tracton of mnera from the eased
premses. The aowance of the deducton n the year of the e e-
cuton of the ease rests upon an antcpaton of producton to avod
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101
11 , rt. 11 -2.
the attendant nconvenence of ndefnte postponement, as was
sad n Murphy O Co. v. urnet, supra. The grant of the deduc-
ton s n any case upon the ground of a reasonabe aowance for
depeton. If on the termnaton of the ease there has been no
producton, then there has n fact been no depeton. Ordnary
the Government may recoup ony by restorng the deducton to
ncome and assertng the ta aganst the ta payer n the year of
the termnaton of the ease. Cost depeton on an advance royaty
has aways been aowed on condton that f the antcpated produc-
ton does not materaze, the ta payer w restore the amount of the
deducton to ncome as of the year the ease termnates, e pres, or
s abandoned. (See artce 21 (b) and (c), Reguatons 9, wth
whch a pror and subsequent reguatons are dentca.) Snce
the nature and purpose of the aowance s the same, as the
Supreme Court has ponted out, whether the deducton be computed
on the cost bass or on a per cent of the gross ncome from the prop-
erty, t foows that the ta payer must be deemed to have taken the
bonus depeton deducton on the percentage of ncome bass on the
condton that he w restore the amount of such deducton to n-
come as of the year of the termnaton of the ease where there
has been no producton from the eased premses.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 115-1: Dvdends.
R NU CT O 1034.
Dstrbutons on preferred stock of a bank. (See I. T. 2878,
page 57.)
S CTION 11 . CLUSIONS ROM GROSS INCOM .
rtce 11 -2: Compensaton of State offcers I -7-7312
and empoyees. I. T. 2859
R NU CT O 1034.
Ta abty of compensaton of offcers and empoyees of State
emergency reef admnstratons.
The compensaton of offcers and empoyees of State emergency
reef admnstratons whch s pad by the State from ts pubo
funds (as dstngushed from funds granted to t by the edera
Government) s e empt from edera ncome ta . To the e tent that
such compensaton s pad by the State ether drecty or ndrecty
from funds granted to the State by the edera Government under
the provsons of the edera mergency Reef ct of 1933, ap-
proved May 12, 1933 (48 Stat., 55), t s sub|ect to edera ncome
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11 , rt. 11 -2. 102
ta . The compensaton of offcers and empoyees whch s pad
drecty by the edera Government s aso sub|ect to edera
ncome ta .
If the compensaton s pad by the State from a fund composed
n part of State funds and n part of edera grants, that part of
the compensaton pad from edera grants s sub|ect to edera
ncome ta .
rtce 11 -2: Compensaton of State offcers I -10-7351
and empoyees. G. C. M. 1411
R NU CT O 19114 ND PRIOR R NU CTS.
The compensaton receved by the ta payer for servces rendered
as pubc admnstrator of a county n Massachusetts s sub|ect to
edera ncome ta .
Recommended that I. T. 10S13 (C. . 11-1. 72) and I. T. 2030 (C. .
III-, 117) be revoked.
dvce s requested whether the compensaton receved by the ta -
payer as pubc admnstrator of a county n Massachusetts s e empt
from edera ncome ta .
Pursuant to chapter 194 of the Genera Laws of Massachusetts for
1921, the Governor of the State apponts a pubc admnstrator n
each county for a term of fve years. The pubc admnstrator s
requred to take, an oat of offce and to furnsh bond. s compensa-
ton s not pad by the State or county out of pubc funds but s pad
out of the assets of the estates whch he admnsters.
It was hed n G. C. M. 13488 (C. . III-2, 15 ) that no burden
s mposed upon the actvtes of a State or potca subdvson
thereof by a edera ncome, ta upon the compensaton of an offcer
or empoyee where the compensaton s not pad by the State or pot-
ca subdvson from pubc funds. It was concuded n that case that
the compensaton of the State bank qudator was sub|ect to edera
ncome ta , such compensaton beng pad out of the assets of the
banks n qudaton.
It s the opnon of ths offce n the nstant case that the compensa-
ton of the ta payer receved for hs servces as pubc admnstrator
s kewse sub|ect to edera ncome ta , as such compensaton s
pad out of the assets of the estates whch he admnsters.
I. T. 1 93 (C. . II-, 72) and I. T. 2030 (C. . III-, 117) hod
that the compensaton receved by pubc admnstrators n Mssour
and Montana, respectvey, s e empt from edera ncome ta . In
I. T. 1 93, supra, t does not appear how the compensaton s pad,
nor s the statutory provson defnte, but t was hed n rownng
et a. v. Rchardson (18 Mo., 3 1, 85 S. W.. 518) tbat the compensa-
ton s to be pad out of the assets of the estates. It appears n I. T.
2030, supra, that the compensaton of pubc admnstrators n Mon-
tana s aso pad out of the assets of the estates. Snce those rungs
are n confct wth G. C. M. 13488, supra, t s recommended that they
be revoked.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
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103
11 (d .
rtce 11 -2: Compensaton of State offcers
and empoyees.
R NU CT O 1934.
I -1 -7439
I. T. 288
Profts derved by the State of rgna from the operaton of
quor stores by the State are not sub|ect to edera ncome ta .
The compensaton of empoyees of the State for servces rendered
n connecton wth the operaton of quor stores by the State s
sub|ect to edera ncome ta .
In G. C. M. 14107 beow , t was hed that profts derved by the
State of Montana from the operaton of ts quor stores are not sub-
|ect to edera ncome ta . In the ght of the concusons reached
m that memorandum, t s hed that profts derved by the State of
rgna from the operaton of quor stores by the State are not
sub|ect to edera ncome ta .
ttenton s nvted to the fact, however, that when a State or
potca subdvson engages n the operaton of quor stores t s
actng n a propretary capacty. ccordngy, the compensaton of
empoyees of the State whose servces are rendered n connecton wth
the operaton of quor stores by the State s sub|ect to edera
ncome ta .
Profts reazed by the State of Montana from the operaton of
quor stores by the State are not sub|ect to edera ncome ta
under the Revenue ct of 1934.
G. O. M. 13745 (C. . III-2, 7 ) s not to be consdered as a
rung on the consttutona ssue nvoved.
The State Lquor Contro ct of Montana, approved March 14,
1933 (Laws of Montana, 1933, chapter 105, as amended by chapter
57, Laws of the traordnary Sesson of 1933-34), provdes for
the creaton of the Montana Lquor Contro oard, whch s gven
power to buy, possess for sae, and se quor to contro ts sae
and devery to determne the ocaton of State quor stores and
to estabsh such stores to grant, refuse, or cance permts for the
purchase of quor to appont vendors and offcers and empoyees
requred for the carryng out of the act to ssue cub censes
and speca permts for the sae of quor and to make reguatons
for carryng out the provsons of the act. moneys receved
from the sae of quor by the State quor stores, and from cense
fees and fees for permts, sha be pad to the board, and no pro-
vson s made for segregatng the moneys derved from fees from
the moneys derved from quor saes. Out of the profts arsng
under the act, there s to be created a reserve fund to meet any
osses ncurred by the State n connecton wth the admnstraton
of the act. When a of the quor stores whch can be estabshed
throughout the State have been estabshed and the admnstraton
e penses have been pad, the net profts are to be aocated 50 per
cent to the emergency reef fund of the State of Montana, and 50
per cent to the genera fund of the State unt ebruary 1, 1935
thereafter, a such profts are to be aocated 50 per cent to the
Secton 11 (d).
I -7-731G
G. C. M. 14407
R N CT O 1034.
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511 (d).
104
genera fund of the State and 50 per cent to the genera funds of
the countes n the proporton that the popuaton of each county
bears to the tota popuaton of the State.
The questons rased for consderaton are (1) whether the Reve-
nue ct of 1934 mposes a ta upon the ncome derved by the State
of Montana from the operaton of ts quor stores, and (2) whether,
f the ct be found to mpose such a ta , the ta aton of such n-
come s wthn the consttutona powers of the edera Govern-
ment.
The Revenue ct of 1934 ta es at dfferent rates the ncome of
ndvduas and corporatons, but nowhere n the ct s a ta
e pressy mposed upon a State. It may be stated wth assurance
that a State s not an ndvdua wthn the meanng of the ct,
f for no other reason than that the credts and e emptons pro-
vded for an ndvdua are obvousy not appcabe to a State.
Whether or not a State s a corporaton depends, to use the
anguage of Mr. ustce Sutherand, upon the connecton n whch
the word s found. Oho v. cverng (1934), 292 U. S., 3G0.)
Ceary, wth the possbe e cepton of secton 11 (d), there s
nothng n the Revenue ct of 1934 to ndcate that States shoud
be ta ed as corporatons, and the proper nterpretaton of that sec-
ton ndcates rather that States shoud not be so ta ed. The frst
paragraph of secton 11 (d) of that ct, reatng to the Income of
States, muncpates, etc.. provdes for the e empton from ta a-
ton of the foowng type of ncome:
Income derved from any pubc utty or the e ercse of any
essenta governmenta functon and accrung to any State, Terrtory, or the
Dstrct of Coumba, or any potca subdvson of a State or Terrtory, or
Income accrung to the government of any possesson of the Unted States, or
any potca subdvson thereof.
It w be observed that the paragraph quoted refers to the n-
come derved from any pubc utty or the e ercse of any es-
senta governmenta functon and accrung to any State, Terrtory,
or the Dstrct of Coumba. ad Congress meant to ncude wthn
ths e empton ncome derved by the State tsef from an actvty
whch t carres on drecty, t s suggested that t woud have sad
ncome derved from by any State, Terrtory, etc.
snce the words accrung to connote the recept of ncome from
a contract or nvestment rather than from an act of the recpent.
The use of these words serves, f not to make cear that the ncome
referred to must have been derved by an entty other than a State,
Terrtory, or the Dstrct of Coumba, at east to rase an ambguty
whch |ustfes resort to e trnsc evdence for ts resouton.
In determnng the meanng of a provson whch s ambguous
the practca nterpretaton gven that provson by the offcers
charged wth ts admnstraton must be gven great weght, es-
pecay when the practce has been ong-contnung and the pro-
vson has been frequenty reenacted by Congress. ( rewster v.
Gaffe, 280 U. S., 327 Massachusetts Mutua Lfe Insurance Go. v.
Unted States, 288 U. S., 2(59.) Ths rue does not appear to be
mted to affrmatve and e press constructon. It woud seem that
the negect of awfuy consttuted authortes to assess ta es
w be persuasve evdence that a ta aw s not appcabe f the
aw s suscef tbe of more than one constructon. (State e te.
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105
r n (d).
oen v. St. Lous Y. , . C. ., 259 Mo., 233, 1 8 S. W., 589 West-
erman v. Supreme Lodge . P., 19 Mo., 70, 94 S. W., 470.) (See
aso Mnts et a. v. adwn, 289 U. S., 34 Unted States v. arrar,
281 U. S., 24.) The practce of the ureau of Interna evenue
over a course of years, n the ght of the ambguty of the egsa-
ton under consderaton couped wth the frequent reenactment of
that egsaton wthout substanta change, supports the nference
|ust suggested that the frst paragraph of secton 11 (d) was n-
tended to refer, not to the ncome of a State or muncpaty re-
sutng from ts own drect partcpaton n ndustry, but rather
to that part of the ncome of a corporaton engaged n the opera-
ton of a pubc utty or n the performance of some governmenta
functon whch accrues to a State or muncpaty by vrtue of ts
ownershp of such corporaton. Parenthetcay t shoud be noted
that ths constructon s entrey consstent wth the undoubted effect
of the second paragraph of that secton n e emptng from ta
that part of the proceeds from the operaton of a pubc utty
whch accrues to a State or muncpaty under a contract entered
nto wth any person.
In the entre perod snce the enactment of the Tarff ct of 1913,
the ureau has reguary consdered secton 11 (d) and the corre-
spondng provsons of pror Revenue cts from the standpont of
the ta abty of corporatons owned by, or operatng under contract
wth, States or muncpates. (See, for e ampe, I. T. 243 , C. .
II-2, 147 S. M. 2941, C. . I -1, 210 O. D. 250, C. . 1, 92.)
(See aso amestown Newport erry Co. v. Commssoner, 41 ed.
(2d), 920.) Not ony has the ureau faed to ta the drect ncome
of any State or muncpaty but t has throughout ths perod of
22 years made no effort to obtan ncome returns from States or
muncpates, or to determne by any other means whether any
State or muncpaty has had ncome of ths nature. Ths per-
sstent nonenforcement of the ta aganst States may be reasonaby
e paned ony as ndcatng a tact constructon by the ureau n
accordance wth the nterpretaton whch has |ust been suggested.
To assume that ths nacton on the part of the ureau was due to
an oversght s hghy unreasonabe. ght years pror to the passage
of the 1913 ct, the Supreme Court had decared n South Caro-
na v. Unted States (1905) (199 U. S., 437) that agents of a State
operatng a quor dspensary system were sub|ect to the speca e cse
ta on reta quor deaers, and, for at east three years foowng
1913, the ureau was actvey engaged n coectng ths speca e cse
ta from State quor dspensares n South Carona. Ths n tsef
s cear evdence that the ureau was aware of the partcpaton by
States n ths cass of actvtes, but even stronger evdence s found
n the fact that, durng the e stence of the ncome ta aws, questons
nvovng the ta abty of the ncome of empoyees of a cty or
State engaged drecty n carryng on a nonessenta governmenta
functon have frequenty been determned by the ureau. In deter-
mnng such questons, the ureau has recognzed that the States
and muncpates were actng n a propretary capacty, and that
ther empoyees were not e empt from the payment of the edera
ncome ta yet no attempt has ever been made to ta the ncome
derved by States and muncpates from these actvtes. (See, for
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110(d).
10G
e ampe, S. M. 2232, C. . III-2, 83 (cafeteras n pubc schoos)
I. T. 2357, C. . I-1, 52 (county hosptas) S. M. 5-190, C. . -,
37 (Rura Credt oard).) (See aso I. T. 2782, C. . III-1, 83
I. T. 237C, C. . I-2, 55 I). G. Wood ct u . v. Commssoner, 29
. T. .. 919 Sheby Wggns v. Commssoner, 27 . T. ., 57
T. P. Wttsehen v. Commssoner, 25 . T. ., 4 .)
Durng the tme that the ureau may be sad to have been assert-
ng ths constructon, the frst paragraph of secton 11 (d) has
been reenacted eght tmes wth but a snge change and that an
nconsequenta one. On any of these occasons, Congress coud,
had t dsagreed wth the nterpretaton gven the paragraph by the
ureau, have so amended the ct as to make t entrey cear that
States and muncpates were to be ncuded wthn the scope of
the ct yet there s no evdence that such acton was ever
consdered.
ddtona support for the concuson that Congress dd not n-
tend to ta the ncome derved drecty by States as such s found
n the commttee reports and the debates on the foor of Congress
precedng the passage of the Tarff ct of 1913 (see Senate Report
No. 80 on . R. 3321, S ty-thrd Congress, frst sesson, 50 Con-
gressona Record (part ), pages 5320-5321). They make t cear
that what Congress was concerned wth, n consderng the enact-
ment of the frst paragraph of secton II G(a) of the Tarff ct
of 1913 (secton G(d) of the Revenue ct of 1934), was that
part of the ncome derved by a corporaton from the pubc utty
busness or from the performance of a governmenta functon whch
woud accrue to a State or a muncpaty by vrtue of ts posses-
son of a benefca nterest n the corporaton. The type
stuatons cted were a of such corporatons. Nowhere n the.
report or debates s there consderaton of the ta aton of the n-
come of States or muncpates whch woud resut to them drecty
wthout the nterventon of the corporate form and t appears to
have been taken for granted that such ncome woud not be sub|ect
to ta .
It s suggested that Congress, n not ta ng the ncome of States,
may we have been motvated by a desre not to mt the actvtes
n whch States mght otherwse engage. The ne between those
revenue-producng actvtes of a State whch are governmenta
and those whch are propretary s one whch s n ts nature
dffcut to draw and whch has as yet been ony fanty traced
by decsons of the courts. or e ampe, whe the, conduct or
operaton of prsons s strcty wthn the soveregn functons of
the State, the revenue derved from the manufacture and sae of
prson-made merchandse may or may not be the essenta resut of
a governmenta actvty. Smary, such actvtes as the oanng
of State funds or the sae of surpus propertes are of a character
whch makes t dffcut to predct n whch category they woud
be paced. It may be assumed that Congress dd not desre n
any way to restrct a State s partcpaton n enterprses whch
mght be usefu n carryng out those pro|ects desrabe from the
standpont of the State Government whch, on a broad consdera-
ton of the queston, may be the functon of the soveregn to con-
duct and t may reasonaby be consdered that t was the poss-
bty of such restrcton whch persuaded Congress not to ncude
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107
117, rt. 117-1.
State ncome wthn the sub|ects ta ed by the varous Revenue
cts snce 1913. Whe such specuaton has, of course, no con-
cusve effect, t may be proper as an ad n determnng the nten-
ton of Congress n order to construe egsaton patenty ambguous.
It foows from what has been sad that the State of Montana s
not a corporaton, wthn the meanng of the Revenue ct of
1934. Ths concuson s reached n the beef that, n nterpretng
a statute, admnstratve agences of the Government shoud not take
the poston aganst ther better |udgment that a ta s payabe.
Whe t s true that the possbtes of a |udca revew of such an
nterpretaton are meager, the effect of ths poston s merey to
shft the burden of consderaton from the courts to the egsature.
Snce the queston has been determned on the pont of construc-
ton, the consttutona queston need not be consdered.
In G. C. M. 13745, supra, the opnon was e pressed that profts
derved by the State of Oregon from ts quor stores are not sub|ect
to edera ncome ta . Ths opnon was prepared as a reversa of
I. T. 2797 (C. . III-2, 74), n whch t was hed to be wthn
the power of the edera Government to ta the profts from the
Oregon quor stores ard, n wthdrawng I. T. 2797, t was ponted
out that the decsons n South Carona v. Unted States, supra, and
Oho v. everng, supra, were not controng on the queston ds-
cussed n that opnon. In order to cear up any doubt as to the
meanng of G. C. M. 13745, t shoud be ponted out that that opn-
on s not to be consdered as authorty for any rung other than
that the ncome under consderaton s not ta abe by the edera
Government under e stng egsaton. It may not be taken as a
determnaton of the consttutona queston nvoved.
The concuson s, therefore, that the ncome derved from the
operaton of quor stores by the State of Montana s not sub|ect to
edera ncome ta under the Revenue ct of 1934.
erman Ophant,
Genera Counse for the Department of the Treasury.
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets. I -3-72 1
T. D.4511
Income ta Capta gans and osses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 117 (Tte I Income Ta ) of the Revenue
ct of 1934 provdes:
Sec. 117. Capta Gans and Losses.
(a) Genera rue. In the case of a ta payer, other than a corporaton, ony
the foowng percentages of the gan or oss recognzed upon the sae or e -
change of a capta asset sha he taken nto account n computng net ncome:
100 per centum If the capta asset has been hed for not more than 1 year
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5117, rt. 117-1.
108
80 per cotum f the capta asset has bw ed for more than 1 year but
not for more than 2 years
0 er centum f the capta asset has been hed for more than 2 years but
not for more than 5 years
40 per centum f the capta asset has been hed for more than 5 years but
not for more than 10 years
30 per centum f the capta asset as been hed for more than 10 years.
(b) Defnton of capta assets. or the purposes of ths tte, capta
assets means property hed by the ta payer (whether or not connected wth
hs trade or busness), but does not ncude stock n trade of the ta payer or
other property of a knd whch woud propery be Incuded 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.
(c) Determnaton of perod or whch hed. or the purpose of subsec-
ton (a)
(1) In determnng the perod for whch the ta payer has hed property
receved on an e change there sha be ncuded the perod for whch he hed
the property e changed, f under the provsons of secton 113, the property re-
ceved has, for the purpose of determnng san or oss from a sae or e change,
the same bass n whoe or In part n hs hands as the property e changed.
(2) In determnng the perod for whch the ta payer has hed property how-
ever acqured there sha Ik ncuded the perod for whch such property was
hed by any other person, f under the provsons of secton 113, such property
has, for the purpose of determnng gan or oss from a sae or e change, the
same bass n whoe or n part n hs hands as t woud have n the hands of
such other person.
(3) In determnng the perod for whch the ta payer has hed stock or
securtes receved upon a dstrbuton where no gan was recognzed to the
dstrbutee under the provsons of secton 112(g) of the Revenue ct of 192S or
the Revenue ct of 1932, there sha be ncuded the perod for whch he hed
the stock or securtes n the dstrbutng corporaton pror to the recept of
the stuck or securtes upon such dstrbuton.
(4) In determnng the perod for whch the ta payer has hed stock or
securtes the acquston of whch (or the contract or opton to acqure whch)
resuted n the nondeductbty (under secton 118 of ths ct or secton 118
of te Revenue ct of 1928 or the Revenue ct of 1932, reatng to wash saes)
of the oss from the sae or other dsposton of substantay dentca stock
or securtes, there sha be ncuded the perod for whch he hed the stock or
securtes the oss from the sae or other dsposton of whch was not deductbe.
(d) Lmtaton on capta osses. Losses from saes or e changes of capta
assets sha be aowed ony to the e tent of 2,000 pus the gans from such
saes or e changes. If a bank or trust company ncorporated under the aws
of the Unted States or of any State or Terrtory, a substanta part of whose
busness s the recept of deposts, ses any bond, debenture, note, or certfcate
or other evdence of ndebtedness ssued by any corporaton (ncudng one
ssued by a government or potca subdvson thereof), wth nterest coupons
or n regstered form, any oss resutng from such sae (e cept such porton
of the oss as does not e ceed the amount, f any, by whch the ad|usted bass
of such nstrument e ceeds the par or face vaue thereof) sha not be sub|ect
to the foregong mtaton and sha not be ncuded n determnng the app-
cabty of such mtaton to other osses.
(e) Gans and osses from short saes, etc. or the purpose of ths tte
(1) gans or osses from short saes of property shu be consdered as gans
or osses from saes or e changes of capta assets and
(2) gans or osses attrbutabe to the faure to e ercse prveges or optons
to buy or se property sha be consdered as gans or osses from saes or
e changes of capta assets hed for one year or ess.
(f) Retrement of bonds, etc. or the purposes of ths tte, amounts re-
ceved by the hoder upon the retrement of bonds, debentures, notes, or cer-
tfcates or other evdences of ndebtedness ssued by any corporaton (ncud-
ng those ssued by a government or potca subdvson thereof), wth nter-
est coupons or n regstered form, sha be consdered as amounts receved n
e change therefor.
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109
117, rt. 117-1.
Par. . Secton 2 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
Sec. 2. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons of the ct, the foowng
reguatons are hereby prescrbed wth respect to capta gans ana
osses:
rtce 1. Meanng of capta assets. The term capta assets ncudes
a casses of property not specfcay e cuded by secton 117(b). The term Is
not mted to stocks and bonds nor to property hed for more than two years.
In determnng whether property s a capta asset, the perod for whch hed
s mmatera.
rt. 2. Lmtatons on capta gans and capta osses. In computng the net
ncome of a ta payer, other than a corporaton, the amount of the gan or oss,
computed under secton 111 and recognzed under secton 112, upon the sae or
e change of a capta asset sha be taken Into account ony to the e tent pro-
vded n secton 117(a). The percentage of the gan or oss to be taken nto
account ranges from 100 per cent to 30 per cent, dependng upon the perod for
whch the asset was hed. or nstance. If unmproved rea estate whch s a
capta asset, purchased for 20,000, Is sod for 25,000 after havng been hed
for more than 10 years, ony 30 per cent of the recognzed gan ( 5,000), or
1,500, sha be taken nto account n computng net ncome or f such prop-
erty was sod for 14,000 ony 30 per cent of the recognzed oss ( ,000), or
1,800, sha be taken nto account.
Secton 117(d) provdes a mtaton on deductons for capta osses affect-
ng a ta payers ncudng corporatons, that s, osses from saes or e changes
of capta assets sha be aowed as deductons ony to the e tent of 2,000 pns
the gans from such saes and e changes. owever, n the case of certan banks
or trust companes, ths mtaton s sub|ect to the modfcaton provded n that
secton.
The provsons of ths artce may be ustrated by the foowng e ampe:
ampe: Durng the ta abe year , an Indvdua, had gans and osses
from saes and e changes of capta assets as foows (the deducton for the
osses not beng prohbted by any secton of the ct other than sectons 111,
112, and 117) :
Gan rec-
ognzed
under
sectons
111 and
112.
Loss rec-
ognzed
under
sectons
111 and
112.
Per
cent
app-
cabe.
Gan taken
nto ac-
count un-
der secton
117(a).
Loss tak n
nto ac-
count un-
der secton
117(a).
Item.
Tme hed.
5,000.00
0 months..
I years..
1 years..
years
100
80
0
40
5,000.00
4,000.00
1,000.00
3,200.00
00.00
Government bond
3,000.00
1,200.00
aure to e ercse opton to buy
property.
2,000.00
100
2,000.00
7,000.00
Gans and osses taken nto account.
4, 400.00
ppyng the mtaton of secton 117(d), the osses of 7,(100 taken nto
account are aowabe as a deducton ony to the e tent of ,400 ( 2,000 pus
the gans of 4,400 taken nto account).
rt. 3. Determnaton of perod for whch capta assets are hed. Under
secton 117(c) If property s acqured n certan transactons descrbed n sec-
tons 112, 113, and 118, the perod for whch such property s consdered to
have been hed by the ta payer s not computed from the date when such
property was acqured by the ta payer but from a pror date. or nstance:
In the case of stock or securtes n a corporaton a party to a reorganzaton
receved pursuant to a pan of reorganzaton n e change soey for stock
or securtes In another corporaton a party to the reorganzaton, the perod
for whch the stock or securtes e changed were hed by the ta payer must
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117, rt. 117-1.
110
be added to the perod for whch the stock or securtes receved on the e
change were hed by the ta payer. In the case of property acqured by the
ta payer after December 31, 1920, by gft (f under the provsons of secton
113, such property has, for the purpose of determnng gan or oss from the
sae or e change, the same bass n the hands of the ta payer as t woud
have n the hands of the donor), the perod for whch the property was hed by
the donor must he added to the perod for whch the property was hed by
the ta payer. In the case of stock or securtes the acquston of whch
resuted n the nondeductbty (under secton 118, reatng to wash saes) of
the oss from the sae or other dsposton of substantay dentca stock or
securtes, the perod for whch the stock or securtes, the oss from the sae
or other dsposton of whch was not deductbe, were hed must be added
to the perod for whch the stock or securtes acqured were hed by the
ta payer. The perod for whch the ta payer has hed stock ssued to hm
as a stock dvdend sha be determned as though the stock dvdend were
the stock n respect of whch the dvdend was ssued.
rt. 4. ppcaton of secton n generay. Secton 117 appes ony to
gans and osses upon the sae or e change of capta assets and, therefore,
has no appcaton to oss of usefu vaue upon the permanent abandonment
of the use of property, or oss sustaned as the resut of corporate stock or
debts becomng worthess.
rt. 5. ppcaton of secton 117 n the case of husband and wfe. In the
appcaton of secton 117, a husband and wfe, regardess of whether a |ont
return or separate returns are made, are consdered to be separate ta payers.
ccordngy, the mtaton under secton 117(d) on the aowance of osses
of one spouse from saes or e changes of capta assets s n a cases to be
computed wthout regard to gans and osses of the other spouse upon saes
or e changes of capta assets.
kt. C. ( ans and osses from short saes. or ncome ta purposes, a
short sae s not deemed to be consummated unt devery of property to
cover the short sae, and the percentage of the recognzed gan or oss to be
taken nto account under secton 117(a) from a short sae sha be computed
accordng to the perod for whch the property so devered was hed. Thus,
f a ta payer made a short sae of shares of stock and covered the short sae
by purchasng and deverng shares whch he hed for not more than one
year, 100 per cent of the recognzed gan or oss woud he taken nto account
under secton 117(a), even though he had on hand other shares of the same
stock whch he hed for more than one year. If, however, he covered the short
sae by deverng shares whch he hed for more than one year but not for
more than two years, ony 80 per cent of the recognzed gan or oss woud be
taken nto account. If the short sae s made through a broker and the broker
borrows property to make devery, the short sae s not deemed to be con-
summated unt the obgaton of the seer created by the short sae s fnay
dscharged by devery of property to the broker to repace the property bor-
rowed by the broker.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved anuary 12, 1935.
L. W. Robert, r.,
ctng Secretory of the Treasury.
rtce 117-1: Meanng of capta assets. I -5-7284
I. T. 2853
R NU CT O 1034.
depost account n a bank s a capta asset wthn the meanng
of secton 117(h) of the Revenue ct of 1034. ny oss sustaned
on the sae of such a capta asset s sub|ect to the mtaton pro-
vded n secton 117(d) of that ct.
rung s requested reatve to the deductbty by the M Com-
pany for the fsca year begnnng uy 1,1934, of a oss sustaned on
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I
117, rt. 117-2.
the sae of a porton of a depost account carred wth the N ank at
the tme of ts cosng n 1931.
The depost account, as reduced by amounts prevousy reazed
thereon, was n the amount of 8.38a doars as of the begnnng of the
ta payer s fsca year. porton of such account n the amount of
5.30a doars was sod on September , 1934, to the O Company for
1.73a: doars. It s stated that the prce at whch such porton of
the account was dsposed of represented appro matey the same
amount as w be pad by the bank on fna qudaton, and that no
porton of the account woud have been deductbe as a bad debt pror
to the date of sae.
The answer to the queston presented depends upon whether the
depost account, the sae of whch resuted n the oss, s propery
to be cassed as a capta asset as that term s defned by secton
117(b) of the Revenue ct of 1934. Secton 117(b) reads as
foows:
Defnton of capta assets.- or the purposes of ths tte, capta ussets
means property hed by the ta payer (whether or not connected wth hs trade
or busness), but does not ncude stock n trade of the ta payer or other prop-
erty 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.
In Twn Ports rdge Co. v. Commssoner (27 . T. ., 34 ), the
oard of Ta ppeas hed that ndebtedness s property n the
hands of the credtor, ctng n support thereof the decson rendered
by the Supreme Court of the Unted States n Portuguese- mercan
ank of San rancsco v. Wees (242 U. S., 7). The depost ac-
count n the present case s ndebtedness hed by the vendor corpora-
ton as credtor aganst the N ank and s property whch con-
sttutes a capta asset wthn the meanng of secton 117(b) of the
Revenue ct of 1934. s the oss n queston was sustaned on the
sae of a capta asset, t foows that the deducton for such oss s
sub|ect to the mtaton provded b| secton 117(d) of the Revenue
ct of 1934.
rtce 117-2: Lmtatons on capta gans I -1-7228
and capta osses. I. T. 2844
R NU CT O 1934.
The deducton for osses by a trust company from saes of stock
s sub|ect to the mtaton on capta osses prescrbed by secton
117(d) of the Revenue ct of 1934.
rtce 117-2: Lmtatons on capta gans I -10-7352
and capta osses. I. T. 28 8
R NU CT O 1934.
Where a |ont return s fed and the wfe takes nto account
under secton 117(a) of the Revenue ct of 1934 a oss of 7,000
n e cess of gans on saes of capta assets, she s mted to a de-
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5117(f).
112
ducton of 2,000 under secton 117(d) of that ct. Where the
wfe s ncome from other sources was ony 400, the baance of the
deductbe oss amountng to 1, 00 may be apped aganst the net
ncome of the husband n computng the combned net ncome of the
husband and wfe n the |ont return. (See T. D. 4511, page 107.)
rtce 117-2: Lmtatons on capta gans and capta osses.
R NU CT O 1934.
onds of a muncpaty on whch defaut has occurred e -
changed for new bonds of the cty. (See I. T. 289G, page 90.)
Secton 117(f). I -2-7241
I. T. 284G
R NU CT O 1034.
Te gan reazed by a corporaton from the purchase and re-
trement of bonds ssued by t s not a capta gan and may not
be offset aganst osses sustaned on the sae or e change of capta
assets n determnng the amount of the aowabe deducton for
such osses under secton 117(d) of the Revenue ct of 1931.
rung s requested whether the gan reazed by the M Com-
pany from the purchase and retrement durng the year 1934 of
coatera trust god bonds ssued by t consttutes a capta gan
under secton 7 of the Revenue ct of 1934 whch may be offset
aganst osses from saes or e changes of capta assets.
The bonds were purchased n the open market and retred n the
prncpa amount of 27a doars. gan, computed n accordance
wth artce 03 of Reguatons 77, was reazed n the amount of
9.GG.r doars. It appears that osses were sustaned by the ta payer
durng the year on the sae of capta assets and f the gan reazed
from the purchase and retrement of ts bonds s a capta gan t
may be offset aganst the osses sustaned on the sae of capta assets
under the provsons of secton 117(d) of the Revenue ct of 1934,
whch provdes n part as foows:
(d) Lmtaton on capta osses. Losses from saes or e changes of cap-
ta assets sha be aowed ony to the e tent of 2,000 pus the gans from
such saes or e changes.
The queston presented n the nstant case apparenty arses by
reason of the provsons of secton 117(f) of the Revenue ct of
1934, whch reads as foows:
Retrement of bonds, etc. or the purposes of ths tte, amounts receved
by the hoder upon the retrement of bonds, debentures, notes, or certfcates
or other evdences of ndebtedness ssued by any corporaton (ncudng those
ssued by a government or potca subdvson thereof), wth nterest coupons
or In regstered form, sha be consdered as amounts receved n e change
therefor.
Under the Revenue ct of 1934, t s cear as to the hoder of
bonds whch are retred that the gan derved or oss sustaned must
be treated as a capta gan or capta oss n vew of the prov-
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113
119, rt. 119-4
sons of secton 117(f) of that ct, whch provdes that amounts
receved by the hoder upon the retrement of bonds sha be con-
sdered as amounts receved n e change therefor. Such a gan
or oss s a capta gan or capta oss, as the case may be, not
by reason of the nature of the transacton tsef but because
of the specfc provsons of secton 117(f), supra. owever,
the statute does not contan any such provson wth respect to
the transacton as vewed from the standpont of the obgor
corporaton. There s no sae or e change by the corporaton n
such a case as requred by the statute n order for a transacton
to resut n a capta gan or a capta oss. (See generay ohn
. Watson, r., v. Commssoner, 27 . T. ., 4 3, acquescence, C. .
II 1, 13.) The gan reazed by the M Company from the re-
trement or ts bonds n 1934 does not, therefore, consttute a capta
gan but s to be treated as ordnary gan. It foows that such
gan may not be offset aganst osses sustaned on the sae or e change
of capta assets n determnng the amount of the deducton aow-
abe for such osses under secton 117(d) of the Revenue ct of
1934.
S CTION 119. INCOM ROM SOURC S
WIT IN UNIT D ST T S.
rtce 119-4: Compensaton for abor or I -10-7353
persona servces. I. T. 28G9
R NU CT O 1934.
Ta aton of foregn wne and quor concerns and ther em-
poyees wth respect to contracts for the sae of such com-
modtes.
number of questons reatve to abty for edera ncome
ta of foregn wne and quor concerns and ther empoyees have
been asked whch are stated and answered beow n the order n
whch presented:
(o) When a saared representatve of a foregn busness concern comes
to the Unted States to negotate busness for hs empoyer, s that porton
of hs saary earned durng hs stay n the Unted States sub|ect to ncome
ta
Under secton 119(a)3 of the Revenue ct of 1934, compensaton
for abor or persona servces performed n the Unted States by a
nonresdent aen whe n the Unted States to negotate busness
for hs empoyer s sub|ect to edera ncome ta .
( ) Is the proft earned by a foregn concern derved through a contract
made In the Unted States wth an mercan saes agent for the sae of ts
products sub|ect to ncome ta , and f so, what procedure s to be foowed
to ascertan the amount of proft and the assessment of the ta on such
ncome
The ncome from sources wthn the Unted States derved by a
nonresdent aen ndvdua (ether drecty or through a partner-
shp) or a foregn corporaton from the sae of persona property
n the Unted States (ncudng quor) under a contract made n
the Unted States wth an mercan saes agent s sub|ect to edera
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131, rt. 131-1.
114
ncome ta . (See secton 119 (a) and (e) of the Revenue ct of
1934.) s to the manner of determnng the proft derved from the
sae of persona property produced wthout the Unted States and
sod wthn the Unted States, attenton s drected to artce C82,
Reguatons 77. The ncome derved from sources wthn the Unted
States by a nonresdent aen ndvdua or corporaton from the sae
of persona property wthn the Unted States shoud be reported
on ncome ta returns, orm 1040 or orm 1120, dependent upon
the status of the foregn concern. Such returns are requred to be
fed ether by the ta payer or hs responsbe representatve n the
Unted States. In ths connecton attenton s drected to artce
1081, Reguatons 77.
(c) re the profts from smar contracts made In urope wth mercan
busness concerns sub|ect to the ncome ta aws
When the sae of wne or quor s made abroad by a foregn
company to an mercan purchaser, the proft s not sub|ect to ed-
era ncome ta . The mere purchase abroad of foregn wne or
quor from a foregn company does not have the effect of makng
the seer (foregn company) sub|ect to edera ncome ta regard-
ess of the fact that the goods are shpped to the Unted States. If
a foregn company purchases wne or quor abroad and ses t n
the Unted States the entre proft s derved from sources wthn
the Unted States and s sub|ect to edera ncome ta . If, how-
ever, the foregn company manufactures such commodtes abroad
and ses them n the Unted States, the proft s derved party
from sources wthn and party from sources wthout the Unted
States. In ths connecton attenton s nvted to secton 119(e) of
the Revenue ct of 19:54, artce 82 of Reguatons 77, I. T. 280
(C. . III-2, 78), and G. C. M. 13475 (C. . III-2, 224).
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S
ND POSS SSIONS O UNIT D ST T S.
rtce 131-1: nayss of credt for ta es. I -1 -7440
G. C. M. 14 25
R NU CT O 1934.
The absenteesm ta mposed by Me co under the aw promu-
gated ebruary 22, 1034 (effectve March 1, 1934), may be camed
as a credt aganst Unted States ncome ta es, sub|ect to the statu-
tory provsons and mtaton of secton 131 of the Revenue ct
of 1934.
dvce s requested whether the absenteesm ta mposed by Me co
may be camed as a credt aganst Unted States ncome ta es under
secton 131 of the Revenue ct of 1934.
rom an e amnaton of the provsons of the absenteesm ta
aw of Me co promugated ebruary 22, 1934 (effectve March 1,
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115
141, rt. 11(a).
1934), t appears that a ta at the rates of 2 per cent and 4 per cent s
eved upon the ncome orgnatng n Me co receved by persons
absent from Me co, ncudng corporatons domced abroad. The
ta s aso eved on ncome orgnatng n Me co receved by persons
(ncudng corporatons) domced n Me co, when such ncome s
nvested abroad. The admnstraton of the absenteesm ta s n-
trusted to the Income Ta ureau of the Drecton Genera of
Revenue. It appears that the M Company has been advsed by the
oca Me can ncome ta offce that the aw affects the O Company,
an affated company, to the e tent that an addtona 4 per cent ta
must be pad on the net ta abe ncome as shown on the Me can
ncome ta return.
Inasmuch as the ta s eved on ncome, t must be consdered as an
ncome ta , and may, therefore, be camed as a credt aganst Unted
States ncome ta es, sub|ect to the statutory provsons and mtaton
of secton 131 of the Revenue ct of 1934.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 131-5: Countres whch do or do not I -7-7313
satsfy the smar credt requrement. I. T. 28 0
R NU CT O 1934.
Great rtan does not satsfy the smar credt requrement of
secton 131 (a)3 of the Revenue ct of 1934
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS O
R ILRO D CORPOR TIONS.
rtce 11(a), Reguatons 89: Consodated I -8-7329
returns requred for subsequent years. I. T. 2805
( so Secton 702.)
R NU CTS O 1032 ND 19. 4.
I. T. 2823 (C. . III-2, 1 2) s appcabe to ncome ta returns
of affated groups of corporatons for any fsca year begun n 1933
and ended n 1934. It s not appcabe to e cess profts ta returns.
(See T. D. 44 9 (C. . III-2, 110), and Mm. 4241 (C. .
III-2, 55).)
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5142, rt. 142-1.
11
S CTION 142. IDUCI RY R TURNS.
rtce 142-1: ducary returns. I -5-7292
T. D.4519
INCOM T .
ducary returns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 142 (Tte I Income Ta ) of the Revenue
ct of 11)34 provdes:
Sec. 142. ducary Returns.
(a) Requrement of return. very fducary (e cept a recever apponted by
authorty of aw n possesson of part ony of the property of an ndvdua)
sha make under oath a return for any of the foowng ndvduas, estates, or
trusts for whch he acts, statng specfcay (he tems of gross ncome thereof
and the deductons and credts aowed under ths tte
(1) very ndvdua havng a net ncome for the ta abe year of 1,000 or
over, f snge, or f marred and not vng wth husband or wfe
(2) very ndvdua havng a net ncome for the ta abe year of 2,500 or
over, f marred and vng wth husband or wfe
(3) very ndvdua havng a gross ncome for the ta abe year of 5,000 or
over, regardess of the amount of hs net ncome
(4) very estate or trust the net ncome of whch for the ta abe year s
1,000 or over
(5) very estate or trust the gross ncome of whch for the ta abe year s
5,000 or over, regardess of the amount of the net ncome and
(G) very estate or trust of whch any benefcary s a nonresdent aen.
(b) ont fducares. Under such reguatons as the Commssoner wth the
approva of the Secretary may prescrbe a return made by one of two or
more |ont fducares and fed n the offce of the coector of the dstrct where
such fducary resdes sha be suffcent compance wth the above requrement.
Such fducary sha make oath (1) that he has suffcent knowedge of the
affars of the ndvdua, estate, or trust for whch the return s made, to
enabe hm to make the return, and (2) that the return s, to the best of hs
knowedge and beef, true and correct.
(c) Law appcabe to fducares. ny fducary requred to make a return
under ths tte sha be sub|ect to a the provsons of aw whch appy to
ndvduas.
Par. . Secton 2 (Tte I Income Ta ) of the Revenue ct
of 1934 provdes:
Sec 2. Rues and Reguatons.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rufs and reguatons for the enforcement of ths tte.
Pursuant to the above quoted provsons of the Revenue ct of
1934, the foowng reguatons are prescrbed.
rtce 1. ducary returns. very fducary, or at east one of |ont
fducares, must make a return of ncome
(a) or the ndvdua whose ncome s n hs charge, f the gross ncome
of such ndvdua s 5,000 or over, or f the net ncome of such ndvdua
s 1,000 or over f snge or f marred and not vng wth husband or wfe
for any part of the ta abe year or f such ndvdua s marred and was
vng wth husband or wfe for any part of the ta abe year but not at the
cose of the ta abe year and hs gross ncome for the ta abe year s 5,000
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117
142, rt. 142-1.
or over, or hs net ncome s equa to, or n e cess of, the credt aowed hm
by secton 25(b) (1) and (3) of the Revenue ct of 1034 (computed wthout
regard to hs status as head of a famy) or f such ndvdua s marred and
was vng wth husband or wfe for the entre ta abe year and the aggre-
gate gross Income of both husband and wfe s 5,000 or over, or the aggregate
net ncome of both husband and wfe s 2,500 or over or f such ndvdua
s marred and was vng wth husband or wfe at the cose of the ta ube
year but not durng the entre ta abe year and the aggregate gross ncome
of both husband and wfe s 5,000 or over, or the aggregate net ncome of
both husband and wfe s equa to, or n e cess of, the credt aowed them by
secton 25(b) (1) and (3) of the Revenue ct of 1 34 (computed wthout
regard to the status of ether of them as head of a famy), or
( ) or the estate or trust for whch he acts f the net ncome of such
estate or trust s 1,000 or over, or f the gross ncome of the estate or trust
s 5,000 or over, regardess of the amount of the net ncome, or f any bene-
fcary of such estate or trust s a nonresdent aen.
The return n case (o) sha be on orm 1040 or 1040 . In case ( ) a
return s requred on orm 1040 wth respect to any ta abe net ncome of the
estate or trust computed n accordance wth secton 1 2 of the Revenue ct of
1934, and a return on orm 1041 wth respect to any ncome deducted under
secton 1 2 (b) or (c) of that ct. If a porton of the ncome of the estate or
trust s retaned by the fducary and the remander s dstrbutabe or dstrb-
uted to benefcares, both orms 1040 and 1041 w be requred. copy of
the w or trust nstrument sworn to by the fducary as a true and compete
copy n cases n whch the gross ncome of the estate or trust s 5,000 or over,
must be fed wth the fducary return of the estate or trust, together wth a
statement by the fducary ndcatng the provsons of the w or trust nstru-
ment whch, n hs opnon, determne the e tent to whch the ncome of the
estate or trust s ta abe to the estate or trust, the benefcares, or the grantor,
respectvey. If, however, a copy of the w or trust nstrument, or statement
reatng to the provsons of the w or trust nstrument, has once been fed,
t need not agan be fed If the fducary return contans a statement showng
when and where t was fed. If the trust nstrument s amended n any way
after such copy has been fed, a copy of the amendment, together wth a state-
ment by the fducary ndcatng the effect, f any, n hs opnon, of such
amendment on the e tent to whch the ncome of the estate or trust s ta ube
to the estate or trust, the benefcares, or the grantor, respectvey, must be
fed wth the return for the ta abe year n whch the amendment was made.
If, wth respect to the frst ta abe year begnnng after December 31, 1933, the
copy of the w or trust nstrument requred by these reguatons can not be
fed at the tme the fducary return s made wthout causng undue hardshp
to the fducary, such copy may be fed as soon as practcabe thereafter but not
ater than s months after the tme proscrbed by aw for the makng of the
fducary return (wthout regard to any e tenson of tme granted for the
fng of such return). In such a case a statement sha be made n the fducary
return showng the undue hardshp whch woud resut to the fducary f the
copy of the w or trust nstrument were fed at the tme the fducary return
s made and statng that the copy w be fed at the earest practcabe date.
If the copy of the w or trust nstrument s not fed at the tme the return s
fed, then such copy sha he forwarded drecty to the Commssoner of In-
terna Revenue, Sortng Secton, Washngton, D. C. If the net ncome of a
decedent from the begnnng of the ta abe year to the date of hs death was
equa to, or n e cess of. the credt aowed hm by secton 25(b) (1) and (3)
of the Revenue ct of 1934 (computed wthout regard to hs status as head of
a famy), or f hs gross ncome for the same perod was 5,000 or over, the
e ecutor or admnstrator sha make a return for such decedent.
Wrght Matthews.
ctng Commssoner of Interna Revenue.
pproved anuary 30, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
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143, rt. 143-2.
118
S CTION 143. WIT OLDING O T
T SOURC .
rtce 143-2: ed or determnabe annua or I -12-7393
perodca ncome. T. I). 4535
( so Secton 144, rtce 144-1.)
INCOM T .
rtces 14:5-2, 143-3, and 144-1 of Reguatons 80, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Coectors of Interna Revenue and Others Concerned:
The frst paragraph of artce 143-2 of Reguatons 8 s amended
by addng at the end thereof the words and dvdends so that such
paragraph w read:
kt. 148-2. ed or determnabe annua or perodca ncome. Ony f ed
or determnabe annua or perodca Income s sub|ect to wthhodng. The
ct specfcay ncudes n such ncome, nterest, rent, saares, wages, prem-
ums, annutes, compensatons, remuneratons, and emouments. Rut other
knds of ncome are ncuded, as, for nstance, royates and dvdends.
The ast sentence of the frst paragraph of artce 143-3 of Regua-
tons 8 s amended by strkng out the words sub|ect to ta aton
under Tte I and nsertng n eu thereof organzed under the
Chna Trade ct, 1922, and by strkng out the words by a corpo-
raton organzed under the Chna Trade ct, 1922, so that such
sentence w read:
No wthhodng from dvdends pad by a corporaton organzed under the
Chna Trade ct, 1922, s requred uness the dvdends are treated as Income
from sources wthn the Unted States under secton 119 and are dstrbuted
to
(a) nonresdent aen ndvdua other than a resdent of Chna at the
tme of such dstrbuton
( ) nonresdent partnershp composed n whoe or n part of nonresdent
aens (other than a partnershp resdent n Chna) or
(c) nonresdent foregn corporaton (other than a corporaton resdent n
Chna).
The ne t to the ast sentence of the frst paragraph of artce
144-1 of Reguatons 8 s amended by strkng out the words e -
cept dvdends pad by a corporaton sub|ect to ta aton under Tte
I and nsertng n eu thereof e cept dvdends pad by a domestc
corporaton sub|ect to ta aton under Tte I, so that such sentence
w read:
Wthhodng of a ta of 13 per cent Is aso requred n the case of pay-
ments of other f ed or determnabe annua or perodca ncome from sources
wthn the Unted States to nonresdent foregn corporatons, e cept dvdends
pad by a domestc corporaton sub|ect to ta aton under Tte I other than
dvdends dstrbuted by a corporaton organzed under the Chna Trade ct,
1922, to a nonresdent foregn corporaton whch s not a resdent of Chna.
Gut T. everng,
Commssoner.
pproved March 1 , 1935.
T. . Coodoe,
ctng Secretary of the Treasury.
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119
143, rt. 143-2.
rtce 143-2: ed or determnabe annua or
perodca ncome.
( so Secton 144, rtce 144-1 Secton 148,
rtce 148-1.)
1 -20-7494
Mm.4323
Labty of foregn corporatons to wthhod ta or to fe returns
of nformaton n connecton wth the payment of dvdends.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 27,1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
oregn Corporatons, and Others Concerned:
Secton 143(b) of the Revenue et of 1934 provdes n part:
nonresdent aens. persons, n whatever capacty actng,
havng the contro, recept, custody, dsposa, or payment of f ed
or determnabe annua or perodca gans, profts, and ncome, of any non-
resdent aen ndvdua, or of any partnershp not engaged n trade or
busness wthn the Unted States and not havng any offce or pace of busness
theren and composed n whoe or n part of nonresdent aens (other than
ncome receved as dvdends of the cass aowed as a credt by secton 25(a)),
sha deduct and wthhod from such annua or perodca gans,
profts, and ncome a ta equa to 4 per centum thereof .
Secton 144 of that ct provdes:
Payment of corporaton ncome ta at source.
In the case of foregn corporatons sub|ect to ta aton under ths tte not
engaged n trade or husness wthn the Unted States and not havng any offce
or pace of busness theren, there sha be deducted and wthhed at the source
n the same manner and upon the same tems of Income as s provded n
secton 143 a ta equa to 13 per centum, and such ta sha be returned
and pad n the same manner and sub|ect to the same condtons as provded
n that secton: Provded, That n the case of nterest descrbed n subsecton
(a) of that secton (reatng to ta -free covenant bonds) the deducton and
wthhodng sha be at the rate specfed n such subsecton.
Secton 25(a) of the ct reads n part:
Credts for norma ta ony, There sha be aowed for the purpose of
the notma ta , but not for the surta , the foowng credts aganst the
net ncome:
(1) Dvdends. The amount receved as dvdends from a domestc cor-
poraton whch s sub|ect to ta aton under ths tte. The credt aowed by
ths paragraph sha not be aowed n respect of dvdends receved from
a corporaton organzed under the Chna Trade ct, 22, or from a cor-
poraton whch under secton 251 s ta abe ony on ts gross ncome from
sources wthn the Unted States by reason of ts recevng a arge per-
centage of ts gross ncome from sources wthn a possesson of the Unted
States.
Secton 119(a) of the ct provdes n part:
Gro ncome from sources n Unted States. The foowng tems of gross
Income sha be treated as ncome from sources wthn the Unted States.

(2) Dvdends. The amount receved as dvdends

( ) from a foregn corporaton uness ess than 50 per centum of the gross
ncome of such foregn corporaton for the 3-year perod endng wth the
cose of Its ta abe year precedng the decaraton of such dvdends (or
083 35
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143, rt. 143-2.
120
for such part of such perod as e corporaton has been n e stence) wa
derved from sources wthn the Unted .States as determned under the
provsons of ths secton but dvdends from a foregn corporaton sha,
for the purposes of secton 131 (reatng to foregn ta credt), be treated
as ncome from sources wthout the Unted States .
though the Revenue ct of 1934 does not specfcay provde
that dvdends sha be sub|ect to wthhodng, secton 143(b) by
enumeratng certan casses of ncome conng wthn the defnton
of f ed or determnabe annua or perodca gans, profts and
ncome such as nterest, saary, rent, etc., nferentay recognzes
that dvdends kewse come wthn the defnton, for t e cepts
dvdends of the cass aowed as a credt by secton 25(a).
The frst paragraph of artce 143-2 of Reguatons 8 , as amended
by Treasury Decson 4535, approved March 1 , 1935 page 118,
ths uetn , reads as foows:
red or determnabe annua or pcroda ncome. Ony f ed or deter-
mnabe annua or perodca ncome s sub|ect to wthhodng. The ct
specfcay ncudes n such ncome, nterest, rent, saares, wages, premums,
annutes, compensatons, remuneratons, and emouments. ut other knds
ot ncome are ncuded, as, for nstance, royates and dvdends.
In accordance wth the above-quoted provsons of the ct, any
person havng the contro, recept, custody, dsposa, or payment of
dvdends decared by a corporaton s requred to deduct and wth-
hod ncome ta at the source when payments are made to the per-
sons enumerated n sectons 143(b) and 144, e cept n the case of
dvdends of the cass aowed as a credt by secton 25(a). That
secton permts a credt for the purpose of the norma ta (n the
case of dvdends) ony of the amount receved as dvdends from a
domestc corporaton whch s sub|ect to ncome ta , e cept a cor-
poraton organzed under the Chna Trade ct, 1922, or a corpora-
ton entted to the benefts of secton 251 of the Revenue ct of
1934. It foows that dvdends pad by a foregn corporaton are
sub|ect to the deducton of ncome ta at the source (a) f 50 per
cent or more of I he gross ncome of such foregn payor corporaton
for the 3-year perod endng wth the cose of ts ta abe year pre-
cedng the decaraton of such dvdends (or for such part of such
perod as the corporaton has been n e stence) was derved from
sources wthn the Unted States as determned under the provsons
of secton 119 of the Revenue ct of 1934, and, (b) f the dvdends
were pad to the foowng casses of ta payers: (1) a nonresdent
aen ndvdua, (2) a partnershp not engaged n trade or bus-
ness wthn the Unted States and not havng an offce or pace of
busness theren and composed n whoe or n part of nonresdent
aens, or (3) a foregn corporaton not engaged n trade or busness
wthn the Unted States and not havng any offce or pace of busness
theren.
The amount of ta requred to bo wthhed must be reported on
annua return of ncome ta to be pad at source, orm 1042. The
foregn corporaton whch pays the dvdend shoud fe the wth-
hodng return wth the coector of nterna revenue for the ds-
trct n whch t has ts prncpa offce or pace of busness n the
Unted States. If the foregn payor corporaton has no offce or
pace of busness n the Unted States the wthhodng return shoud
be fed by ts fsca or payng agent n ths country.
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121
143, rt. 143-3.
In order for a foregn corporaton to be reeved from ts a-
bty to wthhod ta under the provsons of sectons 143(b) and
144 from dvdends pad by t on the ground that such dvdends
are not ncome from sources wthn the Unted States, t w be
necessary for the foregn corporaton to submt at the cose of ts
ta abe year precedng the year n whch ts dvdends were de-
cared a statement ndcatng the nature of ts busness and showng
the amounts of ts tota gross ncome from a sources for each of
the three years precedng the year n whch the dvdends are de-
cared and the amounts of ts tota gross ncome from sources wth-
n the Unted States for such years n such deta as w enabe
the Commssoner to determne whether the foregn corporaton de-
rves ess than 50 per cent of ts gross ncome from sources wthn
the Unted States.
rtce 148-1 (a) of Reguatons 8 provdes n part:
very domestc corporaton or foregn corporaton engaged n bus-
ness n the Unted States or havng an offce or pace of busness or a fsca
or payng agent n the Unted States, not specfcay e empt from ta aton,
makng payments of dvdends and dstrbutons out of ts earnngs or profts
accumuated snce ebruary 28, 1913 (not ncudng stock dvdends or ds-
trbutons n qudaton), to any sharehoder who s an Indvdua (ctzen,
resdent, or nonresdent aen), a fducary, or a partnershp, amountng to
3 0 or more durng the caendar year, sha render an Informaton return
on orms 109 and 1099 for the caendar year 1934 and each caendar year
thereafter. separate orm 1099 must be prepared for each sharehoder,
upon whch w be shown the name and address of the sharehoder to whom
such payment was made, and the amount pad. These forms, accompaned by
etter of transmtta on onn 1090 showng the number of orms 1099 fed
therewth, sha be forwarded to the Commssoner of Interna Revenue,
Sortng Secton, Washngton, D. C, on or before ebruary 15 of the foowng
year.
foregn corporaton whch s requred to wthhod ta from ts
dvdends under sectons 143(b) and 144 s not requred to fe returns
of nformaton on orm 1099 wth respect to the dvdends from
whch t wthhed the ta , as the nformaton on orm 1042 s suff-
cent compance wth the requrements of secton 148.
foregn corporaton whch s not requred to wthhod ta from
ts dvdends for the reason that such dvdends are ncome from
sources wthout the Unted States s not requred to fe returns of
nformaton on orm 1099 n connecton wth the payment of dv-
dends made to the casses of persons enumerated n sectons 143(b)
and 144.
nqures concernng ths mmeograph shoud refer to the
number thereon and the symbos IT: : CTR.
Guy T. evebng,
Commssoner.
rtce 143-3: empton from wthhodng.
R NU CT O 1934.
mendment of Reguatons 8 , artce 143-3. (See T. D. 4535,
page 118.)
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143, rt. 143-5.
122
rtce 143-5: Ownershp certfcates for
bond nterest.
( so Secton 144, rtce 144-1 Secton
147(b), rtce 147-4.)
I -1-7238
T. D. 4505
Wthhodng of ncome : under the Revenue ct of 1934 Own-
ershp certfcates requred n connecton wth nterest on bonds of
corwratons. Treasury Decson 4400 and Treasury Decson 4478
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 44 0 (C. . III-2, 83), approved ugust 4,
1934, as amended by Treasury Decson 4478 (C. . III-2, 88),
approved September 29, 1934, s hereby further amended, effectve
anuary 1, 1935, by emnatng the paragraph substtuted by Treas-
ury Decson 4478 readng:
In accordance wth the provsons of secton 147(b), ctzens, resdent nd-
vduas and fducares, resdent partnershps and nonresdent partnershps a
of the members of whch are ctzens or resdents, ownng bonds, mortgages, or
deeds of trust, or other smar obgatons ssued by a domestc corporaton, a
resdent foregn corporaton, or a nonresdent foregn corporaton havng a
fsca agent or a payng agent n the Unted States, when presentng nterest
coupons for payment pror to anuary 1, 1935, sha fe ownershp certfcates
where the obgatons contan a ta -free covenant and were ssued before anu-
ary 1, 1934, regardess of the amount of the coupons. The amount of nterest
receved on such bonds sha be entered on ne 3 of orm 1000, revsed uy, 1934
(or ne 2 of orm 1000, revsed une, 1932), e cept n the case of a ctzen
or resdent the nterest sha be entered on ne 2 of orm 1000, revsed uy,
934 (or ne 1 of orm 1000, revsed une, 1932), f the net ncome of such
ctzen or resdent does not e ceed the persona e empton and credt for
dependents aowed by secton 25(b). On and after anuary 1, 1935, ctzens
and resdent ndvduas and fducares, ownng bonds, mortgages, or deeds of
trust, or other smar obgatons ssued by a domestc corporaton, a resdent
foregn corporaton, or a nonresdent foregn corporaton havng a fsca, agent
or a payng agent n the Unted States, when presentng Interest coupons for
payment sha fe ownershp certfcates where (a) the obgatons do not
contan a ta -free covenant or contan a ta -free covenant but were ssued on
or after anuary 1, 1934, and the amount of the coupons s 20 or more for
each ssue of such obgatons ( ) the obgatons contan a ta -free covenant
and were ssued before anuary 1, 1934, and the amount of coupons s 20 or
more for each ssue and the net ncome docs not e ceed the persona e empton
and credt for dependents aowed by secton 25(b) and (c) the obgatons
contan a ta -free covenant and were ssued before anuary 1, 1934, and the
net ncome of the owner e ceeds the persona e empton and credt for de-
pendents aowed by secton 25(b), regardess of the amount of the coupons.
On and after anuary 1, 1 ). 5, a resdent partnershp, or a nonresdent partner-
shp a of the members of whch are ctzens or resdents, ownng such ob-
gatons when presentng nterest coupons for payment sha fe ownershp
certfcates where (a) the obgatons do not contan a ta -free covenant or
were ssued on or after anuary 1. 1034, and the amount of the coupons s
20 or more for each ssue and ( ) the obgatons contan a ta -free covenant
and were ssued before anuary 1, 1934, regardess of the amount of the
coupons.
and substtutng therefor a paragraph readng as foows:
In accordance wth the provsons of secton 147(b), ctzens, resdent nd-
vduas and fducares, resdent partnershps and nonresdent partnershps a
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123
144, rt. 144-1.
of the members of whch are ctzens or resdents, ownng bonds, mortgages, or
deeds of trust, or other smar obgatons ssued by n domestc corporaton, a
resdent foregn corporaton, or a nonresdent foregn corporaton havng a
fsca agent or a payng agent n the Unted States, when presentng nterest
coupons for payment sha fe on orm 1000 ownershp certfcates for each ssue
of such obgatons regardess of the amount of the coupons.
Weght Matthews,
ctng Commssoner of Interna Revenue.
pproved anuary 2, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
rtce 143-5: Ownershp certfcates for I -13-7397
bond nterest. I. T. 287
R NU CT O 1934.
Interest on farm oan bonds ssued by |ont stock and banks s
not requred to be reported on ownershp certfcates.
S CTION 144. P YM NT O CORPOR TION INCOM
T T SOURC .
rtce 144-1: Wthhodng n the case of nonresdent foregn
corporatons.
R NU CT O 1034.
Ownershp certfcates requred n connecton wth nterest on
bonds of corporatons. (See T. D. 4505, page 122.)
rtce 144-1: Wthhodng n the case of nonresdent foregn
corporatons.
R NU CT O 1934.
mendment of Reguatons 8 , artce 144-1. (See T. D. 4535,
Page 118.)
rtce 144 1: Wthhodng n the case of nonresdent foregn
corporatons.
R NU CT O 1934.
Labty of foregn corporatons to wthhod ta n connecton
wth payment of dvdends. (See Mn. 4323, page, 119.)
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5147, rt. 147-1.
124
S CTION 147. IN ORM TION T SOURC .
rtce 147-1: Return of nformaton as to I -7-732-4
payments of 1,000. T. D. 4523
Income ta Informaton at source. Informaton returns for
the caendar year 1934 and subsequent caendar years.
Treasury Depart .nt.
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 147 (Tte I Income Ta ) of the Revenue
ct of 1934 provdes:
S C. 147. IM-OUM TION T SOURC .
(a) Payments of 1,000 or more. persons, n whatever capacty actng,
ncudng essees or mortgagors of rea or persona property, fducares, and
empoyers, makng payment to another person, of nterest, rent, saares, wages,
premums, annutes, compensatons, remuneratons, emouments, or other f ed
or determnabe gans, profts, and ncome (other than payments descrbed n
secton 14S(a) or 149), of 1,000 or more n any ta abe year, or, n the case
of such payments made by the Unted States, the offcers or empoyees of the
Unted States havng nformaton as to suc payments and requred to make
returns n regard thereto by the reguatons herenafter provded for, sha
render a true and accurate return to the Commssoner, under such reguatons
and n such form and manner and to such e tent as may be prescrbed by hm
wth the approva of the Secretary, settng forth the amount of such gans,
profts, and ncome, and the name and address of the recpent of such payment.
(b) Return rrgardess of amount of payment. Such returns may be re-
qured, regardess of amounts, (1) n the case of payments of nterest upon
bonds, mortgages, deeds of trust, or other smar obgatons of corporatons,
and (2) n the case of coectons of tems (not payabe n the Unted States)
of nterest upon the bonds of foregn countres and nterest upon the bonds of
and dvdends from foregn corporatons by persons undertakng as a matter
of busness or for proft the coecton of foregn payments of such nterest or
dvdends by means of coupons, checks, or bs of e change.
(c) Recpent to furnsh name and address. When necessary to make
effectve the provsons of ths secton the name and address of the recpent
of ncome sha be furnshed upon demand of the person payng the ncome.
(d) Obgatons of Unted States. The provsons of ths secton sha not
appy to the payment of nterest on obgatons of the Unted States.
Par. . Secton 2 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
Sec. 2. Ru.es and euuato. s.
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues an reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons of the ct, the foowng
reguatons are hereby prescrbed wth respect to returns of nforma-
ton at the source:
rtce 1. Meanng of terms foregn corporaton engaged n trade or
busness wthn the Unted States or havng an offce or pace of busness
theren s referred to n these reguatons as a resdent foregn corporaton,
and a foregn corporaton not engaged n trade or busness wthn the Unted
States and not havng any offce or pace of busness theren, as a nonresdent
foregn corporaton.
partnershp engaged n trade or busness wthn the Unted States or
havng an offce or pace of busness theren s referred to n these reguatons
us a resdent partnershp, and a partnershp not engaged n trade or busness
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147, rt. 147-1.
wthn the Unted States and not havng any offce or pace of busness theren,
as a nonresdent partnershp.
The term foregn tems, as used n these reguatons, means any tem of
Interest upon the bonds of a foregn country or of a nonresdent foregn cor-
poraton not havng a fsca or payng agent n the Unted States, or any tem
of dvdends upon the stock of such corporaton.
bt. 2. Return of nformaton as to payments of 1,000, persons makng
payment to another person of ed or determnabe ncome of 1,000 or more
n any caendar year must render a return thereof to the Commssoner for
such year on or before ebruary 15 of the foowng year, e cept as specfed
n artces 4- . The return sha be made n each case on orm 1099, accom-
paned by transmtta orm 109 showng the number of returns fed. The
street and number where the recpent of the payment ves shoud be stated,
f posshe. If no present address s avaabe, the ast known post-offce ad-
dress must be gven. though to make necessary a return of nformaton the
ncome must be f ed or determnabe, t need not be annua or perodca.
Sums pad In respect of fe nsurance, endowment or annuty contracts
whch are requred to be ncuded n gross ncome under secton 22(b) of the
Revenue ct of 1934 come wthn the meanng of the term f ed or deter-
mnabe ncome and are requred to be reported n returns of nformaton as
requred by ths artce, e cept that payments n respect of poces surrendered
before maturty and apsed poces need not be reported.
or the purpose of a return of nformaton, an amount s deemed to have
been pad when t s credted or set apart to the ta payer wthout any sub-
stanta mtaton or restrcton as to the tme or manner of payment or con-
dton upon whch payment s to be made, and whch s made avaabe to hm
so that t may be drawn at any tme, and ts recept brought wthn hs own
contro and dsposton.
- bt. 3. Return of nformaton as to payments to empoyees. The names of
a empoyees to whom payments of . 1,000 or over a year are made, whether
such tota sum s made up of wages, saares, commssons, or compensaton n
any other form, must be reported. mounts dstrbuted or made avaabe
under an empoyees trust governed by the provsons of secton 1 5 of the
Revenue ct of 1934 to any benefcary In any ta abe year, equa to or n
e cess of hs persona e empton, that have been contrbuted to the fund by
the empoyer or represent earnngs of the fund, must be reported by the trustee.
ut see artce 4. eads of branch offces and subcontractors empoyng abor,
who keep the ony compete record of payments therefor, shoud fe returns
of nformaton In regard to such payments drecty wth the Commssoner.
When both man offce and branch offce have adequate records, the return
shoud be fed by the man offce.
In the case of payments made by the Unted States to persons n ts servce
(cv or mtary) of wages, saares, or compensaton n any other form, the
returns of nformaton sha be made by the heads of the e ecutve departments
and other Unted .States Government estabshments.
If servces are pad for wth somethng other than money, the far market
vaue of the thng taken n payment s the amount to be ncuded as ncome. If
the servces were rendered at a stpuated prce, n the absence of evdence
to the contrary such prce w be presumed to be the far vaue of the com-
pensaton receved. If a corporaton transfers to ts empoyees ts own stock
as compensaton for servces rendered by the empoyee, the amount of such
compensaton to be ncuded n the gross ncome of the empoyee s the far
market vaue of the stock at the tme of the transfer. If vng quarters such
as camps are furnshed to empoyees for the convenence of the empoyer, the
ratabe vaue need not be added to the cash compensaton of the empoyees,
but f a person receves as compensaton for servces rendered a saary and n
addton thereto vng quarters, the vaue to such person of the quarters fur-
nshed consttutes ncome sub|ect to ta . The vaue of quarters furnshed
rmy and Navy offcers, members of the Coast Guard, Coast and Geodetc
Survey, and Pubc eath Servce, or amounts receved as commutaton of
quarters by such offcers or members, do not consttute ta abe ncome. Pre-
mums pad by an empoyer on poces of group fe nsurance coverng the
ves of hs empoyees, the benefcares of whch are desgnated by the em-
poyees, are not ncome to the empoyees.
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147, rt. 147-1.
12
rt. 4. Case where no return of nformaton requred. Payments of the
foowng character, athough over 1,000, need not Ik reported n returns
of nformaton on orm 1099:
(a) Payments of nterest on obgatons of the Unted States
( ) Payments by a broker to hs customers
(c) Payments of any type made to corporatons
(d) s pad for merchandse, teegrams, teephone, freght, storage, pro-
fessona servces, and smar charges
(c) Payments of rent made to rea estate agents (but the agent must report
payments to the andord f the amount pad durng the year was 1,000 or more
to a snge person, a partnershp, or a fducary, or 2,000 or more to a marred
person)
(f) Payments made by branches of busness bouses ocated In foregn coun-
tres to aen empoyees servng n foregn countres
(g) Saares and profts pad or dstrbuted by a partnershp to the ndvdua
partners
(7) Payments of saares, rents, royates, nterest (e cept bond nterest re-
qured to be reported on ownershp certfcates), and other f ed or determ-
nabe Income aggregatng ess than 2,500 made to a marred ndvdua and
() Payments of commssons made by fre nsurance companes, or other
companes nsurng property, to genera agents, e cept when specfcay drected
by the Commssoner to be ted.
If the marta status of the payee s unknown to the payor, or f the marta
status of the payee changed durng the ta abe year, the payee w be con-
sdered a snge person for the purpose of rng a return of nformaton on
orm 1099.
rt. 5. Return of nformaton as to nterest on corporate bonds. In the case
of payments of nterest, regardess of amount, upon bonds and smar obga-
tons of corporatons, the ownershp certfcates, when duy fed, sha consttute
and be treated as returns of nformaton.
rt. . Return of nformaton an to payments to other than ctzens or
resdents. In the case of payments of f ed or determnabe annua or perodca
ncome to nonresdent aens (ndvdua or fducary), to nonresdent partner-
shps composed n whoe or n part of nonresdent aens, or to nonresdent
foregn corporatons, the returns ted by wthhodng agents on orm 1042 sha
consttute and be treated as returns of nformaton.
rt. 7. Return of nformaton as to foregn tems. In the case of foregn
tems (see artce 1), an nformaton return on orm 1099 s requred to be
fed by the bank or coectng agent acceptng the tems for coecton, f the
foregn tem s pad to a ctzen or resdent of the Unted States (ndvdua
or fducary), or a partnershp any member of whch s a ctzen or resdent,
and f the amount of the foregn tems pad n any ta abe year to a snge
person, a partnershp, or a fducary s 1,000 or more, or to a marred person
s 2,500 or more. Such forms accompaned by orm 109 shoud be forwarded
to the Commssoner of Interna Revenue, Sortng Secton, Washngton, D. C, on
or before ebruary 15 of each year. The term coecton ncudes the
foowng: (a) The payment by the censee of the foregn tem n cash
( ) the credtng by the censee of the account of the person presentng the
foregn tem (c) the tentatve credtng by the censee of the account of the
person presentng the foregn tem unt the amount of the foregn tem s
receved by the censee from abroad ( /) the recept of foregn tems by the
censee for the purpose of transmttng them abroad for deposts. See artces
2 and 4.
rt. 8. Informaton as to actua owner. When the person recevng a pay-
ment fang wthn the provsons of the Revenue ct of 1934 for nformaton
at the source s not the actua owner of the ncome receved, the mme and
address of the actua owner sha he furnshed upon demand of the ndvdua,
corporaton, or partnershp payng the ncome, and n defaut of a compance
wth such demand the payee becomes abe to the penates provded. Dv-
dends on stock are prma face the ncome of the record owner of the stock.
Upon recept of dvdends by a record owner, he shoud mmedatey e ecute
orm 10S7 to dscose the name and address of the actua owner. orm 1087
shoud be fed wth the Commssoner of Interna Revenue, Sortng Secton,
Washngton, D. C. Uness such a dscosure s made, the record owner w be
hed abe for any ta based upon such dvdends.
The fng of orm 1087 s not requred (a) where stocks are regstered n
the name of a nomnee for a fducary requred to fe a return on orm 1041
n whch the dvdends from such stocks are reported, and ( ) where they are
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148, rt. 148-1.
owned by a nonresdent aen and are regstered In the name of a nomnee
desgnated by a bank or trust company whch s requred to fe returns of ncome
for such nonresdent aen.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ebruary 11, 1935.
. MORG NT U, r.,
Secretary of the Treaswry.
rtce 147-4: Return of nformaton as to nterest
on corporate bonds.
R NU CT OP 1934.
Ownershp certfcates requred n connecton wth nterest on
bonds of corporatons. (See T. D. 4505, page 122.)
rtce 147-8: Informaton as to actua I - -7298
owner. I. T. 2857
R NU CT OP 1934.
Use of orm 1087 (ownershp certfcate dvdends on stock)
by brokers and nomnees of fnanca nsttutons.
dvce s requested reatve to the fng of orm 1087 under the
Revenue ct of 1934.
In vew of the provsons of Treasury Decson 4459 (C. . III-
2, 95), t w be consdered a suffcent compance wth the pro-
vsons of secton 147 of the Revenue ct of 1934 f orm 1087,
dscosng actua ownershp of stock and dvdends thereon, or a sub-
sttute form approved by the ureau, s fed by brokers for each
customer where the ndvdua credt to the customer s account s
75 or more, dsregardng the credts of ess than that amount. I f a
broker desres, the forms so prepared may be retaned unt the end
of the caendar year and then forwarded to the ureau ony n those
cases where the aggregate amount of the ndvdua dvdend credt,
as shown by the forms, equas or e ceeds 300.
The nomnees of banks, bankers, trust companes, and other fnan-
ca nsttutons (e cept nomnees of fducares or other persons re-
ured to fe orm 1041 or orm 1040 ) w be requred to fe
orm 1087 ony where the ndvdua payment amounts to 75 or
more. The forms so prepared may be retaned unt the end of the
caendar year and then forwarded to the ureau ony n cases where
the aggregate amount of the ndvdua dvdend credt, as shown
by the forms, equas or e ceeds 300.
S CTION 148. IN ORM TION Y CORPOR TIONS.
rtce 148-1: Return of nformaton as to payments of
dvdends.
R NU CT OP 1934.
Labty of foregn corporatons to fe returns of nformaton n
connecton wth payment of dvdends. (See Mm. 4323, page 119.)
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149, rt. 149-1.
128
S CTION 149. R TURNS O RO RS.
rtce 149-1: Return of nformaton by I -3-72 2
brokers. T.D.4510
Returns of nformaton by brokers and other agents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 149 (Tte I Income Ta ) of the Revenue
ct of 1934 provdes:
Returns of rokkrs.
very person dong busness as a broker sha, when requred by the Com-
mssoner, render a correct return duy verfed under oath, under such rues
and reguatons as the Commssoner, wth the approva of the Secretary, may-
prescrbe, showng the names of customers for whom such person has transacted
any busness, wth such detas as to the profts, osses or other Informaton
whch the Commssoner may requre, as to each of such customers, as w enabe
the Commssoner to determne whether a ncome ta due on profts or gans of
such customers has been pad.
Par. . Secton 2 (Tte I Income Ta ) of the Revenue ct
of 1934 provdes:
RUL S ND R GUL TIONS.
The Commssoner, wth the approva of (e Secretary, sha prescrbe am
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons of the ct, the foowng
reguatons are prescrbed:
rtce 1. Returns of nformaton by brokers. When drected by the Com-
mssoner, ether specay or by genera reguaton, every person dong
busness as a broker sha render a return on the prescrbed form, showng the
names and addresses of customers to whom payments were made or for whom
busness was transacted durng the caendar year or other specfed perod
ne t precedng, and gvng the other nformaton caed for by the form.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved anuary 12, 1935.
L. W. Robert, r.,
ctng Secretary of the Treasury.
rtce 149-1: Return of nformaton by I -5-7285
brokers. Mn. 4284
Returns of nformaton requred to be fed by brokers and
other agents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Y ashng ton, D. C, anuary 25,103o.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and O tters Concerned:
1. Secton 149 of the Revenue ct of 1934 provdes that every
person dong busness as a broker sha, when requred by the Com-
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129
149, rt. 149-1.
mssoner, render a correct return duy verfed under oath, under
such rues and reguatons as the Commssoner, wth the approva
of the Secretary, may prescrbe, showng the names of customers for
whom such person has transacted any busness, wth such detas
as to the profts, osses, or other nformaton whch the Comms-
soner may requre, as to each of such customers, as w enabe the
Commssoner to determne whether a ncome ta due on profts or
gans of such customers has been pad.
2. Treasury Decson 4510, approved anuary 12, 1935 page 128,
ths uetn , provdes that when drected by the Commssoner,
ether specay or by genera reguaton, every person dong busness
as a broker sha render a return on the prescrbed form, showng
the names and addresses of customers to whom payments were made
or for whom busness was transacted durng the caendar year or
other specfed perod ne t precedng, and gvng the other nforma-
ton caed for by the form.
3. In accordance wth the foregong, every person or organzaton
actng as broker or other agent n stock, bond, or commodty trans-
actons (ncudng banks whch hande orders for depostors or cus-
todan accounts) s hereby drected to make an annua return of n-
formaton on orm 1100 for each customer, depostor, or account for
whom or whch the aggregate of ether purchases or saes amounted
to 25,000 or more durng the caendar year 1934 and each subsequent
caendar year, e cept as provded n paragraphs 4, 5, , and 7 of
ths mmeograph or as otherwse specfcay drected. The form
sha show the name and address of the customer and the tte of
the account the name and address of the broker or agent the names
and addresses of the guarantor of the account and others wth power
to make wthdrawas of cash, securtes, or commodtes from the
account and, e cept as provded n paragraph of ths mmeograph,
the form sha aso show the tota of the purchases and the tota or
the saes made for the customer or account.
4. The makng of orms 1100 by banks and trust companes may
be confned to cases nvovng saes for customers aggregatng 25,000
or more durng that year, and the doar totas may be omtted from
the orms 1100. It s to be understood, however, that such a form
sha be made for each case nvovng saes aggregatng 25,000 or
more durng each year.
5. orms 1100 w not be requred to cover purchases or saes
made by banks and trust companes when (a) actng for themseves
or as e ecutor, admnstrator, trustee, or n any other fducary
capacty (not ncudng custodan or safe-keepng accounts as fdu-
cary) (b) actng for other banks, trust companes, brokers, or
other fnanca nsttutons dong busness n the Unted States and
(c) when the bank or trust company does not actuay gve orders
to buy or se securtes.
. rokers and other agents handng purchases and saes of com-
modtes for customers may report on orm 1100 for each year
ether the tota proft or oss, f 500 or more, on commodty trans-
actons of each customer, or the tota purchases or saes of 25,000
or more. orm 1100 shoud be prepared for each such customer
whenever the amount of the tota proft or oss of the customer from
such transactons s 500 or more for the caendar year, and f the
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1S3, rt. 183-1
130
proft or oss s reported nstead of the tota purchases and saes
orm 1100 shoud be noted accordngy.
7. Persons or organzatons havng domestc correspondents w
not report on orm 1100 for such domestc correspondents nasmuch
as each correspondent w report for hs or ts ndvdua customers.
8. orm 1100 s prnted on whte paper and a dupcate thereof s
prnted on pnk paper. In each case where the account s guaranteed
or others have power to make wthdrawas of cash, securtes, or
commodtes from the account, a dupcate of the form as prepared
on wte paper sha be made, on the pnk form for each name and
address, other than the customer, requred to be shown on orm 1100.
9. orm 1100 s provded for use as a etter of transmtta and
affdavt to accompany orms 1100. The orms 1100 for each year
accompaned by orm 1100 , propery fed n and e ecuted, sha
be forwarded to the Commssoner of Interna Revenue, Sortng
Secton. Washngton, D. C, not ater than the 15th day of ebruary
foowng the cose, of the caendar year. The forms w be ds-
trbuted through the coectors of nterna revenue for the varous
coecton dstrcts.
10. Returns made by ndvduas must be sworn to by the nd-
vdua or hs duy authorzed agent. Returns made by corporatons,
partnershps, and other organzatons must be sgned and sworn to
by an offcer or member of the organzaton.
11. e stng nstructons whch are nconsstent wth the fore-
gong are hereby revoked.
12. Inqures and correspondence regardng ths mmeograph
shoud refer to the number and the symbos IT: : CTR.
Wrght Matthews,
ctng Commssoner.
SUPPL M NT . P RTN RS IPS.
S CTION 183. COMPUT TION O P RTN R-
S IP INCOM .
rtce 183-1: Computaton of partnershp 1 -5-728
ncome. I. T. 2854
( so Secton 23 (o), rtce 23(o)-.)
R NU CT O 1934.
Chartabe and other contrbutons (aowabe as deductons
under secton 23(o) of the Revenue ct of 1934) when made by a
partnershp durng any ta abe year begnnng after December
31, 1933, are deductbe from ts gross ncome sub|ect to the 15
per cent mtaton prescrbed n the ct.
dvce s requested reatve to the deductbty for edera ncome
ta purposes under the Revenue ct of 1934 of chartabe and other
contrbutons made by a partnershp.
Under the Revenue ct of 1932 (secton 183), such contrbutons
were not deductbe n computng the net ncome of a partnershp,
but secton 183 of the Revenue ct of 1934 provdes as foows:
Computaton of Partnershp Income.
The net ncome of the partnershp .sha be computed n the same manner and
on the same bass as In the case of an ndvdua.
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131
188, rt. 188-1.
Secton 23(o) of the Revenue ct of 1934 permts a deducton n
the case of an ndvdua of chartabe and other contrbutons to an
amount not n e cess of 15 per centum of the ta payer s net ncome
as computed wthout the beneft of ths subsecton.
In vew of the provsons of secton 183 of the Revenue ct of 1934,
chartabe and other contrbutons (referred to n secton 23 (o) of
the Revenue ct of 1934) when made by a partnershp durng any
ta abe year begnnng ater December 31, 1933, are deductbe from
ts gross ncome n an amount not e ceedng 15 per cent of the part-
nershp s net ncome as computed wthout the aowance of any
deducton for contrbutons.
S CTION 188. DI R NT T L Y RS O
P RTN R ND P RTN RS IP.
partner s dstrbutve share of the partnershp net ncome
for ts accountng perod endng wthn the caendar year of the
partner must be ncuded as ncome to the partner for the year
n whch the partnershp accountng perod ends, regardess of
when the Income was actuay earned.
dvce s requested reatve to the proper method of reportng
partnershp ncome under the Revenue ct of 1934, where an nd-
vdua keepng hs books on a caendar year bass s a member of
a partnershp keepng ts books on a fsca year bass.
On ebruary 1, 1934, the ta payer and others became assocated
n partnershp for the purpose of engagng n the purchase and
sae of bonds. The partnershp was to contnue unt December
31, 1934, but by mutua consent of the partners the mtaton was
e tended to anuary 31, 1935. On that date the partnershp was
dssoved and ts return was rendered on the bass of a fsca year
ended anuary 31, 1935. The ta payer, who was a member of the
partnershp, fed hs return for 1934 on the caendar year bass.
e desres to report n hs return for that year hs share of the
partnershp earnngs for the fsca year ended anuary 31, 1935,
or, f ths s not permssbe he desres to report hs share of the
profts for the 11-month perod ended December 31, 1934.
The ssue presented s controed by sectons 182 and 188(a) of
the Revenue ct of 1934, whch read as foows:
Sec. 182. Ta of Partners.
There sha be ncuded n computng the net ncome of each partner hs
dstrbutve share, whether dstrbuted or not, of the net Income of the part-
nershp for the ta abe year.
Sec. 18S. Dfferent Ta abe Years of Partner and Partnershp.
(a) Genera rue. If the ta abe year of a partner s dfferent from that
of the partnershp, the dstrbutve share of the net ncome of the partner-
shp to be ncuded n computng the net ncome of the partner for hs ta abe
year sha be based upon the net ncome of the partnershp for any ta abe
year of the partnershp (whether begnnng on, before, or after anuary 1,
1834) endng wthn the ta abe year of the partner.
rtce 188-1: Dfferent ta abe years of
partner and partnershp.
I -25-7555
G. C. M. 15002
R NU CT O 1934.
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5188, rt. 188-1.
132
In enactng the above quoted provsons, Congress gave recogn-
ton to stuatons ke the one here nvoved and adopted the pan
of requrng the partners shares of the partnershp net ncome to
be reported by the partners for the year n whch the frm s annua
accountng perod ends. ad Congress faed to specfy when the
partners shoud account for ther shares of the net ncome of the
partnershp for ts accountng perod, the partners woud be requred
to account for ther dstrbutve shares of such ncome n accordance
wth the provsons of secton 42 of the Revenue ct of 1934, that
s to say, ther dstrbutve shares woud be ncuded n ther ncome
for the ta abe year n whch receved, uness, under methods of
accountng permtted by secton 41 of the Revenue ct of 1934, such
ncome woud propery be accounted for as of a dfferent perod.
Secton 41 requres that the net ncome sha be computed upon the
bass of the ta payer s annua accountng perod, whch woud
requre the partners to report as ncome ther dstrbutve shares n
the partnershp earnngs for the 12 months concdng wth ther
accountng perod. If t were not for the provsons of secton
188(a), a partner s dstrbutve share n the partnershp earnngs
for the 12 months concdng wth hs accountng perod woud be
determned under secton 41 by takng an aocabe part of hs
dstrbutve share n the net ncome of the partnershp for each
of the partnershp s two accountng perods fang party wthn
the accountng perod of the partner. partner fng hs return for
1934 on the caendar year bass and beng a member of a partner-
shp havng an accountng perod endng on une 30, 1935, woud be
unabe to determne hs dstrbutve share n the earnngs of the
partnershp for the fsca year ended une 30, 1935, unt after hs
return for 1934 was due to be fed. Secton 42 woud be equay
nappcabe n such a stuaton. In recognzng a partnershp
for accountng purposes Congress reazed that the partners can not
determne unt after the end of the partnershp accountng perod
whether the partnershp has any net ncome. The partnershp
earnngs of the eary months may be entrey emnated by osses
sustaned n the ater months of ts accountng perod. Obvousy,
under such crcumstances, t woud be ncorrect to say that any part
of such earnngs durng the eary months of the partnershp ac-
countng perod consttutes ncome to the partners when the opera-
tons of the entre perod show no net earnngs, or may show a oss.
The anguage of secton 188(a), supra, s unambguous and con-
veys but one meanng, and that s that the dstrbutve shares of the
partnershp net ncome for ts accountng perod endng wthn the
caendar year of the partners must be ncuded as ncome to the
partners n the year n whch the partnershp accountng perod ends,
regardess of when the ncome was actuay earned.
It s, therefore, the opnon of ths offce that the ta payer s entre
dstrbutve share of the partnershp net ncome for the fsca year
ended anuary 31, 1935, consttutes ncome to hm for the caendar
year 1935 and must be ncuded n hs return for that year. (See
ppeas of . II. (roadby Ms ct a., 3 . T. ., 1245 ppea of
. . sbun|, 4 . T. ., 1244 pp a of Chares Cotp, 5 . T. .,
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133
272, rt. 272-3.
123 W. . Woodruff v. Commssoner, 11 . T. ., 477 . . Mam
v. Commssoner, 11 . T. ., 859 and Mn. 4138, C. . TII-2, 1 8,
construng smar provsons of the Revenue cts of 1918, 1921,1924,
and 1932.)
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 272. PROC DUR IN G N R L.
rtce 272-3: tenson of tme for payment I -1 -7441
of a defcency. Mm. 4303
( so Secton 5 , rtce 5 -2.)
tensons of tme to pay defcences n or nstaments of n-
come ta and estate ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, March 7, 1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Other Offcers and mpoyees of the ureau of Interna Rev-
enue, and Others Concerned:
In order that the pocy of the ureau governng the consderaton
of appcatons for e tensons of tme to pay defcences n, or nsta-
ments of, ncome ta may be generay understood and unformy
apped by offcers and empo| ees of the ureau of Interna Revenue
concerned, the foowng basc rues are stated:
1. (a) Where t s shown to the satsfacton of the Commssoner
that the payment of a defcency or any part thereof on the date or
dates prescrbed for payment thereof w resut n undue hardshp
to the ta payer, the Commssoner, wth the approva of the Secre-
tary, may grant an e tenson of tme for the payment thereof. The
term undue hardshp means more than fnanca nconvenence to
the ta payer. Satsfactory proof of undue hardshp requres
suffcent evdence to estabsh that the ta payer (1) does not have
enough cash and other assets, whch assets can be converted nto cash
at current market prces, over and above the necessary workng cap-
ta to pay the defcency, or any part thereof, athough he may have
assets whch coud be sod at sacrfce prces and (2) that the ta -
payer s unabe to borrow the money to pay the defcency, or any
Sart thereof, e cept upon terms whch woud nfct severe oss and
ardshp upon hm. Where a free and open market e sts for prop-
erty, the sae of such property at the current market prces does not
ordnary consttute undue hardshp wthn the meanng of the
statute, even though a oss for ncome ta purposes mght resut
therefrom. ardshp caused through such a sae s not n any
proper sense due to payment of the defcency but must be attrbuted
to the genera economc condtons.
( ) Where the appcant cams that there s no market for prop-
erty, or that the property coud not be sod e cept at sacrfce prces,
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272, rt. 272-3.
134
or that the amount of the abty coud not be borrowed on the
property e cept perhaps at oppressve rates of nterest, t s necessary
that supportng evdence be fuy submtted. or e ampe, the ap-
pcant shoud e pan when, where, and n what way, he has paced
the property on the market for sae, or attempted to fnd buyers
therefor, or to negotate oans wth respect thereto, ncudng the
terms of such offers to se, the, bass upon whch oans were sought,
and the terms upon whch offers to buy or oan, f any, were made.
(c) Where the ta payer can pay part of the defcency on the
date due wthout causng undue hardshp, but not the remander,
he sha pay that part, and the queston of grantng an e tenson
sha be consdered wth respect to the remander ony. It s m-
portant that the part whch can be pad wthout undue hardshp be
pad before the date the ta s due n order to prevent nterest accru-
ng at the rate of 1 per cent per month.
2. n appcaton for an e tenson of tme to pay a defcency n
ncome ta w not be consdered uness made wthn the 10-day
perod aowed for payment foowng notce and demand by the
coector, or pror to the date prescrbed for payment by any pror
e tenson granted.
3. appcatons for e tensons of tme to pay defcences n, or
nstaments of, ncome ta must be n wrtng and, wherever poss-
be, under oath. Where a ta payer makes ora appcaton, other-
wse tmey, for an e tenson of tme, the coector shoud advse the
ta payer that such an appcaton must be made n wrtng, and f
possbe on the prescrbed form ( orm 1127), and submtted pror to
the date prescrbed for payment of the ta . Strct compance wth
ths rue w avod unnecessary msunderstandng on the part of
ta payers as to the tmeness of appcatons. The appcaton,
whether or not made on orm 1127, shoud state the date on whch
notce and demand for payment of the ta was ssued n addton
to ndcatng the date of assessment and account number. It s m-
portant that a appcatons for an e tenson of tme to pay def-
cences n ta , whether made by etter or on orm 1127, be stamped
wth the date of recept n the coector s offce.
4. (a) sworn statement of assets (showng book vaues and
market vaues) and abtes, an temzed st of recepts and ds-
bursements for the 3-month perod antedatng the date prescrbed
for payment of the abty, and such other facts as may have a
matera bearng upon the queston of undue hardshp shoud be
prompty secured and accompany the appcaton when transmtted
to the ureau n Washngton. In order to prevent unnecessary cor-
respondence and deay n dsposton of cases, coectors shoud make
certan that the nformaton s compete to enabe the ureau to
pass upon the queston of undue hardshp, and that the requre-
ments of ths mmeograph are comped wth, before transmttng
the appcaton and accompanyng papers. It shoud not be forgot-
ten that the very process of determnng whether an e tenson sha
be granted deays the coecton of the ta , and, therefore, the proc-
ess shoud be e pedted as much as the proper perfecton and con-
sderaton of the appcaton w permt.
( ) Where for any reason acton on the appcaton s deayed
n the coector s offce or n the ureau for a perod of three months
or more after the date prescrbed for payment, an temzed state-
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135
272, rt. 272-3.
ment of recepts and dsbursements sha be requred not ony for the
8-month perod precedng the date prescrbed for payment but aso
for the 3-month perod precedng the current date of consderaton.
The Department s concerned wth the present condton of the ta -
payer n order to prescrbe terms for nstament payments n proper
cases.
(c) It s often dffcut to pass upon the merts of an appcaton
because of nadequate nformaton on essenta matters. or e ampe,
e tensons have been requested merey upon a showng by the ta -
payer that hs saary, or a specfc source of ncome, s or w be
unavaabe for a certan perod of tme, wthout showng whether
he has other funds or assets out of whch the ta abty coud be
pad wthout resutng n undue hardshp. very reasonabe effort
shoud be made to encourage the ta payer to make as compete a
record as the stuaton warrants wthout eavng the ureau n doubt
on any mportant phase of the queston. Where a ta payer s state-
ment sts pedged assets, t s necessary to show the present market
vaue thereof as compared wth the amount of the oan n order to
determne the e tent of hs equty (f any) n the pedged property.
securtes sted among the assets shoud be temzed as to name,
quantty, and vaues. though a detaed nvestgaton by the co-
ector s ordnary not requred n connecton wth an appcaton
for an e tenson of tme, to the e tent requred, where offers n com-
promse are submtted, tre coector shoud furnsh the ureau wth
such ndependent vews as he may have n the matter and make such
nvestgaton as he deems advsabe for ths purpose, dependng upon
the sze and crcumstances of the case.
5. (a) Securty w be requred n every case as a condton to the
grantng of an e tenson of tme to pay defcences n ncome ta so
that the rsk of oss to the Government w not be greater at the
end of the e tenson perod than t was at the begnnng of such
perod. Whether ths securty sha take the form of a bond, or fng
of notce of en, or mortgage, pedge, or deed of trust of specfc
property or genera assets, persona surety, or some other form w
depend upon the crcumstances n each case.
(b) In connecton wth each appcaton, the coector shoud care-
fuy anayze the ta payer s assets for securty purposes and seect
those most satsfactory from the standpont of vaue, ease of han-
dng, and qudaton. In the absence of adequate securty, t s
mportant that the ta payer agree to post as securty such property
as e has even though hs ta abty e ceeds hs present abty to
ay. The assets agreed upon for securty purposes shoud ordnary
b posted wth the coector upon notce of approva of the appca-
ton for e tenson of tme. In estate ta cases, where the en pro-
vded by secton 315(a), Revenue ct of 192 , as amended, appears
adequate, no postng of securty w be requred however, ths sha
not be construed to reeve the estate of the necessty of estabshng
that undue hardshp woud resut from payment of the ta abty
on the prescrbed date.
(c) The coector s recommendaton shoud be ceary ndcated
wth respect to every appcaton for an e tenson of tme, wth a
statement of hs reasons for approvng or dsapprovng the app-
caton, based upon the nformaton n the case. In makng hs
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272, rt. 272-3.
13
recommendaton, the coector shoud state hs vews wth respect to
approprate securty.
(d) Where the ta payer refuses or fas to submt wthn a reason-
abe tme the nformaton requred by ths mmeograph to accom-
pany an appcaton for e tenson of tme, or for any other reason
deays unduy n compyng wth the provsons of ths mmeograph,
the coector shoud proceed wth the coecton of the ta , fng
notce of en or otherwse protectng the nterests of the Government.
ven f there s no unreasonabe deay, the coector shoud take such
steps f the nterests of the Government demand t, snce a request
for an e tenson s notce n tsef that coecton of the ta may be
n |eopardy.
(5. Instaments of ta . The Commssoner, at the request of the
ta payer, may e tend the tme for payment of the amount determned
as the ta by the ta payer, or any part or nstament thereof, for
a perod not to e ceed s months from the date prescrbed for the.
payment of such amount, part, or nstament. The above nstruc-
tons reatve to appcaton for e tensons of tme for the payment of
defcences are equay appcabe to appcatons for e tensons of
tme to pay the ta determned by the ta payer, or any part or
nstament thereof.
7. The genera rues reatve to appcatons for e tensons of
tme for the payment of defcences n ncome ta , or any part
or nstament of ncome ta , are, e cept where otherwse ndcated,
equay appcabe to appcatons for e tensons of tme to pay
defcences n edera estate ta , or any part or nstament of
such ta as determned by the ta payer. Secton 811 of the Rev-
enue ct of 19 52 grants the e ecutor of an estate the eecton
(sub|ect to certan mtatons) to postpone payment of the part
of the edera estate ta attrbutabe to the ncuson n the gross
estate of the vaue of a reversonary or remander nterest n prop-
erty however, n a such nstances, t shoud be observed that the
notce of the eecton meets the requrements of artce 82( ),
Reguatons 80.
8. In grantng e tensons of tme n proper cases, the genera
pocy of the ureau s to requre as arge a down payment as the
crcumstances |ustfy and frequent nstament payments of the re-
manng abty at reguar ntervas rather than deferment of pay-
ment of the tota abty to the end of the perod of the e tenson.
9. (a) ppcatons for e tenson of tme shoud not be confused
wth acts of forbearance n coecton on the part of coectors.
Where a tmey appcaton for an e tenson of tme for payment s
made and granted, nterest s mposed at the rate of per cent per
annum, whereas under an arrangement for forbearance, whether
made before or after the due date of the ta , statutory nterest usuay
accrues at the rate of 1 per cent per month.
(h) Where part or a of an amount offered n compromse s pay-
abe n nstaments, securty w be requred as n the case of e -
tensons of tme, and where an e tenson of tme s requested n
whch to pay any sum due under a compromse agreement, essentay
the same prncpes are appcabe as n the case of e tensons of
tme to pay defcences, ncudng the requrement of securty.
10. The foregong basc rues are effectve mmedatey and any
e stng nstructons, to the e tent that they may be n confct wth
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137
such rues, are hereby revoked. Correspondence and nqures re-
gardng ths mmeograph when deang wth ncome ta matters
shoud refer to the number and symbos C: TS, and when referrng
to estate ta matters shoud refer to the number and symbos
MT: T.
Gut T. everng,
Commssoner.
pproved March 7, 1935.
T. . CoOLIDG ,
ctng Secretary of the Treasury.
TITL I . DDITION L INCOM T S.
S CTION 351. SURT ON P RSON L
OLDING COMP NI S.
rtce 351-7: Payment of surta on pro rata I -13-7398
shares. I. T. 2877
R NU CT O 1034.
Stockhoders of the M company (a persona hodng company)
of record as of the end of the ta abe year 1934, n order to compy
wth the provsons of secton 351(d) of the Revenue ct of 1934,
must ncude n ther gross ncomes for that year ther pro
rata shares of the company s ad|usted net ncome for the year
ended December 31, 1934.
It s stated that the stockhoders of the M Company, a persona
hodng company, desre to ncude n ther returns the entre ad-
|usted net ncome of the company for the year 1934 n accordance
wth the provsons of secton 351(d) of the Revenue ct of 1934.
There were some changes n stock ownershp durng the year 1934.
Inqury has been made whether the stockhoders of record as of
December 31, 1934, shoud ncude n ther returns ther pro rata
shares of the ad|usted net ncome of the company based on ther
hodngs as of that date, or whether the ad|usted net ncome shoud
be aocated n accordance wth the ength of tme the stock was
hed durng the year by the varous stockhoders.
It s hed that f the accountng perod of the M Company ended
on December 31, 1934, stockhoders of record as of that date must
ncude n ther gross ncome ther entre pro rata shares of the
company s ad|usted net ncome for that year n order to compy wth
the provsons of secton 351(d) of the Revenue ct of 1934.
C SS-PRO ITS T S.
S CTION 702. C SS-PRO ITS T .
Secton 702.
kevenuk act ov 103-1.
Reguatons wth respect to the use of orgna returns and furnsh-
ng copes of returns. (See T. D. 4504, page 80.)
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702.
138
Secton 702.
revenue act op 1934.
ppcabty of I. T. 2823 (C. . III-2, 1 2) to e cess profts
ta returns. (See I. T. 2SC5, page 115.)
Secton 702. I -10-73 5
Mm. 4301
cess-profts ta returns for ta abe years begnnng after
December 81, 1933, of members of affated groups of raroad
corporatons as defned n secton 141(d) of the Revenue ct of
1034.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, March 5,1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. Under the provsons of Treasury Decson 44 9 C. . III-2,
110 , approved September , 1934, every corporaton whch s sub-
|ect to the capta stock ta mposed by secton 701 of the Revenue
ct of 1934 sha make an e cess-profts ta return for each ncome-
ta ta abe year whch ends after the cose of the frst year n
respect of whch t s sub|ect to such capta stock ta . There s
no provson n the Revenue. ct of 1934 whch authorzes the makng
of a consodated return by any affated group of corporatons for
the purpose of the e cess-profts ta mposed by secton 702 of that
ct. ccordngy, every corporaton whch s abe for the makng
of an e cess-profts ta return under secton 702 of the ct for any
ncome-ta ta abe year endng after une 30, 1934, must make ts
e cess-profts ta return and compute ts net ncome separatey, wth-
out regard to the provsons of secton 141 of the Revenue ct of
1932, as amended by secton 218(e) of the Natona Industra Recov-
ery ct, or secton 141 of the Revenue ct of 1934.
2. Where an affated group of raroad corporatons, as defned
by secton 141 of the Revenue ct of 1934, has e ercsed the prvege
of makng a consodated ncome ta return for a ta abe year begn-
nng after December 31, 1933, each member of the group whch s
abe for the makng of an e cess-profts ta return must fe such a
return and compute ts net ncome separatey wthout regard to sec-
ton 141 of that ct. No speca form has been provded for the use
of the members of an affated group of raroad corporatons n
makng ther separate e cess-profts ta returns for ta abe years
begnnng after December 31, 1933. orm 1120, Corporaton ncome
and e cess-profts ta return, w, therefore, be used by the common
parent corporaton and each subsdary corporaton of such a group
n makng ther respectve e cess-profts ta returns for any such
year.
3. The parent corporaton of the affated group shoud f n
orm 1120 on a consodated bass wth respect to a features of
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139
702.
gross ncome and deductons and the computaton of the ncome ta
abty of the affated group for the ta abe year. The e cess-
profts ta bock appearng n the ower rght-hand corner of page
1 of orm 1120 of the consodated ncome ta return of the affated
group shoud be eft bank. Such return shoud be fed on or before
the oth day of the thrd month foowng the cose of the ta abe
year of the affated group wth the coector of nterna revenue for
the dstrct prescrbed for the fng of a separate return by the
common parent corporaton.
4. ach subsdary corporaton must prepare dupcate orgnas
of orm 1122. One of such forms sha be attached to the conso-
dated ncome ta return and the other fed at or before the tme the
consodated ncome ta return s fed n the offce of the coector
of nterna revenue for the dstrct prescrbed for the fng of a
separate return by such subsdary. (See artce 12(b) of Regua-
tons 89, reatng to consodated returns of affated raroad
corporatons.)
5. The common parent corporaton and each subsdary corpora-
ton whch s abe for the makng of an e cess-profts ta return for
ts ta abe year s requred to fe a separate return on orm 1120,
and shoud f n the e cess-profts ta mock appearng n the ower
rght-hand coner of page 1 of that form and compete the return
wth respect to the affdavt and e ecuton thereof at the bottom of
page 4. Such return sha be fed at the tme prescrbed by aw and
n the offce of the coector of nterna revenue for the dstrct pre-
scrbed for the fng of a separate ncome ta return by each of such
corporatons. ny member of an affated group of raroad corpo-
ratons desrng an e tenson of tme for fng ts e cess-profts ta
return for ts ta abe year may make appcaton therefor to the
coector of nterna revenue for ts dstrct on or before the cue date
of the return.
. If, durng ts ta abe year, a corporaton becomes a member or
ceases to be a member of an affated group of raroad corporatons
and s ncuded n a consodated ncome ta return for a part of
ts ta abe year and makes a separate ncome ta return for the
remander of such ta abe year, ts e cess-profts ta return sha
cover ts fu ta abe year.
7. In preparng the statement on orm 1094, as requred by secton
55(b) of the Revenue ct of 1934 and Treasury Decson 4500
(C. . n-2, 59), n respect of separate e cess-profts ta returns
made on orm 1120 as heren provded, tems 35 and 38 on
orm 1120 shoud be entered as tems 4 and , respectvey, on orm
1094. There w be no tems shown on orm 1120, when used as
heren provded, correspondng to tems 2, 3, and 5 on orm 1094.
ccordngy, the notatons ffated R. R. Corp. cess-profts
ta return and None, shoud be made n the bank space
opposte tems 2, 3, and 5, respectvey, on orm 1094.
8. Correspondence n regard to the procedure outned heren
shoud refer to the number of ths mmeograph and to the symbos
1T-. -.CTR. y
Gut T. everng,
C ommnsoner.
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22(a), rt. 53. 140
INCOM T RULINGS. P RT II.
R NU CT O 1932.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome. I -22-7521
I. T. 2895
R NU CT O 1932.
In 19S3 the M ank was reorganzed and a sow and doubtfu
assets were paced n trust wth an agreement that a future net
earnngs of the bank shoud be pad annuay to the trustees and
that a net funds comng to the trustees shoud be pad to depos-
tors as soon and as often as suffcent funds were avaabe.
ed, the ncome of the bank turned over to the trustees for the
purpose of payng depostors s sub|ect to edera ncome ta .
dvce s requested reatve to the treatment for edera ncome
ta purposes of the ncome of the M ank whch was transferred to
trustees for the beneft of depostors.
The M ank was reorganzed n ebruary, 1933. t that tme a
sow and doubtfu assets of the bank were paced n trust and t was
agreed that a future net earnngs of the bank after the deducton
of future net osses, f any, sha be pad annuay to sad trustees
wth a verfed statement of annua ncome and e penses of sad
bank. It was further provded that the trustees sha pay pro rata
to the depostors a net funds comng nto ther hands as trustees,
as soon and as often as suffcent funds accumuate. Durng the
perod the trust contnues no dvdends w be pad to stockhoders
of the bank.
The amount of the net earnngs of the bank whch s pad to the
trustees and turned over by them to depostors n satsfacton of the
bank s abty to such depostors s not an aowabe deducton n
computng the bank s net ncome sub|ect to edera ncome ta .
Such payments are not materay dfferent from payments of de-
posts n the usua course of busness for whch no deducton s
aowabe. ccordngy, the ncome of the M ank pad to the
trustees for the purpose of payng depostors s sub|ect to edera
ncome ta .
rtce 53: Compensaton pad other than n cash.
R NU CT OP 1932.
owances for vng quarters, heat, fue, and ght, to offcers sta-
toned abroad n the foregn servce of the Department of Commerce.
See G. C. M. 14710, page 44.)
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141
22(a), rt. 3.
rtce 53: Compensaton pad other than n cash.
R NU CT OP 1932.
owances for vng quarters granted to Treasury attaches and
ther subordnates n the customs agency servce statoned n foregn
countres. G. C. M. 11453 (C. . II-1,2 ) revoked. G. C. M. 12300
(C. . II-2, 30) modfed. (See G. C. M. 1483 , page 45.)
rtce 3: Improvements by essees. I -15-7431
T. D.4539
INCOM T . R NU CTS O 192S ND 1932.
Improvements by essees rtce 3 of Reguatons 74, as
amended by Treasury Decson 4282, and artce 3 of Reguatons
77, amended.
Trkasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 3 of Reguatons 74, as amended by Treasury Decson
4282 (C. . III-2, 82), approved December 19, 1929, and artce 3
of Reguatons 77 are amended to read as foows:
rt. 3. Improvements by essees. If budngs are erected or Improvements
made by a essee and such budngs or mprovements mmedatey become
the property of the essor, as, for nstance, f they are not sub|ect to remova by
the essee, the essor may at hs opton report e ncome therefrom upon ether
of the foowng bases:
(a) The essor may report as ncome at the tme when such budngs or
Improvements are competed the far market vaue of such budngs or m-
provements sub|ect to the ease.
( ) The essor may spread over the fe of the ease the estmated deprecated
vaue of such budngs or mprovements at the e praton of the ease and
report as ncome for each year of the ease an aquot part thereof.
If the ease s termnated so that the essor comes nto possesson or contro
of the property pror to the tme orgnay f ed for the e praton of the ease,
the essor sha report ncome for the year n whch the ease s so termnated
to the e tent that the vaue of such budngs or mprovements when e
becomes entted to such possesson e ceeds the amount aready reported as
ncome on account of the erecton of such budngs or mprovements. No
apprecaton n vaue due to causes other than the termnaton of the ease
sha be ncuded.
If the budngs or mprovements are destroyed pror to the e praton of
the ease, the essor s entted to deduct as a oss for the year when such
destructon takes pace the amount prevousy reported as ncome because of
the erecton of such budngs or mprovements, ess any savage vaue sub|ect
to the ease, to the e tent that such oss s not compensated for by nsurance
or otherwse. (See artces 130 and 204.)
Gut T. everng,
Commssoner.
pproved pr 10, 1935.
L. W. Robert, r.,
ctng Secretary of the Trcasuy.
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523(c), rt. 151. 142
rtce GS: Sae and retrement by corporaton of ts bonds.
R NU CT OP 1932.
penses ncdent to ssuance of bonds, ta payer beng on accrua
bass. (See G. C. M. 14349, page 47.)
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 82: Proceeds of nsurance Compensaton
R NU CT O 1932.
Contrbutons by the M Unversty toward the purchase of annu-
tes for members of ts facuty. (See L T. 2874, page 49.)
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses.
R NU CT O 1932.
Premums pad on fe nsurance by a credtor to whom the pocy
has been assgned to secure a debt. (See G. C. M. 14375, page 52.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es.
R NU CT O 1932.
Import dutes on sprts, wnes, beer, and other beverages. (See
I. T. 2845, page 57.)
rtce 151: Ta es. I -3-725
G. C. M. 14128
R NU CT O 1932.
Whore husband and wfe n Wsconsn own and as |ont tenants,
each beng entted to one-haf of the rents and profts derved
from the hnd, the husband may deduct n hs separate edera
ncome ta return ony one-haf of the ta es eved upon the aud.
n opnon s requested reatve to the deductbty by the hus-
band n hs ncome ta return for 1932 of ta es pad on rea estate
owned by hmsef and wfe as |ont tenants.
The deducton camed for rea estate ta es n the amount of 2 do-
ars represents the entre amount of the ta es pad on the property
hed as |ont tenants. The ta es were assessed aganst the ta payer
and pad by hm. In hs separate return for 1932, he camed the
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143
23(c), rt. 151.
entre amount of such ta es as a deducton from gross ncome and the
e amnng offcer recommended the dsaowance of one-haf of the
ta es, basng hs acton on G. C. M. 9234 (C. . -, 117).
Secton 230.43 of the Wsconsn Statutes of 1929 provdes that
estates n |ont tenancy sha be recognzed by the aw of the State
of Wsconsn. t common aw a |ont tenant was hed to have an
undvded nterest n the property whch was not an ownershp of
a specfc porton but was a pro rata nterest n the whoe property.
|ont tenant was aso, at common aw, entted to possesson of the
entre property athough hs rght to rents and profts was mted
to hs pro rata share. (Duncan v. Rodecker et a., 90 Ws., 1, 2
N. W., 533 asser et a. v. Rewodnsk, 130 Ws., 2 , 109 N. W.,
1032.)
ta payer s ta abty upon a partcuar property s measur-
abe by the rato whch that proporton of the rents and profts he s
entted to receve bears to the rents and profts of the whoe property
for the reason that rents and profts on the one hand, and ta es
on the other, are mutua and compensatory, to uso the anguage
of the court n Cobb v. ohm (1893, 11 Oho Dec, Reprnt, 844 see
note n 12 . L. R., 412). In G. C. M. 9234, supra, the foowng
anguage appears:
The ordnary ta on rea estate s eved upon the sum a a unt of a the
ega nterests n the rea estate t s an annua ta and s customary
regarded as the contrbuton whch the and and those ownng nterests
theren must pay to the Government for the protecton whch the Government
has gven durng that year.
The aw charges the cost of such annua protecton to the person who gets
the annua beneft of the and so protected. So the aw ordnary casts the
burden of ta es on rea estate on the mortgagor and not on the mortgagee
on the fe tenant and not on the remanderman. s two |ont tenants or
two tenants n common woud each get haf of the profts nf the rea property
hed |onty or n common, such |ont tenants and tenants n common woud he
chargeabe wth one-haf the ta es on the property hed by them |onty or n
common.
ppyng the above prncpes to the nstant case, t s the opnon
of ths offce that, n vew of the fact that n Wsconsn each of the
two |ont tenants s entted to one-haf of the rents and profts
of the and, each tenant has mposed upon hm or her one-haf of
the ta es eved upon the and as a whoe. Snce artce 151 of
Reguatons 77 provdes that ta es are deductbe ony by the person
upon whom they are mposed, t foows n the nstant case that
nasmuch as ony one-haf of the rea estate ta es was mposed upon
the ta payer he may deduct ony one-haf of such ta es n hs
separate edera ncome ta return for 1932.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 151: Ta es.
R NU CT O 1932.
Maryand acohoc beverage ta . (See I. T. 2848, page 0.)
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23(e), rt. 171.
144
rtce 151: Ta es.
R NU CT OP 1932.
ccrua date of rea and persona property ta es n Nebraska.
(See I. T. 2849, page 0.)
rtce 151: Ta es.
R NU CT OP 1032.
ccrua date of rea and persona property ta es n South Dakota.
(See. T. 2850, page 1.)
rtce 151: Ta es.
R NU CT O 1932.
South Dakota gross ncome ta . (See I. T. 2851, page 2.)
rtce 151: Ta es.
R NU CT O 1932.
ccrua date of rea and persona property ta es, State of Ms-
sour. (See I. T. 2885, page 4.)
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
Where stock whch has hcen pedged to secure ndebtedness
s sod by the pedgee n qudaton of such ndebtedness, the
me must be treated as a sae by the pedgor.
The mtaton on stock osses contaned n secton 23(r) of
the Itevenue ct of 1032 s appcabe to saes of the stock hed
for not more than two years.
dvce s requested reatve to the deductbty for the year 1932
of a oss sustaned by upon the sae of certan shares of stock.
In 1931 the N ank was merged wth the M ank. s a con-
dton of the merger, the drectors of the N ank were requred
to purchase capta stock of the M ank at doars a share.
oan of 5,e doars was obtaned by , a drector, n fnancng
the purchase, the stock of the M ank beng pedged as coatera
for the oan. Saes of the stock pedged as coatera were made
n 1932 and 1933 at a prce ess than the cost to , the pedgor.
The saes were forced saes made by, or at the nstance of, tho
pedgee and the amount reazed was apped n satsfacton of the
oan for whch the stock had been pedged. ueston has arsen
as to the deductbty of the oss by , the pedgor, and the app-
cabty of the mtaton on stock osses prescrbed by secton 23 (r)
of the Revenue ct of 1932 to saes of the stock whch was not
hed for more than two years.
rtce 171: Losses.
( so Secton 23 (r), rtce 272.)
I -23-7533
I. T. 2897
R NU CT O 1D32.
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145 23(r), rt. 272.
The dsposton made of the pedged shares n qudaton of
the ndebtedness whch these shares had been pedged to secure
was n accordance wth the authorty granted to the pedgee by
the pedgor when he consented to the hypothecaton of the shares.
Such dsposton of the shares, as to whch the pedgor retaned
the benefca ownershp sub|ect to the terms of the pedge, must
be treated as made by the pedgor and the resutng oss computed
accordngy. (See generay ans Pederson et a. v. Commsnoner,
14 . T. ., 1089, acquescence, C. . -2, 55.)
s the oss for the |Tear 1932 resuted from saes of stock whch
had not been hed for a perod of more than two years, the m-
taton provded by secton 23 (r) of the evenue ct of 1932 .s
appcabe regardess of the fact that the saes were forced saes
made by, or at the nstance of, the pedgee.
S CTION 23(1). D DUCTIONS ROM GROSS
INCOM : D PL TION.
rtce 221: Depeton of mnes, o and gas wes, other
natura deposts, and tmber deprecaton of mprove-
ments.
R NU CT O 1032.
mendment of artce 221, Reguatons 77. (See T. D. 4540,
page 70.)
rtce 230: Depeton d|ustments of accounts based
on bonus or advanced royaty.
R NU CT O 1932.
Restoraton of bonus depeton deducton on percentage of ncome
bass to ncome at termnaton of ease n case of no producton from
eased premses. (See G. C. M. 14448, page 98.)
S CTION 23(r). D DUCTIONS ROM GROSS INCOM :
LIMIT TION ON S TOC LOSS S.
rtce 272: Lmtatons on deductons for I -G-7299
osses from saes and e changes of stocks G. C. M. 14012
and bonds.
R NU CT O 1032.
In appyng the mtaton on stock osses prescrbed by secton
23(r) of the Revenue ct of 11)32, a ta payer may not offset hs
persona osses from the sae of securtus hed for a perod of
two years or ess aganst hs share of smar gans of a partner-
shp.
n opnon s requested whether a ta payer may offset hs persona
ossrs from the sae of stocks and bonds aganst hs share of part-
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23(r), rt. 272.
14
nershp pans from smar transactons n vew of the mtaton
on stock osses prescrbed bv secton 23(r) of the Revenue ct of
1932.
The ta payer s a member of the partnershp of Co. or
the year 1932, the partnershp reazed a proft of 10 doars from
saes of securtes hed for a perod of two years or ess. The ta -
payer s dstrbutve share of such proft was reported n hs nd-
vdua ncome ta return for that year. e sustaned a oss of
.r doars for the year 1932 from the sae of securtes hed by hm
for a perod of two years or ess. The oss so sustaned was reported
n hs ncome ta return as an offset aganst hs share of the gan
reazed by the partnershp from saes of securtes hed by t for
a perod of two years or ess. On these facts, the queston arses
whether the osses of the ndvdua partner from the sae of stocks
and bonds hed for a perod of two years or ess may be offset
aganst hs share of the partnershp profts from such saes n vew
of the provsons of secton 23 (r) of the Revenue ct of 1932.
The pertnent provsons of that secton are as foows:
(r) Lmtaton on stock osses.
(1) Losses from saes or e changes of stocks and bonds (as defned In
subsecton (t) of ths secton) whch are not capta assets (as defned n
secton 101) sha be aowed ony to the e tent of the gans from such
saes or e changes (ncudng gans whch may be derved by a ta payer from
the retrement of hs own obgatons).
The ta payer contends that the wordng of secton 181 of the
Revenue ct of 1932, whch provdes that ndvduas carryng on
busness n partnershp sha be abe for ncome ta ony n ther
ndvdua capacty, ndcates ceary that t s the ndvdua who s
carryng on the busness, and, f t s the ndvdua s busness he not
ony may, but he s requred, under secton 182 of that ct, to ncude
the severa casses of ncome and deductons n hs ndvdua return.
It s aso ponted out that sectons 184, 185, 18 , and 188 of the
Revenue ct of 1932 provde that a partner sha be aowed the
beneft of hs share of credts for the partnershp dvdends, e empt
nterest, earned ncome, capta net gans and osses, and credts for
foregn ncome and profts ta es, whch t s camed ndcates and
confrms the ong estabshed purpose of the ncome ta aws to
requre the severa casses of ncome, deductons, and credts, respec-
tvey, of a partnershp to be refected n the return of each partner.
Secton 181 of the Revenue ct of 1932 provdes that ndvduas
carryng on busness n partnershp sha be abe for ncome ta
ony n ther ndvdua capacty. Under the genera rue of sec-
ton 182, however, the ta of partners s arrved at by ncudng n
the ndvdua partners returns ther dstrbutve shares of the part-
nershp net ncome, whch (under secton 183) s computed n the
same manner and on the same bass as n the case of an ndvdua,
e cept that the so-caed chartabe contrbuton deducton pro-
vded n secton 23 (n) sha not be aowed. In genera, therefore,
the tems of partnershp gross ncome and deductons do not affect a
partner s ncome mmedatey as n the case of hs nonpartnershp
ncome, but ony through the medum of the partnershp return
(secton 189) showng hs dstrbutve share of the partnershp net
ncome or net oss (artce 902, Reguatons 77).
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147
23(r), rt. 272.
The e press menton of secton 184 credts aganst net ncome.
secton 185 earned ncome, secton 18 capta net gans and
osses, and secton 188 ta es of foregn countres and possessons
of Unted States as tems whch may drecty affect the partners
net ncome wthout nterventon of the partnershp return emphaszes
the mpcaton that Congress ntended the genera rue of sect ons
182 and 183 to be otherwse an e cusve method of computng part-
nershp ncome, thus mtng the e ceptons to those specfed. (Cf.
Paso Robes Mercante Co. v. Co-mmssoner, 33 ed. (2d), 53,
certorar dened 280 U. S.. 595, ctng otany Worsted Ms v.
Unted States, 278 U. S., 282, C. . III-1, 279.) Of course the
genera method prescrbed for reportng partnershp ncome must n
many nstances produce a dfferent effect than woud a drect app-
caton of the statutory provsons to the ndvdua ta payer. or
e ampe, notwthstandng the statutory requrements that net ncome
be computed n accordance wth the ta payer s method of accountng
(secton 41), t s hed that a partner s net ncome from the partner-
shp busness must be as shown on the accrua bass of the partner-
shp return rather than accordng to the cash bass upon whch he,
as an ndvdua ta payer, keeps books and makes returns ( ppea
of Percva . Truman, 3 . T. ., 38 Truman v. Unted States,
4 ed. Supp., 447) and he may not deduct on hs ndvdua return
partnershp busness e penses pad out of hs wthdrawas from the
partnershp, snce they were deductbe on the partnershp return
fed on the accrua bass. (See generay Samue urzman v. Com-
mssoner, 8 . T. ., 412, acquescence, C. . II-1, 18 Shearer v.
urnet, 285 U. S., 228 and ppea of Chares Cop, 5 . T. ., 123.)
Upon carefu consderaton of the queston presented, t s the
opnon of ths offce that a ta payer may not offset hs persona osses
from the sae of stocks and bonds hed for two years or ess aganst
hs share of smar gans of a partnershp.
obert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 272: Lmtatons on deductons for I - -7300
osses from saes and e changes of stocks I. T. 2858
and bonds.
R NU CT O 1 32.
Put and ca transactons come wthn the meanng of the term
prveges or optons as used In secton 23(s) of the Revenue
ct of 1932, and osses from such transactons are sub|ect to the
mtatons prescrbed by secton 23 (r) of that ct.
dvce s requested whether the term prveges or optons
as used n secton 23 (s) of the Revenue ct or 1932 ncudes put and
ca transactons.
Secton 23(s) of the Revenue ct of 1932 provdes:
or the purposes of ths tte, gans or osses ( ) from short saes
f stocks and bonds, or ( ) attrbutabe to prveges or optons to buy or
se such stocks and bonds, or (C) from saes or e changes of such prveges
or optons, sha be consdered as gans or osses from saes or e changes of
stocks or bonds whch are not capta asrets.
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525, rt. 295.
148
Put and ca transactons come wthn the meanng of the term
prveges or optons as used n secton 23(s) of the Revenue
ct of 1932, and osses from such transactons are sub|ect to the
mtatons prescrbed n secton 23 (r) of that ct.
rtce 272: Lmtatons on deductons for I -20-7495
osses from saes and e changes of stocks I. T. 2892
and bonds.
R NU CT O 1932.
Deductbty by the members of a partnershp of osses sustaned
by the partnershp from the sae of securtes whch were not
capta assets.
Where the members of a partnershp ndvduay reazed a gan
n the year 1932 from the sae or e change of stocks and bonds whch
were not capta assets and the partnershp sustaned a oss from the
sae or e change of such securtes, the members of the partnershp
are net entted to offset ther pro rata shares of the partnershp
oss aganst ther persona gans n appyng the mtaton on stock
osses under secton 23(r) of the Revenue ct of 1932.
Where the members of a partnershp (ndvduay) and the part-
nershp sustaned osses n the year 1932 from the sae or e change
of stocks and bonds whch were not capta assets, no part of the
osses sustaned by the partnershp s deductbe n determnng the
net ncome of the partners. (See generay G. C. M. 14012, page 145,
ths uetn.)
rtce 272: Lmtatons on deductons for osses from
saes and e changes of stocks and bonds.
R NU CT O 1932.
orced saes of pedged securtes. (See I. T. 2897, page 144.)
S CTION 25. CR DITS O INDI IDU L
G INST N T INCOM .
rtce 295: Persona e empton and credt for I -2-7212
dependents where status changes. I. T. 2847
R NU CT O 1932.
Method of computng persona e empton and credt for depend-
ents n the case of , a sub|ect of a foregn country not contguous
to the Unted States, who was a nonresdent aen for eght
months of the ta abe year 1932 and a resdent aen for the
baance of the year.
dvce s requested wth respect to the proper method of comput-
ng the persona e empton and credt for dependents, for edera
ncome ta purposes, n the case of for the ta abe year 1932.
, a sub|ect of a foregn country not contguous to the Unted
States, durng the entre ta abe year 1932 had the status of a
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149
41, rt. 321.
marred man wth two dependent chdren under 18 years of age.
e was a nonresdent aen durng the perod anuary 1, 1932, to
ugust 31, 1932, and durng that perod had a net ncome from
sources wthn the Unted States of 1,993.14. Durng the baance
of the year he was a resdent aen and hs net ncome for that
perod from a sources amounted to 1,10 . 5.
Secton 25(e) of the Revenue ct of 1932 provdes that f the
status of the ta payer, n so far as t affects the persona e emp-
ton or credt for dependents, changes durng the ta abe year, the
persona e empton and credt sha be apportoned. In the n-
stant case, the status of the ta payer changed and t affected the
amounts aowabe to hm as persona e empton and credt for
dependents. Secton 214 of the Revenue ct of 1932 provdes that
n the case of a nonresdent aen ndvdua the persona e emp-
ton aowed by secton 25(c) sha be ony 1,000, and he sha not
be aowed credt for dependents uness he s a resdent of a contgu-
ous country. Not beng a resdent of a contguous country, the
ta payer s status changed from a nonresdent aen who s aowed
ony 1,000 persona e empton for the fu ta abe year and no
credt for dependents to a resdent aen who s aowed 2,500 per-
sona e empton and 800 credt for two dependents. It s neces-
sary, therefore, to apporton the persona e empton and credt for
dependents.
Inasmuch as was a nonresdent aen from anuary 1 to ugust
31,1932, and had a net ncome of 1,993.14 for that perod, hs tota
ta abty for the frst eght months of the year s 10 .12, com-
puted as foows: 1,993.14 mnus . 7 (8/12 of 1,000, persona
e empton from anuary 1 to ugust 31, 1932), or 1,32 .47, whch
amount s ta abe at 8 per cent under secton 211 of the Revenue
ct of 1932. Inasmuch as he was a resdent aen from September
1 to December 31, 1932, and had a net ncome of 1,1 . 5 for that
perod, hs tota ta abty for the ast four months of 1932 s
2. 7, computed as foows: 1,1 . 5 mnus 833.33 (4/12 of 2,500,
persona e empton from September 1 to December 31, 1932), and
mnus 2 . 7 (4/12 of 800, credt for two dependents for the same
perod), eavng a baance of . 5 ta abe at 4 per cent under sec-
ton 11 of the Revenue ct of 1932. s ta abty for the frst
eght months of the caendar year 1932 beng 10 .12. and hs ta
abty for the ast four months of that year beng 2. 7, hs tota
ta abty for the caendar year 1932 s 108.79.
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 41. G N R L RUL .
rtce 321: Computaton of net ncome.
R NU CT O 19: 2.
ank dscounts and commssons charged by banks on oans. (See
G. C. M. 14839, page 73.)
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5104, rt. 41. 150
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 341: Pad or ncurred and pad or accrued.
R NU CT O 1932.
ssessment aganst stockhoders of a bank because of ther statu-
tory abty. (See I. T. 2843, page 77.)
P RT . R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
R NU CT O 1932.
uthorzaton of Speca Commttee Investgatng the Muntons
Industr| , Unted States Senate, to nspect ncome and profts ta
returns and capta stock ta returns. (See ecutve order (rung
7554), page 90.)
S CTION 5 . P YM NT O T .
rtce 432: tenson of tme for payment of the ta or
nstament thereof.
R NU CT O 1932.
Rues governng consderaton of appcaton for e tenson of tme
to pay nstament of ncome ta . (See Mm. 4303, page 133.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 104. CCUMUL TION O SURPLUS TO
D INT RN L R NU T S.
rtce 541: Ta aton of corporaton utzed I -14 7413
for evason of nterna revenue ta . I. T. 2881
R NU CT O 1932.
Where at the tme of fng ther returns the sharehoders of a
corporaton whch comes wthn the provsons of secton 104 of
the Revenue ct of 1932, reatng to accumuaton of surpus to
evade surta es, dd not ncude n ther gross ncomes ther entre
dstrbutve shares of the corporaton s net ncome n accordance
wth the provsons of secton 104(d) of the Revenue ct of 1932,
amended returns w not avod mposton of the ta provded by
that secton.
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151
112, rt. 572.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 572: changes of property. I -15-7423
I. T. 2884
R NU CT O 1932.
Whore god notes of the M Corporaton were converted nto pre-
ferred stock of that corporaton In anuary, 1934, the unpad
nterest accrued from ugust 1, 1933, to December 31, 1933, was
propery treated as an accrued abty deductbe n the return
for the year 1933. s the abty whch was accrued n 1933 was
canceed n 1934, the amount thereof consttutes ta abe ncome for
the atter year. The dvdend pad on the preferred stock on
ebruary 1, 1934, s ta abe to the recpent stockhoders.
The queston s presented reatve to the treatment for ncome
ta purposes of the accrued nterest on god notes of the M Cor-
poraton whch were e changed for preferred stock of that company
n anuary, 1934, and the ta abty of a dvdend on the preferred
stock.
The god notes n queston are shown to have been ssued under
a trust nstrument dated ugust, 1932, wth the provson that the
hoders wore to have the rght at any tme up to May 1, 1934, to
subscrbe for preferred stock of the company of a par vaue equa
to the face or par vaue of the notes e changed for such preferred
stock. The god notes surrendered n the e ercse of the conver-
son prvege were requred to be accompaned by, or have attached
thereto, a unmatured and unpad nterest coupons. The hoders of
such notes avaed themseves of the converson prvege and ac-
qured preferred stock by an e change n anuary, 1934. ccumu-
ated nterest from ugust 1, 1933, to December 31, 1933, was treated
by the M Company as an accrued abty and was camed as a
deducton n the ncome ta return of the company for the caendar
year 1933. semannua dvdend at the rate of 10 per cent was pad
on the preferred stock on ebruary 1, 1934.
Wth reference to the treatment of the accumuated or accrued
nterest on such notes for the perod ugust 1, 1933, to the cose
of that year, the notes were outstandng durng that perod and were
sub|ect to the payment of nterest durng such tme. The notes are,
therefore, to be treated as nterest-bearng obgatons of the com-
pany for that perod. (G. C. M. 9 74, C. . -2, 354.) It foows
that such accumuated nterest represents an accrued abty and
consttutes an aowabe deducton for the year 1933 on the accrua
bass of accountng. It appears, however, that upon the e change
of the notes for preferred stock n anuary, 1934, payment of the ac-
crued nterest was not made and that the abty therefor was
automatcay canceed by the terms of the e change. The amount
of the nterest so accrued and camed as a deducton for the year
1933 was thereby reazed by the company and the amount thereof
accordngy consttutes ta abe ncome to t for the year 1934.
s to the dvdend pad on ebruary 1, 1934, t was specfcay
provded n the trust agreement that the preferred stock receved n
0083 33
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143, rt. 7 1.
152
e change for the notes was to bear cumuatve dvdends from
the ast dvdend date precedng the date of ssue. It has
unformy been hed that dvdends do not accumuate or accrue n
the sense that nterest accrues on bonds and that where stock s ac-
qured between dvdend dates the entre amount of the succeedng
dvdend s ncome to the sharehoder, regardess of the fact that the
stock may have been hed for ony a porton of the perod for whch
the dvdend was pad. (See artce 51 of Reguatons 77.) The
dvdend on the preferred stock whch was pad on ebruary 1,
1934, s, therefore, to be treated as a dvdend Doth by the company
and the recpent stockhoders. Snce the company had on hand at
that tme earnngs or profts accumuated after ebruary 28, 1913,
n e cess of the amount of the dvdend payment, the entre amount
of the payment s ta abe as a dvdend to the recpent stockhoders
and s not an aowabe deducton to the company.
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 11: ass for aowance of deprecaton and
depeton.
R NU CT O 1932.
Revocaton of G. C. M. 11384 (C. . II-1, 4). (See G. C. M.
14448, page 98.)
S CTION 11 . CLUSIONS ROM GROSS
INCOM .
rtce 43: Compensaton of State offcers and empoyees.
R NU CT O 1032.
Compensaton for servces rendered as pubc admnstrator. (See
G. C. M. 1411 , page 102.)
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 143. WIT OLDING O T T SOURC .
rtce 7 1: Wthhodng ta at source. I -9-7340
G. C. M. 14182
R NU CT O 1932.
Where a bondhoder surrendered hs rght to receve cash
n payment of nterest and accepted In eu thereof a negotabe
scrp certfcate whch bore nterest, the debtor corporaton shoud
fe wthhodng returns on the bass of the far market vaue of
the scrp certfcates at date of ssuance.
dvce s requested whether ncome ta shoud be wthhed at
the source wth respect to scrp certfcates ssued n payment of
quarterfy bond nterest due n 1933.
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153
143, rt. 7 1.
The M Company nstead of payng the nterest on ts bonds n
cash ssued to the hoders thereof scrp certfcates whch stated
that the hoder w be entted on and after ebruary , 1938,
to doars representng nterest on such obgatons for the
perod endng ebruary , 1933, together wth nterest on the
prncpa sum of the scrp certfcates at the rate of 7 per cent. The
scrp certfcate was n the foowng form:
Scrp Certfcate.
No.
OR INT R ST ON O LIG TIONS ,
M COMP NY.
Ths s to certfy that as the regstered hoder on anuary , 1933,
of prncpa amount of obgatons, , of the M Company, a
cor|wraton of the State of R (herenafter caed the Company ), or regsered
assgns, w be entted on and after ebruary , 1S)38, and upon surrender
of ths certfcate at the offce or agency of the company to
doars (representng nterest wth respect to such obgatons, ,
for the quartery nterest perod endng ebruary , 1933), together wth
nterest on the prncpa sum hereof at the rate of 7 per cent (7 ) per annum
from the date hereof to ebruary , 1938, uness ths certfcate be redeemed,
as herenafter provded, on or before ebruary , 193 , n whch case nterest
sha be payabe at the rate of 2 per cent ( y ) per annum from the date
hereof to the date f ed for redempton. Interest sha be payabe at the date
of payment of the prncpa sum hereof, but the company reserves the rght
at any tme to pay to the regstered hoder hereof a or any part of such nterest
at the tme accrued hereon.
Ths certfcate may, at the opton of the company, be redeemed at any tme
before ebruary , 1938, after 30 days prevous wrtten notce to the regs-
tered hoder of ths certfcate, upon payment to such regstered hoder, upon
surrender hereof at the offce or agency of the company of the prnc-
pa sum hereof and accrued nterest (at the rate appcabe as herenabove
provded) to the date of redempton specfed n sad notce, and, anythng
heren to the contrary notwthstandng, no further nterest hereon sha accrue
on or after the date of redempton so specfed, whether or not ths certfcate
sha be so surrendered.
The rghts and nterests represented hereby are transferabe .
M Company,
y
ce-Presdent.
The ureau has hed that scrp ssued by a corporaton to bond-
hoders n payment of nterest past due upon ts bonds s equvaent
to cash payments and s sub|ect to wthhodng at the rates n
force at the tme of ssuance. (O. D. 279, C. . 1,183.) It has aso
heen hed that where a corporaton defauted n ts bond nterest
and upon reorganzaton ssued scrp payabe at certan f ed dates
n the future and bearng nterest at per cent, the ssuance of the
scrp s equvaent to payment n cash and s, therefore, sub|ect to
wthhodng. (O. D. 5 3, C. . 2, 193.) Those offce decsons are
n harmony wth artce 54 of Reguatons 77, whch provdes that
notes or other evdences of ndebtedness receved n payment for
servces, and not merey as securty for such payment, consttute
ncome to the amount of ther far market vaue. The rungs re-
ferred to are aso supported by artce G27 of Reguatons 77, whch
provdes that scrp dvdends are sub|ect to ta n the year n whch
the warrants are ssued.
The queston n the nstant case s whether the ssuance of scrp
for nterest past due on bonds of the debtor corporaton consttutes
the payment of nterest whch s sub|ect to wthhodng. Scrp may
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143, rt. 7 1.
154
or may not be the equvaent of cash. Where scrp may be used as
a medum of e change and s ssued n payment of nterest, t must
be treated as the equvaent of cash. Where, however, the scrp s
merey (he recognton of an e stng abty for nterest whch,
the debtor promses to pay at a f ed date n the future, the fact
that tangbe wrtten evdence of such abty s gven the credtor
s not suffcent to consttute the payment of nterest. In the nstant
case, however, the bondhoder surrendered hs rght to receve cash
n payment of nterest due hm ebruary , 1933, and accepted n
eu thereof an entrey new obgaton of the corporaton n the form
of a scrp certfcate whch tsef bore nterest at the rate of 7 per
cent. Ths certfcate s property, a thng of vaue, and s a negot-
abe nterest-bearng obgaton smar n some respects to a bond.
Presumaby t coud have been ready dsposed of for cash. To the
e tent of ts far market vaue, the bondhoder has receved ncome
n the form of nterest. It s concuded, therefore, that the debtor
corporaton shoud fe wthhodng returns n accordance wth the
Revenue ct of 1932 and the reguatons ssued thereunder, ac-
countng for the ncome ta requred to be wthhed on the bass of
the far market vaue of the scrp certfcates at the date they were
ssued n payment of the nterest.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 7 1: Wthhodng ta at source. I -17-7451
G. C. M. 14549
R NU CT OP 1032.
Under an agreement between the bondhoders of the M Corpo-
raton and the bondhoders commttee, the commttee took posses-
son of the property securng bonds of that company maturng
November 1, 1031 , whch bonds contaned a ta -free covenant.
The commttee has coected rentas and made payments therefrom
of nterest on the bonds snce November 1, 1933.
ed, the commttee as assgnee of the obgor corporaton shoud
wthhod the ta on the nterest payments.
dvce s requested whether ncome ta shoud be wthhed at
the source on nterest payments upon certan bonds whch matured
November 1, 1933.
The bonds were ssued by the M Corporaton, whch company
defauted n the payment of the prncpa amount on November 1,
1933. ntcpatng the defaut, an agreement was entered nto on
October 1, 1933 (desgnated Depost agreement ), between the
bondhoders commttee and the bondhoders who deposted ther
bonds wth a trust company, referred to as the Depostary. Under
the agreement the commttee was authorzed to take possesson of
the property securng the bonds and operate the property as provded
by the agreement. In pursuance of the authorty granted by the
agreement, the bondhoders commttee has coected the rentas from
the propertes and has made payment of nterest on the bonds snce
November 1, 1933, athough the maturty date of the bonds has not
been e tended. The bonds contan a covenant that the nterest w
be pad wthout deducton for such porton of any ncome ta now
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155
143, rt. 7 1.
or hereafter mposed by the Unted States of merca whch the
company or the trustee under the sad frst mortgage may be requred
or permtted to pay thereon, or to deduct or to retan therefrom,
under any present or future aw or aws of the Unted States of
merca, not n e cess of two per cent (2 ) per annum a of whch
ta es the company hereby agrees to pay. The above covenant s
the usua covenant contaned n so-caed ta -free covenant bonds
and comes wthn the wthhodng provsons of secton 143(a) of
the Revenue ct of 1932. The queston presented s whether the
bondhoders commttee s requred as wthhodng agent to deduct
and pay over to the Government the amount of ta provded for n
that secton.
The property was taken over by, and the ease thereon assgned
to, the bondhoders commttee n order that t mght operate the
property for the beneft of the bondhoders. The agreement pro-
vded that Such assgnment sha be effectve unt the retrement
of a bonds secured by sad mortgage, meanng the mortgage due
November 1, 1933. It does not appear that any amounts have been
pad to the bondhoders e cept nterest on the prncpa amount
of the bonds, athough the assgnment of the ease was not ony for
the purpose of payng the nterest on the bonds but aso for the
retrement of the bonds. s stated n the agreement assgnng the
property to the commttee, nterest was to be pad frst and surpus
rents receved by the commttee n e cess of the nterest
requrements were to be used to retre the bonds. It s evdent,
therefore, that the payments from the rentas n so far as they repre-
sent nterest on ta -free covenant bonds are sub|ect to wthhodng.
rtce 7 1 of Reguatons 77 reads n part as foows:
Where n connecton wth the sae of ts property, payment of the bonds
or other obgatons of a corporaton Is assumed by the assgnee, such assgnee,
whether an ndvdua, partnershp, or corporaton, must deduct and wthhod
such ta es as woud be requred to be wthhed by the assgnor had no such
sae or transfer been made.
That provson of the reguatons s appcabe here regardess
of the fact that there was not a sae of the property securng the
bonds but an assgnment of the ease on the property for an n-
defnte perod for the purpose of payng the nterest on the bonds
and ther utmate retrement. The duty to wthhod the ta on
nterest upon ta -free covenant bonds s prmary that of the debtor
corporaton, the obgor. In the nstant case, however, the pay-
ment of nterest s beng made by an assgnee. ccordngy,
the bondhoders commttee as assgnee of the obgor shoud deduct
the ta requred to be wthhed and pay the amount thereof to the
Government. In other words, the bondhoder s commttee (the
assgnee), havng taken over the property of the debtor corporaton
and assumed the payment of the nterest and prncpa of ts bonds,
shoud compy wth the wthhodng provsons of the Revenue ct
of 1932 and the reguatons promugated thereunder. ny amounts
dstrbuted to the bondhoders n payment of the prncpa of the
bonds, beng a return of capta, are, of course, not sub|ect to wth-
hodng.
Robekt . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
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5 03.1
15
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 272. PROC DUR IN G N R L.
rtce 1173: tenson of tme for payment of a defcency.
R NU CT O 1932.
Rues governng consderaton of appcaton for e tenson of
tme to pay defcency n ncome ta . (See Mn. 4303, page 133.)
TITL I . DMINISTR TI ND G N R L
PRO ISIONS.
S CTION 1103. LIMIT TIONS ON SUITS
Y T P Y RS.
Secton 1103. I -22-7522
Ct, D. 970
INCOM T R NU CT O 1932 D CISION O COURT.
Sut Res udcata.
udgment entered n a sut based upon a cam for refund of
ta es or the year 1919 s a bar to the mantenance of a subse-
quent sut by the same ta payer based upon a refund cam for
the same ta abe year, athough the atter cam presented a dffer-
ent ground from that stated n the former sut, where the ta payer
was n no way msed and was free to present to the court the
tem nvoved n the atter sut before the prevous sut was
decded.
Coubt of Cams of the Unted States.
Chcago uncton Raways and Unon Stock Yards Co., n Consodaton wth
Unon Mock Yard Transt Co., Chcago uncton Raway Co., Centra
Manufacturng Dstrct, Stock Yard arness Saddery Co., Chcago unc-
ton Raroad Co., and Produce Termna Corporaton, v. The Unted States.
March 4, 1935.
OPINION.
Ltteton, udge, devered the opnon of the court.
The partes are n agreement that pantffs overpad the ta for 1919 n
the amount of 3,4S3.97 n e cess of the amount for whch the court heretofore
entered |udgment n a prevous sut by pantffs aganst the Unted States for
the same ta abe year. The queston s whether the |udgment |n the prevous
sut operates as a bar to the present sut based upon an tem gvng rse to an
overpayment n the same ta abe year for whch a tmey cam for refund was
fed upon a ground dfferent from that stated n the prevous sut.
Pantffs nsst that the present sut s not based upon the same cause of
acton as the sut heretofore decded by the court nvovng ta es for the same
ta abe year, but that the present sut s grounded upon a dfferent cam or
demand. In support of ths contenton t s argued that the statute requres
the fng of a cam for refund specfyng the ground therefor before sut can
be brought that as the refund cam upon whch the prevous sut was based
dd not menton the 2 per cent ncome ta and that as pantffs ater fed a
tmey and suffcent cam for refund for the overpayment, on the ground that
t was not abe for 2 per cent of Lhe 10 per cent ta pad, t has a rght
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157
1103.
under the provsons of secton 322 of the Revsed Sttutes, as amended by
secton 1103 of the Revenue ct of 1932, to mantan a separate sut on the
second cam for refund. In other words, pantffs contend thut nasmuch
as the statute requres a cam for refund as the bass for sut, and makes
the cam the ony possbe means of brngng sut, the cause of acton s con-
fned to the aegatons made n the cam for refund and not to a ta abe
perod. In our opnon ths contenton can not be sustaned.
ach ta abe year consttutes a separate cause of acton and n every
sut for a refund one of the questons presented s the amount by whch
the ta payer has overpad hs ta es for the year nvoved. Whe the court s
mted n ts consderaton of a case to the questons rased before the Treasury
Department In a tmey refund cam, a decson of a case upon the ssues
presented s a bar to a subsequent sut n respect to a matters and tems
that coud have been rased and presented for decson n the frst case, n the
absence of facts and crcumstances such as were nvoved n the case of
Cambrdge Loan udng Co. v. Unted, States (07 ed. (2d), 93 ). Cf.
ewport ccs Shpbudng Dry Dock Co. v. Unted States, decded by ths
court March 5, 1934.
The fact that the statute makes the fng of a cam for refund a condton
precedent to the rght to sue the Unted States for the recovery of an overpay-
ment of ta does not, we thnk, gve the ta payer a rght to brng a second sut
where the matter of the ta abty for the same ta abe year has been tgated
and decded. Moreover, n the present nstance, t appea s that the pantffs
were not n any way msed and that they were free to present the tem nvoved
n ths case to the court before the prevous sut was decded. t the tme the
prevous case was brefed and submtted to the court for decson, no representa-
ton had been made to pantffs that ther cam for refund of 2 per cent of
the ncome ta pad woud be refunded. No menton was made when the case
was submtted that such cam was pendng and no moton to amend the pet-
ton n the prevous case was tendered before the |udgment was entered, athough
the date on whch the petton coud have been amended so as to rase te
queston arrved fve months before the |udgment of the court was entered.
In these crcumstances the |udgment heretofore entered n a case between the
same partes for the same ta abe year s a bar to the mantenance of the present
acton. (Internatona Curts Marne Turbne Co. v. Unted States, 74 C. Cs.,
132.) The petton must therefore be dsmssed and t s so ordered.
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22(a), rt.51. 1
INCOM T RULINGS. P RT III.
R NU CT O 1928.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome.
R NU CT 01 1928.
ffect of decson n everng v. ckman (70 ed. (2d), 985,
Ct. D. 8 , C. . III-2, 274) wth respect to G. C. M. 9938
(C. . -2, 115) and G. C. M. 9953 (C. . I-1, 13). (See G. C, M.
14198, page 2 1.)
rtce 51: What ncuded n gross ncome. I -23-7534
Ct.D.974
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. Income I bockeds from Restrcted otment of C eee
Indan empton.
Proceeds from funds derved from the restrcted aotment of
a fu-bood Creek Indan, nvested and hed n trust under drec-
ton of the Secretary of the Interor, are sub|ect to edera ta .
Such ncome s ncuded for ta aton n the genera terms of the
Revenue ct of 1928, and no e empton s provded n any e press
terms of that ct, n any agreement wth the Creeks, or n any
ct of Congress deang wth ther affars, or by mpcaton from
the trust reatonshp between the Government and ts ward.
2. Decson ffbmed.
Decson of the Crcut Court of ppeas, Tenth Crcut (75 ed.
(2d), 183), affrmng 29 . T. ., 35, affrmed.
SUP M CoLRT O T UNIT D ST T S.
Superntendent of ve Cvzed Trbes, for tandy o , Creek No. 12 3,
pettoner, v. Commssoner of Interna Rcccnuc.
On certorar to tho Unted States Crcut Court of ppeas for the Tenth Crcut.
Say 20, 1935.
OPINION.
Mr. ustce McReynods devered the opnon of the Court.
Sandy o , for whom ths sut was nsttuted, s a fu-bood Creek Indan.
Certan funds, sad to have been derved from hs restrcted aotment, n
e cess of hs needs were nvested. The proceeds therefrom were coected am
hed n trust under drecton of the Secretary of Interor. The queston now
presented s whether ths ncome was sub|ect to the edera ta ad by the
1928 Revenue ct (eh. 852, sectons 11, 12 45 Stat, 791). The Commssoner,
the oard of Ta ppeas and the court beow answered n the affrmatve.
Pettoner mantans that the court shoud have foowed the rue whch t
apped In ackbrd v. Commssoner (38 . (2d), 97 ) aso that t errone-
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22(a), rt. 51.
ousy hed Congress ntended to ta Income derved from nvestment of funds
arsng from restrcted ands beongng to a fu-bood Creek Indan.
ackbrd, restrcted fu-bood Osage, mantaned that she was not sub|ect
to the edera ncome ta statute. The court sustaned that vew and
decared:
er property s under the supervsng contro of the Unted States. She
s ts ward, and we can not agree that because the ncome statute, ct of 1918
(40 Stat., 1057) and ct of 1921 (42 Stat., 227), sub|ects the net ncome of
every ndvdua to the ta , ths s aone suffcent to make the cts appcabe
to her. Such hodng woud be contrary to the amost unbroken pocy of
Congress n deang wth ts Indan wards and ther affars. Whenever they
and ther nterests have been the sub|ect affected by egsaton they have been
named and ther nterests specfcay deat wth.
Ths does not harmonze wth what we sad n Chotcau v. urnet (1031) (283
D. S.. 091, C93, COO Ct. D. 352, C. . -, 355 ) :
The anguage of sectons 210 and 211(a) ct 1918 sub|ects the ncome of
every ndvdua to ta . Secton 213(a) ncudes ncome from any source
whatever. 1 The ntent of Congress was to evy the ta wth respect to a
resdents of the Unted States and upon a sorts of ncome. The ct does
not e pressy e empt the sort of ncome here nvoved, nor a person havng
pettoner s status respectng such ncome, and we are not referred to any other
statute whch does. The ntent to e cude must be defntey e -
pressed, where, as here, the anguage of the ct ayng the ta s broad enough
to ncude the sub|ect matter.
The court beow propery decned to foow ts quoted pronouncement n
ackbrd s case. The terms of the 1928 Revenue ct are very broad, and
nothng there ndcates that Indans are to be e cepted. (See Irwn v. Gavt,
2 8 U. S.. 1 1 T. D. 3710, C. . 1 -1, 123 encr v. Coona Trust Co., 275
U. S., 232 T. D. 4112, C. . II-1, 207 everng v. Stockhom , etc., ank,
293 U. S., 84: Ptman v. Commssoner, 04 . (2d), 740.) The purpose s
suffcenty cear.
It s affrmed that naenabty and nonta abty go hand In hand and
that t s not ghty to be assumed that Congress ntended to ta the ward for
the beneft of the guardan.
The genera terms of the ta ng ct ncude the ncome under consderaton
and f e empton e sts t must derve pany from agreements wth the Creeks
or some ct of Congress deang wth ther affars.
Nether the Creek agreement of 1901, nor the suppementa agreement (1002)
conferred genera e empton from ta aton upon Indans homesteads ony were
defnte y e cuded, athough aenaton of aotted ands was restrcted.
The suggeston that e empton must be nferred from the ct of pr -0.
190 (34 Stat., 137), or May 27, 1008 ( 35 Stat., 312), s not we founded. The
frst of these e tended restrctons upon the aenaton of aotments for 25 years
uness sooner removed by Congress, and provded :
Sec. 19. That a ands upon whch restrctons are removed sha
be sub|ect to ta aton, and the other ands sha be e empt from ta aton as
ong as the tte remans n the orgna aottee.
Ths e empton reated to and and not to ncome derved from Investment
of surpus ncome from and. Moreover, the ct tsef was superseded by the
second one whch dd not contan the quoted provson, but decared:
Sec 4. That a ands from whch restrctons have been or sha be removed
sha be sub|ect to ta aton and a other cv burdens as though t were the
property of other persons than aottees of the ve Cvzed Trbes .
We fnd nothng n ether ct whch e presses defnte ntent to e cude
from ta aton such ncome as that here nvoved. (See Shac v. O Corpora-
ton, 27 U. S., 575, 581.)
Nor can we concude that ta aton of ncome from trust funds of an Indan
ward Is so nconsstent wth that reatonshp that e empton s a necessary
mpcaton. Nonta abty and restrcton upon aenaton are dstnct thngs.
(Chooe v. Trapp, 224 U. S., 5, 73.) The ta payer here s a ctzen of the
Unted States, and wardshp wth mted power over hs property docs not,
wthout more, render hm mmune from the common burden.
Lke provsons are In sectons 210 and 211(a), Revenue cts 1921, 1024, 192 , and
tons and 12(a), ct o 1928 secton 213(a), cta 1021, 1924, 1020, and secton
Z2 nt r.f -ttctc|
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22(a), rt. 58.
1 0
Shaw v. O Corporaton, supra, hed tnt restrcted and purchased for
fu-bood Creek ward of the Unted States wth trust funds was not free
from State ta aton, and decared that such e empton coud not be mped
merey because of the restrctons upon the Indan s power to aenate.
ffrmed.
rtce 53: Compensaton pad other than n cash.
R NU CT O 1928.
owances for vng quarters, heat, fue, and ght, to offcers sta-
toned abroad n the foregn servce of the Department of Commerce.
(See G. C. M. 14710, page 44.)
rtce 58: Sae of stock and rghts. I -21-7504
Ct. D. 9
INCOM T R NU CT OP 1928 D CISION OP SUPR M COURT.
1. Gan or Loss Sae or Stock Margna Transactons
rst-n, rst-out Rue adty.
In margna transactons on the Stock change, shares of stock
are capabe of Identfcaton by other means than by stock certf-
cates, and f the margn trader has desgnated the securtes to be
sod as those purchased on a partcuar date and at a partcuar
prce the frst-n, frst-out rue prescrbed by artce 58 of Regu-
atons 74 does not appy. It s ony when such a desgnaton was
not made at the tme of the sae, or s not shown, that the rue s
to be apped. Thus construed, the reguaton s vnd.
2. Crcut Court of ppeas Power to Make ndngs of act
rroneous ssumpton of acts Remand of Case.
The Crcut Court of ppeas s wthout power, on revew of pro-
ceedngs of the oard of Ta ppeas, to make any fndngs of fact,
and t may not reverse the oard s decson on an assumpton of
facts not borne out by the facts found by the oard. Where the
queston whether the oard s fndng was wthout substanta
support In the evdence was not consdered by the Crcut Court
of ppeas nor argued before the Supreme Court, the case must be
remanded for further consderaton.
3. Decson Revkrsed.
Decson of the Crcut Court of ppeas, Thrd Crcut (73
ed. (2d). )), reversng 2 . T. .. 1204, reversed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. ames L,
Rankn-, ecutor.
On (. ortornr to the Unted Sates Crcut Court of ppeas for the Thrd Crcut.
pr 29. 193.r .
OPINION.
Mr. ustce randes devered the opnon of the Court.
The Revenue ct of 1928 (ch. 852, sectons 22, 111, 112, 113) provdes, as had
earer Revenue cts, that n computng ncome from saes of property pur-
chased after ebruary 28, 1913, any e cess of the amount reazed over cost
sha be pan and that any e cess of the cost over the amount reazed sha
e oss. When gan or oss s to be determned on the sae of stock owned out-
rght as an nvestment, the dentfcaton of the shares sod wth those pur-
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22(a), rt. 58.
chased ordnary presents no dffcuty. ut when the ta payer has engaged
n margna transactons on a stock e change, the dentcaton of saes and
purchases s frequenty mpossbe. It was, perhaps, prmary to dea wth
such cases that the Treasury adopted, n 191S,1 the so-caed frst-n, frst-out
rue. That rue appears n artce 58 of Reguatons No. 74, under Revenue
ct of 1028, as foows:
When shares of stock n a corporaton are sod from ots purchased at
dfferent dates and at dfferent prces and the dentty of the ots can not be
determned, the stock sod sha be charged aganst the earest purchases of
such stock. The e cess of the amount reazed on the sne over cost or other
bass of the stock w consttute gan.
ppyng ths rue, the Commssoner of Interna Revenue assessed aganst
Rchard . Turner for the year 1928, a defcency ta of 11,173.05 on account
of gans from hs operatons on the Stock change n Unted Gas Improve-
ment Co. stock. Upon a redetermnaton by the oard of Ta ppeas, the
Commssoner s acton was sustaned. (2 . T. ., 1204.) The Court of
ppeas reversed the oard s decson and drected t to enter a new order n
conformty wth the court s opnon. (73 P. (2d), 0.) Turner havng ded
durng the tgaton, hs e ecutor, Rankn, was substtuted. Wrts of cer-
torar were granted n ths case, and n Snyder v. Commssoner of Interna
Revenue. No. 3, decded ths day Ct. D. 0 7, page 1 1, ths uetn , n
order to determne questons concernng the effect, vadty, and appcabty
of the reguaton. (204 U. S., .) The facts found by the oard were these:
In 192 , Turner receved n dstrbuton of hs father s estate 20,000 n
bonds. Wshng to change hs nhertance nto stock, he opened a margna
account wth a stock broker sod the bonds and, wth the proceeds as margn,
purchased, from tme to tme durng that year, an aggregate of 1,200 shares
of Unted Gas Improvement Co. stock at a cost of 117,202.50. On ths stock
the broker receved for hm ater n 192 , 300 shares as a dvdend. There
were no further operatons n 192 or n 1927. s margna account became
actve n 1928. t the begnnng of the year he was ong 1,500 shares of ths
stock n May he sod 300 shares for 44, 19 net n une, he bought 1,000
shares for 143,225 In October he sod 500 shares for 73,8 5 and. n Novem-
ber. 500 shares for 74,115. Thus, at the cose of the year, he was ong
1,200 shares.
In none of these transactons dd the broker dever to Turner, or Turner
to the broker, any stock certfcate. No specfc certfcate of stock was ever
bought or sod by the broker for Turner and none was earmarked or aocated
for hm n any manner. The purchases and saes affectng hs account were
made through the medum of street certfcates handed by the broker and
the transactons were evdenced soey by debts and credts n hs account
on the broker s books. Turner frst earned these facts after the defcency
assessment. e had aways ntended to retan ownershp on margn of 1,200
shares of the stock, s nce he had fath n the company and desred to hod
them n eu of the bonds whch he had receved from the estate of hs father.
To hs busness assocates, who acted for hm n gvng orders to the broker,
he had made t pan that the 1,200 shares were n the nature of a permanent
commtment on hs part. n empoyee of the broker understood that the
decedent desred to retan 1,200 shares of the stock to take the pace of the
bonds whch he had receved from hs father.
On the above facts the oard concuded, as had the Commssoner, that t
was mpossbe to determne the dentty of the ots purchased and sod and
that, consequenty, the frst-n, frst-out reguaton shoud be apped. In
reversng that order the Court of ppeas sad:
We thnk the pettoner s (Turner s) communcaton to hs broker of hs
ntenton to hod the 1,200 shares frst purchased as an nvestment was n
effect an order to hs broker not to se those shares, and when, two .ven s
ater, he ordered the broker to make two saes n ots of 500 shares each, they
were, conformaby wth the orgna nstructons, the 1,000 shares ast pur-
chased. The pettoner s Instructons e cudng from sae the shares frst
purchased were n effect an dentfcaton of the shares ater sod as those
ast purchased.
rtce 4. paragraph 0. Reguatons Nn. 33 (revsed). Revenue rts of 101 and
317 artce O. Reguatons Nos. 45, G2. 05, and 00. cts of 101S. 1021. 1024, and
t , respectvey: artete 58. Reguatons Nos. 71 and 77, cts of 1028 and 1932,
re pectvey artce 22(a)-8, Reguatons No. SO, ct of 1034.
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522(a), rt. 58.
1 2
Whe the pettoner, n dentfyng hs shares, mght have been more
specfc n hs nstructons to hs broker, those he gave stand uncontradcted
ndeed they uve not been questoned. We thnk they were enough to take
the case out of the rue and that, n consequence, the defcency ta In ssue
s nvad to the e tent that t s based on gans n saes of U. G. I. shares
reckoned on the purchase prce of the orgna 1,1200 shares.
rst. The Commssoner contends that Turner s communcaton to hs
broker of hs ntenton to keep 1,200 shares of Unted Gas Improvement Co.
stock was neffectve to dentfy the shares to be sod, because, from the very
nature of these margna operatons, the shares were ncapabe of dentfca-
ton by the broker or anyone ese. The bass for ths contenton are the facts
that n such transactons no certfcate s ssued n the name of the customer,
or earmarked for or otherwse aocated to hm that a certfcates are n
the name of the broker or street names and that a certfcates for stock of the
same knd arc commnged and hed by the broker for the common beneft of a
deang In that partcuar stock. The faacy of ths argument es n the
assumpton that shares of stock can be dentfed ony through stock certf-
cates. It s true that certfcates provde the ordnary means of dentfcaton.
ut t s not true that they are the ony possbe menus. (Compare Rchardson
v. Shaw, 209 U. S., 3 a Gorman v. Ltth-fcd, 229 U. S., 19 Due v. ons,
241 U. S., 523.) Partcuary s ths so when, as here, the thng to be estab-
shed s the aocaton of ots sod to ots purchased at dfferent dates and
dfferent prces.3 The requred dentfcaton Is satsfed, f the margn
trader has, through hs broker, desgnated the securtes to be sod as those
purchased on a partcuar date and at a partcuar prce. It Is ony when such
a desgnaton was not made at the tme of the sae, or s not shown, that the
frst-n, frst-out rue s to be apped.
Second. The vadty of the reguaton, thus construed, can not serousy
be questoned. The contenton advanced by the ta payers, both here and n the
companon case of Snyder v. oerng, that the reguaton, as apped to
margna transactons, s nvad under the ffth amendment, because t creates
a concusve presumpton, must rest whoy on the assumpton that the shares
traded on margn are ncapabe of dentfcaton. Snce that assumpton Is
erroneous, t s cear that no concusve presumpton s estabshed. It s,
at most, the burden of proof that s affected. or the margn trader, whe beng
requred to estabsh the dentty of the shares n order to avod the frst-n,
frst-out rue, s eft free to Introduce any reevant evdence. Nor s he
arbtrary deprved of any of the mportant attrbutes of ownershp, such as
the rght to decde whch stock he s gong to se. Indeed t s conceded,
at east by the ta payer n ths ease, that the reguaton, as we now nterpret
t, provdes a usefu and reasonabe rue for ascertanng what stock was
sod n cases where there s no proof, or ack of satsfactory proof, of the fact.
Thrd. If the fucts found by the oard of Ta ppeas had been what the
Court of ppeas assumed them to be, there woud have been such an dentf-
caton of shares sod wth shares purchased as to precude the Commssoner
from appyng the frst-n, frst-out rue. The Court of ppeas assumed
that, What Turner dd n ths case, actng and speakng through hs attorney,
was to communcate to hs broker hs ntenton to hod for nvestment the
shares of U. G. I. he orgnay purchased. The facts found by the oard
of Ta ppeas do not bear out ths assumpton of the court. The oard s
fndngs were that, The decedent (Turner) aways ntended to rean the
ownershp on margn of 1,200 shares of the Unted Gas Improvement Co.
stock and that, n empoyee of the broker understood that the
decedent desred to retan 1,200 shares to take the pace of the bonds whch
2The orgna reguaton, artce 4, paragraph 0, Reguatons No. 33 (revsed), read:
When stock s sod from ots purchased at dfferent tmes and at dfferent prces, and
the dentty of the ots can not be determned as to the dates of purchase, the stock sod
sha e charged aganst the earest purchases of such stock. It has been suggested
that. Under the anguage quoted from Reguatons 33 ( as to the dates of purchase,
omtted n subsequent reguatons), t mght be argued that the dentfcaton ntended
coud have been accompshed merey by recordng the dates of purchase. rather than
by requrng physca dentfcaton of the certorates. (Wkns. Identty of Margna
Transactons, Interna Revenue News, voume 4. No. 7, page 5 (1031).)
Compare orbcrt . Penrose (38 . (2d). ,77) sknner v. aton (45 . (2d), 5 S)
Smdcr v. Cnmm soner of Interna Revenue (54 . (2d), 57 Ct. D. 454, 0. . I-1,
) Cotnm oner of Interna Revenue v. Merehants d Manufacturers Insurance Co,
(72 . (2d), 408).
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1 3
822(a), rt. 58.
he had receved from hs father. The dfference between the oard s fnd-
ngs and the court s statement of the facts s obvousy vta. The court hed
that Turner s communcaton of hs ntenton was n effect nn order to hs
broker not to se those shares that when, two years ater, he ordered the
broker to make two saes n ots of 500 shares each, they were, conformaby to
the orgna nstructons, the 1,000 shares ast purchased. at f the em-
poyee was tod, as the oard found, merey that Turner desred to retan
1,200 shares (of the U. G. I. stock) to take the pace of the bonds whch he
had receved from hs father, he woud naturay beeve that so Ions as any
1,200 shares of the stock were retaned, t was mmatera to whch of the ots
the saes n 1928 were attrbuted and hence there was no dentfcaton. Tms
t was ony by departng from the facts as found by the oard of Tn ppeas
that the court found |ustfcaton for reversng the oard s decson.
ourth. The Court of ppeas s wthout power, on revew of proceedngs of
the oard of Ta ppeas, to make any fndngs of fact. The oard of Ta
ppeas s not a court. It s an e ecutve or admnstratve board, upon the
decsons of whch the partes arc gven an opportunty to base a petton for
revew to the courts after the admnstratve nqury of the oard has been
had and decded. (Od Coony Trust Co. v. Commssoner of Interna Reve-
nue, 279 U. S., 71C, 725 Ct. D. SO, C. . III-2, 222 .) The functon of the
court s to decde whether the correct rue of aw was apped to the facts
found: and whether there was substanta evdence before the oard to sup-
port the fndngs made. (See Phps v. Commssoner of Interna Revenue,
2S3 U. S., 589, 590, GOO Ct. D. 350, C. . -, 2 4 urnet v. Lennger, 2S5
U. S., 130, 138 Od Msson Portand Cement Co. v. evcrng, 293 U. S., 2.S9,
294 Ct. D. 003, page 332, ths uetn .)1 Uness the fndng of the oard n-
voves a m ed queston of aw and fact, the court ay not propery substtute
ts own |udgment for that of the oard. If the oard has faed to make an
essenta fndng and the record on revew s nsuffcent to provde the bass
for a fna determnaton, the proper procedure s to remand the case for fur-
ther proceedngs before the oard. (Compare evcrng v. Tayor. 293 IT. S.,
507 C . I). 912, page 1 8, ths uetn 1 Murphy O Co. v. urnet, 287 U. S. 299,
308 Ct. D. 19, C. . II-1, 23 . ) nd the same procedure s approprate even
when the fndngs omtted by the oard mght be supped from e amnaton
of the record.
fth. The Court of ppeas dd not comment on the dfference between the
oard s fndngs and ts own statement of the facts. pparenty t assumed
that there was no dfference and reversed the oard s order, beevng that
t rested upon an erroneous rung of aw. or the court sad that the oard
made ts determnaton on the theory that the U. G. I. stock, whch from tme
to tme he (Turner) purchased on margn, and ater sod, coud be dentfed
ony by certfcates that as no certfcates for shares were ever n hs name,
the shares sod coud not be dentfed as shares purchased n any partcuar
ot or at any partcuar tme or prce and. accordngy, charged the shares
od aganst those earest purchased wthn the frst-n, frst-out rue.
There s nothng n the opnon of the oard to ndcate that ts decson
was based nnon the theory stated by the court. There s nothng n the
record to ndcate that nny such contenton had been made by the Government
before the oard and Turner s petton for revew by the Court of ppeas
Compare Tracy v. Oomm mwrr of Interna Revenue (53 . (2d), 575, 578-57 )
Ct. I). 408. C. . I-1, 2051) Sat/ton v. Commssoner of Interna Revenue (decded
March 20. 19 5. by the Crcut Court of ppeas for the rst Crcut I : eywood oot
that Co. v. Commssoner of Interna Revenue (decded pr 1, 1035, by the Crcut
Court of ppeas for the rst Crcut)
Compare soff v. Commssoner of Interna Revenue (27 . (2d). 91. 02) : W esh-
turn v. Commssoner of Interna Revenue (51 . (2d), 010, 051) Trcon . evcrng
(08 . 12d). 280. 2851.
Compare Roya Packng Co. v. Commssoner of Interna Revenue. (22 . (2d). 5,1 ,
5.18) Commssoner of Interna Revenue v. Lanoee Rea Instate Corporaton (47 .
(2 ). 841, 842 Ct. D. 384, C. . -, 3f ) Independent I. d C. storage. Co. v. Com-
mwoncr of Interna Revenue (50 . (2), 31, 33 Ct. D. 471. C. . I-1, 308 )
aunas Cty Southern Raway Co. v. Commssoner of Interna Revenue (52 . (2d),
372. 370) ouston v. Commssoner of Interna Revenue (53 . (2d). 445 CI. T . 475,
C. . I-1. 209 ) Underwood . Commssoner of Interna Revenue (50 . (2d). 07. 73)
a Cor ook t Statonery Co. v. Commssoner of Interna Revenue (05 . (2d), 125,
12 ).
Compare endrek Coa Dock Co. v. Commssoner of Interna Revenue (20 . (2d),
n. ft. 584) rancsco Su/ar Co. v. Commssoner of Interna Revenue (47 . (2d), 555,
- 8) ddrdge O Co. v. evcrng ( 0 . (2d), 432).
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522(a), rt. 58.
1 4
dd not cam that the oard had acted upon that theory. ut even f the
oard s decson had been based on an erroneous rue of aw, that woud not
have |ustfed ts reversa, f the fndngs of fact, governed by the correct rue
of aw, were suffcent to sustan the decson and had substanta support In
the evdence.
S th. The Court of ppeas dd not e pcty hod that the oard s fndng
as to Turner s communcaton to hs broker was wthout substanta support
n the evdence. The court, n ts opnon, does state that, The evdence
shows concusvey that Turner was sentmenta about keepng the orgna
1.200 shares as an nhertance from hs father that hs ntenton was to re-
tan as an nvestment the shares orgnay purchased and se n specuaton
the shares more recenty acqured. It does not state that the evdence was
equay concusve as to the communcaton to the broker of ths e act
ntenton. There was, t s true, testmony to the effect that from the very
begnnng West Co. knew Mr. Turner s ntentons and knew he was keepng
the frst purchase of 1,200 shares and the faure of the oard so to fnd,
was assgned as error by the ta payer n hs petton for revew. ut there
was aso testmony showng that Turner, durng 1928, traded heavy n 20
other ssues of stock. The Court of ppeas dd not consder whether, n vew
of ths and other evdence, the oard mght reasonaby have concuded that
the testmony as to the broker s knowedge of Turner s ntenton was not en-
trey accurate, and that the broker s ony cear understandng of Turner s
ntenton was that, throughout hs e tensve tradng, 1,200 shares of Unted
Gas Improvement Co. stock were to reman n hs account. Snce ths queston
was not consdered n the court beow nor argued here, the ease must be re-
manded to the Court of ppeas for further consderaton.
Reversed.
rtce 58: Sae of stock and rghts. I -21-7508
Ct. D. 9 7
INCOM T R NU CT O 1928 D CISION OP SUPR M COURT.
1. Gan or Lose Sae of Stock Margna Transactons Iden-
tfcaton of Stock Intenton.
In margna transactons on the Stock change shares traded on
margn are capabe of dentfcaton, but the mere ntenton of the
trader to se partcuar shares, wthout further desgnaton, does
not consttute suffcent dentfcaton to make the so-caed frst-n,
frst-out rue nappcabe.
2. Gross Income Profts from Trade or usness Margna
Transactons.
Margna transactons on the Stock change do not consttute a
trade or busness reguary carred on for proft wthn the meanng
of secton 22(a) of the Revenue ct of 1928, n the absence of proof
that the trader devoted the ma|or part or any substanta part of
hs busness day to hs stock transactons or that he mght propery
be characterzed as a trader on an e change who makes hs vng
n buyng and seng securtes.
3. Decson ffrmed.
Decson of the Crcut Court of ppeas, Thrd Crcut (73 ed.
(2d), 5), affrmng 29 . T. ., 39, affrmed.
The Soctor Genera stated In hs petton to ths Court for certorar, that the
queston presented was whether shares of stock hed on margn are capabe of dentf-
caton so that a ta payer seng part of hs hodngs may seect, as hs bass for de-
termnng gan or oss, the cost of any partcuar ot and counse for the Government
may have contended In the Court of ppeas, as he dd here, that such dentfcaton s
Impossbe. It s aso true that the oard of Ta ppeas In other cases has approved
the rue for whch the Government s now contendng. (See truker v. Commssoner of
Interna Revenue, 21 . T. .. 501 Lena y. Commssoner of Interna Revenue, 22
. T. ., 140 Secye v. Commssoner of Interna Revenue, 29 . T. ., 95 compare
echner v. Commssoner of Interna Revenue, 31 . T. ., 2 2.)
Compare Lews- a Iron Works v. ar (23 . (2d). 972, 974-975) uru tz .
Commssoner of Interna Revenue (45 . (2d), 780, 781) Dckey v. urnet (5 . (2d),
917, 918).
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522(a), rt. 58.
Supreme Couht or the Unted States.
ohn . Snyder, pettoner, v. Commssoner of Interna Revenue.
On certorar to the Unted States Crcut Court of ppeas or the Thrd Crcut
pr 29, 1935.
OPINION.
Sr. ustce kandes devered the opnon of the Court.
Ths case presents further questons regardng the appcaton to margna
transactons on the Stock change of artce 58 of Reguatons No. 74, as we
as some of those aready consdered n everng v. Rankn, decded ths day
Ct D. 9 , page 1 0, ths uetn .
Snyder was the saared secretary of an nsurance company. Durng 1928, as
n prevous years, he made on hs ndvdua account, at dfferent dates and
dfferent prces, many purchases and saes on margn of Unted Gas Improve-
ment Co. stock. In hs edera ncome ta return for the caendar year 1928
he reported, apparenty, no profts from tradng on the Stock change. The
Commssoner of Interna Revenue concuded that he had made arge gans
determned that hs net ncome was 197,495.85 and, after makng the appro-
prate deductons, assessed a defcency ta of 38,9 1.22. The arge ncome
computed by the Commssoner was the resut of appyng the saes made n
1928 aganst purchases n earer years, n accordance wth the frst-n, frst-
out reguaton and sectons 111-113 of the ct. The oard of Ta ppeas
(29 . T. ., 39) and the Unted States Crcut Court of ppeas (73 . (2d), 5)
affrmed the Commssoner s determnaton. The facts found by the oard of
Ta ppeas, upon whch the case was submtted, are these:
Snyder traded n Unted Gas Improvement Co. stock for proft through brokers
on margn and ncreased hs hodngs by the method known as pyramdng.
On anuary 1, 1028, there stood to hs credt 5,300 shares and hs debt baances
aggregated 501,8 5.59. e purchased durng the ta year 10.000 shares and
sod 7,900. t the cose of the year, 8,000 shares stood to hs credt, and hs debt
baances aggregated 932,822.07. Upon rses n the market, paper profts had
been used to ncrease hs hodngs. Upon decnes n the market, when hs
margn fe beow the requred percentage, the brokers reduced hs debt baances
by suffcent saes to make up the defcency n the margn. The purchases and
saes were effected by the brokers transferrng so-caed street certfcates,
each fur 100 shares, n the name of some Stock change concern, ndorsed by
t n bank. t no tme was any stock certfcate devered by the brokers to
Snyder, or by hm to them nor was any certfcate earmarked for hm or hs
account. The certfcates were ne trcaby mnged wth other securtes
pedged wth banks. They were at a tmes ncapabe of dentfcaton as havng
been bought or sod for the account of Snyder. The transactons between hm
and the brokers were refected soey n entres n Snyder s account on the
brokers books and no entry ndcated that any partcuar ot theretofore pur-
chased had been sod or retaned. The ony attempt at dentfcaton found by
the oard, was the uncontradcted testmony of Snyder to the effect that n
each case where a sae was made t was hs ntenton to se the ast acqured
stock frst and shorty thereafter to buy back an equvaent amount n order to
ncrease hs margn and acqure addtona shares of the stock.
rst. Snyder contends, n the aternatve, that hs ntenton to se the ast
acqured stock frst, consttuted suffcent dentfcaton to make the frst-n,
frst-out rue nappcabe or ese that the reguaton as apped to margna
transactons on the Stock change Is nvad, because there s no possbe
means, other than the trader s ntentons, of dentfyng the shares sod. What
has aready been sad n eh erng v. Rankn s enough to dspose of both of
these contentons. It s there determned that shares traded on margn are
capabe of dentfcaton for the purposes of the reguaton but that the mere
Intenton of the trader to se partcuar shares, wthout further desgnaton,
does not consttute suffceut dentfcaton.
Second. Snyder contends that the frst-n, frst-out reguaton may not,
consstenty wth the provsons of the Revenue ct of 1028, be apped to the
facts of ths case. The argument 1s that hs market operatons consttuted a
trade or busness as those terms are used n secton 22(a) of the ct that
accordng to that secton, and the appcabe decsons of ths Court ( urnet
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22(s), rt. 58.
1
v. Sanford d rook Co., 282 . S.. 359 Ct. D. 2T7, C. . -, 3 3 Wooford
Reaty Co. v. Roue, 28 U. S., 319 Ct. D. 493, C. . I-1, 154 ), gross Income
from such busness, as we as net ncome under secton 23 of the ct, must
be computed entrey wth respect to transactons wthn the ta abe year
and that sectons 111-113, upon whch the Government rees, are not ap-
pcabe because they reate ony to saes of property, ncudng securtes,
hed for nvestment. and have no appcaton to saes made n the course
of a busness of tradng on the Stock change. On ths assumpton, Snyder
argues that the ncome reazed durng the ta abe year from hs stock trans-
actons s not the aggregate of the gans and osses on each sae of securtes,
measured by the dfference between the sae and cost prces of the securtes
sod, hut the proft or oss reazed as a resut of a market operatons, pur-
chases as we as saes, made durng the ta abe year. Such proft or oss, he
now suggests, must be computed by takng the dfference between the purchase
prce aud the saes prce of shares bought and sod durng the year, deductng
e penses, such as commssons, ta es and nterest. Thus computed, he con-
cudes, hs market operatons resuted n a gross ncome of . 43, 92 and add-
ng hs saary, Insurance commssons and dvdends, and deductng the e -
penses of hs stock operatons (nterest pad brokers) hs net ta abe ncome
was . 39, 82, and hs tota ta 1,897.77.
Thrd. Nether n the fndngs of the oard of Ta ppeas, nor n the facts
upon whch the case was submtted to t, Is there any support for the contro-
verted aegaton n Snyder s petton that hs market operatons consttuted a
busness reguary carred on for proft. 1 It s true that a ta payer may be
engaged n more than one trade or busness, as those terms are used n varous
provsons of the Revenue cts and that, In addton to other busness ac-
tvtes, one may be reguary engaged n the busness of buyng and seng
corporate stocks. (Compare Daton v. owers, 287 U. S., 404 Ct. D. 21, C. .
II-1. 177 urnet v. Cark, 287 IT. S., 410 Ct. D. 20, C. . II-1, 175 :
Washburn v. Commssoner of Interna Revenue, 51 . (2d), 949.) It s aso
true that the Department has rued, and the oard has hed, that a ta payer
who, for the purpose of makng a vehood, devotes the ma|or porton of hs
tme to specuatng on the Stock change may treat osses thus ncurred as
havng been sustaned n the course of a trade or busness. Snyder, however,
dd not aege or attempt to prove that he had devoted the ma|or part, or any
substanta part, of hs busness day to hs stock transactons. Nor were there
any facts adduced to show that he mght propery be characterzed as a trader
on an e change, who makes a vng n buyng and seng securtes. ede
v. Commssoner of Interna Revenue, 30 . (2d), 22, 24 compare ente v.
sner, 20 ed., 1 1 T. D. 3029, C. . 2, 131 .) Indeed, accordng to hs
petton, hs ntenton throughout the year 1928, was. by takng advantage
of the turns of the market, not to draw out cash profts from hs operatons,
but to ncrease the hodngs of U. G. I. stock carred for hs account by (hs)
brokers to as great an e tent as the margn of hs account permtted. There
s no substanta evdence n the record to sustan a fndng by the oard, had
there been one, to the effect that Snyder s market operatons consttuted a
trade or busness wthn the meanng of secton 22 of the Revenue ct of 1928.
ourth. The attack upon the Commssoner s method of computng ncome
fas wth the unsupported aegaton that the stock transactons consttuted
a busness reguary carred on for proft. In hs bref n support of hs
petton to ths Court for certorar, Snyder makes t cear, perhaps for the
frst tme, that he s nsstent upon the pont that the operatons consttute
a trade or busness or transacton entered nto for proft, not n order to
deduct osses, but to emphasze the controng rue that the aw requres the
ta to be computed on the segregated transactons of the year. ut t s
1 The answer of the Commssoner dened that the brokerage accounts
consttuted n trade or busness wthn the meanng of my provson of the Revenue ct
of 1028. The oard of Ta ppeas made no specfc fndns on ths ssue but the
Court of ppeas assumed that the oard meant to nd aganst the ta payer, and con-
cuded that te assumed fndng was supported by the evdence.
I. T. ISIS (C. . II-2, 39) ehwnn v. Commssoner of Interna Revenue (9 . T.
.. 304) ott v. Commssoner of Interna Revenue (15 . T. ., 494) Uogson .
Commssoner of Interna Revenue (24 . T. ., 25 ) ehermerhorn . Commssoner of
Interna Revenue (2 . T. ., 10IU). Compare aek . oen (208 ed.. 427) Rogers
. Unted States (41 . (2d). 8 4 Ct. D. 227, C. . 1 -2, 30 - ) unau. v. Comms-
soner of Interna Revenue (27 . T. ., 009) Thee v. Commssoner of Interna Reve-
nue (32 . T. ., 134).
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22(a). rt. 5S.
now too we setted for argument, tat gans reazed from saes of property
purchased n prevous years, measured, as prescrbed by sectons 111-113 of
the 1S2S ct, by the e cess of proceeds of sae over cost, consttute ncome
ta abe n the year n whch the saes are made. Doye v. Mtche ros. Co.,
247 U. S., 179, 1S4-185 T. D. 2723 ays v. auey Mountan Coa Co.,
247 U. S., ISO, 192 MacLaughn v. ance Insurance Co., 280 U. S., 244,
250 Ct. D. 49 , C. . I-1, 124 .) The contenton that the rue s appcabe
ony to the sae of capta assets, and not to saes made n the course of a
busness of tradng on the Stock change, need not be dsposed of on ts
merts (but see Gray v. Darngton, 15 Wa., 03, 0 Merchant L. T. Co.
v. Smetanka, 255 U. S.. 509, 520 T. D. 3173, C. . 4, 34 ), snce Snyder
has faed to estabsh that the securtes sod were hed prmary for sae
In the reguar course of busness.3 nd obvousy, whether or not the stock
transactons consttuted a trade or busness, the computaton of gross ncome
therefrom by deductng from saes of the current year the cost of securtes
sod, as determned by the purchase prces of prevous years, s not comparabe
to the unsuccessfu attempt n urnet v. Sanford rooks Co. (282 T . S., 359)
to offset gross ncome of the current year aganst osses or e penses of pre-
vous years.
fth. Moreover, Snyder suggests no other practcabe method of accountng
whch woud refect Income for the year more fary than the method adopted
by the Commssoner. e concedes that he s not a deaer n securtes, n
the sense of one who buys securtes for the purpose of resae to customers
and that consequenty, he s not entted to compute ncome on an nventory
bass. (Compare Lucas v. ansas Cty Structura Stee Co., 281 U. S., 2 4,
2 8 Ct. D. 223, C. . I -2, 299 Unted States Cartrdge Co. v. Unted States,
284 U. S., 511, 520 Ct. D. 4 0, C. . I-1, 282 .) s suggeston that gross
ncome from tradng be computed by deductng purchase prces from sae prces
durng the year woud offer a feasbe substtute ony f t coud be assumed
that the number of purchases and saes woud be appro matey equa each
year and that any dfferences woud be averaged out In the course of a number
of years. That assumpton s unwarranted, partcuary n vew of Snyder s
professed ob|ect to accumuate as many shares of U. G. I. as he coud. s
aternatve suggeston, that, snce purchases n fact e ceeded saes durng 1928,
the frst-n, frst-out rue, f apped at a, shoud be confned to purchases
and saes n the course of the year, adds nothng to the contentons that have
aready been consdered n ths case or n evcrng v. Rankn.
ffrmed.
Compare utton v. Commssoner of Interna Revenue (39 . (2d), 459 Ct. D. 240,
C. . I -2, 353 ). where the deducton of brokers commssons on purchases of se-
curtes, as busness e penses, was dsaowed. The oard found that the ta payer was
engaged In the busness of buyng, hodng and seng reaty securtes, etc. but
regarded the commssons as capta e pendtures. (12 . T. ., 205.) (Compare
Yauqhan v. Commssoner of Interna Revenue, 31 . T. ., 548 eeney v. Commssoner
of Interna Revenue, 17 . T. ., 5 0.)
4 Proceeds from saes In the reguar course of busness consttute gross ncome of the
busness ony to the e tent that they e ceed the cost of the goods od. (See Sprng
Cty oundry Co. v. Commssoner of Interna Revenue, 292 U. S., 182, 185 (Ct. D. 829,
C. . III 1, 281 . Compare Washngton Land Co. v. Commssoner of Interna Reve-
nue, 10 . T. .. 503 tantc Coast Reaty Co. v. Commssoner of Interna Revenue,
11 . T. .. 41 Stern v. Commssoner of Interna Revenue, 14 . T. ., 838. See
artce 55. Reguatons 74, Revenue ct of 1928.)
Snyder does not attempt to brng hmsef wthn the genera rue of secton 41 of
the 1928 ct, to the effect that net Income sha be computed upon the bass of the
ta payer s annua accountng perod n accordance wth the method of accountng
reguary empoyed n keepng the books of sad ta payer. Nether does he state that
the method he now suggests was foowed In hs return.
rtce 105 of Reguatons No. 74 permts deaers n securtes to make returns on
Inventory bass. deaer Is defned as a merchant of securtes, wth an
estabshed pace of busness, reguary engaged n the purchase of securtes and ther
resae to customers. (Compare arrman Natona ank v. Commssoner of Interna
Revenue, 43 . (2d), 950 Pan- mercan ank f Trust Co. v. Commssoner of Interna
Revenue, 5 . T. ., 839 drondack Securtes Corporaton v. Commssoner of Interna
Revenue. 23 . T. ., 1 Northeastern Surety Corporaton v. Commssoner of In-
terna Revenue, 29 . T. ., 297 Lowe v. Commssoner of Interna Revenue, 30
. T. .. 129 red v. Commssoner of Interna Revenue, 31 . T. ., 038 rende
v. Commssoner of Interna Revenue, 31 . T. ., 1188.)
In Snyder s computaton, athough he purports to take the dfference between the
purchase prce ad sae prce of shares bought and sod durng the year, the cost of
the ast 1,500 shares bought In one of hs two brokerage accounts durng the year Is
deducted from the tota cost of purchases In that account, because purchases e ceeded
saes by 1,500 shares.
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22(a), rt. 58.
1 8
rtce 58: Sae of stock and rghts. I -4 7272
Ct.D. 912
INCOM T R NU CTS O 192 ND 1928 D CISION O SUPR M
COURT.
1. Remand to oard of Ta ppeas Rght of Crcut Court
of ppeas vdence Sae of Stock pportonment of
Cost urden of Proof.
The ta payer havng submtted evdence before the oard of
Ta ppeas to show the detas of a transacton whereby a hod-
ng company bought certan preferred stock owned by hm, and to
show that the Commssoner s apportonment of tota cost as be-
tween preferred and common stock was unfar and erroneous and
hs determnaton of the ta arbtrary and e cessve, the burden
was not upon hm to prove that e owed nothng, or, f abe at a,
to estabsh the correct amount that awfuy mght be charged
aganst hm. Under the crcumstances of the case, the Crcut
Court of ppeas rghty remanded te case to the oard for a
new hearng on the ground that the Commssoner s determnaton
was Incorrect, athough the ta payer had faed to prove facts
from whch a correct determnaton coud be made.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Second Crcut (70
ed. (2d), 019), affrmed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. T affer W.
Tayor.
On wrt of certorar to the Unted States Crcut Court of ppeas for tbe Second
Crcut.
anuary 7, 1035.
OPINION.
Mr. ustce uter devered the opnon of the Court.
The Commssoner determned a defcency of 9,150. 9 on account of respond-
ent s 1928 ncome ta . The oard of Ta ppeas made the same determna-
ton. The court hed t e cessve and that the evdence dd not show the correct
amount, reversed the order of the oard and remanded the case for further
proceedngs n accordance wth the opnon. (70 . (2d), 019.) The petton
for our wrt states the queston: Whether the Crcut Court of ppeas erred
n remandng ths case to the oard of Ta ppeas for a new hearng on the
ground that the Commssoner s determnaton of the amount of ncome was
ncorrect, athough the ta payer had faed to prove facts from whch a correct
determnaton coud be made.
In ugust, 1927, respondent acqured a the stock of four uttes at a tota
cost of ,030, organzed a hodng company and October 13 transferred to t
a the uttes stck and receved therefor a the shares of the hodng com-
pany : 1,000 of preferred havng no par vaue, entted to a dvdend of
annuay, 100 on qudaton and caabe at 105 per share 2,5(10 of no par
vaue cass common caabe at 35 per share 5,000 of no par vaue cass
common stock havng the votng power. s ths transacton was reorganza-
ton under Revenue ct of 1920, secton 203(b)2 (44 Stat., 12), no ta abe
gan resuted.
In May, 1928, the hodng company sod the stock of the four uttes to the
Coona corporaton for 194,930.10. Later In that year the hodng company
bought or retred a the preferred and pad the ta payer 99,000 therefor.
In hs 1928 return he assgned the 9 ,030 for whch he procured the uttes
to the preferred stock of the hodng company, deducted that amount from the
99,000 receved therefor, and reported the dfference, 2,970, as the gan derved
from the sae. The appcabe statutory provsons are contaned n Revenue
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1 9
22(a), rt. 58.
ct of 1928, sectons 111 (a), (d), 112(b)3, 113(a) (45 Stat., 815-819). They
prescrbe no rue that s appcabe for the ascertanment of the cost of the
preferred stock or the apportonment of the tota cost between preferred and
common. ut Reguatons 74, artce 58, decares: Where common stock s
receved as a bonus wth the purchase of preferred stock or bonds, the tota
purchase prce sha be fary apportoned between such common stock and the
securtes purchased for the purpose of determnng the porton of the cost at-
trbutabe to each cass of stock or securtes, but f that shoud be mpractcabe
n any case, no proft on any subsequent sae of any part of the stock or securtes
w be reazed unt out of the proceeds of soes sha have been recovered the
tota cost.
The Commssoner, hodng the ta payer not entted to charge the cost of a
to the preferred, apportoned between the preferred and common. e made
hs cacuaton upon the assumpton that the cost, n 1927, attrbutabe to the
preferred shares bears the same reaton to cost of a the shares then acqured
as the amount respondent receved, n 1928, for the preferred bears to the
amount pad the hodng company by Coona corporaton for a the uttes
shares. On that bass, he found that of the tota 1927 cost, 90,030, there was
chargeabe to the preferred ony 48,771.1 whch deducted from 99,000 receved
by respondent for the preferred n 1928, eaves 50,228.84 upon whch he
determned the defcency of 9,15 . 9.
efore the oard of Ta ppeas the ta payer ntroduced evdence to show
the detas of the transacton and that there was no change n vaue of the
uttes stock between the tme he got t n ugust, 1927, and the date, October
13 of the same year, on whch he transferred It to the hodng company n
e change for ts shares and that the entre Increase n vaue came after that
transfer. No opposng evdence was offered. On the facts shown, the ta -
payer mantaned that, as tota cost was ess than 100 per share for the
preferred havng pror rghts to that e tent on qudaton, the common stock
had no vaue. Re|ectng that contenton, the oard of Ta ppeas fed a
memorandum opnon n whch t sad: It may we be that the propertes
acqured or a the casses of stock receved by the pettoner were worth ony
9 ,030 and yet the preferred stock may have had the
vaue of 48,771.1 . It s obvous that even f a the securtes were
worth ony 9 ,030 that the proportonate vaue of the preferred stock to a
the stocks woud not necessary be dfferent from that determned by the
Commssoner. The queston s one of fact to be deter-
mned by testmony and not theory. It s concevabe that common stocks may
actuay se on the market when preferred stocks n the same corporaton are
seng at ess than par. It was upon that bass, wthout specfc fndngs of
fact, that the oard made the redetermnaton at the fgure set by the
Commssoner.
The ony queston for consderaton s that stated n the petton for the
wrt of certorar. ( unnng v. Cooey, 281 U. S., 90, 98.) That queston n
effect assumes, and here t s taken as granted, that the court rghty hed the
evdence suffcent to requre a fndng that the Commssoner s apportonment
of tota cost as between preferred and common stock was unfar and erroneous
and that therefore the Commssoner s determnaton was e cessve. We aso
sc. 111. (a) cept ns herenafter provded In ths secton, the gan from the sae or
other dsposton of property sha be the e cess of the amount reazed therefrom over
the bass provded In secton 113, and the oss sha be the e cess of such bass over
the amount reazed.
(d) In the case of a sae or e change, the e tent to whch the gan or oss determned
under ths secton sha be recognzed for the purposes of ths tte, sha be determned
under the provsons of secton 112.
Sc. 112. (b) (3) No gan or oss sha be recognzed f stock or securtes n n cor-
poraton a party to a reorganzaton are, n pursuance to the pan of reorganzaton, e -
changed soey for stock or securtes In such corporaton or n another corporaton a
party to the reorganzaton.
8ec. 113. (a) The bass for determnng the gan or oss from the sae or other ds-
poston of property acqured after ebruary 28, 1013, sha be the cost of such property
e ct|t that
(8 If the property was acqured upon an e change descrbed n secton 112 (b) to (e).
Incusve, the oass sha be the same as n the case of the property e changed, decreased
In the amount of nny money receved by the ta payer and Increased In the amount of
wn or decreased In the amount of oss to the ta payer that was recognzed upon such
rchange under the aw appcabe to the year n whch the e change was made. (45
Stat., 815-819.)
The fgnres are: : 9 ,030 : : 09,000 : 194,930.17. The cacuaton stated n the
opnon of tbe oard of Ta ppeas s:
99.000.00 sy tn,, nnr, t.a T1n
r04,930.17 9fe- 30 48 1-e
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52 2(a), rt. 58.
170
assume that the tota purchase p-ce s susceptbe of far apportonment and
that upon another hearng the correct amount may be found. (70 . (2d),
19, 20.) (Reguatons 74. artce 58, supra.) The pont to be consdered s
whether, the ta payer hayng faed to estabsh the correct amount to be
assgned to the preferred stock as ts cost to hm, the court erred n reversng
and remandng for further proceedngs n accordance wth ts opnon.
Te Commssoner does not contend that, n cases where Crcut Courts of
ppeas propery reverse determnatons of the oard they are wthout power
to remand tor further hearng n the nature of a new tra.3 s contenton s
that n ths case the burden on the ta payer was not ony to prove that the
Commssoner s determnaton s erroneous but to show the correct amount of
the ta . In substance he says that, because of the ta payer s faure to estab-
sh facts on whch a far apportonment may be made, the oard s redeter-
mnaton at the Commssoner s erroneous fgure was vad and there bens no
error of aw shoud have been sustaned by the court. nd he mantans that,
n the absence of error on the part of the oard, the court was wthout power
to remand for further hearng.
h ctes Revenue ct of 192 , secton 274(e) (44 Stat, 5 ): The oard
sha have |ursdcton to redetermne the correct amount of the defcency
even f the amount so redetermned s greater than the amount of the
defcency, notce of whch has been maed to the ta payer, and to determne
whether any penaty, addtona amount or addton to the ta shoud be
assessed, f cam therefor s asserted by the Commssoner at or before the
hearng or a rehearng. The purpose of that provson s to defne the |urs-
dcton granted to the oard t does not prescrbe any rue of evdence or
burden of proof. Pany t does not support the Commssoner s contenton
that the ta payer, even though he has shown the determnaton to be arbtrary
and e cessve, must nevertheess pay the added ta because he has not aso
shown that he owes nothng or the correct amount, f any, that egay may be
ad upon hm.
e aso ctes Revenue ct of 1928, sectons 51(a) and 54(a) (45 Stat., S07.
808). Nether gves any support to hs contenton. The frst requres the ta -
payer to make under oath a return statng specfcay the amount of hs gross
Income and the amounts of deductons and credts aowed. The other requres
the ta payer to keep such records, render under oath such statements, make
such returns, and compy wth such rues and reguatons as the Commssoner
may prescrbe. These requrements gve no support to the Commssoner s con-
tenton. They tend rather to suggest that ta payers returns are correct and
may not arbtrary be set at naught.
e aso ctes rue 30 adopted by the oard: The burden of proof sha be
upon the pettoner, e cept as otherwse provded by statute and e cept that n
respect of any new matter peaded n hs answer, t sha be upon the respond-
ent ut there s nothng n t to suggest ntenton to requre the ta payer to
povc not ony that a defcency assessment ad upon hm was arbtrary and
wrong but aso to show the correct amount. Moreover, the oard hed the
evdence not .suffcent to show the apportonment erroneous and on that ground
cone sustaned the assessment. Necessary the oard dd not come to the
queston that s here presented as to burden of proof. The fact that the Com-
Wssoner s determnaton of a defcency was arbtrary made may reasonaby
be deemed suffcent to requre the oard to set t asde. (Cf. ruce rf Uvman
Drug Co., 1 . T. ., 342 corn Refnng Co., 2 . T. .. 253 Inde oton Co.,
8 . T. ., 90.)
The Commssoner ctes Unted States v. Rnd shop f (105 T . S.. 418) Unted
States v. nderson (2 9 U. S., 422, 443 T. D. 3839. C. . -, 179 ) : Rcnecke
v. Spadng (280 U. S., 227, 232-233 Cf. D. 154, C. . I -1, 305 ). The frst of
these may be put asde wthout dscusson as havng no bearng upon the
pont here n controversy. The other two were adequatey dstngushed by
the Crcut Court of ppeas. ach was an acton to recover ta es pad.
Obvousy the burden was on the pantff, n order to estabsh a bass for
|udgment n hs favor, specfcay to show not merey that the assessment
was erroneous but aso the amount to whch he was entted. or ke reason
the burden s upon the ta payer to estabsh the amount of a deducton
Secton 1003(b), Revenue ct of 192 (44 Stat., 110, 2 T . S. C. Supp. II. secton
D41(c) provdes: Upon such revew, such courts sha have power to uffrn or. f
the decson of the oard Is not n accordance wth aw, to modfy or to reverse the
decson of the oard, wth or wthout remandng the case for u rehearng, as |ustce may
requre.
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171
22(a), rt. 58.
camed. urnet v. ouston, 283 U. S., 223, 227 Ct. D. 328, C. . -, 343
crerug v. Independent Lfe Insurance Co., 292 U. S., 371, 381 Ct. D. 839,
C. . III-1, 302 Nec Coona Co. v. everng, 292 U. S., 440 Ct. D. 841,
C. . III-1, 194 .)
We fnd nothng n the statutes, the rues of the oard or our decsons that
gves any support to the dea that the Commssoner s determnaton shown to
be wthout ratona foundaton and e cessve w be enforced uness the ta -
payer proves he owes nothng or, f abe at a, shows the correct amount.
Whe decsons of the ower courts may not be harmonous, our attenton has
not been caed to any that persuasvey supports the rue for whch the
Commssoner here contends.
Unquestonaby the burden of proof s on the ta payer to show that the
Commssoner s determnaton s nvad. (Lucas v. Structura Stee Co., 281
U. S., 2 4, 271 Wckmre v. Reneckc, 275 U. S., 101, 105 T. D. 412 , C. .
II-1, 31 Wech v. everng, 290 U. S., I, 115 Ct. D. 755, C. . II-2,
112 .) requenty, f not qute generay, evdence adequate to overthrow the
Commssoner s fndng s aso suffcent to show the correct amount, f any,
that s due. (See, e. g., Darcy v. Commssoner, . (2d), 581, 585 Ct. D.
814, C. . III-1, 238 .) ut, where as n ths case the ta payer s evdence
shows the Commssoner s determnaton to be arbtrary and e cessve t
may not reasonaby be hed that he s bound to pay a ta that confessedy he
does not owe, uness hs evdence was suffcent aso to estabsh the correct
amount that awfuy mght be charged aganst hm. On the facts shown
by the ta payer n ths case, the oard shoud have hed the apportonment
arbtrary and the Commssoner s determnaton nvad. Then, upon appropr-
ate appcaton that further hearng be had, t shoud have heard evdence
to show whether a far apportonment mght be made and, f so, the correct
amount of the ta . The rue for whch the Commssoner here contends s
not consonant wth the great remeda purposes of the egsaton creatng the
oard of Ta ppeas. The Crcut Court of ppeas rghty reversed and
remanded the case for further proceedngs n accordance wth ts opnon.
ffrmed.
rtce 58: Sae of stock and rghts. I -5-7287
Ct. D. 91
INCOM T R NU CT O 1928 D CISION OP COURT.
1. Gan or Loss Sae of Stock.
Where the ta payer, n antcpaton of the acquston of add-
tona stock through the e ercse of stock rghts, agreed to and dd
se shares equa n number to those subscrbed for and devered
to the purchaser certfcates for shares of the od stock, the trans-
acton was a sae of the od stock, competed before he had acqured
the addtona shares, and the bass to be used n determnng the
proft therefrom s the cost of the od stock, despte the fact that
t was hs ntenton and purpose to se the new stock.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 3 0) affrmed.
The Commssoner ctes: ubnger v. Commssoner (3 . (2(1), 724) Sanderson v.
Commssoner (42 . (2d), 1 0) utosaes Corporaton v. Commssoner (43 . (2d),
M): Onontaga Co. v. Commssoner (DO . (2d), 397) Darcy v. C unnfnOMM ( .
(2d), 581. 585) Sasman Coa Coke Co. v. Commssoner (43 . (2d). 550) Wams v.
Commssoner (45 . (2d), 1 e ander Sprunt d Son v. Commssoner ( 4 . (2d),
424) tantc ank d Trust Co. v. Commssoner (59 . (2d), 303 Ct. D. 0 , C. .
I-2. 2541) Lghtsey v. Commssoner ( 3 . (2d), 254) Uatern v. Commssoner ( 1 .
(2d. 03) tanta Casket Co. v. Rose (22 . (2d), 800 T. D. 4139, C. . II-1, 28 1)
ecker v. Unted States (21 . (2d), 1003 T. D. 410 , C. . I-2, 1751).
If. Coffn v. Commssoner (32 . (2d), 753) Ctrus Soap Co. of Caforna v. Lucas
I. (2d). 372) Russe v. Commssoner (45 . (2d), 100, 103) Strother v. Comms-
soner (55 . (2d), 2 , 32 Ct. D. 531, C. . I-2, 275)). nd see, nvovng deduc
. tnmwo v. Commssoner (5 . (2d), 7, 72).
ouse Report No. 179, page 7 Senate Report No. 308, pages 8-9, S ty-eghth Con-
pa , frst sesson. Warren Mfg. Co. v. Tat (00 . (2d), 982, 984 Ct. D. 001, C. .
7. v,3 9) Od Coony Trust Co. v. Commssoner of Interna Revenue (279 U. S.,
0. 721 Ct. D. 80, C. . III-2, 2221).
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|22(a), rt. 3.
172
Unted States Crcut Couet of ppeas foe the Thrd Crcut.
W. 8. orner, pettoner, v. Commssoner of Interna Revenue, respondent.
Upon petton for revew from the Unted States oard of Ta ppeas.
efore t/ffngton, Davs, and Thomson, Crcut udges.
uy 2 , 1034.
opnon.
Thompson, Crcut udge: Tbs s a petton for revew of a decson of the
oard of Ta ppeas. The pettoner owned stock of the mercan Rong
M Co. On anuary 10. 1928, the company ssued rghts to subscrbe to add-
tona sttck on the bass of one share of new stock for each s shares of od
stock at 75 a share. These rghts e pred on ebruary 10, 1028. In anuary,
1028, the pettoner subscrbed to 1,550 shares and. pror to ther devery, he
agreed to and dd se an equa number of shares. e devered certfcates for
1,550 shares of the od stoc k then owned and hed by hm. It s undsputed that
the sae was made by the pettoner n antcpaton of the recept by hm of the
new shares of stock, and that t was hs ntenton and purpose to se the new
stock. In hs ncome ta return for 1028 he computed the proft derved from the
sae on the bass of the prospectve cost of the new stock to be acqured, that s
7. ) a share.
The Commssoner computed the proft on the bass of the cost of the od stock,
whch was ess than 75 a share, and determned a defcency. The oard of
Ta ppeas found as a fact that the sae was of the pettoner s od stock,
representng a transacton competed before he had acqured the addtona
stuck upon hs rght to subscrbe and, therefore, sustaned the Commssoner s
assessment of a defcency.
The oard of Ta ppeas hed that sectons 111(a) and 113(a) of the
Revenue ct of 1928 (20 U. S. C. ., 2111a and 2113a) were appcabe. These
sectons provde:
Sec. 111. (a) cept as herenafter provded n ths secton, the gan from
the sae or other dsposton of property sha be the e cess of the amount
reazed therefrom over the bass provded n secton 113, and the oss sha be
the e cess of such bass over the amount reazed.
Se . 113. (a) The bass for determnng the gan or oss from the sae or
other dsposton of property acqured after ebruary 28, 1013, sha be the cost
of such property
There s nothng n ether secton whch permts gan or oss to be determned
on the bass of the ntenton of the partes. The oard determned from the
farts what was actuay done rather than what the pettoner ntended to do.
The pettoner sod the stock he had, not the stock he antcpated obtanng.
The oard concuded that the transacton consttuted a sae of the od stock
and that the ta abe gan was propery computed on that bass. We are n entre
accord wth the reasonng and concusons set out n ts decson (28 . T. .,
M)).
The decson of the oard of Ta ppeas s sustaned.
rtce 58: Sae of stock and rghts.
R NU CT O 1028.
Concusveness of oard s fndng as to sae of undentfed stock.
(See Ct. D. 930. page 231.)
rtce G3: Improvements by essees.
R NU CT O 1928.
mendment of artce 3, Reguatons 74. (See T. D. 4539,
page 141.)
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173 23(c), rt. 151.
rtce 8: Sae and retrement by corporaton of ts bonds.
R NU CT O 1928.
penses ncdenta to ssuance of bonds, ta payer beng on accrua
bass. (See G. C. M. 14349, page 47.)
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 82: Proceeds of nsurance Compensaton Pensons.
R NU CT O 1S28.
Contrbutons by the M Unversty toward the purchase of annu-
tes for members of ts facuty. (See I. T. 2874, page 49.)
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 121: usness e penses.
R NU CT O 1928.
Premums pad on fe nsurance by a credtor to whom the pocy
has been assgned to secure a debt. (See G. C. M. 14375, page 52.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es.
R NU CT O 1928.
ccrua date of rea and persona property ta es n Nebraska.
(See I. T. 2849, page 0.)
rtce 151: Ta es.
R NU CT O 1928.
ccrua date of rea and persona property ta es n South Dakota.
(See I. T. 2850, page 1.)
rtce 151: Ta es.
R NU CT O 1928.
ccrua date of rea and persona property ta es, State of Mssour.
(See I. T. 2885, page 4.)
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23(k) rt. 204. 174
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 174: Shrnkage n vaue of stocks.
R NU CT OP 1028.
ssessment aganst stockhoders of a bank because of ther statu-
tory abty. Modfcaton of I. T. 2 17 (C. . I-1, 29). (See
I. t. 2843, page 77.)
S CTION 23(k). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 204: Capta sum recoverabe through I -11-7370
deprecaton aowances. Ct. D. 933
INCOM T R NU CT O 1028 decson of court.
Deducton Deprecaton owabe to Transferee.
corporaton whch acqures certan property from an ndvdua
n e change for ts stock, no gan or oss beng recognzed by the
partes from the transacton, s entted to deducton for depreca-
ton of the property ony n an amount by whch ts orgna cost to
the transferor e ceeds the aggregate of the deprecaton deductons
aready taken by the corporaton and by the transferor.
Unted States Court of ppeas of the Dstrct of Coumba.
. . Shaw Prntng Co., an Inos Corporaton, appeant, v. Ouy T. cver-
ng, Commssoner of Interna Revenue.
ppea from the oard of Ta ppeas.
efore Martn, Chef ustce Robb, an Orsde, and Groner, ssocate
ustces.
une 25, 1934.
OPINION.
an Orsdk, ssocate ustce: Ths s a petton to revew a decson of the
Unted States oard of Ta ppeas, determnng a defcency of 770. 7 n
appeant s ncome ta for the year 1929.
It appears, under an agreed statement of facts, that pror to March 1,
1913, Mabe S. Shaw was dong busness n D on, 111., under the name of
. . Shaw Prntng Co., as propretor and pubsher and owned and con-
ducted a newspaper known as the D on Teegraph. ppeant s an I-
nos corporaton, ncorporated In anuary, 1921. Pror to the date of ncor-
poraton, Shaw owned and used n connecton wth her busness certan prntng
machnery and equpment, whch had cost her 45,121. 2. ppeant corpora-
ton acqured the prntng estabshment from Shaw, ncudng the machnery
and equpment, n consderaton of deverng to her a of ts capa stock.
It further appears that mmedatey after such e change Mabe S. Shaw
assumed contro of appeant company. No gan or oss was recognzed by
the partes n ths transacton. The busness was contnued up to and ncud-
ng the whoe of the year 1929 and. In the ownershp and conduct of pubshng
the newspaper, the machnery and equpment were used durng ths perod.
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175
23(k), rt. 204.
In her ncome ta return for the caendar year 1919, wth the consent and
approva of the Commssoner of Interna Revenue, Shaw deducted from
her ta abe ncome, among other thngs, the sum of 4,003.79, representng
deprecaton upon the machnery and equpment. In 1920, she deducted from
her ta abe ncome, as deprecaton on her machnery and equpment, 10 per
cent of the orgna cost, 4,512.1 makng a tota deducton for the years
1919 and 1920, on account of deprecaton of machnery am equpment, of
8,515.95.
In ts ncome ta return, the corporaton, for each of the caendar years 1921,
1922. 1923, 1924, 1925, 192 , 1927, and 1928, wth the consent and approva of
the Commssoner of Interna Revenue, deducted annuay from ts ta abe
ncome as deprecaton on the machnery and equpment, 10 per cent of ts
orgna cost, or the sum of 4,512.1 makng a tota deducton, on account
of deprecaton, by the corporaton, of the sum of 3 ,097.28. It s agreed that
the norma, usefu fe of machnery and equpment of the character here n-
voved s 10 years.
In ts ncome ta return for the caendar year 1929, appeant deducted, ns
deprecaton upon the machnery and equpment, the sum of 4,512.1 , repre-
sentng 10 per cent of the orgna cost. The Commssoner of Interna Revenue,
however, aowed deprecaton ony to the e tent of 508.37, and dsaowed the
cam to the e tent of 4,003.79 camng that, e cept for the sum of 508.37.
the assets had been fuy deprecated. In other words, the Commssoner took
the aggregate sum pad by Shaw pror to the transfer to appeant corporaton
of 8,515.95, and added t to the tota deductons of the corporaton, 3 ,097.28,
makng a tota deducted for deprecaton of 44, 13.23. Deductng ths from
the orgna cost eaves a baance of 508.37, the amount of deprecaton aowed
by the Commssoner for the year 1929.
The soe queston here for determnaton s whether or not the Commssoner
of Interna Revenue was entted to reduce the deprecaton otherwse aow-
abe to the appeant, by the amount of deprecaton taken by appeant s trans-
feror, pror to the date of the transfer.
The concuson reached n ths case by the Commssoner and the oard s
correct. Secton 112 of the Revenue ct of 1928 ( 45 Stats., 81 ) defnes the
e ceptons to the genera rue under whch gan or oss sha be recognzed.
These e ceptons reate to e changes of property soey n knd. mong the
e ceptons, n paragraph (5) of subsecton (b), t s provded: No gan
or oss sha be recognzed f property s transferred to a corporaton by one
or more persons soey n e change for stock or securtes n such corporaton,
and mmedatey after the e change such person or persons are n contro of
the corporaton hut n the case of an e change by two or more persons ths
paragraph sha appy ony f the amount of stock and securtes receved by
each s substantay n proporton to hs nterest n the property pror to the
e change.
So far as the record dscoses n ths case the stock e changed for the prnt-
ng pant represented ts fu vaue. In other words, the prntng estabshment
merey passed from prvate to corporate ownershp the prvate owner becom-
ng the owner of the corporaton. It foows, therefore, that so far as compu-
taton for deprecaton s concerned, the transferee merey steps nto the pos-
ton of the transferor and, havng done so, assumes as a bass for computaton
of deprecaton the cost of the assets to the transferor. avng assumed ths
poston, the transferee, as e pressed n the opnon of the oard, can not then
step out of that poston n f ng the tota amount of deprecaton aowabe
as contended by pettoner. To foow such theory woud permt doube deduc-
ton for the oss of the same capta assets, and be whoy ncompatbe wth (he
entre ratonae upon whch s based the deductbty of deprecaton n com-
putng ncome ta es.
In oher words, to permt pettoner corporaton, when t stepped nto the
shoes of Shaw, to start anew as a bass of deprecaton the orgna cost of the
machnery and equpment, woud enabe t utmatey to absorb n deprecaton
the amount of 8,515.95, pad by Shaw n the two years pror to the transfer.
Ths s contrary to the theory of the aw. s sad by Mr. ustce randes. n
ntrd States v. Ludcy (274 U. S., 295, 301 T. D. 404 , C. . I-2, 157 : The
theory underyng ths aowance for deprecaton s that by usng up the pant
a gradua sae Is made of t. The deprecaton charged s the measure of the
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23(m), rt. 241.
17
cost of the part whch has been sod. When the pant s dsposed of after
years of use, the thng then sod s not the whoe thng orgnay acqured.
The amount of deprecaton must be deducted from the orgna cost of the
whoe n order to determne the cost of that dsposed of n the fna sae of
propertes. ny other constructon woud permt a doube deducton for the oss
of the same capta assets.
In other words, when the annua deducton n the present case, of 10 per cent
of the orgna cost equaed n 10 years the orgna cost, the aowance for
deprecaton was compete, and no further deprecaton aowance for the equp-
ment and machnery coud he made however, f, after ths fu deprecaton, a
sae of the property s made, the amount reazed for the equpment and machn-
ery woud consttute a ta abe asset. To permt these 10 per cent deductons
to e tend beyond the tme or perod when they equa the cost of the assets, or
to be |ugged, as s attempted n the present case, woud amount to a doube
deducton for the oss of the same capta assets, n the amount that the depre-
caton deducted n tota e ceeds the orgna cost.
The decson of the oard of Ta ppeas s affrmed.
S CTION 23(1). D DUCTIONS ROM GROSS
INCOM : D PL TION.
rtce 23G: Depeton d|ustments of accounts based
on bonus or advanced royaty.
Restoraton of bonus depeton deducton on percentage of ncome
bass to ncome at termnaton of ease n case of no producton from
eased premses. (See G. C. M. 14448, page 98.)
S CTION 23(m). D DUCTIONS ROM GROSS INCOM :
SIS OR D PR CI TION ND D PL TION.
ncome ta revenue acts of 11120 and t)2s decson of court.
1. Deducton Depeton.
The percentage depeton aowed to a producer of o and gas
s propery computed upon the gross ncome from each separate
tract of and owned or eased, rather than upon the aggregate
gross ncome from a, under secton 204(c)2 of the Revenue ct
of 192 and secton 114(b)3 of the Revenue ct of 1928, and the
appcabe reguatons.
2. Deducton Operatng penses Capta pendture.
n o producng company whch as eected to captaze certan
e pendtures for drng and deveopng wes, and as consst-
enty done so snce 1914, s not entted to deduct such e pend-
tures as an ordnary and necessary busness e pense n the years
1927, 1928, and 1929, under the reguatons appcabe to the Rev-
enue cts of 192G and 192S.
3. Dkcson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., r 49) affrmed.
4. Certorar Dened.
Petton for certorar dened October 15, 1934.
R NU CT O 1828.
rtce 241: Depeton n the case of o and
gas wes.
I -8-7330
Ct. D. 925
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177 23(m), rt. 241.
Unted States Crcut Coukt of ppea s fob the fth Crcut.
nton Petroeum Co. of Te as, pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of Te as).
efore ryan, oster, and Sbey, Crcut udges.
une 9, 1934.
OPINION.
Sbey, Crcut udge: The pettoner, nton Petroeum Co. of Te as, durng
the years 1927, 1928, and 1929 produced o from wes n Lousana ocated on
eght dfferent but neghborng tracts acqured at dfferent tmes, some n fee
smpe, some under eases. Snce 1914 the company had consstenty captazed
ts e pendtures for abor and the ke n drng wes nstead of returnng
them as e penses n carryng on the busness, and apparenty dd ths n the
returns for the years here n queston on whch defcency assessments were
made and appea taken to the oard of Ta ppeas. efore the oard on
September 5, 1932, by suppementa petton the ta payer sought to take credt
for such e pendtures made durng the ta years as e penses of busness, but
ths was dened. The oard aso hed that the 27 per cent deducton for
depeton whch the ta payer camed for each year was to be estmated sepa-
ratey on the gross ncome from each tract of and and not on the aggregate
from a, whch made a dfference unfavorabe to the ta payer. (28 . T. .,
519.) These two hodngs are the sub|ect of ths revew.
Revenue ct of 192 , secton 204(c)2, whch ntroduced the percentage depe-
ton aowance, provded: In the case of o and gas wes the aowance for
depeton sha be 27 per centum of the gross ncome from the property durng
the ta abe year. Such aowance sha not e ceed 50 per centum of the net
ncome of the ta payer (computed wthout aowance for depeton) from the
property, e cept that n no case sha the depeton aowance be ess than t
woud be f computed wthout reference to ths paragraph. That ct by
secton 234(a)8 authorzed the Commssoner wth the approva of the Secretary
to prescrbe rues and reguatons under whch the depeton aowance was to
be made. y Reguatons 9, artce 221, t was provded: In genera the prop-
erty as the term s used n secton 204(c)2 and ths artce refers to the sep-
arate tracts or eases of the ta payer. Lke statutory anguage was used n
the Revenue ct of 1928, secton 114(b)3, and agan n the Revenue ct of
1982, secton 114(b)3, and the same nterpretaton was foowed n Reguatons
74, artce 241, and Reguatons 77, artce 221. Ths nterpretaton, whch s
reasonabe and practca, must be regarded as havng the approva of Con-
gress. ( rewster v. Gage, 280 . S., 327, 337 Ct. D. 148, C. . I -1, 274
Murph O Co. v. urnet, 287 U. S., 299, 307 Ct. D. 19, ( . . II-1, 231 .)
On the second queston, Reguatons 9, artce 223, gave the ta payer the
opton to deduct drng costs and the ke ns deveopment e penses or to charge
them to capta account returnabe through depeton, addng: n eecton once
made under the provsons of ths artce w contro the ta payer s returns
tor a subsequent years. The same provsons occur n Reguatons 74, artce
243, under the Revenue ct of 1928. Ths reguaton s reasonabe, nnd s
supported by congressona nonnterference n subsequent egsaton. The ta -
payer havng eected n the deveopment of these propertes to captaze these
e penses, that method of procedure must be contnued as to them. acaton
woud cause confuson. The ta payer does not thereby ose hs credts. e s
to get them dstrbutvey through depeton nstead of at once as e pense.
When he eects to take the percentage depeton, as he has the rght to do
touchng any property, that aowance covers a eements of depcton. The
ta payer can not take out ths deveopment cost to recoup t addtonay ns an
e pense. (Unted States v. Dakota-Montana O Co., 288 U. 8., 459 Ct. I).
55, C. . II-1, 2431.)
The petton for revew s dened.

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24, rt. 282.
178
S CTION7 24. IT MS NOT D DUCTI L .
rtce 282: Capta e pendtures.
I -24-7548
Ct.D. 978
INCOM T R NU CTS O OL G ND 1928 D CISION O COURT.
Gross Income Deductons Capta pendture Interest
Payments by Corporaton to Lfe enefcary of ormer
Owner of Rea state.
Where the fe benefcary of an annua sum to be pad out of
Income from the testator s rea estate, whch was bequeathed to
resduary egatees sub|ect to the charge upon t, consented to the
cosng of the estate and accepted the persona undertakngs of the
resduary egatees for the contnuance of the payments, and the
resduary egatees ater transferred the rea estate to a corpora-
ton whch thereafter assumed the payments, the corporaton was
not entted to deduct from ts gross ncome for 1 )20, 1927. and
1929 the amount of the payments made n those years. ach of
such payments represented a capta e pendture as a part of the
purchase prce for the rea estate, and no part thereof consttuted
nterest.
Unted States Court of ppeas for the Dstrct of Coumba.
Corbett Investment Co., pettoner, v. Ouy T. evcrng, Commssoner of
Interna Revenue, respondent.
On petton for revew of decsons of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Ousde, tz, and Gro er,
ssocate ustces.
Groner. ssocate ustce: Pettoner Is an Oregon corporaton. In 1903
Ptenry W. Corbett, a resdent of Portand, Oreg., ded testate eavng survvng
hm a wdow and three grandsons. s w bequeathed to the wdow 150,000
In cash, the use, ta -free, of certan parces of rea estate, and the annua sum
of 12.( ) for her natura fe, to be pad monthy out of the ncome and
rents from the testator s rea property. These provsons for the wdow
were n eu of dower. The w bequeathed and devsed to the three grand-
sons, sub|ect to the charge upon the rents from the rea estate, a the rest,
resdue, and remander of the estate. The apprased vaue of the rea estate
was 1,230,750. The rentas e ceeded 100,000 annuay.
fter the death of Corbett, hs wdow receved each year the 12,000 provded
for her unt 1912, when, t havng been found burdensome and nconvenent
to keep open the estate and contnue the actvtes of the e ecutors, she con-
sented that the estate mght be cosed, and nformed the probate court by
petton of her wngness to reease the estate and to accept the persona
undertakng of the three grandsons for the contnued payment of the 1,000
per month bequeathed to her n the w. The anguage of the agreement s,
We, enry L. Corbett, ott It. Corbett, and amton . Corbett, our hers,
e ecutors, and assgns, hereby agree that we w |onty durng the term of
your natura fe pay to you the sum of one thousand doars ( 1,000)
monthy, and the probate court, n confrmng the agreement, decreed that
the wdow havng for the purpose of factatng the settement and dstr-
buton of sad estate accepted the persona obgaton of the resduary egatees
and devsees under sad w for the payment to be made to her durng the
term of her natura fe as provded n and by tem 3 thereof and has ds-
charged sad e ecutors t s now here ordered, ad|udged and
decreed that sad e ecutr and e ecutors forthwth assgn, transfer, ds-
anuary 7, 1935.1
opnon.
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179
24, rt. 282.
trbute, and turn over to them, the sad enry Ladd Corbett, ott Rugges
Corbett, and amton orbush Corbett, as resduary egatees under sad w
of enry W. Corbett, deceased, a and snguar the assets, ren and persona,
ehoses n acton and property of whatever descrpton now n ther possesson
or under ther contro, beng the entre resdue of the estate and property of
whch he, the sad enry W. Corbett ded, sezed, to be hed, owned, used, and
en|oyed by them n ther own rght .
The arrangement so made was carred out by the grandsons unt the year
192 , when pettoner was organzed. In that yenr the grandsons transferred
ther nherted rea estate to pettoner, and as a consderaton therefor pet-
toner ssued a of ts capta stock to the three transferors and assumed ther
abtes respectng the 1,000 per month payment to the wdow. No other
persons have hed any of pettoner s capta stock, and the three grandsons
have been n fu contro of the corporaton at a tmes. Pursuant to agree-
ment, pettoner pad to the wdow 4,000 durng the ast four months of 102 ,
and has pad her 1,000 per month snce then. In ts ncome ta returns for
the ta abe years (1 )2 , 1027, 1920) pettoner camed as deductons the
amounts so pad. The Commssoner dsaowed the deductons, and pettoner
appeaed to the oard of Ta ppeas. The oard sustaned the Comms-
soner s determnaton, sayng, Manfesty, those monthy payments were n
fufment of a contractua obgaton restng upon the pettoner. In makng
them the pettoner was not actng as a mere condut for the transmsson, under
testamentary provsons, of part of the ncome from an estate, for that estato
had been cosed, and the w superseded many years before pettoner was
created. Ceary, the payments now n queston were part of the purchase prce
whch pettoner pad for the property t had acqured. They shoud there-
fore be consdered capta tems, and as such are not deductbe n computng
net ta abe ncome.
On appea to ths court, two questons are presented frst, whether pet-
toner s entted to deducton from ts gross ncome of the sum pad by t
monthy to the wdow second, whether each of the monthy payments repre-
sented n part a capta e pendture and n part nterest. The appcabe
statutes are the Revenue cts of 102 and 1928, that s to say, the paragraphs
defnng gross ncome and the deductons therefrom. refy stated, pettoner s
poston s that the provson n the w for the beneft of the wdow created a
charge upon the rents and profts of the rea estate and ths charge was not
waved or destroyed by the agreement between the wdow and the grandsons,
nor was the charge destroyed by the conveyance of the rea estate to pettoner.
In ths vew, pettoner contends that the ncome receved by t from the rea
estate was receved sub|ect to the charge orgnay made aganst t n the w,
and was therefore not ta abe ncome to t. We are unabe to agree ether n
pettoner s premse or ts concuson. It s undoubtedy true that the monthy
payment to the wdow was secured by a charge upon the rents from the rea
property owned by the eder Corbett at the tme of hs death, and t s equay
trnc that unt that charge was waved or reeased, the payments to the wdow
were not ncome ta abe to the e ecutors of the estate. nd ths s true because
the revenue statutes do not undertake to ta the person who receves ncome
where he receves t whoy as an nstrumentaty or agency for devery to
another. ut n the vew we take of ths case, the condtons we have |ust
descrbed ended n 1912. In that year the wdow agreed on her part to reease
both the estate and the e ecutors from any and a cams she had on account
f the provsons n the w n her favor, and the grandsons, as resduary
devsees, agreed |onty to pay her a sum of 1,000 monthy. Ths reease of her
equtabe en by the wdow was decared by decree of the probate court to
dscharge and e tngush the rght created n her favor through her husband s
w, to receve monthy the sum of 1,000 from and out of the rents from the
rea property. Uness, therefore, we can fnd n the agreement and n the sub-
sequent court proceedngs somethng to manfest a dfferent or contrary ntent,
t foows we must gve t that effect.
On the contrary, we thnk there s no doubt that a the partes to the agree-
ment ntended to e tngus any and every en hed by the wdow on the
property of the estate and to substtute the unsecured promse n ts stead,
and f ths s true the transacton between the wdow and the grandsons, and
equay the transacton between the atter and the pettoner, was one In the
nature of purchase, for by the dscharge of the en they acqured a fu rght
n property In whch formery they had ony a quafed rght and f ths s
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24 rt. 282.
180
true the prce they pad was, as the oard sad, a capta nvestment. In ths
case, from the tme of the transfer of the rea estate to pettoner from te
grandsons, pettoner receved a the rents n ts own rght and, so far as
we are tod by anythng n the record, t had the rght and the power to use
them wthout accountabty to the wdow or anyone ese, and the wdow s ony
rght was to demand and receve from pettoner a thousand doars monthy,
regardess of the source from whch t came. The payments to her, therefore,
were ceary ta abe to pettoner, even though they were aso ta abe to her.
Ths proposton seems to us too pan for argument, hut see Scott v. Comms-
soner (29 . (2d), 472), Mast n v. Commssoner (28 . (2d), 748).
Te second queston presented s whether each of the monthy payments
made to the wdow represented n part a capta e pendture and n part
nterest or the satsfacton of a oss. Pettoner tes us that sound accountng
suggests that the amount pad annuay be dscounted back to September ,
11)20, the date of te assumpton of the payments by pettoner, and that ony
the dscounted vaue on that date of the amount subsequenty pad be regarded
as a capta e pendture, te remander beng nterest and therefore deductbe.
The correct method, we are tod, n arrvng at te amount of the abty, . e.,
the promse to pay te monthy sums, at the tme of ts assumpton, s to ds-
count the ndefnte number of payments to- be made at a future date by te
use of a reasonabe nterest rate |ust as an annuty wrter may by a ke
formua deduct a porton of the annua payment made to the annutant as
nterest accrued durng the ta year. The cases to whch we are referred do
not, as we thnk, shed much ght on the queston we have to decde. In
Warner v. / ft (15 . (2d), 307 T. L . 4257, C. . III-1, 2451), t was
hed that a wdow who renqushed her dower rghts and eected to take under
her husband s w occuped the poston of the purchaser of an annuty, and
that the payments to her were not sub|ect to ta aton unt her tota recepts
from th estate amounted to te vaue of what she had renqushed, namey,
the vaue of her statutory rghts. In e oerng v. utterwortk (290 D. S., 305
Ct. D. 709, C. . III-1, 151 ), the Supreme Court decned to foow the
annuty dea and hed that payments so receved by a wdow were receved
n her capacty as a benefcary wthn te ntendment of the statute and
that as such benefcary she was ta abe for a amounts receved. In Com-
mssoner v. Moore (42 . (2d), 180), a corporaton obtaned a conveyance of
and and budngs n consderaton of ts payment to the grantor of 10,000
a year for fe. Te far market vaue of te property on te day of the con-
veyance was 80,000, and on that date the grantor s e pectancy was 17.4 years,
and the vaue of a 10,000 annuty for that ength of tme was 100,173.90.
The oard of Ta ppeas n that case adopted the theory of apportonment
between capta and nterest. The Court of ppeas n the Second Crcut,
foowng the oard, hed that the agreed annua payment conssted In part
of prncpa and n part of nterest, and that the amount deductbe as nterest
for each year was the dfference between the sum of 10,000 and ts dscounted
vaue as of the date of the agreement. The theory seems to have been that the
dfference between te cost, cacuated on mortaty tabes showng an average
fe e pectancy, and the estmated aggregate of te annua payments may
propery be deemed nterest, snce such sum woud represent the amount pad
by the wrter of an annuty for te use of the money between the date of pur-
case and the dates of the perodc payments. ut we fa to see the reevancy
of the rue apped In ether case to the facts here.
ere, t s true, we have a wdow who has eected to take under her hus-
band s w n eu of dower, but that eecton occurred neary 20 years ago,
and as of that tme setted er rghts aganst the estate. rom thence on she
was entted to 12,000 a year, and she has never agreed to take ess or bar-
ganed to get more. The vaue of the dower whch she surrendered years
before was not an eement n the agreement we are concerned wth, and Its
vaue coud not now be used to cacuate the vaue of the reease, nor has the
amount of the annua payment any reaton to t. What te wdow surrendered
was not tte to property, but the rght to hod property n securty of payments
due her durng her fetme. What the grandsons got was the dscharge of
an ndetermnate equtabe nterest n property n whch they owned the fee.
The wdow surrendered the en n e change for ther persona obgaton.
The consderaton to them was the reease of te en. The consderaton to
her, ther obgaton to pay the same sum notwthstandng te waver and
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181
42, rt. 331.
dscharge. Therefore, to ca any part of the payments made by them nter-
est woud be pure fcton, and to treat the agreement between the grandsons
and the wdow as the estabshment of an annuty woud be to nduge a form
of reasonng we are whoy unabe to foow. The knd of nterest whch the
aw permts to be deducted n ascertanng net ncome s, as the Supreme
Court has sad, that whch s usuay caed nterest by those who pay and
those who receve the amount so denomnated n bond and coupon, and t does
not refer to some esoterc concept derved from subte and theoretc anayss.
(OW Coony R. Co. v. CommUsoner, 284 U. S., 5 1 Ct. D. 45 , C. . I-1,
274 .) To denomnate as nterest or oss any part of the annua payments
Invoved here, woud requre more than subte and theoretc anayss.
ffrmed.
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41.-G N R L RUL .
rtce 321: Computaton of net ncome.
R NU CT O 1928.
ank dscounts and commssons charged by banks on oans. (See
G. C. M. 14839, page 73.)
S CTION 42. P RIOD IN W IC IT MS O GROSS
INCOM INCLUD D.
rtce 331: When ncuded n gross ncome. I -19-7479
G. C. M. 14
R NU CT O 1928.
In the case of a ta payer keepng ts books on the accrua
bass, the proceeds to be receved under a fre nsurance pocy
accrue as ncome n the year n whch the fre occurs where ab-
ty s not contested by the nsurance company, even though the
amount of the abty s undetermned n that year.
n opnon s requested reatve to the treatment for edera
ncome ta purposes of the gan derved by the M Company through
the settement of ts cam aganst certan fre nsurance companes
under the foowng facts:
The pant and machnery of the M Company, whch kept ts
books on the accrua bass, were destroyed by fre n November, 1931.
The proceeds of the fre nsurance coverng these assets were receved
by the M Company n anuary, 1932. It does not appear that the
nsurance companes at any tme contested abty to the M Com-
pany, but the e act amount thereof was not determned unt an-
uary, 1932. The queston has arsen whether the gan reazed
through the settement of cams aganst the fre nsurance companes
shoud be reported n 1931, the year of the fre, or 1032, the year
of fna settement and payment.
In Ma urtz et a. v. Commssoner (8 . T. ., 79, acquescence,
C. . -2, 40), the partnershp empoyed the accrua method of ac-
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42, rt. 331.
182
countng n keepng ts books. In 1921 a fre occurred and destroyed
certan property fuy covered by nsurance. The nsurance com-
pany admtted abty for the oss but at the end of the year 1921
the amount of the oss had not been satsfactory ad|usted and the
partnershp and the nsurance company were not then n agreement.
The Commssoner aowed the tota oss camed n the year 1921
and apped aganst t n that year the amount of the nsurance,
whch was receved n 1922 and 1923. The oard sustaned the Com-
mssoner s acton for the reason that the nsurance due pettoners
for the oss sustaned accrued n the year 1921 and was propery
apped n that year aganst the amount of the oss by fre.
In the ppea of the Internatona oer Works Co. (3 . T. .,
283, acquescence, C. . -2, 34), the proceeds of nsurance were
hed to accrue to a ta payer as of the year of the oss rrespectve
of the fact that an agreement as to the e act amount of the nsurance
was not readed unt a subsequent ta year. Conversey, the oard
hed n ppea of Retaers re Insurance Co. (3 /T. ., 118 ,
acquescence, C. . -2, CO) that an amount pad by the ta payer
(an nsurance company on the accrua bass) n settement of fre
osses occurrng and reported n the ta abe year, but ad|usted after
the cose of the ta abe year, s deductbe from ncome of the ta abe
year. (See aso quty re Insurance Co. v. Commssoner, 7
. T. ., 18.)
The decson n Patrck McGur, Inc., v. Commssoner (71 ed.
(2d), 729) reads n part as foows:
s a genera prowston, where the rght to receve money s cer-
tan, namey, the abty to pay s uncondtona, and books are kept on an
accrua bass, the money actuay receved s consdered ncome as of the year
the rght to receve t arose and not as of the year when receved, even though
the amount to be receved s not certan as of the year the rght to the money
accrued.
In the ght of the foregong, t s hed that the proceeds to be
receved under a fre nsurance pocy accrue n the year n whch
the fre occurs, and the fact that the amount s uncertan w not
prevent accrua. n e cepton to ths rue arses where the nsur-
ance company contests abty under the. pocy. In the nstant
case the settement agreement entered nto n 1932 nvoved ony the
vaue of the property nsured. The nsurance companes dd not at
any tme den - or contest abty under the fre nsurance poces.
Overtures made by the companes n 1931 for the purpose of arrv-
ng at an agreement as to the amount of ther abty consttuted,
n effect, an admsson of abty at that tme.
Ths offce s, therefore, of the opnon that, snce the nsurance
companes dd not contest ther abty to pay, the proceeds to be
receved under the fre nsurance poces and the gan whch the M
Company reazed accrued n the ta abe year 1931.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
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183 ( 42, rt. 331.
rtce 831: When ncuded n gross ncome. I -20-749
Ct.D.9 5
ncome ta revenue acts op 1918 and 1928 decson of court.
Income Commssons on Loans Cash Recepts and Dsburse-
ments ass.
Where a bank, on the cash recepts and dsbursements bass, oans
money secured by rea estate mortgages, chargng each borrower
a so-caed commsson whch s deducted from the face amount
of the oan, such commssons do not consttute ncome to the bank
In the year of the oan, but ony when reazed n cash at the tme
the oans are repad or the mortgage notes are sod.
Unted States Cbcut Coubt of ppeas for the Seventh Crcut.
No. 5340. Commssoner of Interna Revenue, pettoner, v. Centra Repubc
Trust Co., respondent.
No. 5359. Commssoner of Interna Revenue, pettoner, v. rank 31. Mc ey,
as Trustee n ankruptcy of Noe Securtes Corporaton, respondent.
Pettons for revew of decsons of the Unted States oard of Ta ppeas.
efore vans and tzhenry, Crcut udges, and Lndey, Dstrct udge.
ebruary 23, 1935.
OPINION.
Lndey, Dstrct udge: Pettoner n No. 5340 seeks to revew a decson
of the Unted States oard of Ta ppeas affectng the respondent s ncome
ta es for 1920 and 1928. The ta payer was a bank, a substanta part of ts
busness beng the makng of oans secured by rea estate mortgages. The bank
took from each borrower the securty of a rea estate mortgage and charged
the borrower not ony nterest upon the oan but a so-caed commsson,
dscount, or underwrtng fee, varyng from 1 per cent to 11 per cent of the
face amount of the oan, whch was deducted from the face amount of the
oan. The baance was pad to the borrower. The oans were so prepared
as to factate ther ready negotaton and sae and the ta payer resod the
notes or bonds, secured as aforesad, as soon as possbe after each transacton
had been competed. The bank mantaned a saes department to promote
saes, pubshed prospectuses and sts of ts offerngs, handed the genera
dvertsng and empoyed a number of saesmen. It dd not know n advance
how soon or for how much It coud se such oans to nvestors. Some of the
oans t was not abe to dspose of and retaned as ts own property.
The ta payer, for the year 1928, keepng ts books upon a cash bass, dd not
account for the unreazed amounts of ths so-caed commsson. or the
year 1920 t treated 50 per cent of the commssons as reazed profts and
carred the other 50 per cent as a deferred tem to be accounted for when
reazed n cash.
The Commssoner sought to charge the amount of such commssons as a
part of the annua gross ncome for each of those years rrespectve of how
much of the same had been reazed n cash. The oard hed that nasmuch
as the ta payer kept ts books upon a cash bass, t had propery accounted
for the Items, In reportng ony such part of the commssons as had been
reazed n cash durng the year. The correctness of that rung s the ony
queston submtted.
In two cases the precse queston has been decded adversey to the con-
tenton of pettoner. In ar v. rst Trunt Savngs ank (39 ed. (2d),
4 2 (C. C. . 5), March 25, 1930), n decdng a smar queston, the court
sad:
It Is pan that unt the oan Is pad or redscounted, the respondent has
earned no proft but has smpy parted wth ts funds on the fath of the se-
083 3C 7
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42, rt. 331.
184
curty. The commsson Is not actuay receved unt respondent gets back
what t as prevousy pad out, pus the commsson. The deducton of the
commsson from the face of the oan brngs nothng nto the coffers of the
bank.
Certorar was dened by the Supreme Court on October 13, 1930 ( 282
U. S., 851).
In Commssoner v. Martn StubMefed, Ino. (71 . (2d), 944 ( 0. C. . 8)),
meetng a smar stuaton, the court sad:
The oard of Ta ppeas hed that the Commssoner erred In Increas-
ng respondent s gross ncome by the amount of the commssons here n con-
troversy, and redetermned the ta abty for the years 1927 and 1928
accordngy. The soe queston presented s whether the commssons so
deducted when the oans are made consttute ta abe ncome as of that
year.
It s evdent that ncome from ths source s uncertan unt the notes
are pad or sod before maturty. The evdence estabshes that t was re-
spondent s practce to redscount these notes before the oans matured. It
seems cear, therefore, that the ncome actuay earned coud not be defntey
ascertaned at the tme the oan was made, but ony when the oan was actu-
ay repad or the notes were sod.
We are n thorough accord wth the reasonng of these cases.
It s argued by the pettoner that the case s wthn Coumba State Sat-
ngs ank v. Commssoner (41 . (2d), 923 Ct. D. 210, C. . I -2, 332 )
and Rusk v. Commssoner (53 . (2d), 428), heretofore decded by ths court
In the frst of these cases the court had before t a queston smar to that
here presented e cept that the ta payer there was keepng ts books upon an
accrua bass and udge schuer dstngushed the case of ar v. rst
Trust Savngs ank, supra, by sayng that the case s ceary dstngush-
abe by the there rected fact that respondent keeps ts books and makes ts
returns on the cash bass. nd, further, as stated by the oard of Ta p-
peas n passng on that case, the ta payer s books treated the commsson as
unearned unt such tme as the notes were pad or sod. The facts here are
n accord wth those of the ar case rather than those of the Coumba case.
In the second of sad cases, It w be observed, that the court was deang
wth a sae of property and the effect of the decson was that n makng a
sae, a promssory note secured by a mortgage, accepted as payment, shoud
be treated as the equvaent of cash receved at the tme of the sae and
accounted for durng the ta abe year.
It s obvous that the present stuaton does not present a case Invovng
the abty to account for notes receved In payment of the purchase prce of
property sod, as the equvaent of cash. The present case does not have to
do wth the sae of property. Rather, n each nstance, the ta payer made
an nvestment. It acqured a securty by the devery of a certan amount
of money. Its transacton was more neary n effect a purchase than a sae,
and Iho stuaton s not far foregn to that where a merchant nvests n mer-
chandse and has no reazed proft unt e dsposes of the merchandse thus
acqured. So, here, the ta payer nvested n certan securtes t acqured the
securtes. In due course of tme, t sod the same, but unt t sod and re-
ceved payment, t coud not determne what ts profts mght be. It deat
n securtes and e pended moneys for advertsng, saesmen and admnstra-
tve purposes n makng saes and n the end reazed such proft, f any, as re-
suted after the deducton of costs of makng saes. Logcay the case s akn
to that whch was before the court n New York Lfe Insurance Co. v. dwards
(271 U. S., 1(19 T. D. 3872, C. . -, 305 ), where the court sad:
The resut of the venture coud not be known unt they (the bonds, pay-
abe at future dates) were ether sod or pad off.
In case No. 5359 the queston presented s e acty that as presented n No.
5340, wth reference to the year 1920.
ccordngy the decson of the oard of Ta ppeas n each of the cases
w be affrmed.
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185
42, rt. 331.
rtce 831: When ncuded n gross ncome. I -24-7549
Ct. D. 979
ncome ta revenue act of 1928 decson of court.
1. Income Condemnaton wabd Yeab Ta abe.
Where the ta payer s property became vested In the cty of New
York n 192 under condemnaton proceedngs, but the fna award
was not pad unt 1929, due to tgaton, the proft derved from
the award and nterest thereon was ta abe n 1929, even though
the ta payer was on the accrua bass, snce the amount of the
award and nterest depended upon the course of future events.
2. Certorar Dened.
Petton for certorar dened May , 1935.
Unted States Crcut Court of ppeas foe the Second Crcut.
Patrck McGur, Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
efore Manton, L. and, and Chase, Crcut udges.
anuary 7, 1935.
opnon.
Petton to revew a determnaton of the oard of Ta ppeas. The ta -
payer sought to account for profts receved n the payment for property taken
by emnent doman, for the year n whch the property was taken by the cty
of New York rather than the year n whch the money was receved. The
Commssoner hed that the proft was ta abe as ncome for the year when
the compensaton was receved. The ta payer appeas. Determnaton affrmed.
Manton, Crcut udge: The pettoner s property was taken by the cty of
New York, on December 1, 1921, through ts board of estmate and apporton-
ment adoptng a resouton that the tte n the fee to the pettoner s property
become vested n the cty as of December 1, 192 . Thereafter pettoner occu-
ped the premses as a month to month tenant unt October 31, 1927. No award
for the compensaton to be pad pettoner was made unt May 31, 1928, when
the award was tentatvey f ed at 132,000. Pettoner dd not contest the
acton of the cty n takng the property, but dd contest the amount of the
tentatve award. pr 12, 1929, by a fna decree of the State supreme court,
the amount was f ed at 131,998 wth nterest from December 1, 192 . The
pettoner was pad ths award on uy 8, 1929. The nterest amounted to
19,927.47.
Pettoner kept ts books and fed ts ncome ta returns on an accrua
bass. No entry was made on ts books respectng the takng of the property
pror to uy, 1929, when the amount n controversy was receved. ut on ts
books, as of anuary 1, 192 , t showed, as an asset, ths property havng a
present vaue of 92,822.75 wth a mortgage abty of 52,200. mong ts
assets n eu of ths entry, on December 31, 192 , t referred to net book
vaue of property taken over by the cty December 1, 192 , as 40,12 ).12 t
emnated n ts abtes the mortgage of 52,200. In the 1929 ncome ta
return, the pettoner reported a proft of 57,330. 9 on account of the award
from the cty the nterest of 19,927.47 was shown as nonta abe ncome. The
oard hed that the proft on the award, ncudng nterest, was ta abe durng
the year 1929. The ta payer contends that t s ta abe for 192 . The Com-
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43, rt. 341.
18
mssoner takes the poston that the gan was too uncertan to permt Its
estmate wth any degree of accuracy n 1 )2 , and was propery ta ed n 1929.
The statute, Revenue ct of 1928 (eh. 852, 45 Stat., 791), requres the tems
of gross ncome to be ncuded n the ta abe year n whch receved by the
ta payer uness, under met hods of accountng permtted under secton 41, any
such amouuts are to be propery accounted for as of a dfferent perod.
The obgaton to pay arose n 1920, when the tte vested n the cty, but
the gan coud not have been estmated n 192 wth any degree of accuracy,
for the amount depended upon uncertantes of the future. In urnet v. uff
(288 U. S., 15 Ct. D. 40, C. . I1-1, 220 ) It was ponted out that the
e stence of abty s not enough to estabsh the gan or oss to he ta abe
n a year. The gan must be actua and present, not merey contempated
as more or ess sure to occur In the future. Wess v. encr, 279 U. S., 333
Lucas v. mercan Code Co., 280 U. S., 445 Ct. D. 1 8, C. . I -1, 314 .)
s a genera proposton, where the rght to receve money s certan, namey,
the abty to pay s uncondtona, and books are kept on an accrua bass,
the money actuay receved s consdered ncome as of the year the rght to
receve t arose and not as of the year when receved, even though the amount
to be receved s not certan as of the year the rght to the money accrued.
ut here, though the pettoner was entted to |ust compensaton for property
condemned under emnent doman, the amount of the award was to be deter-
mned n |udca proceedngs nvovng vaues paced upon the rea estate by
e pert testmony. These are ndefnte, dependng upon the court s concuson
as to vaues. The amount awarded may not have been as much as the cost
of the property to pettoner. The e penses ncdent to the prosecuton of
pettoner s cam necessary were refected n the net gan to be reazed, and
nterest was to be added as part of the award. The amount of nterest was
drecty dependent upon the duraton of the tgaton. Thus the amount of
award depended upon the course of future events. Lucas v. mercan Code
Co., supra.) Uness a the events whch f ed the amount and determned the
abty of the cty to ths ta payer occurred wthn the year, t may not be
sad that ths was ta abe n the year the rght to an award accrued. auer
ros. Co. v. Commssoner, 4 ed. (2d), 874 Ct. D. 3 1, C. . -2, 359 .) In
Contnenta Te d Lumber Co. v. Unted States (28 U. S., 290 Ct D. 494,
C. . I-1, 2 0 ), the whoe sum to be determned upon n the future was
ncome and the amount was a cacuaton based upon entres n the ta payers
book n accordance wth the rues and requrements of the Interstate Commerce
Commsson. In the nstant case there was no assurance that there woud
be any gan. There was no accrua on the pettoner s books of the amount
receved because the amount had not been determned n 192 , and nstead
there was the notaton above referred to. The pettoner reported no gan
or oss for 192 n ts return.
The nterest s part of the compensaton receved and s ta abe. Seaboard
r Lne Raway Co. v. Unted States, 2 1 U. S., 299.) It was dependent
n amount upon the tme e prng between the vestng of tte and the fna
decree as to the amount of the award. It was therefore ta abe n 1929.
Order affrmed.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 341: Pad or ncurred and pad or accrued.
R NU CT OP 1928.
ssessment aganst stockhoders of a bank because of ther statu-
tory abty. (See I. T. 2843, page 77.)
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44, rt. 351.
S CTION 44. INST LLM NT SIS.
rtce 351: Sae of persona property on I -14-7414
nstament pan. Ct. D. 943
( so Secton 705.)
INCOM T R NU CT O 1928 D CISION O COURT.
1. Income Instament ass Deaeb n Peksona Property.
n automobe fnancng corporaton whch receves practcay
a of ts ncome from coectons under contracts of sae made
between deaers and purchasers and assgned by them to the
corporaton (no saes beng made by the corporaton e cept upon
a purchaser s defaut In payments), s not a deaer n persona
property on the nstament pan wthn the meanng of secton
44 of the Revenue ct of 1928, and therefore s not entted to
the beneft of the reef provson of secton 705(u)2 of that ct,
whch reates to a change to the nstament bass n reportng
ncome.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 213) affrmed.
Unted States Crcut Court of ppeas, ghth Crcut.
Iowa Guarantee Mortgage Corporaton, pettoner, v. Commssoner of Interna
Revenue, respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Gardner, Woodbough, and an akenburgh, Crcut udges.
October 11, 1934.
OPINION.
an akenburgh, Crcut udge, devered the opnon of the court.
The pettoner, Iowa Guarantee Mortgage Corporaton, appeaed to the
oard of Ta ppeas to revew a determnaton of the Commssoner of In-
terna Revenue dsaowng deductons from ncome for the years 1924, 1925,
and 192 , n the amounts of 2,155.81, 2,312.70, and 8,328.13, respectvey.
The facts were stpuated, and those matera may best be set out n the
anguage of the oard of Ta ppeas n ts fndngs:
The pettoner s a South Dakota corporaton, duy authorzed to operate
n the State of Iowa. Its prncpa offce s at Des Mones, Iowa, where t s
engaged n what s commony known as the automobe fnancng busness.
Deaers n new and used automobes accompsh saes on the nstament
bass appro matey as foows: The deaer tentatvey negotates a sae and
enters nto an arrangement wth a buyer, who agrees to make an nta pay-
ment n some amount and to pay the remander of the purchase prce n 12
equa monthy nstaments. Upon agreement between the deaer and the
purchaser a wrtten contract embodyng the terms upon whch the deferred
payments are to be made s e ecuted and sod to the pettoner, who pays
the deaer the cash seng prce, ess the nta payment, and takes tte
to the contract by assgnment wthout recourse from the deaer. The auto-
mobe s then devered to the purchaser, who thereafter makes a payments
to the pettoner. If the purchaser defauts n any of hs nstaments the
whoe of the remanng baance of the purchase prce becomes payabe and
the pettoner may repossess and rese the automobe n satsfacton of ts
en thereon.
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44, rt. 351.
188
The contract provdes e pressy that n Instaments thereon sha he pad
at the offce of the pettoner n conformty wth a certan negotabe proms-
sory note of even date payabe to the order of the purchaser and sgned, n-
dorsed and devered by sad purchaser to the deaer. The dates and amounts
of payments beng as foows . It aso provdes that The purchaser
take notce that the deaer for vaue receved, hereby ses and assgns
the contract and a the rght, tte and nterest of the deaer n sad property
to the Iowa Guarantee Mortgage Corporaton.
The pettoner s gross ncome, e cept from mnor sources, s made up of
Its coectons under contracts as above set out and ts net ncome from such
coectons s the dfference between the cash and deferred payment prce of
the automobe, ess the amount that t pays for nsurance thereon. It s
aways possbe, therefore, to determne the net proft resutng from any sn-
ge transacton as we as the net proft from a such transactons n any year,
wth due aowances for defauts n payments.
Pror to anuary 1, 1924, the pettoner kept a ts accounts on the accrua
bass. In ts ncome ta return for 1023 t ncuded n ts gross ncome the
amount of 04,877.11 whch represented unreazed profts on nstament con-
tracts t had acqured n that year.
s of anuary 1, 1024, the pettoner changed ts method of accountng for
the proft nvoved n nstament contracts and thereafter took nto ncome
the reazatons therefrom as and when receved n cash. In ts ncome ta
return for 1024 and a succeedng years, t reported as ncome ony the amounts
reazed from coectons n each of such years. The effects of ths change n
accountng for and reportng ncome were that no part of the 04,877.11 co-
ected n 1024 on contracts acqured n 1023 was reported as ncome n 1924
that no part of the unreazed profts nvoved n the contracts acqured n
1924 wareported as ncome n that year and that the books of the pettoner
showed a net operatng oss n 1024 n the amount of 10,020. 0. Upon audt
of pettoner s return for 1924 the respondent added to the ncome theren re-
ported the amount of 04,070.00, made other mnor ad|ustments, and deter-
mned the defcency for such year that s now n controversy.
rom the ncepton of ts operatons the pettoner mantaned a reserve
for bad and doubtfu accounts and annua charges thereto were based on ta
e perence n the coecton of nstaments. In hs audt of pettoner s return
for the years 1924, 1025, and 1020, the respondent dsaowed addtons to such
reserve n the respectve amounts of 2,155.81, 2,312.70, and 8,328.13. The
partes have stpuated that one-haf of 1 per cent of the face amounts of
purchase notes acqured s appro matey the coecton oss sustaned by the
pettoner n the years 1920 to 1024, ncusve.
The oard decded ts ma|or contenton aganst the pettoner and redeter-
mned defcences n ta for the years 1024, 1025, and 1020 n the respectve
amounts of 7,157.39, 2,035.24, and 1,124.30. rom ths order pettoner
appeas to ths court.
That ma|or contenton as stated by the oard of Ta ppeas s that n
the crcumstances as set out n our fndngs of fact, t propery changed ts
method of accountng for and reportng ncome from recepts and deferred
payment contracts at anuary 1, 1924, and that thereafter t was entted to
report such ncome on the nstament bass. If ths contenton s sound t
foows that, f t then comes wthn the provsons of secton 705(a)2 of the
Revenue ct of 1928, no defcency can be determned aganst t n respect of the
amount of 04,070.00 whch was reported as ta abe ncome n a pror year and
Income ta pad thereon.
s found by the oard, f ths 04,079.90 s ncuded n the pettoner s ncome
for 1924, a net proft for that year resuts and no cam for net oss can be
nduged.
Secton 705(a)2 of the Revenue ct of 192S provdes:
If any ta payer by an orgna return made pror to ebruary 2 , 102 ,
changed the method of reportng hs net ncome for the ta abe year 1924 or
any pror ta abe year to the nstament bass, then, f hs ncome for such year
s propery to be computed on the nstament bass

(2) No defcency sha he determned or found n respect of any such ta es
uness the ta payer has underpad hs ta es for such year, computed by e cud-
ng, n computng ncome, amounts receved durng such year on account of
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189
44, rt. 351.
saes or other dspostons of property made n any year pror to the year n
respect of whch the change was made.
The contenton of the Government, succncty stated, s that sad secton
705(a)2 appes ony to a ta payer who has changed from the cash or accrua
bass to the nstament bass of reportng ncome from saes of property. In
other words, that the ta payer must be a vendor to come wthn ths provson
of the ct. The oard hed that the pettoner s not a merchant, but a money
ender that the property, sod by the deaer, s merey pedged as securty for
the oans made by the pettoner. Ths statute has been consdered by ths
court e haustvey n two cases, . C. Nchos Land Co. v. Commssoner ( 5 ,
(2d), 437) and Wcuts v. Oradtcoh (58 . (2d), 587 Ct. D. 524, C. . I-2,
155 ). In these cases t was hed that ths secton was ntended to compose
and set at rest a stuaton, due to the confuson and uncertanty that had
attended the transton from accrua to nstament bass.
The ceary reveaed domnant purpose of the secton (705) s to compose
and termnate ths confuson and uncertanty n so far as t then e sted e cept
as to a narrowy defned cass. (Wcuts v. Oradtcoh, supra, 1. c, page 591.)
The Commssoner s not estopped from makng defcency assessments based
on ncudng as ta abe ncome payments receved durng the ta abe year on
Instament saes made n precedng years, where there has been an unauthorzed
appcaton of the nstament bass, even though a parta doube ta resuts.
( . C. Nchos Land Co. v. Commssoner (0. O. . 8), 5 . (2d), 437.) In
other words, as stated by counse for the Government, Secton 705(a)2 s
not a genera provson for the reef of doube ta aton, but s a statute of
repose n one type of case ony, to wt, where the ta payer and hs methods of
accountng and computaton come ceary wthn ts terms.
The specfcatons of error reed upon are:
L The oard of Ta ppeas erred n fang to hod that every ta payer,
whether a seer of property or not, whose net ncome s correcty refected
by the nstament method of accountng, and who by an orgna return fed
pror to ebruary 2 , 192 , changed to the nstament method of accountng
for hs ncome for 1924, s entted to the benefts of secton 705(a)2 of the
Revenue ct of 1928.
2. If secton 705(a)2 of the Revenue ct of 1928 s mted n ts appca-
ton to seers of property on the nstament pan, the oard of Ta ppeas
erred n fang to hod that pettoner was a seer of property on the nsta-
ment pan wthn the meanng and sprt of the statutes.
1. amnaton of earer statutes and reguatons deang wth payments n
nstaments dscoses that they unformy specfy that such payments arse
from saes of property. (Revenue ct of 1924, ch. 234, 43 Stat., 253, secton
202(e) Revenue ct of 192 , ch. 27, 44 Stat., 9, sectons 202(e) and 212(d)
artce 117 of Reguatons 33, promugated anuary 2, 1918 artce 42 of Regu-
atons 45 and 2, promugated under the Revenue cts of 1918 and 1921
Treasury Reguatons 5, under the Revenue ct of 1924 Treasury Reguatons
9, under the Revenue ct of 192 .) rom these ctatons we gather the
consstent purpose of Congress n egsatng wth respect to nstament pay-
ments of ncome and gan or proft ta es. ut t s unnecessary to go back
of ths same Revenue ct of 1928 (ch. 852, 45 Stat., 791) to arrve at the
sub|ect matter Congress had under consderaton n enactng ths comprehensve
egsaton. On page 805 (45 Stat.), we fnd the sub|ect of nstament pay-
ments specfcay deat wth thus:
Sec. 44. Instament bass.
(a) Deaers n persona property. Under reguatons prescrbed by the
Commssoner wth the approva of the Secretary, a person who reguary ses
or otherwse dsposes of persona property on the nstament pan may return
as ncome therefrom n any ta abe year that proporton of the nstament
payments actuay receved n that year whch the gross proft reazed or to
be reazed when payment s competed, bears to the tota contract prce.
On page 881 of the same voume of the statutes, and a part of ths same
Revenue ct, Is found ths secton 705 under the headng. Instament Saes-
Retroactve. eyond queston ths secton refers to the same cass of deaers
as those specfed n secton 44, supra that s to say, those who se or other-
wse dspose of persona property on the nstament pan. ta payer entted
to the beneft of ths ct must be one who ses or otherwse dsposes of per-
sona property. The dsposton contempated s aenaton of tte n the
course of trade. The statute, nvovng a prvege granted by the Government,
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103, rt. 21.
190
must be construed favoraby to the governmenta purpose. ( rancscus Reaty
Co. v. Commssoner (C. C. . 8), 39 . (2d), 583 ank of Commerce v. Ten-
nessee, 1 1 U. S., 134, 14 .)
We turn ne t to nqure whether, under the fucts before us, pettoner was
a seer of property on the nstament pan wthn the meanng and sprt
of the statutes. We agree wth the concuson of the oard of Ta ppeas
that t was not. The sae from the deaer to the purchaser was compete when
the contract was assgned to pettoner. Its rghts under the contract were
those of a mortgagee wth securty for money oaned. In the agreed state-
ment of facts pettoner s descrbed as engaged n the busness commony
known as automobe fnance busness, fnancng the saes of automobes upon
nstament payments made by the purchaser. In no sense s t one who
reguary ses or otherwse dsposes of persona property on the nstament
pan. The tte of the purchaser comes from the deaer. Possesson s de-
vered to hm wth the ntenton of passng mmedate ownershp sub|ect ony
to the bare reservaton of tte to the seer as securty for the purchase money.
Snce benefts of the statute under consderaton are avaabe ony to one who
reguary ses or otherwse dsposes of persona property on the nstament
pan, and snce pettoner ceary does not come wthn that defnton, the
order of the oard of Ta ppeas was rght and must be uphed. The order
of redetermnaton of the oard of Ta ppeas s affrmed.
P RT . R TURNS ND P YM NT O T .
S CTION 5 . P YM NT O T .
rtce 432: tenson of tme for payment of the ta or
nstament thereof.
R NU CT OP 1928.
Rues governng consderaton of appcaton for e tenson of tme
to pay nstament of ncome ta . (See Mn. 4303, page 133.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 521: Proof of e empton. I -17-7452
Ct. D. 953
INCOM T R NU CT O 1928 D CISION O COURT.
1. empton Corporaton Organzed fob cusve Purpose o
odng Property- Organzed.
Where a corporaton, organzed n 1920 to conduct a newspaper
pubshng busness, sod the busness n 1924, acceptng n payment
ong-term nterest-bearng notes, and n 1928 and 1929 pad the
ncome therefrom to a hodng company organzed by an art mu-
seum to whch the soe owner of the corporaton had bequeathed a
hs stock (both the museum and ts hodng company beng e empt
from ta ), t s not e empt from ta aton under secton 103(14)
of the Revenue ct of 1928, even though ts actvtes durng the
ta abe perods were mted to those enumerated n that secton.
Organzed as used n the statute means Incorporated and not
operated.
2. Certorar Dened.
Petton for certorar dened March 4, 1935.
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191
103, rt. 21.
T ktted States Cbcut Coubt of ppeas fob the Second Cbcut.
Sun- erad Corporaton, pantff-appeee, v. Wam Duggan, Coector of Inter-
na Revenue for the Second Dstrct of New York, defendant-appeant.
ppea from the Unted States Dstrct Court for the Southern Dstrct o New York.
November 5, 1934.
OPINION.
ugustus N. and, Crcut udge: The queston rased by ths appea Is
whether, wthn the meanng of secton 103(14) of the Revenue ct of 1928,
the pantff Sun- erad Corporaton was organzed for the e cusve purpose
of hodng tte to property and on that ground e empt from Income ta es
durng the years 1928 and 1929.
The statute nvoked provded that:
The foowng organzatons sha be e empt from ta aton under ths tte
(14) Corporatons organzed for the e cusve purpose of hodng tte
to property, coectng ncome therefrom, and turnng over the entre amount
thereof, ess e penses, to an organzaton whch tsef s e empt from the ta
Imposed by ths tte .
On anuary 28, 1920, the Sun- erad Corporaton was organzed under the
busness corporatons aw of the State of New York to conduct a genera news-
paper pubshng busness. On March 17, 1924, t sod the New York erad
whch It then owned and the pubshng busness connected therewth to the
New York Trbune, Inc., recevng therefor notes of the atter company n the
sum of 3,150,000 bearng nterest at the rate of 5 per cent and payabe over
a seres of years endng n 1939.
rank . Munsey at the tme of hs death on December 22, 1925, owned a
the stock of the Sun- erad Corporaton through the medum of a hodng
company whoy owned by hm. e bequeathed hs entre resduary estate to
the Metropotan Museum of rt and on March 1, 1928, a of the stock of the
Sun- erad Corporaton was turned over by hs e ecutors to Museum states,
Inc., a hodng company organzed by the Museum of rt for the soe purpose
of takng over, hodng and qudatng for ts account the varous assets of
the Munsey resduary estate. oth the Metropotan Museum of rt and Mu-
seum states, Inc., are e empt by aw from ncome ta es.
The Sun- erad Co. had whoy dscontnued any pubshng busness pror
to March 1, 1928, and t receved no ncome In the year 1928 pror to March 1.
ncome receved by It durng 1928 after March 1 of that year, and a
Income receved by t durng 1929 was mmedatey pad over by t to ts soe
stockhoder Museum states, Inc. On and after March 1, 1928, the Sun- erad
Co. had no property e cept the notes that t receved upon the sae of ts
newspaper property, t had no busness, no bank account and no empoyees, and
ts offcers, who served wthout compensaton, performed no duty e cept to
ndorse over to Museum states, Inc., the checks whch t receved as prncpa
and nterest on the notes of the New York Trbune, Inc., whch t hed. The
pantff pad ncome ta es to the defendant-coector on the nterest whch t
receved on these notes durng 1928 and 1929 under protest and thereafter fed
cams for refund and brought ths acton aganst the coector to recover
because of the aeged unawfu e acton. The dstrct court sustaned the cause
of acton and |udgment was entered that pantff recover a the ta es pad
under protest, wth nterest. It reached ths concuson by hodng that the
word organzed used n secton 103(14) of the Revenue ct of 1928 reated
to the actua actvtes of the Sun- erad Corporaton whch were mted durng
the ta abe perods n queston to hodng tte to property and coectng ncome
therefrom and turnng over the entre amount to an organzaton (n ths case
Museum states, Inc.), whch was tsef e empt from ta es, and dd not reate
to the charter powers of that corporaton. Inasmuch as durng the ta abe
perod the Sun- erad Corporaton was not equpped or manned n such a
way as to do more than hod tte to property and turn t over to Museum
states, Inc., an e empt organzaton, the tra court hed that ts power to
conduct a newspaper pubshng busness was to be regarded as outsde the
scope of ts organzaton for the purposes of the Revenue ct. In effect It
treated the word organzed as meanng operated.
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5103, rt. 521.
192
We thnk It cear that organzed means Incorporated and not operated.
Such seems to have heen the meanng gven to the word n Trndad v. Sagrada
Ordcn (2 3 U. S., 578, 580 T. D. 8548, O. . III-, 270 ) on aumoach r.
Sargent Land Co. (242 U. S., 503, 514) ot v. reeman (220 U. S., 178, 18 ).
The use of the word operated n addton to the word organzed n
subdvsons (4), ( ), (9), and (12) of secton 103 of the Revenue ct of 1928
ndcates that organzed was not ntended to have the meanng of opera-
ted but further to nterpret the e empton. In cases of doubt, an e empton
provson n a genera ta aw s to be construed strcty and to be resoved n
favor of the ta ng power. (Corne v. Coyne, 1 )2 U. S.t 418, 430, 431 Rverdae
Co-op. Creamery ssn. v. Comm., 48 ed. (2d), 711.) Moreover varous rungs
of the Commssoner of Interna Revenue are to the effect that the rght of the
corporaton to an e empton s to be determned by the powers gven t n ts
charter. In Decson 190 (C. . 1, 194), reatng to secton 231 of the Revenue
ct of 1918, whch was smar to secton 103 of the Revenue ct of 1928, the
Commssoner rued that: In deang wth cases under secton 231 the
character of the corporaton must be |udged by ts artces of ncorporaton,
consttuton, and by-aws, rather than by the decaratons of ts offcers, or the
method by whch t conducts or has conducted ts busness. See aso Offce
Decson 0 (C. . 1, 193) Decson 177 (C. . 1, 194). Reenactments of the
e empton statute n the face of ths rung requre us to adhere to the reason-
abe nterpretaton of the enactment by the Department. (Od Coony R. Co. v.
Commssoner. 284 U. S., 552, 557 Ct. D. 45 , C. . I-1, 274 .)
It s argued by the ta payer that Socum v. ocers (15 ed. (2d), 400,
affrmed 20 ed. (2d), 350, and 204 U. S., 01 T. D. 4122, C. . II-1, 247 )
and Lederer v. Stockton (2 0 D. S., 3), govern the present case and that because
the Sun- erad Corporaton was a hodng company for the Metropotan
Museum of rt (an organzaton tsef e empt from ta ) t fas wthn
secton 103(14) of the statute. ut n both Socum v. owers and Lederer v.
Stockton t was the ncome of estate whch had accumuated n the hands
of e ecutors or trustees that was hed to be free from ta aton. ere, how-
ever, we do not have the case of a fducary and a benefcary who s the
equtabe owner of ncome of a trust, but of the Sun-erad Corporaton, a
busness corporaton that Is an entty entrey separate from Museum states,
Inc. We are not |ustfed n treatng the two as Identca or the ncome of
Sun- erad Corporaton as that of Museum states, nc. The ncome of the
Sun- erad must be regarded as that of any corporaton organzed to conduct
a newspaper busness. Such a corporaton s not e empt from ncome ta es
for t was not organzed for the e cusve purpose of hodng tte to property,
coectng ncome therefrom and turnng over the same to an organzaton
whch s e empt from the ta . Indeed, there s egay nothng to prevent It
from reengagng n a newspaper pubshng busness as authorzed by ts
charter.
The defendant rees on ngham v. Savngs Investment Trust Co. (101
N. . q., 413) and Whtman v. Northern Centra Raway Co. (140 Md., 590)
as gvng to the word organzed the meanng of operated. ut these
decsons went no further than to treat organzed as ncudng corporate
powers acqured subsequent to the date of the orgna charter. Nether hed
that the character of the corporaton was to be determned by ts actua
actvtes wthout regard to ts chartered powers. We are not convnced that
they have any bearng on the present case. ut n any event they can not
be regarded as persuasve n vew of the other consderatons whch we have
mentoned and that seem to |ustfy the mposton of ta es upon the ncome
of the pantff for 1928 and 1929.
Whether the Munsey state by some dfferent dsposton of the resduary
assets mght have enabed the Museum to ava tsef of e empton from the
ncome ta es, we need not say. To obtan an e empton, the ta payer camng
t, must come precsey wthn the terms of the statute and has not done ths
In the present case. ccordngy, we are forced to concude that the Sun-
erad was not a corporaton organzed for the e cusve purpose of hodng
tte to property, coectng ncome therefrom, and turnng over the entre
amount thereof, ess e penses, to an organzaton whch tsef Is e empt from
the ta .
udgment reversed.
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193 112, rt. 77.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN
OR LOSS.
rtce 577: Defntons. I -4-7273
Ct. D. 911
INCOM T R NU CT O 1928 D CISION O SUPR M COURT.
1. Gan or Loss Reohg a ndaton Transfer Made to vod Ta .
transacton by whch stock hed by a corporaton was trans-
ferred to a newy organzed corporaton and by t transferred to the
soe owner of the frst corporaton (the operaton havng no bus-
ness or corporate purpose and the new corporaton beng dssoved
mmedatey after the transfer), s not a reorganzaton. -
though the transacton was conducted accordng to the terms of
secton 112(1)1 ( ) of the Revenue ct of 1928, t was not wthn
Its meanng, snce ts soe purpose was admttedy the acquston
and sae of the stock at an ndvdua proft and the essenng of
the amount of ta whch woud resut from a drect transfer.
The rue whch e cudes from consderaton the motve of ta
avodance Is not pertnent here, because the transacton upon ts
face es outsde the pan ntent of the statute.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Second Crcut ( 9 ed.
(2d), 809), whch reversed the decson of the oard of Ta ppeas
(27 . T. ., 223), affrmed.
Supreme Court of the Unted States.
veyn . Gregory, pettoner, v. Guy T. everng, Commssoner of Interna
Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
anuary 7, 1935.
OPINION.
Mr. ustce Sutherand devered the opnon of the Court.
Pettoner n 1928 was the owner of a the stock of Unted Mortgage Cor-
poraton. That corporaton hed among ts assets 1,000 shares of the Montor
Securtes Corporaton. or the soe purpose of procurng a transfer of these
shares to hersef n order to se them for her ndvdua proft, and, at the same
tme, dmnsh the amount of ncome ta whch woud resut from a drect
transfer by way of dvdend, she sought to brng about a reorganzaton
under secton 112(g) of the Revenue ct of 1928 (ch. 852, 45 Stat., 791, 818),
set forth ater n ths opnon. To that end, she caused the ver Corporaton
to be organzed under the aws of Deaware on September 18, 1928. Three days
ater, the Unted Mortgage Corporaton transferred to the ver Corporaton
the 1,000 shares of Montor stock, for whch a the shares of the ver Cor-
poraton were ssued to the pettoner. On September 24, the ver Corpora-
ton was dssoved, and qudated by dstrbutng a ts assets, namey, the
Montor shares, to the pettoner. No other busness was ever transacted, or
Intended to be transacted, by that company. Pettoner mmedatey sod the
Montor shares for 133,333.33. She returned for ta aton as capta net gan
the sum of 57 ,007.88, based upon an apportoned cost of 57,325.45. urther
detas are unnecessary. It s not dsputed that If the nterposton of the
sc Med reorganzaton was neffectve, pettoner became abe for a much
arger ta as a resut of the transacton.
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112, rt. 577.
194
The Commssoner of Interna Revenue, beng of opnon that the reorgan-
zaton attempted was wthout substance and must be dsregarded, hed that
pettoner was abe for a ta as though the Unted corporaton had pad her
a dvdend consstng of the amount reazed from the sae of the Montor
shares. In a proceedng before the oard of Ta ppeas, that body re|ected
the Commssoner s vew and uphed that of pettoner. (27 . T. ., 223.)
Upon a revew of the atter decson, the Crcut Court of ppeas sustaned the
Commssoner and reversed the oard, hodng that there had been no reorgan-
zaton wthn the meanng of the statute. (09 . (2d), 809.) Pettoner
apped to ths court for a wrt of certorar, whch the Government, consderng
the queston one of mportance, dd not oppose. We granted the wrt. (293
U. S., 405.)
Secton 112 of the Revenue ct of 1028 deas wth the sub|ect of gan or oss
resutng from the sae or e change of property. Such gan or oss s to be
recognzed n computng the ta , e cept as provded n that secton. The
provsons of the secton, so far as they are pertnent to the queston here
presented, foow:
Sec. 112. (g) Dstrbuton of stock on reorganzaton. If there s dstrb-
uted, In pursuance of a pan of reorganzaton, to a sharehoder n a corpo-
raton a party to the reorganzaton, stock or securtes In such corporaton
or n another corporaton a party to the reorganzaton, wthout the surrender
by such sharehoder of stock or securtes n such a corporaton, no gan to
the dstrbutee from the recept of such stock or securtes sha be recog-
nzed.
(1) Defnton of reorganzaton. s used In ths secton
(1) The term reorganzaton means ( ) a transfer by a corpo-
raton of a or a part of Its assets to another corporaton f mmedatey after
the transfer the transferor or ts stockhoders or both are n contro of the
corporaton to whch the assets are transferred,
It s earnesty contended on behaf of the ta payer that snce every eement
requred by the foregong subdvson ( ) s to be found n what was done, a
statutory reorganzaton was effected and that the motve of the ta payer
thereby to escape payment of a ta w not ater the resut or make unawfu
what the statute aows. It s qute true that f a reorganzaton n reaty
was effected wthn the meanng of subdvson ( ), the uteror purpose men-
toned w be dsregarded. The ega rght of a ta payer to decrease the
amount of what otherwse woud be hs ta es, or atogether avod them by
means whch the aw permts, can not be doubted. Unted States v. Isham,
17 Wa., 400, 500 Superor O Go. v. Msssspp, 2 0 U. S., 390, 305-390)
ones v. evernff, 71 . (2d), 214, 217.) ut the queston for determnaton
s whether what was done, apart from the ta motve, was the thng whch
the statute ntended. The reasonng of the court beow n |ustfcaton of a
negatve answer eaves tte to be sad.
When subdvson ( ) speaks of a transfer of assets by one corporaton to
another, t means a transfer made n pursuance of a pan of reorganzaton
(secton 112(g)) of corporate busness and not a transfer of assets by one
corporaton to another n pursuance of a pan havng no reaton to the bus-
ness of ether, as pany Is the case here. Puttng asde, then, the queston
of motve n respect of ta aton atogether, and f ng the character of the
proceedng by what actuay occurred, what do we fnd Smpy an operaton
havng no busness or corporate purpose a mere devce whch put on the
form of a corporate reorganzaton as a dsguse for conceang ts rea charac-
ter, and the soe ob|ect and accompshment of whch was the consummaton
of a preconceved pan, not to reorganze a busness or any part of a busness,
but to transfer a parce of corporate shares to the pettoner. No doubt, a
new and vad corporaton was created. ut that corporaton was nothng
more than a contrvance to the end ast descrbed. It was brought nto e st-
ence for no other purpose t performed, as t was Intended from the begnnng
It shoud perform, no other functon. When that mted functon had been
e ercsed, It Immedatey was put to death.
In these crcumstances, the facts speak for themseves and are susceptbe
of hut one nterpretaton. The whoe undertakng, though conducted accord-
ng to the terms of subdvson ( ), was n fact an eaborate and devous form
of conveyance masqueradng as a corporate reorganzaton, and nothng ese.
The rue whch e cudes from consderaton the motve of ta avodance s
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195
112, rt. 579.
not pertnent to the stuaton, because the transacton upon ts face es outsde
the pan ntent of the statute. To hod otherwse woud be to e at artfce
above reaty and to deprve the statutory provson n queston of a serous
purpose.
udgment affrmed.
rtce 579: Invountary converson of I -3-7257
property. Ct. D. 908
INCOM T R NU CT O 1928 D CISION O COURT.
1. Gan ob Loss Condemnaton ward Invountary Conver-
son.
Where the ta payer and hs brother acqured property for bud-
ng purposes, whch was subsequenty condemned, and, before re-
cept of the condemnaton award, they purchased other propertes
for the same purposes, the acquston of the property to repace
that to be condemned was not an nvountary converson wthn
the meanng of secton 112(f) of the Revenue ct of 1928, the
award not havng been e pended for the purposes specfed by the
statute, and the proft reazed upon dsposa of the property
condemned s ta abe.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 99) affrmed.
3. Certorar Dened.
Petton for certorar dened October 8, 1934.
Unted States Crcut Court of ppeas for the Second Crcut.
Lous andes, pettoner-appeant, v. Commssoner of Interna Revenue,
respondent-appeee.
ppea from the Unted States oard of Ta ppeas.
efore L. and, Swan, and Chase, Crcut udges.
March 13,.1934.
OPINION.
The ta payer seeks revew of an order of the oard of Ta ppeas ad|udgng
a defcency n ncome ta for the year 1928. Order affrmed.
Swan, Crcut udge: In 1928 the pettoner receved payment of a condemna-
ton award, wth nterest, for rea estate condemned by the cty of New York.
The sum the pettoner receved was argey n e cess of the cost of the and
to hm, and the queston presented s whether a ta abe gan was reazed n
vew of secton 112(f) of the Revenue ct of 1928 ( 45 Stat, 817). Ths
secton reads as foows:
(f) Invountary conversons. If property (as a resut of Its 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) s compusory or n-
vountary converted nto property smar or reated n servce or use to
the property so converted, or nto money whch s forthwth n good fath,
under reguatons prescrbed by the Commssoner wth the approva of tho
Secretary, e pended n the acquston of other property smar or reated n
servce or use to the property so converted, or In the acquston of contro
of a corporaton ownng such other property, or n the estabshment of a
repacement fund, no gan or oss sha be recognzed. If any part of the money
s not so e pended, the gan, f any, sha be recognzed, but n an amount not n
e cess of the money whch 1b not so e pended.
The oard hed that the condtons specfed n the statute were not met.
Ths concuson s here chaenged.
It appears that n 192 the pettoner, hs brother and another person ac-
qured a tract of unmproved and for the purpose of budng an apartment
house thereon. It was ntended that Nasde Constructon Co., a corporaton
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112, rt. 579.
19
whose entre capta stock was owned equay by the pettoner and hs brother,
nhoud erect the budng. efore constructon was begun the cty of New
York condemned the and for a schoo ste. Condemnaton proceedngs were
started anuary 20, 1927, and tte passed to the cty on ebruary 24, 1927,
but not unt une, 1928, was the award confrmed. The amount awarded to
the brothers, wth nterest thereon from ebruary 24, 1027, totaed 120,2 7.93,
and was pad on uy 0, 1928. ach brother reazed thereby a gan over the
cost of hs nterest n the and In an amount of some 42,000. They contend
that ths gan coud not be recognzed for ta aton because of crcumstances
now to be stated. fter the brothers andes earned that condemnaton was
mmnent they ooked for other property on whch to bud an apartment house.
eng unabe to fnd a tract of equa sze, they bought two separate parces
whch together had about the same area as the and condemned. y con-
tracts made n anuary and ebruary, 1927, before the condemnaton award,
they agreed to buy a parce ocated on Waton venue for a prce of 58,000.
y other contracts dated ebruary 15 and March 18, 1927, they agreed to buy
a parce ocated on erome venue for a prce of 00,000. Subsequenty both
parces were deeded to the brothers and by them were transferred to Nasde
Constructon Co. by deeds recorded May 19, 1927. n apartment house was
started on the erome venue parce n the fa of 1927, and budng con-
structon began on the Waton venue parce n May or une, 1927. When the
brothers receved payment of the condemnaton award, the money was depos-
ted n ther |ont bank account. Out of the sum so receved 4,328.20 was
pad to ther attorneys for servces n the condemnaton proceedngs, an aggre-
gate of 115,000 was pad to Nasde Constructon Co. n varous sums between
uy and ugust 15, 1928, and 939.73 was eft n ther |ont bank account.
It was the practce of the brothers, both before and after payment of the
award, to make advances to ther corporaton and to receve money from t,
as t obtaned money from mortgage oans. t the end of 1927 the corporaton
had bs payabe of 152,000, a or most of whch represented advances by
the brothers andes. t the end of 1928 It owed them 120,000 for moneys
advanced.
The pettoner argues that the acquston of other property by the brothers
andes to repace the and whch the cty was threatenng to condemn for a
schoo ste was an nvountary converson of the property subsequenty con-
demned Into property smar or reated n servce or use. We thnk ths
s a msconstructon of the statute. The secton under consderaton recognzes
that as a resut of destructon, theft, sezure, or condemnaton or the threat
thereof, a ta payer s property may be nvountary converted ether nto
smar property or nto money. The former aternatve covers cases where
the nsurer, pubc authorty or person bound to make good the destroyed,
stoen, sezed or condemned property repaces t n knd wth smar property
the utter covers cases where the property s pad for n money, whch the
ta payer may forthwth e pend to make hs own repacement, ether by acqur-
ng smar property, or by acqurng contro of a corporaton ownng such
property, or by estabshng a repacement fund. Ths constructon s sup-
ported by the egsatve hstory of the statute and by the Treasury reguatons
promugated under t. (See artce 1579, Reguatons 5 artce 1578, Regua-
tons 9 artce 579, Reguatons 74.) The antecedent of the statute s sec-
ton 214(a)12 of the Revenue ct of 1921 (42 Stat, 241). Ths e pressy
deat ony wth an Invountary converson of property nto cash or ts equva-
ent, and the nonrecognton of ta abe gan was condtoned upon the ta -
payer s proceedng forthwth to e pend the proceeds of such converson n the
manner specfed n the statute. In secton 203(b)5 of the Revenue ct of
1924 the provson was amended to ts present form (43 Stat, 250) t has been
reeuacted n dentca anguage n the cts of 1920 and 1928. In reports to
the Senate and to the ouse, the sponsors of the 1924 b stated that
The e stng aw e empts from ta the proceeds from an Invountary con-
verson of property but fas to grant an e empton f the property s repaced
n knd by the nsurance company or smar person. The b e empts the
gan from an nvountary converson whether the repacement s made by the
ta payer or by the nsurance company.
( . Rept. No. 179, page 13, S ty-eghth Congress, frst sesson.)
Repacement by the ta payer must refer to hs use of the money pad for
the property because If repacement by the ta payer out of any of hs funds
were consdered a converson n knd, there woud be no converson nto money,
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197
112, rt. 579.
for the two aternatves are mutuay e cusve. In the case at bar there was
ceary a converson of the condemned property nto the money pad for t by
the cty, and the Inqury must be whether the pettoner e pended the money
In the manner requred by the statute as a condton precedent to nonrecogn-
ton of gan or oss.
It s temptng to say that If a ta payer buys ot on borrowed money and
pays the debt wth the award he gets for the condemnaton of ot , he has
acqured ot wth the award. Whether the statute w permt of such a
constructon we need not now decde. To sustan the pettoner n the present
case, we shoud have to construe t even more broady and say that a ta payer
may use any of hs funds to buy the new property and when he recoups the
e pense by recept of the award, regardess of how t s actuay e pended, the
new property may be consdered to have been acqured out of the award.
Ths woud eave nothng to the statute e cept that the ta payer must acqure
new property wth an ntent to substtute t for the od. The anguage s much
too specfc to be capabe of that constructon. Consequenty, even f we
shoud dsregard the dstncton between the brothers andes and ther Nasde
company, as the pettoner contends, we can not hod that ths award was
e pended to acqure the new property, or to acqure contro of a corporaton
ownng such property, or to estabsh a repacement fund. The pettoner has
faed to brng hmsef wthn secton 112(f) and so must ncude as ta abe
gan the proft reazed on the dsposa of the property condemned.
Order affrmed.
rtce 579: Invountary converson of property. I -17-7453
G. C. M. 14 93
R NU CTS OP 1918 ND 1028.
, the testator, devsed rea property to , hs wfe, for fe wth
remander to hs four daughters. In 1029 the property was taken
by the Unted States Government under condemnaton proceedngs
and the amount of the award, whch was pad to the wfe, was n-
vested n bonds and a savngs account, whch are hed n the name
of the wfe, who receves the ncome therefrom.
ed, (1) the securtes and savngs account are not property
smar or reated n servce or use to the property taken, wthn
the meanng of secton 112(f) of the Revenue ct of 1928, and (2)
any proft derved from the dsposton of the property s ta abe
to the fe tenant and remandermen In ther ndvdua capac-
tes and not to the fe tenant as trustee.
Recommended that Offce Decson 1040 (C. . 5, 180) be revoked.
n opnon s requested as to the ta abty of the proft derved
from the dsposton of certan rea estate. Two questons are
nvoved, (1) whether any ta abe proft was derved n vew of the
provsons of secton 112(f) of the Revenue ct of 1928, reatng
to nvountary conversons, and (2) f a ta abe proft was derved,
to whom such proft shoud be ta ed.
It appears that , husband of , ded n the year 1908, eavng
a w provdng n part as foows:
2. I gve, bequeath and devse to my beoved wfe, , my rea property
at Street n the cty of R, to be hed and en|oyed by her for the re-
mander of her natura fe .
3. I gve, bequeath and devse to my four daughters the remander nterest
In my rea estate at Street to be thers absoutey share and share
ake.
was survved by hs wfe, , and four daughters. , the fe
tenant, receved the ncome from the property so devsed unt Oc-
tober, 1929, when t was taken by the Unted States Government
under condemnaton proceedngs n whch and her daughters (and
the husbands of such daughters as were marred) were made defend-
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112, rt. 579.
198
ants. These defendants were awarded an amount of 15a doars as
fu compensaton to a of them, whch amount was pad to , the
fe tenant, n December, 1929, wth the consent of a partes con-
cerned. The cash (ess e penses) receved as a resut of the con-
demnaton of the property was mmedatey nvested by n Unted
States Lberty bonds, cty of R bonds, and a savngs account. Ths
ersona property s hed n the name of , the wfe, who receves
the ncome therefrom. She fed an ndvdua ncome ta return
for the year 1929 whch contaned a notaton reatve to the nvoun-
tary converson of ths property but no proft was reported from the
transacton ether by her or by the remandermen. Later, a return
was prepared by the. Commssoner under the provsons of secton
317 of the Revsed Statutes for as trustee for the daughters, n
whch return a net proft from the dsposton of ths property was
reported n the amount of 11.91a- doars (the dfference between the
seng prce of o doars and the March 1, 1913, vaue of 3.203
doars, wth proper ad|ustment for deprecaton) and a ta of 1.28a
doars was computed thereon. The prmary queston s whether the
ta so computed may propery be assessed aganst as trustee. In
other words, to whom shoud the proft from the dsposton of the
property be ta ed The queston has aso been rased whether the
proft shoud be sub|ected to ta n vew of the provsons of secton
112(f) of the Revenue ct of 1928. whch reads as foows:
(f) Invountary convcrsons. t property (as a resut of Its destructon
In whoe or n part, theft or sezure, or an e ercse of the power of requston
or condemnaton, or the threat or mmnence thereof) s compusory or n-
vountary converted nto property smar or reated n servce or use to the
property so converted, or nto money whch Is forthwth n good fath, under
reguatons prescrbed by the Commssoner wth the approva of the Sec-
retary, e pended n the acquston of other property smar or reated n
servce or use to the property so converted, or In the acquston of contro of
a corporaton ownng such other property, or n the estabshment of a re-
pacement fund, no gan or oss sha be recognzed. If any part of the money
s not so e pended, the gan, f any, sha be recognzed, but n an amount
not n e cess of the money whch s not so e pended.
In regard to the ast stated queston, the ta payer contends that
snce the rea property condemned was used to produce ncome or for
nvestment purposes and the money receved was nvested n ncome-
producng persona property, the money was e pended n the ac-
quston of other property smar or reated n servce or use to the
property so converted wthn the meanng of secton 112(f), supra.
Wthout enterng nto a engthy dscusson of ths pont, t s the
opnon of ths offce that the contenton of the ta payer s wthout
mert. It seems cear that f a person nvountary converts ncome-
producng rea estate nto cash whch s e pended for nterest-bear-
ng securtes and a savngs account, the property acqured may not
propery be sad to be smar or reated n servce or use to the
rea property. It s true that both casses of property are used to
produce ncome, but f that genera prncpe were suffcent to brng
such a case wthn secton 112(f), the proft derved upon nvo-
untary saes of property woud escape ta aton n many nstances
merey because of renvestment of the proceeds n totay dssmar
property whch produces ncome. The mere fact that the property
dsposed of and the property acqured are used to produce ncome
ceary does not |ustfy e empton from ta aton under secton
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199
112, rt. 879.
112(f), whch s an e cepton to the genera rue prescrbed by sec-
ton 112(a) of the Revenue ct of 1928 that the gan derved or
oss sustaned upon the sae or e change of property sha be recog-
nzed. (See generay artce 579, Reguatons 74 L. O. 914, C. .
1, 77 I. T. 1378, C. . 1-2, 2 and I. T. 1 17, C. . II-, 119.)
In connecton wth the second queston, that s, to whom the proft
shoud be ta ed, t appears that the proceeds from the sae were pad
to , the wfe, who was to receve the ncome therefrom durng her
fetme. She was not, however, entted to e pend the proceeds
for her own use for the reason that the corpus or prncpa must be
hed ntact by the fe tenant for the remandermen. Gbbons v.
Naton, 13 U. S., 549 ornsby v. ornsby, 21 S. W. ( v), 88
Unted States Trust Co. of New York v. eye, 120 N. ., 45.) ,
the fe tenant, s ceary not ta abe as an ndvdua on the entre
proft derved regardess of the fact that the proceeds were pad
over to her. Is she ta abe as a trustee for the remandermen as
proposed by the ureau or shoud the proft, whch s undoubtedy
ta abe to some one, be ta ed n part to the remandermen and n
part to the fe tenant
Offce Decson 1040 (C. . 5, 18 ) nvoved a smar stuaton.
In that case a woman ded ntestate n the year 1915, eavng rea
property n the State of New York. She eft survvng her a husband
and son. Durng the year 1920 the rea estate was sod for cash by
a |ont conveyance of the husband and son. The former was entted
to curtesy n the property. The proceeds of the sae were paced n
a bank n the name of the husband n accordance wth an agreement
between hm and the son. The husband was to receve the ncome
from the proceeds and upon hs death the prncpa was to pass to
the son. It was hed n that case that the husband as trustee shoud
fe a return for the year 1920, reportng the proft arsng from the
sae as ncome of a trust. It was ponted out that when the property
was sod by the father and son for an amount greater than the vaue
of the property at the tme they acqured ther nterests theren, a
proft sub|ect to ta was reazed, and that ths proft accrued to and
consttuted a part of the corpus of the estate whch was not ds-
trbutabe to anyone but was requred to be hed durng the fe
of the father n order that he mght have the use thereof. s
prevousy ndcated, t was concuded that the proft was ta abe
nether to the father nor to the son but represented the undstrbuta-
be ncome of a trust entty. It w be noted that n that case the
sae was made by the father and son and not by a tnstee. In the
opnon of ths offce, the fact that the proceeds of the sae were
paced n trust n accordance wth an agreement of the nterested
partes does not affect the true nature of the transacton, that s,
a sae by the fe tenant and remanderman. (G. C. M. 77, O. .
-, 14, nvoved a somewhat smar state of facts but n that case
the sae s stated to have been made by a trustee who was apponted
by the court to hande the transacton.)
It s evdent that f Offce Decson 1040, supra, s foowed the
proft n the present case w be ta ed to the fe tenant as trustee.
It s e tremey doubtfu, however, whether the facts n the case
|ustfy such a concuson. The fe tenant and the remandermen
(a of whom had vested nterests) owned separate ega nterests
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112, rt. 579.
200
n the rea property and a of them sod such nterests. Ceary
any one of them coud have sod her nterest separatey and woud
have been ta abe on any gan derved from such a sae. The fact
that a |ont sae of a nterests was made does not shft the abty
for the ta on the proft from the sae of each nterest from the owner
of such nterest to any other owner ether as an ndvdua or as a
trustee, nor does the dsposton of the proceeds affect the status
of the transacton. ven though t coud e sad that the fe tenant
became a trustee for the remandermen upon payment of the cash
to her, nevertheess at the tme the sae occurred she ceary was not a
trustee and coud not have acted n such a capacty. It s true that
the reaton of the fe tenant to the remandermen s to a certan
e tent a fducary reatonshp and has frequenty been termed an
mped or quas trusteeshp (Perry on Trusts, s th edton, voume
2, secton 540), but t s not such a trust as s ordnary recognzed
for ncome ta purposes.
In 17 R. C. L., 25, t s stated:
ut there s no prvty between the tenant for fe and the reman-
derman, and the tenant can not, by hs own acts or admssons, defeat or
pre|udce the rghts of the remanderman, nor does he represent the nterest
of the remanderman n |udca proceedngs .
In 21 C. ., 941, t s stated n part that:
There s no tenure nor any prvty of contract between a fe
tenant and a remanderman nor s there such a fducary reaton as w
prevent the fe tenant from purchasng from the remanderman hs remander
nterest.
The sense n whch a fe tenant s a trustee for the remanderman
s ndcated by the court s anguage n a number of cases. In Stortz
et a, v. oss et a, (181 y., 54 , 205 S. W., 10), the court stated
n part :
The frst of those grounds that the purchaser, Chares W. oss,
Sr., occuped a fducary reaton toward the owners of the property s not
founded n fact, snce he had ony a fe nterest as survvng husband n
t. Ths n no sense made hm a trustee for or a fducary of the owners n
remander .
In Ware et a. v. ronts, dm r et a. ( y.) (38 S. W., 10 1),
t was stated n part that:
We know of no prncpe of aw or rue n equty whch prevents
a fe tenant from purchasng the nterest of a remanderman. Certany, no
such fducary reatons e st between them whch coud make appcabe
to ther transactons the rues of equty whch govern trustees and cestuU que
trustent .
In Gbson rt a. v. rown et a,. (Indana ppeas) (110 N. .,
71 ), the court stated:
There s a sense n whch a fe tenant s trustee for the remanderman.
Whe he s entted to the possesson of the ands nvoved, and may use them
for hs own beneft, and approprate to hmsef the proceeds arsng from such
use, st he hods the corpus of the estate n trust n the sense that he must
e ercse reasonabe precautons to preserve the property ntact for trans-
msson to the remandermen at the termnaton of the fe estate .
In German- mercan Tte Trust Go. v. dety Ins., Trust dk
Safe-Depost Co. (132 Pa. St., 3 ,18 t., 1090), the fe tenant faed
to pay nterest upon the mortgage on the property purchased at fore-
cosure sae. The court n that case sad:
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201
113, rt. 591.
Deatons from whch dependence and fdety arse, as n guardan
and ward, have a strcter rue. fe tenant stands n no such reaton to the
remandermen. If, by hs wfu negect or defaut, the estate s ost,
the ony redress Is an acton for damages.
The dutes owed to the remanderman by a fe tenant whch are
sometmes characterzed as the dutes of a trustee or quas trustee
are not materay dfferent from those owed to a reversoner by a
tenant for years or a |ont tenant n possesson. They owe dutes
to the other partes n nterest, yet t coud not propery be contended
that such persons hod property n trust or woud be ta abe as
trustee upon gans resutng from the sae of the fee smpe of the
property durng the term of ther possesson.
In vew of the foregong, t s the opnon of ths offce that the
proft from the sae of the rea estate n the nstant case was not
derved by , the fe tenant, as trustee and s not ta abe to her as
trustee. The proft was derved by the fe tenant and the remander-
men from the sae of ther ndvdua ega nterests n the rea
estate and s ta abe to them n ther ndvdua capactes.
Snce the concuson reached n Offce Decson 1040 that a smar
proft shoud be ta ed n ts entrety to the fe tenant as trustee s
not n accord wth the concuson reached heren, t s recommended
that Offce Decson 1040 be revoked.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 113. SIS OR D T RMINING
G IN OR LOSS.
rtce 591: ass for determnng gan or I -11-7371
oss from sae. G. C. M. 14350
R NU CTS O 1920 ND 1928.
In 1922 transferred n trust 520 / shares of stock of the M
Company, the trust agreement provdng that the ncome be pad
to hs wfe durng her fetme. Upon her death the trust was
to termnate and the trust property was to be returned to .
The wfe ded n 1929 and the stock was returned to the ta payer
n that year. e sod the stock n 1031.
ed, the bass to be used by n determnng gan or oss
upon the sae of the stock n 1931 s the bass n hs hands pror
to tre creaton of the trust. No reducton shoud be made n the
bass by reason of the stock havng been hed n trust.
Soctor s Memorandum 48S2 (C. . -2, 13) s modfed In so
far as nconsstent herewth.
n opnon s requested reatve to the bass to be used by n
determnng gan or oss upon the sae of stock n the year 1931.
In 1922 transferred n trust 520y shares of stock of the M Com-
pany (whch he owned on March 1,1913), wth the provson that the
ncome therefrom shoud be pad to hs wfe durng her fetme.
Upon her death the trust was to termnate and the stock was to bo
returned to , the grantor. The wfe (to whom the ncome from
the trust was ta abe) ded on une , 1929, and the trustee then
devered to the ta payer ( ) the 520y shares of stock of the M
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113, rt. 59 .
202
Company. Durng the year 1931, the ta payer sod the stock and
the queston has arsen whether any reducton shoud be made n the
bass to be used by hm n determnng gan or oss upon the sae by
reason of the stock havng been hed n trust for a number of years.
The case of Perre S. du Pont v. Commssoner (18 . T. ., 1028)
s smar n prncpe to the nstant case. The syabus of the
oard s decson (adverse to the ureau) n the du Pont case reads
as foows:
Pettoner acqured certan stock n 1915. In 1918 he paced ths stock n
trust under the terms of an agreement by whch the stock woud be hed by
a trustee unt the ncome therefrom shoud aggregate a certan amount, such
ncome to be pad to a hospta theren desgnated. Upon the termnaton of
the trust agreement n 1922 the stock was returned to the pettoner, who
sod some of t n 1922 and some In 1923. ed, that n determnng gan or
oss on the saes no reducton of the cost or acquston vaue n 1913 s neces-
sary because of the creaton and e stence of a trust estate between the dates
of acquston and sae.
The Commssoner nonacquesced n the decson of the oard
(C. . I -2, 72) but nonacquescence was wthdrawn and acques-
cence announced n Interna Revenue uetn I -9, page 1 page
, ths uetn .
oowng the reasonng of the oard n the du Pont case, t s
the opnon of ths offce that where a precedent estate s created
by gft and the donee returns for ta aton a the ncome from the
property wthout any deducton for the shrnkage or e hauston of
the property over the fe of the estate, or where the ncome s not
ta ed to the donee because of the donee s chartabe or educatona
character, the donor s bass of the property shoud not be reduced
on account of the creaton of the precedent estate where the prop-
erty s returned to the donor and s sod by hm after the precedent
estate has termnated. s prevousy stated the ncome of the n-
stant trust was ta abe to the benefcary durng her fe. The bene-
fcary dd not receve a return of any part of the bass ta free nor
dd the ta payer (donor) receve such a return. ccordngy, under
the facts of ths case, no reducton shoud be made n the ta payer s
(donor s) bass of the 520 / shares of stock n queston by reason of
the stock havng been hed n trust.
Soctor s Memorandum 4882 (C. . -2, 13) s modfed n so far
as nconsstent wth the concusons heren stated.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 59G: Property transmtted at death. I -21-7505
G. C. M. 14803
R NU CT O 1928.
Where a testator who ded n 1910 drected that hs estate
be hod n trust for a perod of 10 years after hs death and at
the end of that perod be dstrbuted to certan benefcares, se-
curtes formng a part of the estate were acqured by the
benefcares at the date of death of the testator. The bass of
the securtes transferred to the benefcares n 1920 s the vaue
of the securtes at the date of dstrbuton to the trustee by
the e ecutor of the estate or the March 1, 1913, vaue, whchever
Is greater.
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203
113, rt. 598.
G. O. M. 11309 (0. . II-1, 12G) Is revoked. G. O. M. 195
(C. . III-1, 99) s renstated, md G. O. M. 10200 (C. . I-1,
79) Is modfed. It s recommended that I. T. 2 |39 (O. . I -1,
139) be renstated, that I. T. 2084 (C. . II-1, 127) be revoked,
and that acquescence n Raph W. arbson v. Commssoner
(2 . T. ., 89 ) be wthdrawn.
n opnon s requested reatve to the bass to be used n deter-
mnng gan or oss upon the sae of certan securtes n 1930.
, the father of the ta payer, ded testate n 1910. fter pro-
vdng n hs w for the payment of hs debts and for certan be-
quests, the testator drected that a the rest, resdue, and remander
of the estate, rea and personah be devered to the M Trust Co.
(whch was aso named e ecutor), n trust for a perod of 10 years,
the trustee to pay the net ncome therefrom to , the wfe, and C,
the daughter, share and share ake. The testator aso drected
that after the e praton of 10 years the trust shoud termnate and
the corpus thereof shoud be transferred to and C, share and
share ake. Provson was made for the dsposton of the estate
n the event of the death pror to termnaton of the trust of ether
or both of the benefcares. The wfe and daughter were granted
absoute power by ast w and testament to dspose of ther re-
spectve nterests n the trust estate. The w was probated n
Washngton, D. C. The trust termnated n 1920 by vrtue of ts
own provsons, at whch tme the rea and persona property wag
dstrbuted to the benefcares. Certan securtes whch were trans-
ferred to the ta payer (C) n 1920 were sod by her n the year 1930.
The ssue nvoved s the bass to be used n computng the gan or
oss from such sae.
Secton 113(a) of the Revenue ct of 1928 (whch governs the
year 1930) prescrbes the bass to be used n determnng gan or
oss from the sae or other dsposton of property acqured after
ebruary 28, 1913, and secton 113(b) of that ct prescrbes the
bass to be used n respect of property acqured before March 1,
1913. It becomes necessary, therefore, frst to determne when the
property n queston was acqured.
The Supreme Court of the Unted States n rewter v. Gage
(280 U. S., 327, Ct. D. 148, C. . I -1, 274) consdered the queston
as to the meanng of the word acqured as used n secton 202(a)
of the Revenue ct of 1921. There the testator dsposed of a part
of hs estate n the resduary cause of hs w whch made hs son
the resduary egatee. The father ded n 1918 and a fna decree
of dstrbuton was entered n 1920, pursuant to whch dstrbuton
was made to the son. The court hed that at the tme of the father s
death n 1918 the son acqured a vested rght n the resdue of the
estate and became enrched by ts worth whch was drecty reated
to and woud ncrease or decne correspondngy wth the vaue
of the property. The postponement of transfer of ega tte to
the son was not regarded as mportant.
In Chander y. ed ( 3 ed. (2d), 13), the Crcut Court of p-
peas for the rst Crcut consdered the queston as to when prop-
erty was acqured wthn the meanng of secton 204(a)5 of
the Revenue ct of 192 . In that case the mother ded n 1915
eavng her resduary estate to her husband for fe and after hs
death to trustees to pay the prncpa to the son, one-thrd when he
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113, rt. 59 .
204
became 30, one-thrd when he became 35, and one-thrd when he be-
came 40 years of age, wth provsons for hs chdren f he ded
before recevng a the prncpa. Upon the bass of rewster v.
Gage, supra, the court hed that the son took a vested nterest when
the mother ded and acqured the property (stock) n queston
at that tme. Smary, n Wa ner v. Commssoner (72 ed. (2d),
225, affrmng 28 . T. ., 1178), the Crcut Court of ppeas for
(he Second Crcut sad that the test n such cases s whether or not
the nterest vested n the ta payer at the date of death of the testa-
tor and that, f there was a vestng of some recognzed sort at the
date of death, the ta payer acqured the property at that tme.
The oard of Ta ppeas n Dane Tracy eers v. Commssoner
(31 . T. .. 117) hed that the same meanng shoud be attrbuted
to the word acqured n subdvsons (a) and (b) of secton 113
of the Revenue ct of 1928 as that gven the same word n corre-
spondng provsons of pror Revenue cts.
Under the aws of the Dstrct of Coumba, where the w was
probated, estates sha be hed to vest at the earest possbe perod
uness there s a cear manfestaton of ntent to the contrary. d-
verbs of tme, as after, etc., are to be construed to reate to tne tme
of the en|oyment of the estate and not to the tme of vestng n
nterest. ( eds v. Gwynn, 19 pp. D. C, 99. In Ws v. Maado
(45 pp. D. C, 128), the w created a trust n a certan person for
fe wth the remander n trust to hs chdren, ther share to be pad
to them when they reached the age of 25 years. The court hed that
the estate vested n the chdren the moment ther father ded and
that the fact that they were not to receve the estate unt they reached
the age of 25 years dd not defer the vestng but merey postponed
actua possesson and en|oyment. In uggett v. urnet ( 4 ed.
(2d), 705), decded by the Court of ppeas of the Dstrct of Coum-
ba, the ta payer s grandmother ded n 1912, eavng a fe estate
n certan securtes to the ta payer s mother wth remander to the
ta payer. The mother ded n 1924, at whch tme the securtes were
dstrbuted to the ta payer. The court hed that by the bequest n
her grandmother s w the ta payer acqured a vested remander n
1912, at the date of the testatr s death, and both her tte and the
acquston of the property at the date of possesson reated back
to that date.
Upon the authorty of the decsons cted, ths offce s of the
opnon that the securtes n the nstant case vested n the ta payer
n 1910 upon the death of her father, and that she, therefore, ac-
qured them at that tme.
Secton 113(b) of the Revenue ct of 1928 provdes as foows:
(b) Proprty acqured before March 1, 191S. The bass for determnng the
gan or oss from the sae or other dsposton of property acqured before
March 1. 1913, sha be:
(1) the cost of such property (or, n the case of such property as Is descrbed
In subsecton (a) (1), (4), (5), or (12) of ths secton, the bass as theren
provded), or
(2) the far market vaue of such property as of March 1, 1913,
whchever s greater.
Secton 113(b) of the Revenue ct of 1928 ncorporates by refer-
ence secton 113 (a) 5, whch specfcay governs the bass of property
transmtted at death. Snce the persona property here n queston
was not acqured by specfc bequest, the bass for determnng gan
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205
5113, rt. 00.
or oss s governed by the thrd sentence of secton 113 (a)5, whch
provdes that In a other cases the bass sha be the
far market vaue of the property at the tme of the dstrbuton to
the ta pa| er. In the nstant case the e ecutor and the trustee were
the same. When the e ecutor dstrbuted the resdue of the estate to
tsef as trustee, ts functons as e ecutor n respect of the property
ceased and ts dutes as trustee commenced. The dutes of a trustee,
even where the trust s created by w and the e ecutor s nomnated
as the trustee, are to be dstngushed from those of the e ecutor.
fter dstrbuton to the trustee, t acts soey as a donee of a trust
power wth equtabe abtes to the benefcares. Upon dstrbu-
ton by the e ecutor to the trustee, the benefcares become entted
to the ncome from f ed and determned property and utmatey to
the possesson of such property or ts equvaent.
In vew of the foregong| ths offce s of the opnon that the prop-
erty sod by the ta payer n 1930 was dstrbuted to her, wthn the
ntent of secton 113 (a) 5 of the Revenue ct of 1928, when the
e ecutor renqushed the property to tsef as trustee. It therefore
foows that the bass of the property for gan or oss purposes,
under the provsons of secton 113(b) of that ct, s the vaue at the
date of dstrbuton to the trustee, or the March 1, 1913, vaue, whch-
ever s greater.
G. O. M. 11309 (C. . II-1, 12 ) s hereby revoked, G. C. M.
195 (O. . III-1, 99) s renstated, and G. C. M. 102 0 (C. .
I-1, 79) s modfed to accord wth the vews heren e pressed. It
s recommended that I. T. 2539 (C. . I -1, 139) be renstated, that
I. T. 2 84 (C. . II-1, 127) be revoked, and that acquescence n
Raph W. arbson v. Commssoner (2 . T. ., 89 ) be wth-
drawn.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 59 : Property transmtted at death. I -21-750
I. T. 2893
R NU CT O 1928.
I. T. 2539 (C. . I -1, 139) s renstated and I. T. 2 84 (C. .
II-1, 127) s revoked, n vew of G. C. M. 14893. (See page 202.)
rtce 00: Stock or securtes dstrbuted I -1 -7442
n reorganzaton. Ct. D. 949
INCOM T R NU CT OP 1028 D CISION O COURT.
Gan ob Loss ass Saue| of Stock cqured on Reorganza-
ton pportonment of Cost etween Od and New Stock
uthorty of Commssoner.
Where a stockhoder In a corporaton n 1928 acqured stock of
another corporaton by way of dstrbuton n connecton wth a
nonta abe reorganzaton and sod the new stock durng the same
year, the Commssoner had authorty, under secton 113(a)9 of
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118, rt. 00.
20
the Revenue ct ot 1928, to determne the gan from the sae by
appyng the provsons of Treasury Decson 4274 0. . I -2,
240 as to apportonment of cost between the od stock and the
new, even though that decson was promugated subsequent to the
sae. Treasury Decson 4274 dd not mpose a ta abty on a
transacton aready competed, but was promugated to amend
artce 00 of Reguatons 74 so as to gve effect to the Intent of
Congress to ta upon a bass that ceary refected ncome.
Unted States Crcut Court of ppeas for the Thrd Crcut.
Chares Potter Ttsworth, pettoner, v. Commssoner of Interna Revenue,
respondent.
Opon petton for revew from the Unted States oard of Ta ppeas.
efore uffngton, Davs, and Thompson, Crcut udges.
October 3, 1034.
OPINION.
Thompson, Crcut udge: Ths s a petton for revew of a decson of the
oard of Ta ppeas. The pettoner was a sharehoder of the Mehe Prnt-
ng Press Manufacturng Co., an Inos corporaton, whch had an author-
zed and ssued capta stock of 75,000 shares of no par vaue. It acqured a
of the capta stock of Stonebrdge, Inc., aso an Inos corporaton, whch had
an authorzed and ssued capta stock of 300,000 shares of no par vaue. The
stock of both corporatons was of the same character. Nether had preference
stock. The acquston by the Mehe company of a Stonebrdge, Inc., capta
stock consttuted a reorganzaton. In ebruary, 1028, the Mehe company ds-
trbuted pro rata to ts own stockhoders Stonebrdge, Inc., stock under the
crcumstances set out n secton 112 (a) (g) () of the Revenue ct of 1928
(45 Stat., 81 , 818). t thnt tme the pettoner was the owner of 150 shares
of the Mehe company stock whch he had purchased at a cost of 1 ,150.
S hundred shares of Stonebrdge, Inc., were aotted to the pettoner but he
was not requred to surrender hs Mehe company stock. In ebruary, 1928, he
sod hs Stonebrdge, Inc., stock for 8,000, but reported no ta abe gan on ths
sae n hs ncome ta return for that year. The Commssoner determned that
a proft had accrued from the sae and assessed a defcency. The oard of
Ta ppeas sustaned the Commssoner s determnaton. The pettoner ap-
peaed.
The queston before us s whether the sae of Stonebrdge, Inc., stock resuted
n a ta abe gan to the pettoner.
Secton 112 of the Revenue ct of 1928, supra, provdes:
(a) Upon the sae or e change of property the entre amount of the gan or
oss, determned under secton 111, sha be recognzed, e cept as herenafter
provded n ths secton.

(g) If there s dstrbuted, n pursuance of a pan of reorganzaton, to a
sharehoder n a corporaton a party to the reorganzaton, stock or securtes
In uch corporaton or n another corporaton a party to the reorganzaton,
wthout the surrender by such sharehoder of stock or securtes n such a cor-
poraton, no gan to the dstrbutee from the recept of such stock or securtes
sha be recognzed.

() s used n ths secton and sectons 113 and 115
(1) The term reorganzaton means ( ) a merger or consodaton (In-
cudng the acquston by one corporaton of at east a ma|orty of the votng
stock and at east a ma|orty of the tota number of shares of a other casses
of stock of another corporaton, or substantay a the propertes of another
corporaton), or ( ) a transfer by a corporaton of a or a part of ts assets
to another corporaton f Immedatey after the transfer the transferor or ts
stockhoders or both are n contro of the corporaton to whch the assets are
transferred, or (C) a recaptazaton, or (D) a mere change n dentty, form,
or pace of organzaton, however effected.
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207
113, rt. 00.
It a not contended that under the terms of that secton, any ta abe gan
accrued to the pettoner because of the recept by hm of Stonebrdge, Inc.,
stock.
The determnaton of oss or gan from the sae of stock receved under
the crcumstances above descrbed Is governed by secton 113 of the Revenue
ct of 1928, whch provdes:
(a) The bass for determnng the gan or oss from the sae or other ds-
poston of property acqured after ebruary 28, 1913, sha be the cost of such
property e cept that

(9) If the property conssts of stock or securtes dstrbuted after Decem-
ber 31, 1923, to a ta payer In connecton wth a transacton descrbed n sec-
ton 112(g), the bass n the case of the stock n respect of whch the dstrbu-
ton was made sha be apportoned, under rues and reguatons prescrbed by
the Commssoner wth the approva of the Secretary, between such stock and
the stock or securtes dstrbuted.
Under that statute, Congress has conferred power upon the Commssoner to
provde by reguaton the bass for the apportonment of the cost between the
stock orgnay owned by the ta payer and that dstrbuted to hm as a resut
of hs ownershp. rtce 00 of Treasury Reguatons 74, whch s dentca
wth artce 1599 of Reguatons 5 and 9, was promugated by the Comms-
soner In accordance wth ths authorty and became effectve ebruary 15,
1929. It provded:
In the case of stock or securtes acqured by a sharehoder after December
81, 1923, In connecton wth a transacton descrbed n secton 112(g) and art-
ce 57 , the bass In the case of the stock n respect of whch the dstrbuton
was made sha be apportoned between such stock and the stock or securtes
dstrbuted to the sharehoder. The bass for the od and new shares sha be
determned n accordance wth the foowng rues:
(1) Where the stock dstrbuted n reorganzaton s a of substantay the
same character or preference as the stock In respect of whch the dstrbuton
s made, the bass of each share w be the quotent of the cost or other bass of
the od shares of stock dvded by the tota number of the od and new shares.
The pettoner In hs ta return for 1928 cacuated hs ncome by appyng the
provsons of the above reguaton, and reported that the bass of Stonebrdge,
Inc., stock was 21.40, the seng prce 13.33 , and that no ta abe gan ac-
crued to hm as a resut of the sae of that stock. In November, 1929, artce
00 of Reguatons 74 was amended by Treasury Decson 4274, whch provdes:

(2) Where the stock dstrbuted h reorganzaton Is n whoe or n part
stock In a corporaton a party to the reorganzaton other than the dstrbutng
corporaton, the cost or other bass of the stock n respect of whch
the dstrbuton s made sha be apportoned between such stock and the stock
or securtes dstrbuted n proporton, as neary as may be, to the respectve
vaues of each cass of stock or securty, od and new, at the tme of such dstr-
buton, and the bass of each share of stock or unt of securty w be the
quotent of the cost or other bass of the cass of stock or securty wth whch
such share or unt beongs, dvded by the number of shares or unts n the
cass.
The Commssoner, appyng the provsons of Treasury Decson 4274, appor-
toned 29 pus per cent, or 4, 12.42 of the cost of the Mehe stock to Stone-
brdge, Inc., stock, and found that the sae of the atter for 8,000 resuted n a
ta abe gan to the pettoner of 3,387.5 . e therefore assessed a defcency.
The pettoner contends that the appcaton of Treasury Decson 4274 s
nvad because t attempts to affect retroactvey transactons competed pror
to ts promugaton. e argues that the reguatons round out and compete tho
aw, that they are egsatve n charncter, and that Congress, by reenactng the
ta ng statutes wthout change n 192 and 1928, adopted the admnstratve
practce found In Reguatons 04, 09, and 74. The Commssoner contends that
reguatons are admnstratve rues whch nterpret the ta ng statutes and
that changes n the reguatons merey e press a dfferent opnon as to the
meanng of ta ng statutes. It s our opnon that nether content on s tenabe
uness quafed, snce no amount of egsatve reennctment of a statute w
vadate an unreasonabe practce n nterpretng t and snce reguatons may
Invove n ther nature the eements of ether decarng or nterpretng tho aws.
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113, rt. 04.
208
Secton 113 of the evenue ct of 1928 requres the Commssoner to set up
rues to determne gan from the sae of stock acqured n ta -free dstrbutons.
It provdes that the bass sha be apportoned, under reguatons, between
such stock and the stock dstrbuted. The resutng reguatons are more than
an admnstratve understandng or opnon of the aw. If they are reasonabe,
they must be a decaraton of the aw under the authorty gven by Congress.
The reguatons as amended do not Impose a ta abty on a transacton
aready competed. The ta abty arses under secton 113(a)9 and that
statute mposes upon the Commssoner the duty of provdng the means of
computng the ta . Whether Reguaton 74 was defectve n not provdng a
proper method of spreadng the bass of cost or not cear n defnng the scope
of ts appcaton, we see no sound reason why the error shoud not be corrected.
The ta computed was on ncome receved durng the ta abe year and Congress
Intended that t shoud be ta ed on a bass that refected ncome ceary.
(Cooper v. Unted States, 280 U. S., 409 Ct. . 103, C. . I -1, 272 .) Ths
Intenton was gven effect n Treasury Decson 4274. In urnet v. S. d L.
udng Corporaton (288 U. S., 400 Ct. D. 051, C. . II-1, 195 ), the
Supreme Court sad:
The Commssoner and oard of Ta ppeas have practca knowedge of
the ntrcate detas ncdent to ta probems, and ther determnaton n
crcumstances ke those under consderaton here shoud be gven effect when
not ceary contrary to the w of Congress.
The decson of the oard of Ta ppeas s affrmed.
Sae by partnershp of assets contrbuted n knd by partners
ass of gan or oss Ta aton to partners.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, March 29, 1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Reference s made to G. C. M. 10092 (C. . I-1, 114), wheren t
s hed that the bass for computng gan or oss upon the sae by a
partnershp of an asset contrbuted n knd to the partnershp enter-
prse s the cost or other bass thereof to the contrbutng partner,
that any gan or oss computed on such bass shoud be taken nto ac-
count for ncome ta purposes at the tme of sae of the asset, and
any gan shoud be ta ed to the partners n accordance wth ther ds-
trbutabe shares of the partnershp ncome.
Reference s aso made to the decsons of the Unted States Crcut
Court of ppeas for the Second Crcut n everng v. Wabrdge
(70 ed. (2d), G83), affrmng a memorandum opnon of the oard
of Ta ppeas, and everng v. rchad (70 ed. (2d), 720),
affrmng the opnon of the oard of Ta ppeas (27 . T. .,
837), n respect of whch decsons certorar was dened by the
Supreme Court on October 8, 1934 (293 U. S., 594). In those cases
the crcut court sustaned the oard of Ta ppeas n hodng that
upon a sae by a partnershp of property contrbuted by a partner
at the tme of organzaton at ts then vaue (whch was greater
than the partner s cost or other bass) for a prce greater than the
vaue when contrbuted, the bass for computng the gan of the part-
nershp s such vaue, and that nether the ndvdua partner s ds-
trbutve share of partnershp ncome nor hs other ncome may
ncude as gan the earer ncrement.
rtce 04: Read|ustment of partnershp
nterests.
I -15-7424
Mm. 4311
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209
115, rt. 21.
Snce the decsons of the crcut court are contrary to G. C. M.
10092, supra, that memorandum has been carefuy reconsdered by
the ureau, and t has been decded that regardess of the decsons
to the contrary the rue set forth n that memorandum w be fo-
owed pendng the outcome of further tgaton of the queston
nvoved.
Correspondence and nqures regardng ths mmeograph shoud
refer to the number and the symbos IT: : CTR.
Gut T. evernq,
Commssoner.
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 11: ass for aowance of deprecaton and depeton.
R NU CT O 1028.
Revocaton of G. C. M. 11384 (C. . II-1, 4). (See G. C. M.
14448, page 98.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 21: Dvdends. I -17-7454
Ct. D. 952
ncome ta revenue act of |928 decson of court.
1. Gross Income Dvdends Dstrbuton by Corporaton from
Proceeds of Lfe Insurance.
Where fe nsurance poces were procured by a corporaton on
the ves of two of ts offcers, the corporaton beng named as soe
benefcary, and t was agreed between the stockhoders and drec-
tors that, upon the death of ether or both of the nsured and the
recept of the pocy proceeds, the corporaton woud pay the
amount thereof as a dvdend to the common stockhoders of record,
the amounts pad to the stockhoders n 1929, when the death of
one of the nsured occurred, represented a dstrbuton to them
of the gans or profts of the company and hence were dvdends
to be ncuded n gross ncome under secton 22(a) of the Revenue
ct of 1928.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 1045) affrmed.
Unted States Crcut Court of ppeas fob the rst Crcut.
dwn L. Cummngs et at., pettoners for revew, v. Commssoner of Interna
Revenue.
ppeas from oard of Ta ppeas.
efore ngham, Wson1, and Morton, .
November 10, 1934.
OPINION.
ngham, .: The Commssoner of Interna Revenue determned def-
cences for the year 1929 n the ncome ta returns for that year of dwn
L. Cummngs. of Provdence, R. I., George L. Webb of oston, Mass., and
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5115, rt. 21.
210
Wam N. Stetson, r., of ast Mton, Mass. They each pettoned the
oard of Ta ppeas for a redetermnaton of the defcency, whch pet-
tons, as they nvoved the same facts and ega prncpes, were consodated
and heard together. The oard n each ease sustaned the rungs of the
Commssoner, and the partes are here on pettons for revew by the three
ta payers.
The pettoners were stockhoders of Storrs ement Co., a Massachusetts
corporaton engaged n the whoesae paper busness.
In the atter part of 192 , or eary n 1927, a dscusson was had among
the offcers and drectors of Storrs ement Co., hereafter referred to as the
company, n regard to procurng nsurance poces on the ves of some of
ts offcers. On anuary 10, 1927, poces were procured on the ves of the
company s presdent, Wam . Stevenson, and ts treasurer, ryant Mc u-
en, for 100,000 each. In eac pocy the company was named as the soe
benefcary. t a meetng of the board of drectors hed anuary 10, 1927,
the foowng resouton was adopted:
oted: That whereas Storrs ement Co., a corporaton duy estabshed
and e stng by aw and havng ts usua pace of busness n oston, Suf-
fok County, Mass., as recenty nsured the ves of Wam . Stevenson and
ryant Mc uen, offcers of sad company, for the sum of 100,000 each, and
Whereas t s not practca to have the proceeds of sad poces payabe
n the form and manner ntended by Storrs ement Co. at the tme the
ves of the sad Wam . Stevenson nnd ryant Mc uen were nsured
because of the aws reatng to the namng of benefcares under nsurance
poces and because of that fact sad poces of nsurance are now payabe n
case of death to the Storrs ement Co.
oted: That n order to carry out the agreement and understandng of the
offcers and common stockhoders of Storrs ement Co. n regard to sad
nsurance, t s hereby agreed that f and when a pocy of nsurance so
taken sha become payabe by reason of the death of ether or both the
nsured and the proceeds of a pocy are pad to Storrs ement Co., that
Storrs ement Co. w prompty after recept of the proceeds of sad nsur-
ance pocy, vote to decare and pay sad proceeds as a dvdend on the com-
mon stock of Storrs ement Co., payabe to common stockhoders of record
at the tme of the death of sad nsured t beng understood that the estate
of any common stockhoder so deceased whose fe was nsured as aforesad,
sha receve ts pro rata share of sad proceeds the same as the survvng
stockhoders prevousy mentoned.
There was aso ncorporated n the records of the drectors meetng of the
above date a so-caed agreement settng forth the matters stated n the
resouton quoted wth respect to the nsurance poces on the ves of the
offcers and sgned by a of the corporaton s nne common stockhoders.
That Is, the stockhoders agreed that the drectors shoud and authorzed
them to decare the dvdends as above voted.
On ebruary 14, 1928, three other poces totang 100,000 were procured
on the fe of Wam . Stevenson upon substantay the same terms and
condtons as the pocy taken out n the pror year.
Wam . Stevenson ded on anuary 12, 1929, and soon thereafter the com-
pany receved payment of 200,000 from the nsurance companes on the
above poces. Thereafter the company receved addtona amounts of
1,388.07, representng post mortem dvdends, and 0,984.55, representng a
payment n settement of a cam on a 50,000 pocy whch the company had
procured from the Sun Lfe Insurance Co. of Canada, but whch pocy was
not one of those referred to In the voes and agreements specfed above.
The amounts receved from the nsurance poces were credted on the books
of the corporaton to genera surpus. of the above amounts were depos-
ted by the company n a speca bank account, whch t opened for that pur-
pose, and were not m ed wth the other company funds.
meetng of the board of drectors of Storrs ement Co. was hed on
ebruary 25, 1929, at whch tme the vce presdent stated that Wam .
Stevenson, presdent of the corporaton, deceased on anuary 12, 1929 that
the 200,000 had been receved as the proceeds of the frst four poces and
that n accordance wth the terms and provsons of votes of the drectors
duy passed at meetngs hed on anuary 10, 1927, and ebruary 14, 1928, and n
accordance wth the provsons of agreements sgned by a the common
stockhoders of the company on sad anuary 10, 1927, and ebruary 14,
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211
118, rt. 21.
1928, It now becomes necessary to pay out the proceeds of sad poces of
Insurance In the amount of 200,000 on the fe of Wam . Stevenson as a
cash dvdend on the common,stock of Storrs ement Co., payabe to com-
mon stockhoders of record at the date of the death of sad Wam . Steven-
son. nd:
Upon moton duy made and seconded and n accordance wth and n
pursuance of sad votes and agreements of anuary 10, 1927, and ebruary
14, 1928, the foowng resouton was unanmousy adopted:
That a cash dvdend of 50 per cent ( 50 a share) on the par vuue of the
common capta stock of 400,000 consstng of 4,000 shares each of the par
vaue of 100, sad dvdend amountng to 200,000, be pad on ebruary 2o,
1929, to common stockhoders of record on that date ( anuary 12, 1929).
y smar corporate actons had on March 12, 1929, and May 27, 1929,
authorzaton was gven for dstrbuton to the common stockhoders of the
further amounts of 1,388.07 and ,984.55 referred to above.
The surpus of the company on anuary 1, 1929, was 224,945.78 and on
une 30, 1929, 250,307.58. These amounts were e cusve of any proceeds
from Insurance poces.
t the date of Stevenson s death there were seven common stockhoders of
Storrs ement Co. besdes the estate of the decedent, whch hed 2,200 shares
of common stock. The estate sod a of ts common stock on March 9,1929, and
by the purchase of ths stock s new stockhoders were added to the st and
the shares of the od survvng stockhoders were ncreased In varyng amounts.
of the premums on the aforesad Insurance poces were pad by the
company.
In ther returns for the caendar year 1929 none of the pettoners Incuded
the amounts thus receved from the company n hs ta abe ncome. The
Commssoner and the oard determned that such amounts represent cash
dvdends and are ta abe as such to the pettoners.
The Interna Revenue ct of 1928 (ch. 852, 45 Stat., 791), under whch
these defcences were assessed, provdes n secton 22 as foows:
Sec. 22. Gross ncome.
(a) Genera defnton. Gross ncome ncudes gans, profts, and ncome
derved from saares, wages, or compensaton for persona servce, of what-
ever knd and In whatever form pad, or from professons, vocatons, trades,
busnesses, commerce, or saes, or deangs n property, whether rea or
persona, growng out of the ownershp or use of or nterest n such property
aso from nterest, rent, dvdends, securtes, or the transacton of any bus-
ness carred on for gan or proft, or gans or profts and ncome derved from
any source whatever.
(b) cusons from gross ncome. The foowng tems sha not be ncuded
n gross ncome and sha be e empt from ta aton under ths tte:
(1) Lfe nsurance. mounts receved under a fe nsurance contract pad
by reason of the death of the nsured, whether n a snge sum or nsta-
ments .
The pettoners contend that the amounts pad as above were receved by
them under a fe Insurance contract pad by reason of the death of Stevenson
and shoud not be ncuded In the gross Income, whe the Commssoner s cam
s that they represented a dstrbuton among stockhoders of the gans or
profts of the company and hence were dvdends to be ncuded n the gross
Income under secton 22(a). Ths rases the ony queston for revew.
The pettoners say that n appyng for, payng the premums on and recev-
ng the proceeds of the poces the company acted smpy as trustee or agent
for the common stockhoders, they beng the rea benefcares of the poces.
The evdence, ora and documentary, pany shows that at the tme the
poces were taken out, t was ntended by the offcers of the company and a
the common stockhoders that the recepts therefrom shoud fnay go to the
beneft of certan stockhoders those e stng at the tme of Stevenson s
death. Ths Intenton coud have been fufed n two ways: (1) by takng out
the poces In the name of the company as trustee for such stockhoders, n
whch case there woud be no queston but the amounts receved by the pet-
toners were receved under the fe nsurance contracts or (2) by a contract or
undertakng on the part of the company that these proceeds shoud be pad to
them, not by reason of ther nterests n the fe Insurance contracts, but by rea-
son of ther nterests n the company as stockhoders and as a dstrbuton of a
part of ts surpus, n whch case the amounts so dstrbuted woud be ta abe
to the recevers thereof.
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3, rt. 21.
212
It seems to us that the records of the company ceary show that It was
the Intent of a partes that these proceeds shoud go to swe the assets of
the company. It pad the premums, took the poces out In Its own name, and
t was understood both by the offcers of the company and the common stock-
hoders that when the proceeds thereof were receved they woud be so mnged
wth the other company assets that t woud be necessary to decare a dvdend
n order to separate and gve each ndvdua stockhoder a rght to hs propor-
tonate part accordng to the number of shares n the company he hed.
I ness one had an nterest n the pocy tsef, the proceeds thereof re-
ceved by hm as a gft, or by reason of a contract other than the pocy,
after they came nto the bauds of the benefcary woud not be amounts re-
ceved under a fe nsurance contract. To put the matter In ts most smpe
form, t seems an anaogous case woud be one where , havng an nsurabe
nterest n the fe of , promses G that he w take out nsurance on s
fe payabe to hmsef and that, when des and the proceeds of the pocy
are receved, he w pay them over to C. It woud seem cear n that case
that C woud have no nterest In the pocy and ts proceeds unt the money
got nto the hands of , and no ega nterest then uness there was a good
consderaton for s promse, n whch case the rght of C to the funds woud
arse by vrtue of hs contract wth and not of the pocy Itsef. We fnd
nothng here ndcatng any nterest hed by the pettoner n the fe nsurance
contracts. s sad by the oard:
The corporate resoutons of anuary 10, 1027, and ebruary 14, 1928,
both refer to the corporaton as the nsurer of the fe of Wam . Stevenson.
The agreement between the corporaton and the stockhoders was not that the
corporaton woud merey receve the proceeds of the nsurance poces for the
beneft of the stockhoders, but that, upon recept of the proceeds of the
poces, t woud pay them over to the stockhoders as a cash dvdend. No-
where s there any reference to the corporaton as a trustee nor are there
present any crcumstances whch can be sad to create a resutng trust n
favor of the stockhoders.
It s aso camed that, f the stockhoders were not benefcares under
the poces the agreements of anuary 10, 1927, and ebruary 14, 1928,
attached to the nsurance fund the moment t was receved by the corporaton
and by vrtue of the agreements the corporaton became a trustee of the Insur-
ance proceeds and the fund (never became assets of the company but) became
sub|ect to an equtabe en for the beneft of the stockhoders of record as of
anuary 12, 1929. They cte to ths proposton arnes v. e ander (232
U. S., 117), where the court, at page 121, says:
t the atest, the moment the fund was receved the contract attached to t
as f made at that moment. It s an ancent prncpe even of the common aw
that words of covenant may be construed as a grant when they concern a
present rght.
(ctng cases). nd It Is one of the famar rues of equty that
a contract to convey a specfc ob|ect even before It s acqured w make the
contractor a trustee as soon as he gets a tte to the thng.
We fnd n the nstant case no consderaton for the agreements reed on
and consder them to have been unenforcbe. ad there been a consderaton
had the promses of the company been made n consderaton of servces ren-
dered or to be rendered, as n arnes v. e ander, supra, then on recept
thereof by the stockhoders the funds woud have gone nto ther gross ncomes,
not as dvdends, but as gans, profts, and ncome derved from saares,
wages, or compensaton for persona servce. Or had the en attached and
the funds been receved by the stockhoders on account of transfers of property
to the company, the stockhoders woud have been ta abe for ther profts, If
any, made by the transacton. In other words ther gross ncomes woud have
been ncreased by the amount of gans or profts they receved.
Moreover, the pettoners say, even on the assumpton that the corporaton
was the rea benefcary of these nsurance poces, these payments to the pet-
toners were not dvdends, snce they were not a dstrbuton out of the surpus
or net profts of the corporaton.
Secton 115(a) of the Revenue ct of 1928 defnes dvdend as foows:
The term dvdend when used In ths tte means any dstrbu-
ton made by a corporaton to ts sharehoders, whether n money or n other
property, out of ts earnngs or profts accumuated after ebruary 28, 1913.
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213
118, rt. 29.
arnngs or profts as used u ths secton must mean the same as gans
or profts n secton 22(a), and a gft to a corporaton woud be a gan. Nor
woud t be overstatng the transacton here to say, that, the company havng
nvested n the nsurance poces by payng the premums, the recepts there-
from over and above the premums were profts. If these funds, however de-
rved, beonged to the company when receved, they woud go to Increase ts
surpus, and t can not be serousy argued that the surpus funds n the hands
of the company over and above ts stock abty are not the earnngs or profts
contempated by the secton.
The pettoners aso assert that the undertakng of the company to dstrbute
ts assets as contempated by the votes of the drectors and the actua decara-
ton of dstrbuton, beng made to stockhoders not e stng at the tme of the
decaraton but some months pror thereto, were Iega and from that argue
that the dstrbuton was not ntended to be and was not a dvdend. The
egaty or rreguarty of the dstrbuton can not be rased here, especay by
the pettoners who have retaned the benefts of the dstrbuton. If they
receved a part of the surpus of the corporaton, as we hod they dd, the
Commssoner was |ustfed n Incudng the sums receved n the gross ncomes.
The orders of the oard of Ta ppeas are affrmed.
rtce 29: Dstrbuton n redempton or can- I -7-7314
ceaton of stock ta abe as a dvdend. Ct. D. 920
ncome ta revenue act of 1928 decson of court.
1. Dvdends Dstrbuton n Canceaton or Redempton op
Stock.
Where the ta payer, practcay the soe owner of a constructon
company, caused the corporaton to cance and retre 97 per cent
of ts stock and mmedatey organzed a new corporaton to hod
assets accumuated by the constructon company whch were not
necessary to ts busness, the amount receved by the ta payer
for hs canceed stock was essentay equvaent to the dstrbu-
ton by the corporaton of a ta abe dvdend to the e tent of the
earned surpus accumuated after ebruary 28, 1913, wthn the
meanng of secton 115(g) of the Revenue ct of 1928.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 1231) affrmed.
3. Certorar Dened.
Petton for certorar dened October 8, 1934.
Court of ppeas of the Dstrct of Coumba.
George uman, pettoner, v. Guy T. cvcrng, Commssoner of Interna
Revenue, respondent.
On petton for revew of decson of tbe Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Oksde, tz, and Groner,
ssocate ustces.
May 7, 1934.
opnon.
Groner, ssocate ustce: Pettoner owned a but two shares of the capta
stock of George yman Constructon Co., a Maryand corporaton. The corpo-
raton was engaged n the busness of genera contractor n the constructon
of pubc and prvate budngs. It was ncorporated after March 1, 1913, and
pror to anuary 1, 1928, and had ssued 200,000 of capta stock dvded nto
2,000 shares. Pettoner pad nto the company n cash 199,800 for the stock
ssued to hm. s of December 31, 1927, the corporaton had an accumuated
earned surpus of one hundred nneteen thousand some odd doars, and as of
December 31, 1928, one hundred and nne thousand some odd doars.
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5115, rt. 29.
214
Pettoner decded t had too many eggs n one basket and that t was desr-
abe t shoud dspos-a of that porton of ts assets not necessary n the construc-
ton busness. The property whch t proposed to rd tsef of conssted of
rea estate, stocks, and bonds and so on December 11, 1928, pettoner caused
George yman Propertes, Inc., to be organzed under the aws of Maryand
wth a capta of 2,000 shares of stock of the par vaue of 100 each. The ne t
day the constructon company made ts check to pettoner In the sum of
195,000 n consderaton of the devery to t by pettoner of 1,950 shares of
stock, whch t thereupon retred and canceed, eavng ony 50 shares outstand-
ng, of whch pettoner hed 48. Pettoner turned over the 195,000 to the
yman Propertes Corporaton, whc n turn pad t to the constructon com-
pany for the rea estate, stocks, and bonds whch pettoner had prevousy
decded t was desrabe constructon company shoud no onger contnue to
hod. The resut of these transactons was that constructon company there-
after had an Issued capta stock of 5,000 and other assets of book vaue of
one hundred and nne thousand odd doars, and yman Propertes company
had an ssued capta stock of 195,000 and rea estate and bonds and stocks
presumaby equa n vaue to ts captazaton, and pettoner was the
owner of 48 of the 50 shares of stock of Constructon company and equay the
owner of a, or practcay a, of the stock of the Propertes company.
Pettoner In hs ncome ta return treated the transacton as nonta abe
on the theory that the payment to hm of 195,000 by the constructon com-,
pany was n redempton and canceaton of the 1,950 shares of stock whch
he had devered to t, and snce the amount receved by hm per share was
equa ony to the prce pad by hm per share, there was nether gan nor oss.
The Commssoner, however, asserted a defcency to the e tent of the earned
surpus of the constructon company at the tme of the transacton. Pettoner
appeaed to the oard of Ta ppeas, whch sustaned the defcency, and
ths petton for revew foowed.
The appcabe statute s secton 115 of the Revenue ct of 1928 ( 45 Stat,
822 2 U. S. C. ., secton 2115), as foows:
(a) The term dvdend when used n ths tte means any
dstrbuton made by a corporaton to ts sharehoders, whether n money or
n other property, out of ts earnngs or profts accumuated after ebruary 28,
1913.
( ) mounts dstrbuted n compete qudaton of a corporaton sha be
treated as n fu payment n e change for the stock, and amounts dstrbuted
n parta qudaton of a corporaton sha be treated as n part or fu pay-
ment n e change for the stock.
(g) If a corporaton cances or redeems ts stock (whether or not such
stock was ssued as a stock dvdend) at such tme and n such manner as to
make the dstrbuton and canceaton or redempton n whoe or n part
essentay equvaent to the dstrbuton of a ta abe dvdend, the amount so
dstrbuted n redempton or canceaton of the stock, to the e tent that t
represents a dstrbuton of earnngs or profts accumuated after ebruary
28. 1913, sha be treated as a ta abe dvdend.
(h) s used n ths secton the term amounts dstrbuted n parta qu-
daton means a dstrbuton by a corporaton n compete canceaton or
redempton of a part of ts stock, or one of a seres of dstrbutons In compete
canceaton or redempton of a or a porton of ts stock.
The Treasury reguatons are contaned n Reguatons 74, ssued under the
Revenue ct of 1928, and partcuary artce 29, but, as we thnk, they are
not hepfu n decdng the queston.
The ssue s whether the amount of money receved by pettoner n redemp-
ton of the shares of stock devered by hm to the corporaton s a ta abe
dvdend wthn the purvew of (g) of secton 115 and the answer to ths
queston depends upon whether or not the transacton n pont of tme and
manner was such a dstrbuton as to make t essentay the equvaent of a
ta abe dvdend.
The term dvdends s defned by the Treasury reguatons (artce 21,
Reguatons 74) to be any dstrbuton n the ordnary course of busness, even
though e traordnary n amount, and by the ct (secton 115(a), supra) to be
any dstrbuton whether n money or other property out of ts earnngs or
profts accumuated after ebruary 28, 1913.
To determne the queston we must ook to the stpuated facts. These show
a corporaton whoy owned and controed by pettoner whch n the course
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215
115, rt. 29.
of years but after 1913 had accumuated profts of over 109,000, represented
argey by nvestments n stocks, bonds, and rea estate. Pettoner n good
fath but to avod the rsk of oss of these profts as the resut of possbe
future mprovdent budng contracts, decded to put them out of harm s way
by the ncorporaton of another company to be owned and controed by hm
to the same e tent and to accompsh ths he reduced the captazaton of the
constructon company 97 per cent, eavng t st wth suffcent assets,
property, and equpment paraphernaa to carry on the busness precsey as
t had been carred on pror to the transacton to whch we refer. It s obvous
n ths vew there was no compete qudaton of the company n the ordnary
accepted meanng of the term, whch, as we sad n Ieman v. evcrng ( 8
. (2d), 7 3, 7 5), means an act or an operaton n wndng up the affars
of a frm or corporaton, a settng wth ts debtors and credtors, and an appro-
praton and dstrbuton among ts stockhoders rataby of the amount of the
proft and oss. On the other hand, what was done may perhaps be descrbed
as a recaptazaton by parta qudaton.
ut, n our vew, the answer wthn the ntendment of (k) turns not so much
upon the queston of whether there was or was not qudaton as upon the
resut. That s to say, f the dstrbuton and canceaton, vewed fary,
made t essentay equvaent to a dstrbuton of profts, t s ta abe. The
Commssoner and the oard have both hed that what occurred was essentay
equvaent to a dstrbuton of profts. We have ree amned the facts to see
f the concuson s correct. Undoubtedy the ta aw recognzes a dstncton
between qudatng dvdends and dvdends out of profts, and provdes a df-
ferent bass on whch to ta them. The purpose of Congress n the ncuson
of (g) was to narrow the dstncton to the end that corporatons mght not
by resort to the devce of stock redempton or canceaton make a dstrbuton
to Its sharehoders essentay resutng n a dvson of profts. In both the
ouse and Senate reports, and n the conference reports, an ustraton s
gven showng the congressona purpose. The ustraton supposes, under
the ta aws pror to the amendment nvoved here, the case of two men hodng
practcay the entre stock of a corporaton for whch each pad 50,000. The
corporaton, havng accumuated a surpus of 50,000 above ts cash capta,
buys from the stockhoders for cash one-haf of the stock hed by them and
cances t, and the payment s nonta abe because t s a parta redempton
of stock. To change ths resut and make t ta abe (g) was wrtten and n-
corporated nto the aw. Granted the ustraton s an apt one and the ob|ect
sought accompshed, t w be seen how neary t fts the facts of ths case,
for here we have a corporaton wth arge accumuated earnngs, whch, by
means of a purchase of a part of ts stock, t transfers to ts snge stockhoder,
eavng the corporaton precsey n the condton n whch t was pror to the
transfer, e cept that ts earnngs have been dstrbuted to ts stockhoder wth-
out havng dsturbed hs ownershp and contro of the corporaton.
On ths statement of facts we need not go to the e tent of sayng that Con-
gress n the enactment of (g) ntended to ta as a dvdend every dstrbu-
ton of earnngs. The use n the secton of the words at such tme and n
such manner must be gven some meanng, and we thnk they show a pur-
pose to quafy the provson and to make tme and crcumstance eements to
be consdered n the determnaton. ut, nevertheess, we thnk t s cear
that f a corporaton decares a stock dvdend to-day and a few months ater
redeems t by purchase out of earnngs, as was the case n Robnson v. Com-
mssoner (decded by the ffth crcut pr 2, 1934), the tme eement s a
factor tendng to show that the dstrbuton was a devce to avod the ta .
nd so aso f a corporaton nvests earnngs n pant and equpment, whch,
n ater years, n a pocy of contracton of busness actvtes, t decdes to
se and to dvde the proceeds among ts sharehoders, the dstrbuton s
none the ess a dvdend, thoug the devce of canceng some of the outstand-
ng shares be adopted as a method of accompshng the end sought. On the
other hand, f the fund for dstrbuton was a part of the capta contrbuted
by the sharehoders to be used n the actua busness of the corporaton, ts
dstrbuton n whoe or n part woud, of course, be qudaton, and the same
Is true of earnngs n good fath converted nto capta by the decaraton of
stock dvdends, but t s not aso true of earnngs nvested n property used
In the busness, for n the ast-named case the converson does not create
capta and the manner of the utzaton can be changed by the corporaton s
083 S 8
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115, rt. 29.
21
acton and the fund whoy wthdrawn, and n such case t woud return to
ts orgna condton, and n that condton dstrbuted to sharehoders, woud
be a dvdend and not a qudaton.
In the present case, f the dstrbuton and canceaton had precsey and
e acty equaed the earned and accumuated profts, t coud hardy be con-
tended that the manner of the dstrbuton evdenced other than a pan to
dstrbute earnngs. ere, however, t s contended that because more stock
was redeemed than the tota surpus the dstrbuton was of capta and not
of earnngs, but we thnk ths does not foow, e cept as to the e cess, and
the e cess the Commssoner dd not ta . s to the porton of the dstrbu-
ton ta ed, the presumptons are a n favor of the Commssoner s hodng
frst, because secton 115(b) decares for the purposes of ths chapter every
dstrbuton s made out of earnngs or profts to the e tent thereof and from
the most recenty accumuated earnngs or profts, and, secondy, because
capta s a fund hed n trust for the beneft of credtors and can ony
be returned to the sharehoders by proper egsatve acton. It s frequenty
sad by courts once capta aways capta. In ths respect It s dfferent
from profts, whch are whoy wthn the dscretonary contro of the drec-
tors. In ths case the record shows that pettoner offered to se to hs whoy
owned corporaton 1,950 shares of stock at par. The corporaton accepted
the offer, and subsequenty by amendment reduced ts authorzed capta stock
from 200,000 to 5,000. When the transacton occurred t had on hand n
e cess of 100,000 of earnngs whch t had converted nto one or another cass
of property not needed n ts busness. Its prmary purpose was the sae of
ths property. Nothng that appears ndcates that t was ntendng ether
to wnd up or curta ts reguar corporate actvtes. It s far under the cr-
cumstances to assume that the canceaton of ts stock was to the e tent of
the surpus earnngs accompshed out of that fund, and vewed n that aspect
t was ceary a dvdend wthn the meanng of paragraph (g).
In reachng our concuson, we have e amned the cases of v. Comms-
soner (C. C. . 4) ( . (2d), 45) Commssoner v. roon (0. C. . 7)
(decded March 22, 1934) Robnson v. Commssoner (C. C. . 5) (decded
pr 2, 1934) and Commssoner v. Itabson (0. C. . 7) (decded pr 9,
1934) but we thnk they throw no partcuar ght on the sub|ect, for the
reason that eac was decded on ts own partcuar facts.
The case nvoved the redempton of a porton of a corporaton s pre-
ferred stock ssue. The oard had hed that whe there was no proof of the
e stence of a reaton between the ssuance and the redempton, scrutny of
the tme and manner of the redempton was convncng of the fact that the
dstrbuton was equvaent to a ta abe dvdend. Precsey how or why s
eft unanswered. The ourth Crcut Court of ppeas affrmed the oard
on ths fndng of fact.
In the rown case there had been an e change n 1922 of od common stock
for new common and preferred stock, foowed n 1925 by the redempton
of the preferred stock. In passng on the queston whether ths was a
dvdend or a qudaton, the seventh crcut hed that subdvson (g) does
not turn every parta qudaton nto a dvdend whenever there are
undstrbuted earnngs n the corporaton but ony when the dstrbuton s
made under specfed crc umstances n other words, that t s the tme and man-
ner of the qudaton and not the e stence of undstrbuted earnngs whch s
the test, and the court hed the facts found by the oard n that case dd
not |ustfy the concuson the redempton occurred under crcumstances of
tme and manner suffcent to make t the equvaent of a ta abe dvdend.
The Robnson case nvoved the dstrbuton of new stock by the Coca-
Coa Co. wth the smutaneous offer on the part of the corporaton to pur-
chase from the stockhoders 20 per cent of the stock so ssued at the tme
of ssue at 50 per share. The facts there were that the corporaton had
a surpus of earnngs n e cess of 14,000,000, 5,000,000 of whch had been
transferred and assgned to the stock dstrbuted as a dvdend, and ths was
used for the repurchase of so much of the stock as was offered for sae.
The hodng was that ths amounted to a pro rata dstrbuton of cash earn-
ngs, as doubtess t dd.
The abson case nvoved an Inos corporaton whch had from tme
to tme over a perod of 10 to 12 years tremendousy ncreased ts capta
structure by ssung stock dvdends out of earnngs. Not ony had t ncreased
ts captazaton but t had ncreased ts busness actvtes by gong nto new
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217
no.
nes. fter the ast Increase In captazaton, It was found that the e panson
of Its busness was unproftabe and a process of shrnkng was adopted, and
n the sae of assets to carry through ths program arge surpuses were ac-
cumuated, whch were dstrbuted to stockhoders. Some of them occurred
pror to 192 , and paragraph (g) of the ct of 192G had, of course, no appca-
ton to such payments. s to those after 192 , the oard havng decded such
payments were n the pecuar facts shown capta transactons, the court
sustaned the oard on the ground there was substanta evdence on whch
the oard s decson was based.
It w thus be seen that n none of the cases was any defnte rue of
constructon ad down n respect to subsecton (g) whch we are at berty
to adopt, ecept that the appcabty of the secton turns upon the fact
whether the dstrbuton s of earnngs through the guse of stock redempton.
ere, as we have seen, there are ampe grounds to pace the transacton n
that cass.
ffrmed.
S CTION 11 . CLUSIONS ROM GROSS
INCOM .
Secton 11 (a): arned ncome from sources I -8-7331
wthout Unted States. Ct. D. 924
INCOM T NU CTS OP 192 ND 1928 D CISION O COURT.
1. In-comb empton arned Income fbom Sources Wthout
the Unted States vdence.
Sums receved In 192 , 1927, and 1928 by the ta payer, a non-
resdent ctzen, from domestc persona hodng corporatons of
whch he was an offcer and stockhoder, are not e empt from ta
as earned ncome from sources wthout the Unted States, n the
absence of evdence warrantng a fndng by the oard of Ta p-
peas that the ta payer actuay performed persona servces abroad
for the corporatons.
2. Losses Gambng Transactons vdence.
Gambng osses sustaned by the ta payer n 1925, 192 , and
1927 are not deductbe, n the absence of evdence warrantng a
fndng that the gambng transactons were entered nto for proft.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (25 . T. ., 474) affrmed.
4. Certorar Dened.
Petton for certorar dened ebruary 11, 1935.
Unted States Court of ppeas for the Dstrct of Coumba.
Lous D. eaumont, pettoner, v. Guy T. cvernff, Commssoner of Interna
Revenue.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, tz, and Groneb, ssocate ustces.
une 30, 1934.
opnon.
tz, ssocate ustce: Ths s an nppea from a decson of the oard of
Ta ppeas, and whe a number of questons were argued there, ony two are
n ssue here. These tems reate to the pettoner s returns for the years 1925,
192 , 1927, 1928, and the questons are:
(1) Do certan sums receved by the pettoner from mercan corporatons
whe he was resdng abroad consttute compensaton for servces rendered by
hm wthout the Unted States, and thus fa wthn the cass of e empt ncome
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(2) Do certan osses sustaned by the pettoner In gambng at Monte Caro
consttute osses ncurred n transactons entered nto tor proft, and thus fa
wthn a proper category of deductons
1. Compensaton for Servcks.
Te pettoner s an mercan ctzen who has resded n rance for 18
years, and durng the 3 years n queston, 192 , 1927, 1928, he made one vst
to the Unted States of about 2 weeks duraton. e was the presdent and soe
stockhoder of the eaumont Investment Co. and the eaumqnt Investment
Trust (a Massachusetts trust), and was presdent of the Dayton Securtes Co.,
a of whose stock was owned by the eaumont Investment Trust unt 1928,
when t was acqured by the pettoner personay. e was aso vce presdent
and mnorty stockhoder of Commerca Investment Trust, Inc., a subsdary of
Commerca Investment Trust Corporaton. The frst three companes were per-
sona hodng companes, and the nature of ther busness can be nferred from
ther ncome-ta returns for the years n queston, whch show the great buk
of ther ncome derved from dvdends on stock, whch were e empt from the
ta abe ncome of the corporatons. or each of the three years n queston,
the pettoner receved the sum of 17,500 from the Dayton Securtes Co.
12,500 from the eaumont Investment Co. 5,000 from the Commerca In-
vestment Trust, Inc. and 10,000 from the eaumont Investment Trust, e cept
that e receved from the ast-named company ony 5,000 n 192 .
The reevant statutes aow to ctzens of the Unted States who are bona fde
nonresdents abroad for over s months of the ta abe year an e empton from
gross ncome for amounts receved from sources wthout the Unted States, If
such amounts consttute earned ncome. (Revenue ct of 192 , ch. 27, 44 Stat.,
9 secton 209(a), U. S. C. pp., tte 2 , sectons 940, 954, 955 secton 213
secton 214(a) Revenue ct of 1928, ch. 852, 45 Stat., 791, secton 22 (a), (b),
(g) secton 31 secton 11 (a) secton 119(c).)
The pettoner dd not ncude the above-mentoned amounts n hs returns,
and the Commssoner made a defcency assessment. The oard of Ta p-
peas affrmed the determnaton of the Commssoner on the ground that the
evdence dd not show that the sums were compensaton for persona servces
actuay rendered, wthn the statutory defnton of earned ncome.
The Government concedes that the sums were receved from sources wthout
the Unted States, f tey consttuted compensaton for servces performed wth-
out the Unted States. (See Ingram v. occrs, 47 ed. (2d), 925 (S. D. N. Y.)
Ct. D. 30 , C. . -, 372 .) ut the Government contends that the pettoner
rendered no servces abroad that the sums camed represented not reasonabe
compensaton for servces rendered, but a dstrbuton of profts and that the
oard rghty decded to ths effect.
The pettoner mantans that the decson of the oard of Ta ppeas was
erroneous because the Commssoner had determned, n hs defcency etters to
the pettoner, that the sums n queston were earned ncome that ths de-
termnaton s presumed to be correct, and the Commssoner s estopped to
deny t that the uncontradcted and unmpeached testmony of the pettoner
shows that the saares were receved as compensaton for servces actuay
performed and that ths testmony was confrmed by other evdence.
ut t s setted that the fndngs of the oard of Ta ppeas must be
accepted on appea f there s evdence to support them. (Phps . Comms-
soner, 283 U. S., 589 Ct. D. 350, C. . -, 204 ekaha Sugar o. v. urnet,
50 ed. (2d), 822 ( pp. D. C.).) The pettoner s contenton can be supported
ony on the theory that the oard of Ta ppeas nduged a mstaken presump-
ton as to the correctness of the Commssoner s determnaton. ut ths con-
tenton can not he supported for severa reasons.
rst, because t does not ceary appear that the Commssoner determned
n hs defcency etters that the sums consttuted earned ncome. or the state-
ment accompanyng the etter reatng to the 192 and 1927 returns sad: You
are advsed that t s necessary that a ta payer actuay earn saares n foregn
countres when resdng abroad n order that t may be e empt from ncome
under secton 213(b) 14 of the Revenue ct of 1920. The statement reatng
to the 1928 return sad: Ths offce hods that the saares ndcated above are
not e empt under secton 11 (a) ot the Revenue ct of 1928, and Soctor s
Memorandum 5440, - Cumuatve uetn, 49, for the reason that you, a
ctzen of the Unted Sates resded n rance by choce, and not n connecton
wth your dutes as an offcer of the above corporatons. It s true that the
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219
ne.
Commssoner aowed n credt for earned ncome on these amounts. Yet the
statement of hs reasons for denyng the e empton s so ambguous as to
negatve an nference that such statement was a determnaton that the sums
consttuted earned ncome, but coud not be e empted because earned wthn
the Unted States.
Second, t does not appear that the oard of Ta ppeas gave controng
weght n ts decson to a presumpton n favor of the determnaton by the
Commssoner that the sums were not e empt.
Thrd, such a presumpton woud have been proper even f the Comms-
soner advanced before the oard of Ta ppeas a reason why the amounts
were not e empt whch he had not assgned n hs defcency etters. The
queston of the effect of a change n argument by the Commssoner upon the
presumpton n favor of hs determnaton of ta abty has been consdered
n at east three crcuts. In each t was hed that the presumpton perssts,
snce t s the Commssoner s determnaton of ta abty and not hs reason-
ng whch s presumed to be correct. See Grotoe v. Commssoner (02 ed.
(2d), 51) (C. O. . C), where the defcency etter ndcated that the deter-
mnaton of vaue of stock receved as compensaton was based on the e st-
ence of ready reazabe market vaue, whe the decson n the oard of Ta
ppeas rested on the ground that such vaue was mmatera. See e
Sprunt Son v. Commssoner (04 ed. (2d), 424) (C. C. . 4), nvovng
the deducton of commssons as an ordnary and necessary e pense the Com-
mssoner dsaowed part of the amounts on the ground that they were not
reasonabe, whe the decson n the oard of Ta ppeas was upon the
ground that they were a dstrbuton of profts. See aso . f 0. tsohu To-
bacco Co. v. Commssoner (42 ed. (2d), 009) (C. C. . 5), where the Com-
mssoner found that the corporaton dd not have a merey nomna capta
because t owned a one-haf nterest n a farm, whe the oard of Ta ppeas
reed upon the ground that the corporaton had a cash surpus whch was cap-
ta wthn the meanng of the statute. Compare aso Daren v. Commssoner
( ed. (2d), 581) (C. C. . 2) Ct. D. 814, C. . III-1, 238 , where the
court sad: The burden s upon the pettoner to show the correct amount of
the ta In order to show that the Commssoner s determnaton was wrong.
In a stuaton ke ths, that requres proof that the amount of the
defcency s erroneous, for t s that fact, and not the method of computaton,
whch contros.
The pettoner ctes a number of cases hodng that where new matter s
peaded by the Commssoner the burden of proof, n respect of such matter, sha
be upon hm. Ths s the rue of practce n the oard of Ta ppeas.
(Crver ros. v. Commssoner, 10 . T. ., 338, 350 Schng Gran Co. v.
Commssoner, 8 . T. ., 1048, 1057 vangene Grave Co. v. Comm so-ncr,
13 . T. ., 101, 104 ack v. Commssoner, 20 . T. ., 1350.) ut these
cases ceary demonstrate that the new matter wth respect to whch the
burden rests upon the Commssoner s new matter peaded to support an add-
tona abty, rather than an addtona reason for the abty prevousy n
queston. In the present case, no such new matter was peaded, nor dd the
Commssoner admt n hs answer any of the eements reed upon n the oard
of Ta ppeas. The pettoner coud not have been surprsed by the argu-
ment snce the statute obvousy ndcated the necessary eements of hs case.
Thus the queston reverts to the e stence of evdence upon whch the dec-
son of the oard of Ta ppeas may rest. Or, as stated by udge Learned
and n ccctt Co. v. Commssoner ( 1 ed. (2d), 471), the queston s
whether the pettoner s evdence was so compeng that the oard shoud
have found the facts n hs favor. Ths pettoner s evdence was argey hs
own deposton upon wrtten nterrogatores, n whch he stated that the sums
were pad to hm for persona servces performed as an offcer of the com-
panes. Wth respect to the frst three companes he was drecty responsbe
and handed ther busness affars and that the servces wore performed n
rance and Monte Caro. Concernng the sums receved from Commerca
Investment Trust, Inc., n response to the queston, State n some deta the
nature of Ihe servces whch you rendered to ths corporaton, he testfed:
I am actng n the capacty of ther representatve n rance.
Other evdence was n the form of a wrtten stpuaton of facts sgned by
counse for both partes. ut the whoe evdence fas far short of beng so
compeng that the oard of Ta ppeas shoud have found the facts n favor
of the pettoner. It nether reveas the nature and e tent of the busness
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11 .
220
actvtes of the corporatons abroad, nor the nature and e tent of the pet-
toner s servces n connecton therewth. s own testmony mght be regarded
as evasve, and s certany unnformatve touchng the utmate fact whch he
was obged to estabsh, and wthout supportng facts upon whch to rest hs
concuson. nd the oard was entted to make ts own decson from n the
evdence before t, ncudng the pettoner s.
e ctes many cases hodng that t s error to re|ect uncontradcted and
unmpeached testmony. (Dempster M Manufacturng Co. v. Unmet, 00 pp.
D. C, 23, 4 ed. (2d), (504 |ur v. cnd , 52 pp. D. C, 240, 285 ed., 974
Storck v. Rechhcm, 44 pp. D. C, 438, 443 oggs C- uh v. Commssoner,
34 ed. (2d), 850 cwett Co. v. Commssoner, 01 ed. (2d), 471 Lunsford v.
Commssoner, 02 ed. (2d), 740 Panter s Operatng Co. v. Commssoner. 55
ed. (2d), 583 Toedo Gran cC Mng Co. v. Commssoner, 02 ed. (2d), 171
Rookuood Pottery Co. v. Commssoner, 45 ed. (2d), 43 Poneer Poe Shaft
Co. v. Commssoner, 55 ed. (2d), 801 Nchos v. Commssoner, 44 ed. (2d),
157 Chcago Raway qupment Co. v. ar, 20 ed. (2d), 10.)
Tho Government ctes a number of cases decdng that the oard may re|ect
opnon testmony and reach ts own concuson from the facts. (Goyd v. Com-
mssoner, 03 ed. (2d), 049 (C. C. . 8) ourne v. Commssoner, 02 ed.
(2d), 018 (C. C. . 4) Ct. D. 754, C. . II-2, 200 dams v. Commssoner,
05 ed. (2d), 202 (C. C. . 5), certorar dened October 9, 1933 dety Tte
Trust Co. v. Commssoner, 4 ed. (2d), 52 (C. U. . 3) Uncasve Manu-
facturng Co. v. Commssoner, 55 ed. (2d), 893 (C. G. . 2), certorar dened,
280 U. S., 545 Grand Rapds Store qupment Corporaton v. Commssoner, 59
ed. (2d), 914 (G. O. . 0) eystone Stee Wre Co. v. Commssoner, 02 ed.
(2d), 458 (C. C. . 7).)
ut the fndng of the oard of Ta ppeas n the present case was not so
much a dsregard of the pettoner s evdence as a decson that upon a the
facts and crcumstances of the case the pettoner had not proved that he per-
formed persona servces abroad for the corporatons. Ths concuson s not
affected by the fact that the corporatons themseves deducted the amounts n
queston n ther own returns as compensaton pad to the pettoner. Sef-
servng evdence derved from another ta payer need not be accepted as con-
trong n the present case. nd n the converse stuaton t has been hed
that the faure of a corporaton to deduct certan amounts as compensaton to
empoyees does not requre a fndng that these amounts when receved by the
empoyees were gfts rather than earnngs. ( ass v. Iawey, 02 ed. (2d), 721
(C. G. . 5) Ct. D. 03, G. . II-2, 109 .)
2. Ga.vb.no Losses.
The concuson reached on the frst queston goes far toward decdng the
second, respectng the deductbty of the pettoner s gambng osses, whch
are camed n the amounts of 11,300, 0,000, and 9,804 for 1025, 192 , and
1927, respectvey. The pettoner makes a smar contenton here wth respect
to the presumpton attachng to the Gommssoner s fndng, on the ground that
the defcency etters ndcated that the reason for the assessment was the
faure to present proof of the amounts nvoved rather than a faure to show
that the transactons were entered nto for proft. ut for the reasons pre-
vousy stated, we are of opnon that the presumpton of the correctness of the
Gommssoner s determnaton of ta abty s not ost because the reason
advanced n support thereof changes. The queston here agan s whether the
evdence was so compeng that the oard of Ta ppeas shoud have found
the fact n favor of the pettoner. No evdence was presented drecty bearng
on the queston as to whether or not ths gambng was undertaken for proft.
The pettoner argues that there s a presumpton that gambng transactons
are entered nto for proft, and ctes m ner v. Tnde (27 U. S., 582 T. 1 . 4212,
C. . - 2, 272 ). That case nvoved the queston whether a house orgnay
but as a dweng but subsequenty rented for proft, f fnay sod at a oss,
may have such oss deducted as occurrng n a transacton entered nto for
proft. The case presented the meanng of the phrase any transacton
rather than the necessty of provng the proft motve. It was conceded that,
from the tme of renta, the house was devoted to a use for proft, and the
court hed that the prevous acquston of the property for what may have
been a nonproft purpose dd not defeat the rght of the ta payer to cam
a oss upon the sae after the property had been rented for proft durng 19
years. No case has been cted whch hods that gambng transactons are pre-
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221 117, rt. 51.
arned, for ta purposes, to be entered Into for proft. In the present ease
they may have been entered nto, as the oard of Ta ppeas suggests, for
sport, amusement, or pastme, and n the absence of evdence on ths ssue, the
pettoner can not cam the oss, for the fact that the transactons were entered
nto for proft s an essenta eement n camng a deducton for such a oss.
(See cner v. Tnde, supra odsborough v. urnet, 4 ed. (2d), 432
(C. C. . 4) Dresser v. Unted States, 55 ed. (2d), 499 (Ct. CI.) Ct. D. 503,
C. . I-1, 2 7 .)
The decson of the oard of Ta ppeas s affrmed.
rtce 43: Compensaton of State offcers and empoyees.
R NU CT OP 1928.
Compensaton for servces rendered as pubc admnstrator. (See
G. C. M. 1411 , page 102.)
S CTION 117. N T LOSS S.
rtce 51: Net osses, defnton and compu- I -9-7341
taton. Ct.D.927
( so Secton 275, rtce 1201.)
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Net Loss Successor Corporaton.
corporaton created on ebruary 21, 1928, to take over the
assets and abtes of another corporaton may not deduct from
ts net ncome for the porton of the ta abe year succeedng the
transfer a net oss sustaned by ts predecessor n the frst two
months of the year. New Coona Ice Co., Inc., v. Commssoner
(292 U. S., 435 Ct. D. S41, C. . III-1, 194 ), foowed.
2. Statute of Lmtatons Suffcency of Return.
return for the year 1928 fed by a corporaton created on
ebruary 21, 1928, whch ncuded but dd not segregate the opera-
tons of the predecessor corporaton for the frst two months of
the year, s not a suffcent compance wth the provsons of sec-
ton 52(a) of the Revenue ct of 1928 to start the runnng of the
statute of mtatons provded n secton 275 of that ct.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 102) affrmed.
4. Certorar Dened.
Petton for certorar dened November 5, 1934.
Unted States Crcut Court of ppeas, ourth Crcut.
The Cent, Securtes Corporaton, pettoner, v. Commssoner of Interna
Revenue, respondent.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Parker and Soper, Crcut udges, and Co.eman, Dstrct udge.
une 29, 1934.
opnon.
Soper, Crcut udge: Ths petton to revew nvoves defcences In ncome
ta for the year 1928 In the amount of 31,752.31. The questons at ssue are
(1) whether the ta payer, a Deaware corporaton, had the rght to deduct
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5117, rt. 51.
222
from Its ncome for the perod ebruary 21 to December 31, 1928, a net oss
suffered by a precedng New York corporaton n the earer porton of the year
and (2) whether the ncome ta return fed by the ta payer for the year 1928,
ncudng, but not segregatng the operatons of ts predecessor for the frst
two months of the year, was a suffcent compance wth the requrements of
the Revenue ct of 1928 to start the runnng of the statute of mtatons.
The pettoner was created as a Deaware corporaton on ebruary 21, 1928,
under the name of Cen Securtes Corporaton, to tnke over the assets and
abtes of a New York corporaton of the same name whch was organzed
pror to anuary 1, 1928. On the ater date, upon authorzaton of the respec-
tve stockhoders of the two corporatons, a the assets of the New York corpo-
raton were transferred to the pettoner (e cept the sum of 13,178.05 retaned
for the payment of certan New York (a es), n consderaton of ts assumpton
of a the abty of the New York corporaton. The change from a New York
to a Deaware corporaton was made because the corporate ta es, under the
aws of Deaware, were ess than those under I e aws of New York. There
was no change n the assets and abtes e cept for the sma amount retaned
to pay the New York ta es, and ths was In effect no change, for f the ta es
had not been pad before the dssouton of the New York corporaton, the new
Deaware corporaton woud have had to pay them. There were no changes
In the stockhoders.
On March 13, 1929, the Deaware corporaton fed a document purportng
to be a edera ncome ta return for the caendar year 1928. The return was
headed Corporaton Income Ta Return for Caendar Year 1928, The Cem
Securtes Corporaton ( Deaware Corporaton), Date of Incorporaton
2/21/28. In answer to a queston on the frst page, t was stated that the
document was not a consodated return of two or more corporatons. The
affdavt was e ecuted by the presdent and assstant treasurer of the corpo-
raton for whch the return was made, and the etter of transmtta stated
that the return of the Deaware corporaton for the year 1928 was ncosed,
showng a defct of 38,428.27. On the other hand, that part of the return
entted Schedue aance Sheets purported to show the assets and
abtes for the begnnng of the ta abe year 1/1/28 and the end of the
ta abe year 12/31/28, and at the top of the page, on whch ths schedue
appeared, the name of both corporatons were set out as foows: The Cems
Securtes Corporaton of New York over the capton, egnnng of ta abe
year, and The Cem Securtes Corporaton of Deaware, over the capton
nd of ta abe year. The return aso showed that the ta payer dd not
fe a return under the same name for the precedng ta abe year, and that t
was the contnuaton or reorganzaton of a busness snce December 31, 1927,
through the canceaton of a New York State charter for a Deaware charter
wthout other change. There s no dspute n the case that one readng the
return woud be ed to the concuson that t covered the actvtes of both
corporatons durng the ta abe year. No segregaton of any of the tems
of ncome or deducton res ectvey pertanng to the two corporatons, how-
ever, appeared n the return and n computng the defct shown by the return
the pettoner used as a deducton a net oss of 73,715.18 sustaned by the
New York corporaton n the perod from anuary 1 to ebruary 20, 1928.
Certan entres made on the face of the return after t was fed ndcated
that t was revewed n the premnary audt scctcn of the ureau of Interna
Revenue on uy 12, 1929. The Commssoner of Interna Revenue on March 29,
1930, sent a form etter to the ta payer to the effect that ts return for the
year 1928 had been e amned and was consdered to be correct, but that the
ureau woud be obged to redetermne the ta abty, shoud subsequent
nformaton be receved whch woud materay change the amount reported.
The defcency notce from the Commssoner to the ta payer was sent on
March 7, 1932, and receved on March 8, 1932. It was stpuated by the partes
that there s a defcency n the ncome ta of the pettoner for the caendar
year 3928 n the sum of 31,752.31, If t be determned from the facts that
the statutory perod for assessng the defcency had not e pred. That perod
s f ed as two years by secton 275 of the Revenue ct of 1928. The Com-
mssoner determned that the defcency e sted, dsaowng the deducton of
the net oss sustaned by the New York corporaton n the frst part of the
year, and upon appea, the oard of Ta ppeas affrmed hs determnaton,
hodng that the purported return was nsuffcent to put the statute of
mtatons n moton.
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223
117, rt. 51.
It s not entrey cear that the deducton of the oss of the New York cor-
poraton accounts for the entre defcency of 31,752.31 but t may be con-
certed that such s the case for our present purposes, for the frst contenton
of the pettoner that t had the rght to offset the 2 months net oss of the
New York corporaton aganst the 10 months net ncome of the Deaware cor-
poraton can not be sustaned, n vew of the decson of the Supreme Court n
New Coona Ice Co., Inc., v. Commssoner of Interna Revenue fed on May
2S, 1934 Ct. D. 841, C. . I-1, 194 . It was there hed that a new corpo-
raton, organzed to take over the assets and busness of an oder corporaton
n order to be free from certan dffcutes attendng the od one, may not
deduct from ts net ncome net osses sustaned by the oder corporaton n a
precedng perod, athough the two corporatons had the same capta structure
and the stcck of the new corporaton was dstrbuted among the stockhoders
of the od, share for share. See aso the decson of ths court rendered ths
day n May O urner Corporaton v. Commssoner of Interna Revenue.
The queston of mtatons depends on whether the return fed by the ta -
payer on March 13, 1929, may be consdered a return wthn the meanng of
secton 52 of the Revenue ct of 1928 (ch. 852, 45 Stat., 791), because the
mtaton of two years, wthn whch an assessment of ncome ta es must be
made under secton 275 of that ct, runs from the fng of the return. Secton
52(a) requres every corporaton, sub|ect to ta aton, to make a return, sworn
to by certan offcers of the company, and statng specfcay the tems of
the gross ncome and the deductons and credts aowed by the ct. Sec-
ton 54(a) requres every ta payer to keep such records, render under oath
such statements, make such returns, and compy wth the rues and regua-
tons prescrbed by the Commssoner wth the approva of the Secretary of
the Treasury. Treasury Reguatons 74, promugated under the ct, provdes
In artce 391 that a corporaton, havng an e stence durng any porton of
the ta abe year, sha make a return, and that upon qudaton or dssou-
ton of a corporaton, t sha show, amongst other thngs, n ts fna return,
the date and manner of dssouton, and the name and address of every per-
son recevng assets therefrom. (See the te t of the statutes and reguaton
n the margn.1)
It Is obvous that these statutes and reguatons, as apped to the crcum-
stances of ths case, contempate a separate return from each corporaton for
the porton of the year of ts e stence. The ta payer, nevertheess, contends
that the return fed by the Deaware corporaton n ths case substantay
meets the requrements of the aw. It urges that the return specfcay sets
forth the tems of Income, deducton and credt of the ta payer, because these
tems, athough mnged wth smar Items of the New York corporaton, were
nevertheess set forth In the return and that a document fed by a ta payer,
athough naccurate n some partcuars, s nevertheess a return If t s fed
honesty and n good fath, because the aw makes provson for the audtng
of returns and for the e amnaton of the books and records of the ta payer
1 Sec. 52. Corporaton Returns.
(a) Requrement. very corporaton sub|ect to ta aton under ths tte sha make a
return, statns specfcay the Items of Its gross ncome and the deductons and credts
aowed by tbs tte. The return sha be sworn to by the presdent, vce presdent, or
other prncpa offcer and by the treasurer or assstant treasurer.
Sec. 54. Records and Speca Retr.vs.
(a) y ta payer. very person abe to any ta mposed by ths tte or for the co-
ecton thereof, sha keep such records, render under oath such statements, make such
returns, and compy wth such rues and reguatons, as the Commssoner, wth the ap-
prova of the Secretary, may from tme to tme prescrbe.
Sec. 275. Perod of Lmtaton Upon ssessment and Coecton.
cept as provded In ecton 27C
(a) Genera rue. The amount of Income ta es mposed by ths tte sha he assessed
wthn two years after the return was fed, and no proceedng n court wthout nss ss-
ment for the coecton of such ta es sha be begun after the e praton of such perod.
Treasury Reguatons 74 (promugated under the Revenue ct of 1928) :
rt. 301. Corporaton returns. very corporaton not e pressy e empt from ta
must make a return of Income, regardess of the amount of ts net Income. In the case
of ordnary corporatons, the return sha be on orm 1120. corporaton
havng an e stence durng any porton of a ta abe year s requred to make a return.
Upon qudaton or dssouton of a corporaton there sha be attached to the
fna return a statement showng: (1) The date and manner of dssouton, (2) the name
and address of each sharehoder at dssouton and the number and pur vaue of the
shares of stock hed by each of them, (3) a descrpton and the vaue of the qudatng
assets receved by each sharehoder, (4) the name and address of each ndvdua or cor-
poraton other than sharehoders and credtors, If any, that receved assets at dssouton,
(5) a descrpton and the vaue of the assets receved by each such Indvdua or corpora-
ton and ( ) the consderaton, f any, pad by each o them for the assets receved.
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117, rt. 51.
224
from whch any Inaccuracy w be reveaed. So t s sad that an audt of
the pettoner s records woud have dscosed that the tems n ts return n-
cuded ncome, deductons and credts of the New York corporaton, and woud
have ed to a correcton of the error. The fact that the ureau of Interna
Revenue acknowedged recept of the document as the ta payer s return for
the year 1928, and made certan audts or nspectons thereof on uy 12,
1929, and that March 29, 1930, s urged as ndcatng that on the dates men-
toned wthn the statutory perod of mtatons the Commssoner assumed
an atttude nconsstent wth Its present poston that no return recognzed by
the aw had been made. Reference s made to Unted States v. Mabe evator
Co. (17 . (2d), 109) and aentne-Cark Co. v. Commssoner (52 . (2d),
340), wheren t was hed that an naccurate return s not necessary a nuty
and that f a ta payer makes an honest return whch he beeves to be n
conformty wth the aw, mtatons run from the fng thereof, athough the
return may be defectve n some partcuar, as, for nstance, n camng an
e cessve e empton or n beng fed for a fsca nstead of a caendar year.
We thnk, however, that the defeot In the return was so fundamenta that
ths argument can not preva. It may be conceded, notwthstandng some nd-
catons to the contrary on the face of the return, that t purported to show
the combned ncome and e penses of the two corporatons whch successvey
conducted the busness durng the ta abe year. ut t dd not even purport to
show separatey the operatons of each corporaton. It therefore dd not com-
py, or attempt to compy, wth the mandate of secton 52(a) of the ct that
every corporaton sub|ect to ta aton under the ct sha make a return, stat-
ng specfcay the tems of the gross ncome and the deductons and credts
aowed by the aw. On the contrary, credt for a deducton due one corpora-
ton was taken by another, and thereby was frustrated the very purpose of the
ct to make avaabe to the Commssoner nformaton from whch he coud
test the correctness of the amount of the ta shown by the return.
The decsons of the Supreme Court emphasze ceary that t s essenta to
compy wth the requrements of the statute governng returns n order to get
the beneft of the mtaton provsons. It was hed n Lucas v. Pod Lumber
Co. (281 U. S., 245 Ct D. 2 , C. . I -2, 39G ) that the perod of mtatons
under the Revenue ct of 1918 dd not begn from the tme of the fng of a
return not verfed by the proper corporate offcers of the ta payer as requred
by secton 239 of that ct. The court sad (page 249) :
Under the estabshed genera rue a statute of mtaton runs aganst
the Unted States ony when they assent and upon the condtons prescrbed.
ere assent that the statute mght begn to run was condtoned upon the
presentaton of a return duy sworn to. No offcer had power to substtute
somethng ese for the thng specfed. The return so ong as t remaned un-
verfed by oath of proper corporate offcers dd not meet the pan requre-
ments. The necessty for metcuous compance by the ta payer wth a
named condtons In order to secure the beneft of the mtaton was dstncty
ponted out n orshem ros., etc., v. Unted States, supra.
In the case of orshem ros. v. Unted States (280 U. S., 453 Ct. D. 1ST,
C. . I -1, 2G0 ), the court hed that the tentatve return devsed by the
Commssoner of Interna Revenue to meet the emergency caused by the fact
that the Revenue ct of 1918 was not approved unt ebruary 24, 1919, and
yet requred returns on or before March 15, 1919, was not a return whch
woud start the perod of mtaton for the assessment of ta es under the
ct. In dscussng the contentons of the ta payer n that case, somewhat
anaogous to those advanced by the ta payer here, the court sad (page 459) :
We are of opnon that the fng of the document known as orm 1031T,
duy e ecuted, dd not start the runnng of the perod of mtaton. orm
1031T s not an nstrument e pressy provded for n the ct. It s not n
the nature of a st, schedue, or return, commony requred by ta
statutes. It was au nventon of the Commssoner desgned to meet a pecuar
e gency. Its purpose was to secure to the ta payer a needed e tenson of tme
for fng the requred return, wthout defeatng the Government s rght to
prompt payment of the frst nstament s orm 1031T made no reference
to Income, or to deductons or credts, t coud not have been ntended as the
return statng specfcay the tems of gross ncome, and the deduc-
tons and credts the return requred to satsfy the statute.
Secton 3182 of the Revsed Statutes (U. S. C, tte 2 , secton 102) provdes
that the Commssoner sha make the Inqures, determnatons, and assess-
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225 118, rt. 1.
merts of a ta es and sha certfy a st of such assessment
to the proper coectors. Secton 250(b) of the 1918 ct requred
that as soon as practcabe after the return s fed, the Commssoner sha
e amne t. If t then appears that the correct amount of the ta s greater
or ess than that shown n the return, the nstaments sha be recomputed.
It was to serve these purposes that secton 239 requred a corporatons to
make returns statng specfcay the tems of gross ncome and
the deductons and credts. The burden of suppyng by the return the nfor-
maton on whch assessments were to be based was thus mposed upon the
ta payer. nd, n provdng that the perod of mtaton shoud begn on
the date when the return was fed, rather than when t was due, the statute
pany manfested a purpose that the perod was to commence ony when
the ta payer had supped ths nformaton n the prescrbed manner. orm
1120 provded for furnshng the data whch woud enabe the Commssoner
to make a determnaton, assessment, and recomputaton. orm 1031T fur-
nshed no data whch coud, n any way, ad hm n that connecton. It s
true that even the compete return on orm 1120 need not be accepted by
the Commssoner as the soe bass for the determnaton of the amount of the
ta . ssessments are frequenty based on audts of thu Income Ta Unt.
owever, the purpose of these audts s not to emnate the necessty of
fng the return, but to safeguard aganst error or dshonesty.
The word return s not a technca word of art. It may be true that the
fng of a return whch s defectve or ncompete under secton 239 s suff-
cent to start the runnng of the perod of mtaton and that the fng of an
amended return does not to the perod. ut the defectve or ncompete return
purports to be a specfc statement of the tems of ncome, deductons and
credts n compance wth secton 239. nd, to have that effect t must
honesty and reasonaby be ntended as such. There s not a pretense of such
purpose wth respect to orm 1081T. (Page 4 2.)
(See aso Commssoner v. Stetson son Co., 43 . (2d), 553-554 Lucas
v. Comer-Grecn Lumber Co., 49 . (2d), 234 Myes Sat Co., Ltd., v. Comms-
soner, 49 . (2d), 232 Unted States v. Natona Tank port Co., 45 .
(2d), 1005 Ct. D. 319, C. . -, 420 Paso Rooes Mercante Co. v. Com-
mssoner, 33 . (2d), 53.)
It s the duty of the Commssoner, under the ct of 1928, as under the
earer statutes, to e amne a return as soon as practcabe after t s fed
(secton 57 of the Revenue ct of 1928, 45 Stat., 810), and to make assessment
of ta es. The returns requred by a of the Revenue cts were desgned to
serve ths end. We do not regard the return n the pendng case as one whch,
despte naccuraces, may be accepted as a substanta compance wth the ct,
but as one whch fas competey In an essenta eement, and dd not set
n moton the runnng of the perod of mtatons.
The decson of the oard of Ta ppeas s affrmed.
S CTION 118. LOSS O S L O STOC
OR S CURITI S.
rtck 1: Losses n connecton wth sae I -19-7480
and repurchase of securtes. I. T. 2890
R NU CT O 1928.
Where a ta payer acqures stock through the e ercse of sub-
scrpton rghts and wthn 30 days after such acquston ses
fn equa number of shares of the stock wth respect to whch the
rghts were ssued, the wash saes provsons of secton 118 of the
Revenue ct of 1928 are appcabe.
dvce s requested whether the wash saes provsons of the Rev-
enue ct of 1928 are appcabe where a ta payer acqures stock
through the e ercse of subscrpton rghts and wthn 30 days aft r
such acquston ses an equa number of shares of substantay
dentca stock hed pror to the recept of the rghts.
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5142, rt. 734.
22
In 1929 the ta payer, by vrtue of the ownershp of 14a shares of
certan stock, acqured the rght to subscrbe for 7 shares of sub-
stantay dentca stock n the same company. The rghts to sub-
scrbe were e ercsed n that year. Wthn 30 days after the e er-
cse of the rghts, 7 shares, dentfed as part of the orgna
shares, were sod at a oss, whch was dsaowed on the ground that
the transacton came wthn the provsons of secton 118 of the
Revenue ct of 1928. That secton reads n part as foows:
In the case of any oss camed to hnve been sustaned n any sae or other
dsposton of shnes of stock or securtes where t appears that wthn 30
days before or after the date of such sae or other dsposton the ta payer has
acqured (otherwse than by bequest or nhertance) or bus entered nto a
contract or opton to acqure substantay dentca property, and the prop-
erty so acqured s hed by the ta payer for any perod after such sae or other
dsposton, no deducton for the oss sha be aowed under secton 23(e)2 of
ths tte .
If a person subscrbes for new stock, pursuant to rghts or other-
wse, to repace other stock sod or ntended to be sod at ess than
cost, there s as much reason for appcaton of the wash saes pro-
vsons as though the repacement stock had been purchased n the
open market. The fact that the prncpa motve for a stock sub-
scrpton s not the repacement of stock whch has been sod to
reaze a oss but s the desre to take advantage of a ow prce does
not affect the status of the transacton. purchases of substan-
tay dentca stock wthn the specfed tme are wthn the rue.
It s, therefore, hed that the wash saes provsons of the ct are
appcabe whether substantay dentca stock s acqured by sub-
scrpton for new stock or by the purchase of od stock.
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 142. CONSOLID T D R TURNS O
CORPOR TIONS T L Y R 1928.
rtce 734: Consodated net ncome of aff- I -3-7258
ated corporatons for 1928. Ct. D. 909
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton Net Loss ffated Corporatons Intercompany
Transactons.
Where the ta payer, a corporaton affated wth another, fed a
snge return of consodated ncome for each of the years 192 ,
1927, and 1928, showng a oss to the ta payer n 192 greater than
ts ncome for 1927 and 1928, and a oss to the affate n 192 ess
than the subsequent two years ncome, and where a porton of the
affate s ncome for 1928 resuted from ntercompany transactons,
the corporatons shoud be deemed separate enttes for the purpose
of appyng the net oss provsons of the statute and the ntercom-
pany transactons shoud not be emnated, snce, under Wooford
Reaty Co. v. Rose (2S0 U. S., 319 Ct. D. 493, C. . I-1, 154 ). the
power to carry over a oss from an earer to a ater year can be
used ony aganst the separate ncome of the affate whch suffered
the oss.
2. Decson Rkvehred.
Decson of the oard of Ta ppeas (28 . T. ., 2 ) reversed.
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227
142, rt. 734.
Unted States Crcut Court of ppeas fob the Second Crcut.
Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. Post d
Shedon Corporaton, respondent.
ppea by the Commssoner from m order of the onr of Ta ppeas e pungng a
defcency n ncome ta e .
efore Manton, L. and, and ugustus N. and, Crcut udges.
une 18, 1934.
OPINION.
L. and, Crcut udge: Ths appea Invoves a defcency f ed by the Com-
mssoner n the respondent s ncome ta for ts fsca year endng October
31, 192S. The facts are as foows: Durng the years 192 , 1927, and 1928, the
respondent was a corporaton affated wth a subsdary through ownershp of
a Its shares. It fed a snge return of the consodated ncome of both for
each of the three years. The oss of the respondent n 192C was 183,173.28, of
the subsdary ,053.88 In 1927 the respondent had an ncome of 55,94 .37,
the subsdary of 5,207.14 n 1928, ther ncomes were 9,993.90 and 9,377.80
respectvey. In 1028 the subsdary performed servces for the respondent
n the amount of 57,413.85 and at a cost to tsef of 50, 3 .70 t thus
made a proft of ,777.15 out of the respondent t aso receved 540 from t
as nterest upon oans. In the respondent s ncome for 1928, as |ust gven,
these tems were ncuded as deductons, and n the subsdary s as charges
thus f a ntercompany transactons were e cuded, the respondent s ncome
for that year woud have been 17,311.05 and the subsdary s, 2,000. 5.
Under Wooford Reaty Co. v. Rose (28 U. S., 319), the power to carry over
a oss from an earer to a ater year can be used ony aganst the separate
ncome of each affate, and ntercompany transactons may thus become
mportant. In the case at bar, for e ampe, f such transactons be emnated
and the respondent s ncome be thereby ncreased by 7,317.15, ts oss for
192 , woud nevertheess st absorb the sum of ts ncomes for 1927 and
1928. On the other hand the oss whch the subsdary coud carry over from
1927 to 1928, woud st be ess than ts ncome for that year, even after that
were reduced by the same amount t woud ose no part of ts separate deduc-
ton. Thus t became necessary to decde the ssue. The Commssoner hed
that Intercompany transactons shoud not be emnated the oard that
they shoud and the Commssoner appeaed.
rtce 734 of Reguatons 74 ( ct of 1928) provdes that the consodated
ta abe ncome of affates sha be ther combned ncome, sub|ect
to the emnaton of ntercompany transactons. cept for the fact that a
such transactons mght not aways be cosed In the same year, t woud make
no dfference for most purposes whether or not they were ncuded. The gan
of one affate woud be the oss of another, and takng one year wth another
the resut woud be the same. It was a reasonabe reguaton to emnate them
at once as they occurred, rather than to treat them as severa, and as can-
ceng each other ony when they happened to be cosed n the same year. ut
there are occasons when affates, despte ther consodaton, must st bo
treated as separate enttes, and ndeed t s never a pror necessary to treat
tem otherwse. IStmet v. umnum Co., 287 U.S., 544 Ct. I). 31, C. .
II-1, 2S3 .) One such occason s when they can not agree to the dvson
between them of the snge ta eved on ther |ont ncome, n whch case t s
to be dvded on the bass of the net ncome propery assgnabe to each.
In that dvson, ntercompany transactons shoud be ncuded, because
affates are aways separate ta payers, and because ther corporate ndvdu-
aty has been preserved for some deberate purpose. or nstance, t mght
happen that the whoe of the combned ncome was profts made by one affate
n saes to another whch had tsef sod at cost. The frst ought to bear the
whoe ta , and for purposes of the dvson the ncomes woud be stated wthout
regard to affaton.
It appears to us that the stuaton before us s another such occason, and
that the power to carry over a oss from earer years shoud be e ercsed upon
the ncome of each affate computed separatey ths because the oss can be
used ony as an offset aganst the separate ncome of the affate who suffers
f. Were t appcabe horzontay, that s, to the |ont ncome for the
foowng year, ths woud not be true t woud then be a power to be e ercsed
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1 7, rt. 881.
228
as an tem n a computaton of the |ont Income from whch a ntercompany
transactons woud be emnated. ut beng n severa power ony, the ncome
aganst whch a oss can be carred over ought to be computed n conformty
wth that hypothess whch aone aows t to be carred over at a. Possby
ths n the end has nothng better to commend t than consstency, and that a
not mperatve. Indeed n recent dscussons a desre for consstency appears
at tmes to be regarded as a dscredtabe dsposton. That Is not true some
such pretenson Is a condton upon any |ursprudence whch can be stated
generay and the mpcatons from ts entre absence woud be far-reachng.
It appears to us that the anguage of the reguatons must be read n sub|ecton
to the mtatons aready mposed upon the carry-over sectons and that
the poston of the Treasury s a coroary of the decson n Woo ford Reaty
Co. v. Rose, supra (2S U. S., 319).
Order reversed defcency restored.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 1 7. INCOM OR N IT O GR NTOR.
rtce 881: Income of trusts ta abe to grantor. I -4-7274
Ct. D. 913
ncome ta revenue acts of 102 and 1928 decson of court.
1. Income Tbust Income n Led of mony Ta abe to
Creator or Trust.-
ta payer who created a trust estate, the Income from whch
was to be pad to hs dvorced wfe In eu of amony and any
other Interest n hs property or estate, Is ta abe upon such In-
come, the payments therefrom beng of drect beneft to hm n
the dscharge of a ega obgaton whch he was bound to fuf,
under the decree of the court.
2. Certorar Dened.
Petton for certorar dened anuary 7, 1935.
Unted States Crcut Court op ppeas, ohth Crcut.
Lev M. Wcuts, as Coector of Interna Revenue for the Dstrct of Mnnesota,
appeant, v. dward It. Dougas, appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of Mnnesota.
September 10, 1034.
opnon.
Stone, Crcut udge, devered the opnon of the court.
Ths Is an appea by the coector from a |udgment accordng refund of
Income ta es.
On the 15th of September. 1923, a decree of dvorce was entered n favor of
Ida M. Dougas, wfe o dward ruce Dougas, appeee. Three days pror
thereto, the above partes and the Mnneapos Trust Co. entered Into a trust
agreement whereby appeee deposted certan securtes of par or estmated
vaue of 300,000 wth the trust company as trustee and further provded for
I he devery to the trustee, on November , 1927, of further property to be
receved from hs father s estate. The trustee was gven fu power of contro,
renvestment, and change of the securtes In the trust fund sub|ect, however,
to the consent and approva of appeee and the further rght n appeee to
desgnate and determne nvestments sub|ect to the approva of the trustee
(actng In that respect for the wfe as to the reasonabe safety and adequate
ncome producng nature of the securtes). The decared purposes of the trust
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229
1 7, rt. SSI.
were to pay to the wfe durng her fe, from the Income of the trust estate,
15,000 annuay from September 1, 1923. to November , 1927, and thereafter
21,000 annuay, wth a provson that n ease the net ncome from the
trust fund shoud not prove suffcent to make any of the above payments the
husband, upon request, shoud make good such defcency or, n defaut thereof,
the defcency shoud be made up from the prncpa of the trust fund. In
case the net Income from the trust fund shoud e ceed the annua payments re-
qured the trustee shoud pay such e cess to the husband or hs successors,
sub|ect to the rght of the trustee to reserve therefrom reasonabe amounts to
fary nsure the prompt meetng of future payments to the wfe. Net
ncome s denned as meanng ncome from the trust fund e cusve of profts
from sae of tems n the fund and e cusve of stock dvdends (these e ceptons
to become a part of the prnepn of the trust fund) and ess ncome ta pad by
the trustee. Power to change the trustee s reserved to the appeee and hs
successors. The trust s to termnate at the death of the wfe and the prnc-
pa of the trust fund then to revert to appeee or hs successors. nother
provson s as foows:
It s e pressy agreed by and between the partes hereto, and more especay
by the party of the second part, that the provsons heren made for her are
In eu of, and n fu settement of amony, and of any and a dower rghts
or statutory nterests n the estate of the party of the frst part, and n eu of
any and a cams for separate mantenance and aowance for her support.
esdes dssovng the marrage, the decree of dvorce provdes:
It s further ad|udged and decreed that the defendant provde and create the
trust fund as set out n that certan agreement between sad partes and the
Mnneapos Trust Co. as trustee now on fe wth sad trustee, and that the
pantff have the provson theren made n eu of a other amony or Interest
In the property or estate of the defendant and that nether party have any
costs or dsbursements heren.
In hs ndvdua Income ta returns for the years 1927 and 1928, appeee
omtted Income reazed by the trust estate and pad to the wfe thereunder.
redetermnaton by the Commssoner resuted n the ncuson of ths tem
In each of those years and the ta thereon was pad under protest. Thereafter,
proper demand for refund was made and ths acton seasonaby brought. Wth
u sma reducton n the ta for 1928, whch reducton s not n queston here,
the court ad|udged recovery of the ta pad on account of the ncuson of ths
tem n the above two years. s the matter comes here, the ony thng
nvoved s the proprety of ncudng such ncome from the trust estate n the
persona ncome ta abe to appeee.
One contenton of the Commssoner s that the entre ncome from ths trust
s ta abe to the creator thereof because, under ts terms, the trust estate s to
revert to the creator after t has served the purpose of ts creaton and aso the
creator Is entted to the surpus annua ncome of the trust above the requred
payments to the wfe. We do not see why ether or both of these provsons
shoud, of themseves, have such resut, however they may bear upon the man
contenton n ths appea, hereafter to be e amned.
The bad fact that after an rrevocabe trust has served ts purpose, the trust
estate s to revert to the creator does not, wthout more, make the ncome durng
the trust perod that of the creator for ta or any purposes. The statute s
amed at ta aton of ncome. It e pressy recognzes trust estates as ta abe
enttes and specfcay ponts out the trustee or the benefcary as the ta payer
for ncomes from such estates. If the creator of the trust s benefcay entrey
separated from that ncome under a aowabe ta consderatons, he s as
though a tota stranger thereto. The duraton of the trust and the dsposton
of the corpus at the termnaton of the trust are, of themseves aone, usuay
qute mmatera. so, It s unmportant, of tsef, that the surpus ncome of
a trust goes to the creator. If a we dsposed person desrng to assure the
proper educaton of the chd of a frend by provdng an annua fund therefor
of 1,000 shoud create an rrevocabe trust of , 25,000 wth provsons that at the
end of 10 years the trust shoud termnate and the corpus return to hm and
that durng the trust any annua ncome above 1,000 shoud be pad by the
trustee to hm, t woud requre an nescapaby cear e presson of congressona
ntent to beeve that a statute meant to ta , as ncome to the creator durng the
trust, anythng beyond the actuay accrung annua surpus ncome and, f
such constructon were compeed, the vadty of such an mposton woud be
wdey open to queston.
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1 7, rt. 881.
230
The man and more serous contenton of te Commssoner Is that the creator
of ths trust s ta abe for the ncome therefrom because that ncome s used
to pay a ega and ad|udcated obgaton whch he owed, and In so dong eon-
erred the beneft upon m. The argument s that the trust was created to
provde an ncome In eu of amony or other nterest n hs estate and was, by
the court grantng the dvorce, specfcay decreed n eu thereof. Therefore,
It s sad to foow that snce ths trust was created to meet a persona and
ega obgaton e was bound to fuf and snce the ncome therefrom was
devoted to that purpose, t was so used for hs beneft as to consttute t hs
ncome.
In efforts to avod ncome or estate ta es, varous devces have come to
te courts. rom decsons thereon has evoved the genera rue that where
the creator receves the substance of en|oyment ( urnet v. Wes, 289
U. S., 070, G77 Ct. D. 88, C. . II-1, 2 1 ) of the ncome t s regarded
as hs for ta aton purposes. Instances where such en|oyment has been
hed to e st are contracts for assgnments of ncome (Lucas v. ar, 281 U. S.,
I), assgnments of future ncome ( urnet v. Lcnngcr, 285 U. S., 130), con-
tracts for payment of obgatons of the ta payer by another (Od Coony Trust
Co. v. Commssoner, 279 U. S., 71 Ct. D. 80, C. 15. 1I1-2, 222 Unted
States v. oston Mane ft. Co., 279 U. S., 7:2 Ct. D. 73, C. . II1-2, 315 )
and payment of premums of nsurance on the fe of the ta payer from ncome
of a trust created bv hm whch was revocabe ()u Pont v. Commssoner, 2S9
U. S., 85 Ct. D. 087, C. . II-1, 2 9 ) or rrevocabe ( urnet v. Wes,
289 U. S., 70).
mong the devces empoyed to avod ncome and estate ta es none has
been more used than trusts deang wth members of a famy and the courts
have been aert to prevent such avodance by ths means. The queston here
s whether ths trust s of that character rrespectve of whether ta avodance
was an mpeng motve or was not. In determnng ths t s the effect
upon rather than the motve of the creator n formng the trust. In the
ma|orty opnon n urnet v. Wes (289 U. S., 070), the vadty of a statutory
requrement (secton 210(h), Revenue cts of 1924 and 1920) that nsurance
premums on the fe of the creator pad from the trust were ta abe to
hm as ncome was uphed because there was recognzed a beneft to the
creator there from the performance of a pressng soca duty and a usua
manner of provdng for dependents (page 81). The dssent was grounded
on the vew that the beneft to the creator must be somethng more tangbe
than a purpose to perform a soca futy, or te recognton of a mora cam
as dstngushed from a ega obgaton (page 083) and that the dstncton
to e observed s between the devoton of ncome to payments whch the settor
s bound to make, and those whch he s free to make or not make, as he may
see ft (page 084).
Te contenton here by the Commssoner s that the ncome of ths trust
was empoyed to meet a ega obgaton whch appeee was bound to make.
Whether ths was the character of ths trust s the determnng probem.
efore dvorce, the ega obgaton to provde mantenance for hs wfe rested
upon appeee. Whether that obgaton woud contnue after dvorce woud
depend soey upon the orders of te court grantng the dvorce. s s not
unusua, the panc s agreed to a dsposton havng ths stuaton n vew. That
dsposton was ceary, as reveaed n ts terms, soey for the purpose of
provdng an annua ncome for the wfe after dvorce. It was not a transfer
of tte to property to the wfe n eu of what the court mght order as amony.
The man practca and economc dfferences between ths arrangement and
one for decreed or agreed annua amony payments by appeee are that t
segregated a defnte porton of hs property to whch aone the wfe coud
ook for annua ncome from her former husband and made the amount of
ncome to her argey dependent on the ncome from hs property. The purpose
and effect of ths arrangement was to provde a substtute for amony. Ths
effect became a fnaty when the decree of dvorce specfcay provded that
appeee shoud provde and create the above trust fund and that the wfe
have the provson theren made n eu of a other amony or nterest
n the property or estate of appeee.
The ony thng the wfe receved was ncome from the trust estate. She
receved ths ony because t was In eu of a other amony or nterest
The trust was created for the soe purpose of furnshng such ncome. Its
functon was to provde a method of payng amony. The payment of amony
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182, rt. 901.
was ordered and ths method prescrbed by the court. The payment of amony
In ths form was a ega obgaton whch appeee was bound to meet. Ths
took the form of ncome. It was ta abe as ncome. It was ta abe (under
ether opnon n urnet v. Wes, supra) to appeee because t drecty benefted
hm by dschargng a ega obgaton he was bound to perform.
The |udgment shoud be reversed and remanded wth nstructons to proceed
In accord wth ths opnon.
SUPPL M NT . P RTN RS IPS.
S CTION 182. T O P RTN RS.
ktce 901: Partnershps. I -10-7354
( so Secton 22(a), rtce 58.) Ct. D. 930
INCOM T R NU CT O 1828 D CISION O COURT.
1. Income Dstrbutve Shake of Syndcate Profts Smarty
of Syndcatb and Partnershp Profts Ta abe: Whether
Dstrbuted or Not.
Where the ta payer was a member of a stock tradng syndcate
whch ceased to operate n November, 1928, but dd not make fna
determnaton or dstrbuton of profts unt ebruary, 1929, hs
dstrbutve share of such profts was propery Incuded n hs gross
Income for 1928. The reaton of the members to undstrbuted
profts was smar to that of partners to partnershp profts whch,
under secton 182 of the Revenue ct of 1928, are requred to be
Incuded n gross ncome whether dstrbuted or not.
2. Sae ok Undentfed Shares of Stock ndng of oard of
Ta ppeas Concusve.
The fndng of the oard of Ta ppeas that certan shares of
stock sod by a syndcate for the ta payer s account coud not be
dentfed s concusve, snce the statements of evdence and e -
hbts contaned n the moton for revew by the oard of ts
decson were not authentcated nor made a part of the record be-
fore the court. On the state of facts found by the oard the net
proft from the sae was propery determned by chargng the stock
sod aganst the earest purchases of such stock, n accordance
wth artce 58 of Reguatons 74.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 270) affrmed.
Unted States Crcut Court of ppeas for the fth Crcut.
enry C. enz, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
Georga).
efore ryan, oster, and Waker, Crcut udges.
pr 25, 1934.
OPINION.
Waker, Crcut udge: Ths s a petton for a revew of the fna rede-
termnaton by the oard of Ta ppeas of a defcency of ncome ta es
aganst the pettoner for the year 1928. That redetermnaton, so far as t
s now companed of, was the resut of rungs by the oard mentoned beow.
The oard of Ta ppeas made fndngs of fact, whch fndngs, so far
as matera to the questons presented, were as foows: The pettoner
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182, rt. 901.
232
made hs ncome ta return for the ta abe year 1028 on the bass of cash re-
cepts and dsbursements. ary n 1928 the pettoner became a
member of a syndcate or partnershp organzed prmary to dea n Coca-Coa
stock. The members shared n the osses or profts n the proporton of ther
respectve hodngs.
The pettoner devered to the syndcate 1.000 shares of Coca-Coa stock,
ndorsed n bank or otherwse transferred to the syndcate or a nomnee, and
authorzed the syndcate to buy and se sad stock on hs account to the best
advantage, soey n ts dscreton.
Incuded n the 1,000 shares of Coca-Coa stock whch the pettoner de-
vered to the syndcate were 100 shares whch pettoner purchased n 1920
at a cost of 2,100, and aso 100 shares ssued to the pettoner as a stock
dvdend. Pettoner paced no restrctons whatever n wrtng on the sae or
dsposton of ths stock, whch was ndorsed n bank, but understood when he
turned t over that the syndcate had the rght to dspose of t as t saw ft.
There was no earmarkng or dentfcaton whereby any of the shares de-
vered by tfe pettoner to the syndcate coud be dfferentated or treated
dfferenty from any other shares.
The syndcate contnued ts operatons unt November, 1928. Its ast sae
was made on November 10, 1928, after whch date t proceeded to wnd up
ts affars. On the ast mentoned date the syndcate advsed pettoner by
etter that 800 shares of Coca-Coa stock had been sod for Ids account, check
for te proceeds beng ncosed therewth. The syndcate aso advsed the
pettoner that 200 shares of sad stock woud be returned to hm, and re-
quested hm to advse n whose name he wshed the certfcate for the 200
shares to be ssued.
On December 20, 1928, the syndcate agan wrote to the pettoner, advs-
ng that It had been necessary to purchase 45 shares of Coca-Coa stock n
order to dever to hm the 200 shares referred to n the pror etter, and
ncosng check n settement of those transactons. In the same etter the
syndcate stated that t hoped to send pettoner a check n fna settement
of nterest and dvdend ad|ustment pror to anuary 1, 1929. Pettoner
actuay receved a check from the syndcate on ebruary 2 , 1929, for 4,391. 0
n settement of sad nterest and dvdend ad|ustments, whch amount re-
spondent ncuded n the pettoner s gross ncome for the ta abe year 1928.
The record does not contan the evdence adduced before the oard of Ta
ppeas.
The oard decded that the above mentoned amount of 54,391. 0, for whch
pettoner receved a check on ebruary 2 , 1929, and whch represented
nterest and dvdend ad|ustments, and was the fna dstrbuton of profts
upon termnaton of the syndcate s operatons, consttuted ncome to the pet-
toner for the year 1928. In support of hs chaenge of that rung the pet-
toner nvokes the decsons n the cases of Wd v. Commssoner ( 2 ed. (2d),
777) and enmore Securtes Corporaton v. Commssoner (d., 780). In the
frst cted case the court decded that earned, but undstrbuted, ncome of a
member of an nvestment syndcate usng contrbutons of ts members to buy,
hod, and se securtes and and, was not ta abe aganst the member. The
facts of that case are materay dfferent from those of the nstant one. The
syndcate whch was under consderaton n that case derved ts funds from
the contrbutons of ts members, those funds beng made sub|ect to use by the
syndcate manager, a corporaton, to buy and manage specfed securtes,
and for whatever ese t thought advsabe, and the syndcate was to ast
unt the manager ended the venture at ts peasure, when t shoud dstrb-
ute a the capta and profts, though t mght make parta dstrbuton
earer. The manager dd not dstrbute a the profts made n the years n
queston, 1923 and 1925, and retaned the undstrbuted profts for future
nvestment, or eventua dstrbuton. The facts of the other cted case were
smar. In the nstant case the syndcate was organzed n 1928, and ts
operatons were dscontnued n November of that year. What t thereafter
hed was not hed for future nvestment or tradng, but was hed for the
purposes of settng the busness of the syndcate and makng dstrbutons
among ts members. rom the tme the syndcate ceased to be a gong concern,
the undstrbuted profts were owned by the members of the syndcate, and
were hed by the syndcate head or manager as agent for the members. Whether
the syndcate was or was not a partnershp the reaton of the members of
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182, rt. 901
the syndcate to Its undstrbuted profts was qute smar to that of partners
to profts of the partnershp. If techncay a partnershp reaton e sted
among the members of the syndcate, by e press provson of the statute
(secton 182, Revenue ct of 1928, 45 Stat, 791) such partner s dstrbutve
share of the net ncome, whether dstrbuted or not, was requred to be ncuded
n hs gross ncome. ven f, whe the operatons of the syndcate were n
progress, property beongng to t was hed n trust, and the head or manager
of the syndcate was a fducary, wthn the meanng of secton 101 of the
Revenue ct of 1928 (45 Stat., 833, 2 U. S. C. ., secton 21 1), after the
termnaton of the operatons of the syndcate, the undstrbuted profts were
not ta abe aganst the syndcate or ts head, because they were not, wthn
the meanng of that secton, ncome whch, n the dscreton of the fducary,
may be ether dstrbuted to the benefcares or accumuated. Whether,
whe the syndcate was n operaton, the e stence of t dd or dd not stand
n the way of the pettoner havng tte to a share of the undstrbuted profts,
upon the termnaton of the syndcate s operatons durng the year 1928, the
pettoner was the benefca owner of hs share of the undstrbuted profts.
Whether the syndcate was a partnershp or another knd of |ont venture pror
to the end of the year 1928 the pettoner, as to sharng In the undstrbuted
profts, had the actua beneft for whch the ta was assessed. (Corss v.
owers, 281 U. S., 37 Ct. D. 18S, C. . I -1, 254 .) The pettoner s bene-
fca ownershp of hs share of the undstrbuted profts havng attached durng
the year 1928, the amount thereof was propery ncuded n hs gross ncome
for that year, though that amount was not defntey ascertaned unt after
the e praton of that year. (Dckey v. Commssoner, 50 ed. (2d), 917, cer-
torar dened, 287 U. S., 0 .) It was not open to the pettoner or hs agent,
the syndcate or ts manager, to avod the ncuson n hs gross ncome for
1928 of hs share of the syndcate s undstrbuted profts by postponng beyond
the end of that year the ascertanment of the e act amount of that share
of the actua devery to the pettoner of the amount of profts to whch e
was entted. (Wrght v. Commssoner, 50 ed. (2d), 727 Ct. D. 428, C. .
-2, 324 Tfetcman v. Commssoner, 41 ed. (2d), 743 Webb v. Comms-
soner, 7 ed. (2d), 859.)
The pettoner contrbuted to the syndcate 1,000 shares of Coca-Coa stock.
The syndcate sod 800 shares of that stock for pettoner s account, and
returned to pettoner 200 shares of that stock. The oard of Ta ppeas,
after fndng as a fact that the partcuar shares of stock whch were sod
for pettoner s account coud not be dentfed, approved the acton of the
respondent n determnng the net proft from that sae by appyng the foow-
ng provson of artce 58 of Treasury Reguatons 74, whch s usuay referred
to as the frst n, frst out rue: When shares of stock n a corporaton are
sod from ots purchased at dfferent dates and at dfferent prces and the
dentty of the ots can not be determned, the stock sod sha be charged
aganst the earest purchases of such stock. fter the decson of
the oard was promugated, by a moton for a revew by the oard of that
decson the pettoner chaenged the fndngs of fact upon whch was based
the oard s rung as to the determnaton of the net proft on the sae of 800
shares of stock for pettoner s account. The ground of that chaenge stated
n that moton was that those fndngs were not n accord wth the evdence
adduced n the bearng before the oard. That moton contaned sundry
statements as to testmony gven n the hearng, and to that moton was
attached an e hbt whch purported to be a wrtten record of, or account book
entres as to Coca-Coa stocks purchased and sod by the pettoner n the year
1928. The transcrpt before us contans that moton and the e hbt thereto.
Nether the statements n that moton as to evdence, nor what s contaned n
the mentoned e hbt, was n any way authentcated by the oard of Ta
ppeas nor made a part of the record to be revewed by ths court. Tapers
or documents caed to the attenton of the trbuna beow are not before ths
court for consderaton uness they are made part of the record by b of
e ceptons, statement of evdence, or n some other proper mode. ( ossng v.
Cody, 208 U. S., 38 4 O. ., 59.) The statements or showngs of evdence con-
taned n the above mentoned moton and the e hbt thereto are not consdered
by ths court, because they are whoy unaut|entcated and n no proper way
were made part of the record presented for revew. s the record does not
contan the evdence whch was before the oard of Ta ppeas when t
made ts fndng that the partcuar shares of stock sod by the syndcate for.
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8322, rt. 1251.
234
the account of the pettoner coud not he dentfed, we must accept that
fndng us concusve. (Commssoner of Interna Revenue v. Contnenta Screen
Co., 58 ed. (2d), 25 Ct. D. 7, C. . II-1, 218 .) The record furnshes
no bass or support for the pettoner s contenton that that fndng was not n
accordance wth the evdence. It s not controverted that on the state of facts
found by the oard ts determnaton of the gan derved from the sae of
pettoner s shares of stock was proper.
The petton for revew s dened.
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NCI S.
S CTION 272. PROC DUR IN G N R L.
rtce 1173: tenson of tme for payment of a defcency.
R NU CT O 1928.
Rues governng consderaton of appcaton for e tenson of tme
to pay defcency n ncome ta . (See Mn. 4303, page 133.)
S CTION 275. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION.
rtce 1201: Perod of mtaton upon assessment of ta .
R NU CT O 1028.
Return of successor corporaton ncudng but not segregatng
operatons of predecessor corporaton. (See Ct. D. 927, page 221.)
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 1251: uthorty for abatement, credt, I -17-7455
and refund of ta . Ct. D. 954
INCOM T R NU CT O 102S D CISION O COURT.
Sut Overpayment Deductons stoppe.
Where the ta payer, reportng on the accrua bass, n ts return
for the fsca year ended anuary 31, 1929, deducted rent on bus-
ness property for 13 months (mpropery ncudng the month of
ebruary, 1929) and n ts return for the fsca year ended anuary
31, 1930, camed a deducton for rent for ony 11 months of the
year (omttng the month of ebruary, 1929), and the Comms-
soner acquesced n that method of ad|ustng the ta abtes
for the 2 years, the ta payer s estopped from assertng a cam
for overpayment for the year 1930 after the statute of mtatons
had run aganst the Commssoner s rght to make an addtona
assessment for the year 1 )29.
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322, rt. 1251.
Court of Cams of the Unted States.
Stern ros., a New York Corporaton, v. The Unted States.
November 5, 1934.
OPINION.
Wams. udge, devered the opnon of the court.
The pantff s hooks of account were kept and ts ncome ta returns prepared
on the accrua bass of accountng. In ts corporaton ncome ta return for
the fsca year ended anuary 31, 1930, pantff took a deducton for rent
on busness property for ony 11 months of the year, omttng the month of
ebruary, 1929, whch was a part of the fsca year. The rent for the month
of ebruary amounted to 15,400.84. y reason of pantff s faure to take
a deducton of ths amount an overassessment and an overpayment of ta es In
the sum of 1,713.57 resuted. The sut s for the recovery of the amount
of ths overpayment.
Pantff rees upon the statutory provson that the deductons and credts
sha be taken for the ta abe year n whch pad or accrued or
pad or ncurred, dependent upon the method of accountng upon the bass
of whch the net ncome s computed .
If what has been sad n respect to the year 1930 presented a compete
pcture of the case, pantff, under the statute and reguatons, s ceary
entted to recover, but such s not the case. or the precedng fsca year
ended anuary 31, 1929, pantff took a deducton for rent on busness prop-
erty for 13 months, n whch was mpropery ncuded the month of ebruary,
1929, a month not wthn the fsca year. y reason of the erroneous deduc-
ton of 15,4 0.84 rent for ebruary, pantff underpad ts ta es for the year
1929 n the sum of . 1,842.41. Recognzng that t had underpad ts 1929 ta es
by takng an erroneous deducton for rent for the month of ebruary, pantff
sought to correct the error n ts return for the year 1930 by takng a deducton
for rent for ony 11 months of the year and restorng to surpus account on
Its books the 15,4 0.S4 erroneousy deducted n the precedng year. That t
was the pantff s ntenton and desre to correct the errors n respect to
deductons n the two returns and have ts ta abtes for the two years
ad|usted n ths manner can not be doubted. That the Commssoner so under-
stood the matter, and that he acquesced n the method of ad|ustment proposed
by pantff, s aso free from doubt. Otherwse t must be assumed he woud
have made a defcency assessment for the amount of the underpayment n
the year 1929 and refunded the amount of the overpayment for the year 1930,
the usua and proper method n such cases. There s ony a few doars df-
ference between the amount of ta es pantff woud have pad for the 2-year
perod had the returns been corrected to conform to the facts as to aowabe
deductons for rent and the amount actuay pad by t on the erroneous
returns, and that dfference s to the advantage of the pantff. The Govern-
ment has no money beongng to pantff. Its 1930 ta abty has been
ad|usted on the bass of the suggeston set forth n ts ta return for that
year, a suggeston that s, under a the facts and crcumstances of the case,
tantamount to request and consent. The correctness of the ad|ustment was n
no way questoned by pantff unt after the statute of mtatons had run
aganst the Commssoner s rght to make addtona assessments for the year
1929. In these crcumstances pantff s estopped from now assertng a cam
for the overpayment camed for the year 1930. (R. . Stearns Co. v. Unted
States, 291 T . S., 54 Ct. D. 780, C. . III-1, 321 Commssoner v. Lberty
ank Trust Co., 59 ed. (2d), 320 skn Marne Co. r. Commssoner,
ed. (2d), 77 Ct. D. 80 , C. . III-1, 2291 Moran v. Commssoner,
7 ed. (2d), 01 Crane v. Commssoner, 8 ed. (2d), 40 Ct. D. 852,
C. . III-2, 247 .)
Pantff s petton s dsmssed.
It s so ordered.
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5 0 , rt. 1301. 23
TITL I . DMINISTR TI PRO ISIONS.
S CTION 01. O RD O T PP LS PROC DUR .
Secton C01.
R NU CT O 1928.
ffect on equty recevershp proceedngs aganst transferee of
decson of oard of Ta ppeas that coecton was barred from
orgna corporaton. (See Ct. D. 93G, page 355.)
S CTION GOG. CLOSING GR M NTS.
rtce 1301: Cosng agreements reatng to I -2-7243
ta abty n respect of nterna-revenue Ct. D. 90
ta es.
INCOM T R NU CT O 1028 D CISION O COURT.
Cosng greement adty- ecuton by ctng Comms-
soner and pprova by ctng Secretary.
cosng agreement sgned by the ctng Commssoner of
Interna Revenue and approved by the ctng Secretary of the
Treasury s vad. Congress as prescrbed the condtons under
whch subordnates may act n (he pace am stead of the Com-
mssoner, the Secretary or Undersecretary of the Treasury, and
n the absence of a contrary showng t must be presumed that
those condtons e sted and that the ctng Commssoner and the
ctng Secretary had authorty to e ecute and approve the cosng
agreement.
Unted States Crcut Court ok ppeas, Tenth Crcut.
ames . nderson, Indvduay and as Coector of Interna Revenue for the
Dstrct of Utah, appeant, v. P. W. Madsen Investment Co., appeee.
ugust 18, 1034.
OPINION.
Phps, Crcut udge, devered the opnon of the court.
On March 14, 1927, the Madsen company fed ts ncome ta return for the
year 192 . On September 28, 192S, t e ecuted and devered to the coector
of nterna revenue a cosng agreement as to the fna determnaton of ts ta
abty for 192 , f ng t at 19, 13. . On December 28, 1928, . . Mres-
as ctng Commssoner sgned the agreement, and on December 31, 1928, t was
approved by enry Derrck ond as ctng Secretary of the Treasury. On
anuary 3, 1929, the Commssoner forwarded one copy of the agreement to the
Madsen company.
In ts return the Madseu company ncuded 97,340 receved as dvdends
from a budng and oan assocaton.
In Unted States v. Cambrdge L. . Co. (278 U. S., 55 T. D. 4252, C. .
II-2, 290 ), decded November 19, 1928, the court hed that earnngs of a
budng and oan assocaton were e empt under the provsons of secton
231(4), Revenue ct, 192 (2 U. S. C. ., secton 982(4)). It foows that
the dvdends returned were deductbe under secton 234(a) , Revenue ct.
192 ( 2 U. S. C. ., secton 9S (a) ).
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237
0 , rt. 1301.
The Madsen company fed a cam for a refund of 13,040.90 settng forth
that there was ncuded n ts return . 97,340 receved as dvdends from a
budng and oan assocaton, whch shoud have been aowed as a deducton.
fter more than s months had eapsed wthout any acton beng taken on
the cam, ths acton was fed to recover 13,040.90, as an overpayment.
In hs answer the coector peaded the cosng agreement as a defense.
In ts repy the Madsen company aeged that the cosng agreement was e e-
cuted by t because of certan representatons made by an nterna revenue
agent whch were contrary to fact and aw, that t was not e ecuted n accord-
ance wth secton 00 , Revenue ct, 1928 and that t acked the necessary
prerequstes prescrbed by that secton.
Mres was not authorzed n wrtng by the Commssoner to e ecute the
agreement.
t the tra the coector offered the cosng agreement n evdence. The tra
court hed that, absent an authorzaton n wrtng by the Commssoner to an
offcer or empoyee of the ureau, ony the Commssoner coud e ecute the
agreement and ony the Secretary or Undersecretary coud approve t, and
re|ected the offer.
udgment for the Madsen company foowed, and the coector appeaed.
To be vad a cosng agreement must be entered nto n accordance wth the
forma requrements of secton 0 , supra. ( otany Ms v. Unted States, 278
U. S., 282, 288-289 Ct. D. 39, C. . III-1, 279 .) When a statute mts a thng
to be done n a partcuar manner, t ncudes the negatve of any other mode.
( otany Ms v. Unted States, supra Raegh, etc., R. R. Go. v. Rcd, 13 Wa.,
2 9, 270.)
It a pan that Congress dd not ntend to ntrust the makng of cosng agree-
ments, whch precude both the ta payer and the Government from thereafter
reopenng the case as to matters agreed upon, e cept upon a showng of fraud
or mafeasance or msrepresentaton of a matera fact, to the acton of sub-
ordnate offcas n the ureau.
Does the statute prescrbe that ony the Commssoner may e ecute such an
agreement or desgnate n wrtng an offcer or empoyee of the ureau to do so,
and that ony the Secretary or Undersecretary may approve such an agreement
Or may one who s authorzed to perform the dutes of Commssoner durng a
vacancy n that offce or durng the absence or nabty of the Commssoner
to act, durng the e stence of one of those condtons, e ecute the agreement
and may one who s authorzed to perform the dutes of Secretary or Under-
secretary durng a vacancy n those offces or durng the absence or nabty of
such offcers to act, durng the e stence of one of those condtons, approve such
an agreement
Whe the Congress ntended to make forma acton by the head of the
ureau or Department essenta to the vadty of suc agreements, and to
defntey f the responsbty therefor, we do not thnk t ntended that tmes
shoud e st when, because of vacances n the offces of Commssoner, Secre-
tary, and Undersecretary, or n the absence of such offcas, the Department
woud be unabe to e ecute or approve such agreements. acances do occur n
those offces, and there are tmes when such offcers are absent or , or unabe
to act. The Congress provded that n such cases, as we sha presenty see,
subordnates may act In ther pace and stead, and e orcse ther authorty
and perform ther dutes. Such persons become temporary the Commssoner
and Secretary, and are nvested wth ther powers, ncudng the authorty to
e ecute and approve cosng agreements.
Secton 000, Revenue ct 1028 (45 Stat., 874), provdes:
(a) uthorzaton. The Commssoner (or any offcer or empoyee of the ureau of
Interna Itevenue, ncudng the fed servce, authorzed n wrtng hy the Commssoner)
Is authorzed to enter nto an agreement n wrtng wth any person reatng to the a-
bty of such person n respect of any nterna revenue ta for any ta abe
perod endng pror to the date of the agreement.
(b) na tv of agreements. If uch agreement Is approved by the Secretary, or the
Undersecretary, wthn such tme as may be stated n such agreement, or ater agreed to,
such agreement sha be fna and concusve, and, e cept upon a showng of fraud or
mafeasance, or msrepresentaton of a matera fact
(1) the case sha not be reopened as to the matters agreed upon or the agreement
modfed, by any offcer, empoyee, or agent of the Unted States, and
(2) n any sut, acton, or proceedng, such agreement, or any determnaton, assess-
ment, coecton, payment, abatement, refund, or credt made n accordance therewth, sha
not be annued, modfed, set asde, or dsregarded.
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238
R. S., secton 322 n part reads as foows:
There sha be n the offce of the Commssoner of Interna Revenue a
Deputy Commssoner .
R. S., secton 323 reads as foows:
The Deputy Commssoner of Interna Revenue sha he charged wth such
dutes n the offce of the Commssoner of Interna Revenue as may be pre-
scrbed by the Secretary of the Treasury, or by aw, and sha act as Comms-
soner of Interna Revenue n case of the absence of that offcer.
See cts of March 3, 18 3 (12 Stat., 725), une 30, 18 4 (13 Stat., 224),
and uy 13, 180 (14 Stat, 170).
Under the atter secton the Deputy Commssoner became ctng Comms-
soner durng the absence of the Commssoner.
The ct of anuary 20, 1874 (18 Stat., ), provded:
That the offce of Deputy Commssoner of Interna Revenue, made vacant
by the death of Gen. . . Sweet, be, and the same s hereby, aboshed and
that the Secretary of the Treasury may, upon the recommendaton of the
Commssoner of Interna Revenue, desgnate one of the two remanng deputy
commssoners as rst Deputy Commssoner, who sha perform the dutes
and be pad ony the saary prescrbed for the offce of deputy commssoner
hereby aboshed.
Ths ct aboshed I he offce of deputy commssoner, and deegated the dutes
of that offce to the rst Deputy Commssoner.
The ct of October 3, 1913 (38 Stat., ISO), provded for an addtona deputy
commssoner, brngng the number up to three.
The ct of October 0, 1917 (40 Stat., 348), reads n part as foows:
The Commssoner of Interna Revenue s authorzed to assgn to deputy
commssoners such dutes as e may prescrbe, and the Secretary of the Treas-
ury may desgnate any one of them to act as Commssoner of Interna Revenue
durng the Commssoner s absence.
fter the passage of the ast mentoned ct, any deputy commssoner
desgnated so to do by the Secretary, coud act as Commssoner durng the
htter s absence.
On ebruary 24, 1919 (40 Stat., 1140), Congress provded that:
ereafter there may be empoyed n the ureau of Interna Revenue, n
eu of the deputy commssoners fve deputy commssoners and an
assstant to the Commssoner, .
Ths ct was n part superseded by secton 1201(b) of the Revenue ct of
192 (44 Stat., 12 ), whch n part provdes:
There sha be n the ureau of Interna Revenue the foowng offcers who
sha be apponted by the Presdent, by and wth the advce and consent of the
Senate,
2. One ssstant to the Commssoner who sha receve a saary at the rate
of 8,000 per annum. The offce of ssstant to the Commssoner provded by
e stng aw s aboshed to take effect at such tme as the ssstant to the
Commssoner frst apponted under ths secton takes offce.
On uy 23, 18 8 (15 Stat., 1 S 5 U. S. C. ., secton 5), Congress passed,
an ct whch reads n part as foows:
In case of the death, resgnaton, absence, or sckness of the chef of any
bureau, or of any offcer thereof, whose appontment s not vested n the head
of the department, the assstant or deputy of such chef or of such offcer,
or f there be none, then the chef cerk of such bureau, sha, uness other-
wse drected by the Presdent, as provded by secton of ths tte, perform
the dutes of such chef or of such offcer unt a successor s apponted or
such absence or sckness sha cease.
It was ceary the purmse of the Congress In passng ths ct so to provde,
that at a tmes there shoud be some one to e ercse the authorty and per-
form the dutes of the head of a bureau.
We are ncned to the opnon that the cts above set out, deang specf-
cay wth the ureau of Interna Revenue, woud take precedence over ths
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239 5 13.
I
genera ct, and that the atter woud appy ony to stuatons not provded
for by such specfc cts. owever, that queston s not here presented, and
need not be decded.
Under the genera ct the ssstant to the Commssoner coud act as
Commssoner durng the atter s absence. Under (he specfc cts any deputy
commssoner, desgnated by the Secretary of the Treasury so to do, coud
act as Commssoner durng the atter s absence. See ct of October , 1917.
The offce of frst deputy havng been aboshed, n the absence of such a
desgnaton, the specfc cts woud not cover the stuaton, and the genera
ct woud appy. ,
There s no proof n the record that the Commssoner was not absent at
the tme n queston, or that a frst deputy commssoner had ever been
desgnated by the Secretary to act as Commssoner durng the atter s ab-
sence. There s a presumpton of authorty for offca acton rather than
waut of authorty, and where the statute prescrbes condtons under whch
the subordnate may act as head of a bureau and the subordnate acts as
such, the e stence of those condtons w be presumed n the absence of a
contrary showng. (Perry v. Page (C. C. . 1), G7 . (2d), 35 Unted
States v. Perata, 19 ow., 343, 347 Unted States v. Chemca oundaton
(D. C. De.), 294 ed., 300, 32 Young v. Wcmpe (C. C. Ca.), 4 ed., 354
Unted States v. Roger, 2 8 U. S., 394, 39S Mac usck v. ohnson (C. C. . 1),
3 . (2d), 398, 401 cyscr v. ts, 133 U. S., 138, 14 Unted States e rc.
Petavh v. Pheps (C. C. . 2), 40 . (2d), 500.) I
urthermore after Congress provded for an ssstant to the Commssoner,
to be apponted by the Presdent and confrmed by the Senate, t s reason-
abe to presume that the Secretary woud eave to hm the performance of the
dutes of Commssoner durng the atter s absence, and woud not desgnate
a subordnate deputy to perform such dutes. We must presume therefore
on ths record that Mres had authorty to e ecute the cosng agreement
as ctng Commssoner. (Perm v. Page (C. C. . 1), 7 . (2d), 35 Semmes
v. Unted States (C. CI.), . Sup., 119.)
In Perry v. Page, supra, the court n a we consdered opnon, hed that
ond as ctng Secretary of the Treasury had authorty under the provsons
of 5 U. S. C. ., sectons 4 and 22, to approve a cosng agreement durng the
absence or ness of the Secretary, and that such absence or ness woud
be presumed n the absence of a showng to the contrary. We a|ree wth the
Tews theren e pressed. (See aso Scrnmcs v. Unted States (C. CI.), .
Sup.. 119.)
We concude that the acton of the ctng Secretary must be presumed to
have been awfu and reguar unt the contrary s shown.
The cause s reversed and remanded for a new tra.
S CTION 13. LI N OR T S.
I -21-7507
I. T. 2894
R NU CT O 1028.
The act of May 3,1933, enacted by the Legsature of the Terrtory
of aska (chapter 94, Sesson Laws of aska, 1933, page 179), effec-
tve from that date, s accepted by the ureau of Interna Revenuo
as the egsaton authorzed under secton 318 , Revsed Statutes, as
amended by secton 13 of the Revenue ct of 1928, authorzng the
fng of notces of edera ta ens wth certan desgnated county or
other oca offcas.
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701, rt. 1314. 240
TITL . G N R L PRO ISIONS.
S CTION 701. D INITIONS.
ktce 1314: ssocaton dstngushed from I -4-7275
trust. Ct. D. 914
INCOM T R NU CT O 1928 D CISION O COURT.
1. Trust ssocaton Defnton Cemetery Company Dv-
dend.
cemetery company whch canceed Its stock, prevousy ssued
egay, made a decaraton of trust, ssued to the stockhoders trust
certfcates n proporton to ther hodngs, carred on an actve ceme-
tery busness, bought and and sod ots, operated a greenhouse and
other ncdenta busnesses, and nvested n securtes, s an assoca-
ton wthn the meanng of secton 701 of the Revenue ct of 1928,
and dstrbuton of profts to the hoders of the trust certfcates
consttutes a dvdend under the provsons of secton 115 of that
ct.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 0O7) affrmed.
3. Certorar Dened.
Petton for certorar dened October 8, 1934.
Unted States Crcut Court of ppeas for the Thrd Crcut.
May mba Smth, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffngton, Wooet, and Davs, Crcut udges.
March 14, 1934.
OPINION.
Davs, Crcut udge: In 18 9, the West Laure Cemetery Co. was ncor-
porated n Pennsyvana for the purpose of acqurng ands to be used for a ceme-
tery and t ssued 3,000 shares of stock of a par vaue of 50 each n e change
for ts premses. The stock was ssued egay and n 1881, the company can-
ceed ts stock and made a decaraton of trust for the beneft of ts stockhoders
who receved trust certfcates to evdence ther share n the company.
y the terms of the trust as much as one-ffth of the company s ncome coud
be used for permanent requrements for the upkeep and operaton of the cemetery.
The trust further provded that the company was to appy, approprate and
dvde the annua net ncome and moneys from tme to tme receved from sad
saes, not requred for the aforesad purposes, to and among the contrbutors
aforesad, and hers, e ecutors, admnstrators and assgns, n proporton to
ther respectve nterests and shares n the same and for whch they sha hod
certfcates to be ssued by the sad company whch sad net ncome
out of the proceeds of sad saes to be pad by the West Laure Cemetery
Co., aforesad, s te consderaton for the conveyance of the sad premses to
the company for the aforesad purposes.
The hoders of the trust certfcates were decared to have the status of stock-
hoders wth one vote for each share that the certfcate represented and were
egbe as managers of the company.
The busness has been proftabe and actve. dstrbuton of profts, a matter
yng n the dscreton of the managers, has been made annuay but aso a sub-
stanta and ncreasng surpus has been mantaned. In 1929, the ta abe year
Invoved here the company receved the foowng ncome: 277,558 for bura
rghts, for whch the vaue on March 1, 1913, was 150,098.04 97,2 1.37 from
a greenhouse operated by t and 35,470.82 from certan nvestments. The com-
pany s operatng e penses for 1929 were 172,182.19 pus 22,00 .2 for der-eca-
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241
705.
ton and obsoescence. The company dstrbuted 105,000 to ts certfcate hoders
n 1929, 4,514 of that amount beng the porton receved by the pettoner.
The pettoner dd not ncude the 4,514 u her gross ncome for 1929. The
Commssoner of Interna Revenue determned that the sum shoud be ncuded
n the pettoner s ncome as dvdends dstrbuted by an assocaton wthn the
meanng of the term corporaton as defned n the revenue aws. The oard
of Ta ppeas sustaned the Commssoner s determnaton and the pettoner
brought ths petton for revew.
The questons here are whether or not the cemetery company s an assocaton
ncuded wthn the meanng of the term corporaton n secton 701 of the
Revenue ct of 192S and f so, whether or not the dstrbuton by the corpora-
ton to those partcpatng theren n 1920 was a dvdend as defned by secton
115 of the ct of 1928. The pettoner contends that the dstrbuton was a de-
ferred part payment for the sae of the cemetery premses to the pettoner
n 1S 9.
The statute ncudes n the term corporaton for the purpose of ncome
ta aton, assocaton, |ont-stock companes, and nsurance companes. Whether
or not a trust s ta abe as an assocaton has been sub|ect to consderabe ds-
cusson. ( en, edera Income Ta aton, page 1139 Suppement, age 010).
The test ad down by ths court n Ltte ouf ( I Co. v. Lcwvyn (35 ed. (2d),
149 Ct. D. 118, C. . III-2, 204 ), s that f the trust s a busness concern
and f the sharehoders or trustees, or both combned, are operatng t n actve
busness for proft, the trust s n effect an assocaton ta abe as a corporaton.
It s not dffcut n vew of ths test to determne from the facts that the
oard dd not err In ts decson. The pettoner, through ts managers, seected
from and eected by the certfcate hoders, carred on an actve cemetery bus-
ness, seng ots, buyng and, operatng a greenhouse and other ncdenta bus-
nesses and nvestng n securtes. It s evdent that ths company was a
busness concern operated for proft and therefore ta abe.
The pettoner aso nssts that the dstrbuton by the pettoner n 1929 was
not a dvdend. Secton 115 of the Revenue ct of 1929 provdes that a dvdend
s any dstrbuton of a corporaton to ts stockhoders out of earnngs and profts
accumuated after ebruary 28, 1913, and that every dstrbuton s made out of
earnngs or profts to the e tent thereof, and from the most recenty accumuated
earnngs or profts.
The record shows that the company had accumuated a arge surpus snce
ebruary 28, 1913, and under secton 115 the dstrbuton was made out of the
most recent accumuatons of profts. The pettoner s entted to the return
of the vaue of her certfcate as of March 1, 1913, but there s no evdence here
to determne whether or not her share of the 1929 dstrbuton was a return of
capta.
Consequenty the order of the oard of Ta ppeas s affrmed.
S CTION 703. D DUCTION O ST T ND IN RIT-
NC T S R TRO CTI .
Secton 703.
revenue act of 1928.
State transfer ta es pad n 1923 by the estate. (See Ct. D. 959,
page 31G.)
S CTION 705. INST LLM NT S L S-
R TRO CTI .
Secto 705.
revenue act of 1928.
utomobe fnancng corporaton. (See Ct. D. 943, page 187.)
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201, rt. 1541. 242
INCOM T RULINGS. P RT I .
R NU CT O 192 ND PRIOR CTS.
TITL II. INCOM T .
P RT I. G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
INCOM T R NU CTS O 1021 ND 1024 D CISION O COURT.
1. Income Dvdend.
n amount pad to the pettoner In 1923 by a corporaton whch
had accumuated suffcent earned surpus subsequent to ebruary
28, 1913, was not a dstrbuton of capta, but payment of a ta -
abe dvdend under the provsons of secton 201 (a) and (b) of
the Revenue ct of 1921 even though authorzed as a dstrbuton
of capta.
2. Gan or Loss ass Sae of Stock cqured upon change
for Partnershp Interest.
Where the ta payer and hs partner n 1922 formed a corpora-
ton to take over the partnershp busness and each acqured one-
haf of the stock ssued by the corporaton, concedng that that
transacton was a nonta abe e change, the sae of Is stock by
the ta payer n 1924 resuted n a ta abe proft, measured by the
dfference between the cost to hm of hs partnershp nterest and
the amount for whch he sod the stock, n accordance wth sec-
ton 204(a) of the Revenue ct of 1924.
8. Decson ffrmed.
Decson of the Roard of Ta ppeas (20 . T. ., 49 ) affrmed.
4. Certorar Dened.
Petton for certorar dened October 8, 1934.
Unted States Crcut Court of ppeas for the Nnth Crcut.
W. . Pars, pettoner, v. Gnu T. erernff, as Commssoner of Interna
Revenue, respondent.
Upon pettons to revew an order of the Unted States oard of Ta ppeas.
efore Wbur and Sawtee, Crcut udges, and Norcross, Dstrct udge.
Wbur, Crcut udge: The pettoner seeks a revew of the decson of the
oard of Ta ppeas affrmng the determnaton by the Commssoner of
Interna Revenue of hs ncome ta es for the years 1923 and 1924, camng that
an tem of 100,000 determned by the Commssoner to be ncome for 1923 was
In fact a dstrbuton of capta, and that an tem of 539,70 .0 proft on the
sae n 1924 of the pettoner s stock n ars-Wuker, a corporaton, shoud be
emnated.
Wth reference to the cam that 100,000 pad to the pettoner by ars-
Waker, a corporaton, was capta, the Commssoner n hs defcency etter
rtce 1541: Dvdends.
( so Secton 204, rtce 159C.)
I -9-7342
Ct. D. 929
une 4, 1934.
OPINION.
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243
201, rt. 1541.
stated hs reasons for treatng the payment as a dvdend from profts aa
foows:
In vew of the fact that the corporaton s books show an earned surpus
(accumuated durng 1922 and 1923) of more than 700,000 at the tme the
dstrbuton was made, It Is cear that the 200,000 dstrbuted shoud have been
treated as a dvdend from profts accumuated subsequent to ebruary 28, 1913,
and that sad dstrbuton was sub|ect to ta , and that your share shoud have
beeu Incuded In your ncome ta return for 1923, the year n whch dstrbu-
ton was made.
Ths fndng of the Commssoner s presumed to be correct uness overcome
by evdence. ( eser v. Commssoner, 38 . (2d), 155 urnet v. ouston, 283
U. S., 223 Ct. D. 328, O. . -, 343 .) The ony evdence offered to overcome
ths presumpton was the fact that appcaton was made to the State comms-
soner of corporatons for permsson to dstrbute 200,000 of ts capta assets.
It s contended that the dstrbuton made n pursuance of that authorzaton
mast be presumed to be a part of ts capta assets and not ts earned ncome.
Nether the acton of the State commssoner of corporatons nor of the cor-
poraton s decsve of the matter whch s controed by the revenue aws of
the Unted States. (Osburn Caforna Corporaton v. Wech, 39 . (2d), 41
Ct, D. 173, C. . I -1, 250 ngeus Ug. d Inv. Co. v. Commssoner, 57 .
(2d), 130 ret D. 57 . C. . I-2, 293 Wess v. Wener, 279 U. S., 333 Ct. D.
0. C. . III-1, 257 urnet v. arme, 287 U. S., 103, 110 Ct. D. 11, C. .
I-2, 210 .)
Secton 201(a) and secton 201(b) of the Revenue ct of 1921 (ch. 13 , 42
Stat., 227), under whch the ta nvoved was computed, provdes as foows:
That the term dvdend when used n ths tte means any
dstrbuton made by a corporaton to ts sharehoders or members, whether n
cash or n other property, out of ts earnngs or profts accumuated snce
ebruary 28, 1913, .
or the purposes of ths ct every dstrbuton s made out of earnngs or
profts, and from the most recenty accumuated earnngs or profts, to the e -
tent of such earnngs or profts accumuated snce ebruary 28, 1913 .
Under these sectons (201(a), 201(b)), f the corporaton had on hand any
undstrbuted earnngs or profts accumuated snce ebruary 28, 1913, the pay-
ment of 100,000 to the pettoner by the corporaton must be deemed to be
made therefrom. (See Lncon Natona ank v. urnet, 3 . (2d), 131
adey v. Commssoner, 3 . (2d), 543 Ct. D. 153, C. . I -1, 2 Chrs-
topher v. urnet, 55 . (2d), 527 Ct. D. 530, C. . I-2, 1 7 everng v.
Canfed Ct. D. 783, C. . III-1, 17 Thorsen v. everng, 291 U. S., 103,
54 S. Ct., 3 8 Ct. D. 783, C. . III-1, 17 .) The Commssoner found that
there were such profts and that the dstrbuton was of such profts. The
pettoner offered no evdence to the contrary and the oard of Ta ppeas
therefore propery affrmed the acton of the Commssoner hodng that the
payment of 100,000 to the pettoner by the corporaton was a ta abe dvdend.
The ne t queston for consderaton Is the tem of profts derved by pettoner
from the sae of 1,500,000 of hs stock n the corporaton. The corporaton
was formed anuary 3, 1922, by the pettoner and hs partner Waker to take
over the busness of the copartnershp, and t ssued a ts stock (20,000
shares of the par vaue of 100 per share) to the copartners, one-haf to each,
In payment for the copartnershp busness whch was transferred to t by the
copartnershp. Pettoner sod hs stock n 1924 for 1,500,000. e cams that
he made no proft from the sae but a oss as the market vaue of the partner-
shp nterest transferred to the corporaton was 1,700,000. The Commssoner
cams that the proft of the pettoner from ths sae was 1,037, 18.02, beng
the dfference between the cost to hm of the partnershp nterest transferred
to the corporaton for the stock and the amount for whch the stock was sod.
It s conceded that the transfer of the partnershp property to the corporaton
for a Its stock was nonta abe under the provson of secton 203 (a), (b) (4)
of the Revenue ct of 1924 (ch. 234, 43 Stat., 253), whch s as foows:
Seo. 203. (a) Upon the sae or e change of property the entre amount of the
gan or oss, determned under secton 202, sha be recognzed, e cept as here-
nafter provded n ths secton.
(b)(4) No gan or oss sha be recognzed f property s transferred to a
corporaton by one or more persons soey n e change for stock or securtes
n such corporaton, and Immedatey after the e change such person or persons
are n contro of the corporaton but n the case of an e change by two or more
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201, rt. 1541.
244
persons ths paragraph sha appy ony f the amount of the stock and securtes
receved by each Is substantay n proporton to hs nterest In the property
pror to the e change.
The ta was eved by the Commssoner under secton 204(a), sub. ( ), of the
Revenue ct of 1024, but the pettoner cams that ths secton does not appy
and that the usua rue of ta ng proft shoud appy, namey, that the ta abe
proft s the dfference between the sae prce of the stock and the cost to the
seer of the stock. Paragraph (0) of secton 204 s as foows:
(G) If the property was acqured upon an e change descrbed n subd-
vson (b) of secton 203, the bass sha be the s:me as n the case
of the property e changed, .
Ths part of paragraph ( ) ceary provdes that n vew of the nonta abe
e change of the partnershp nterest for corporate stock the e change must be
gnored n computng the proft by the ta payer at the tme of the sae of hs
stock and the sae of the corporate stock treated for ta aton purposes as a
sae at that tme of the partnershp nterest for whch t had been e changed.
In other words, the actua proft of the ta payer n the entre transacton was
determned at the tme he sod hs stock nstead of beng determned n whoe
or n part at the tme of the nonta abe e change of one form of ownershp
for another. The dffcuty n nterpretng paragraph ( ) arses from the con-
cudng sentence of the paragraph whch the pettoner cams modfes the en-
tre paragraph so as to make the whoe paragraph nappcabe to the e change
n the case at bar. We Itacze and quote the concudng sentence of para-
graph ( ) of secton 204, as foows:
Ths para-graph sha not appy to property acqured by a corpo-
raton by the ssuance of ts stock or securtes as the consderaton n whoe
or n part for the transfer of the property to t.
The Commssoner cams that ths ast sentence of paragraph ( ) of secton
204 merey e cudes therefrom the ta aton of the proft derved or to be
derved by the corporaton from the sae of the partnershp property acqured
by t, and eaves the secton appcabe to the sae by the stockhoder of hs
stock, and that the e cepton n paragraph ( ) s made because paragraph (8)
(of secton 204) e pressy provdes for the method of ta ng the proft to the
corporaton derved from the sae of ts property receved n e change for ts
stock upon a nonta abe e change. That paragraph s as foows:
(8) If the property was acqured after December 31, 1920, by
a corporaton by the ssuance of ts stock or securtes n connecton wth a
transacton descrbed n paragraph (4) of subdvson (b) of secton 203
then the bass sha be the same as t woud be n the hands of the
transferor, .
That ths paragraph (8) appes to the sae by a corporaton of ts property
acqured by t n a nonta abe e change of ts stock for the property has been
decded by ths court (Osburn Co. Corp. v. Wech, 39 . (2d), 41) and by other
courts Newman, Saunders Co. v. Unted States, 3 . (2d), 1009 T. W.
Phps, Inc., v. Commssoner, 3 . (2d), 101), and t has been hed that the
method of ta ng the corporate gan so provded s not unconsttutona because
t ta es the corporaton at the tme of the sae of ts assets for that porton
of the Increase n vaue whch occurred whe the transferor owned the prop-
erty. (T. W. Phps, Inc., v. Commssoner, supra.) It woud seem cear then
that the method of ascertanng the gan or oss upon the sae of property
acqured by a corporaton n a nonta abe e change s covered by paragraph
(8) of secton 204, and ths woud be a suffcent reason for the provso of the
concudng sentence of paragraph ( ), supra, provdng that It shoud not
appy to property acqured by the corporaton. Otherwse the paragraph woud
appy to both the corporaton and the stockhoder because both have receved
property n a nonta abe e change, and hence both woud come wthn the
terms of paragraph (0) had the corporaton not been e cuded therefrom by
the concudng sentence. The reason for deang wth the stockhoder n one
paragraph (0) and the corporaton n another (8) probaby arses from the
fact that both paragraphs provde for the contngency that there may have been
other property or money n addton to the capta stock on the one hand and
busness or property on the other nvoved n the e change. We have omtted
from our quotaton from both paragraphs ( ) and (8) these provsons whch
are not nvoved n the case at bar.
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203, rt. 1574.
Ths constructon of the two paragraphs, ( ) and (8), of secton 204 of the
Revenue ct of 1924, apparent enough upon ther faces, the pettoner woud
avod upon the ground that the appcaton thereof mght resut n both the
corporaton and the stockhoder payng a ta upon the ncrease n vaue of
the property of the stockhoder transferred to the corporaton durng the tme
t was owned by the transferor, because n the case of the sae of the stock
the orgna cost of the property e changed therefor to the transferor s taken
as a bass for determnng hs proft and n the case of the sae of the prop-
erty by the corporaton the same bass s taken, thus reatng the transacton
back to the same orgna cost and coverng the gan durng the perod t was
hed by the transferor. That ths mght be the effect of the statute s apparent
and s conceded by the respondent. Whe t s true that n construng a
statute, a constructon that woud resut n doube ta aton shoud be avoded
n case of ambguty or uncertanty, ths consderaton does not |ustfy a court
n gnorng the pan ntent of Congress. We are not here concerned wth a
case of doube ta aton, but at the most of a possbty thereof. The pettoner
has receved hs proft, and t s a part of hs ncome for the year n whch
t was receved. The corporaton may never reaze a ta abe proft upon
the sae of ts assets acqured from pettoner. It may not se them. They
may decrease n vaue to ess than the cost to pettoner, and be sod at a
oss. If the property acqured by the corporaton shoud be sod by t at a prce
whch woud reaze a ta abe gan under paragraph (8) t w be tme
enough to then consder whether the stockhoder has not aready pad a
or part of the ta . The queston as to the consttutona power of Congress
to ta the ncreased vaue of the property whe t was n the hands of the
transferor, as we as to the corporaton, sought to be rased by the pettoner
can not be rased by hm or consdered unt that tme. ( / . T . Phps, Inc.,
v. Commssoner, 3 . (2d), 101, supra.) See, however, as to the power of
Congress to ta the same ncome to two persons, emch v. eman (27
U. S., 233, 237 T. D. 4217, C. . II-2, 238 ). Pettoner advances an aternate
proposton that the cost to hm of hs partnershp nterest shoud have been
f ed at 000,000 nstead of 4 0,493.94. Ths cam s based on a showng
of the book vaue of the partnershp assets of 1,200,000 at the tme of the
e change, and the testmony of C. N. Reynods, that the merchandse nven-
tory was based upon cost or market whchever was ower, that the f tures
were shown on the books at cost ess deprecaton, and the cash surrender
vaue of fe nsurance poces. Ths s not a showng of the cost of the
partnershp assets to the pettoner, that s, hs capta nvestment theren,
hence the fndng of the Commssoner was propery sustaned by the oard
of Ta ppeas.
The order of the oard of Ta ppeas s affrmed.
. S CTION 203. R COGNITION O G IN OR LOSS
ROM S L S ND C NG S.
htc|: 1574: changes n connecton wth I -10-7355
corporate reorganzatons. Ct. D. 931
INCOM T R NU CT OP 192C D CISION O COURT.
1. Gan or Loss ass Cost to Transferor Reorganzaton.
Where a corporaton n 192 ) acqured a the stock and assets of
another, whch then ceased to e st, the soe stockhoder of the
od corporaton becomng the soe stockhoder of the new, the
transacton was a reorganzaton wthn the meanng of secton
203(h) of the Revenue ct of 192 , and the bass for determnng
gan or oss upon sae of a porton of the rea property n 1925 and
192 s ts cost to the transferor, n accordance wth secton
204(a)7 of that ct
2. Certorar Dened.
Petton for certorar dened November 5, 1034.
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5203, rt. 1574.
24G
Unted States Crcut Court of ppeas for the Second Crcut.
hcs Reaty Corporaton, pettoner-appeant, v. Commssoner of Interna
Revenue, respondent-appeee.
Petton to revew a determnaton of tbe oard of Ta ppeas. Ta payer appeas.
Order affrmed.
efore Manton, Swan, and Chase, Crcut udges.
une 4, 1934.
OPINION.
Manton, Crcut udge: The ncome ta es of the pettoner for the fsca years
1925 and 192 are here asked to be revewed. Sectons 1001, 1002, 1003 of the
Revenue ct of 192 (ch. 27, 44 Stat., 9. 109, 110) secton 03 of the Revenue
ct of 1928 (ch. 852, 45 Stat., 791, 873) secton 1011, Revenue ct of 1932
(ch. 209, 47 Stat., 28 ).
The pettoner, a New York corporaton organzed November 30, 1923, re-
ceved a conveyance of rea estate from a New York corporaton of the same
name about the same tme. Ths new corporaton transferred to the od corpo-
raton (vendor) whc had been organzed ebruary , 1922, under the New
York aw, ts authorzed capta stock of pur vaue of 500,000 and ncome
debenture bonds of the par vaue of 500,000 n e change for a the capta
stock of the od corporaton. The property whch the od corporaton conveyed
was the rea estate whch had passed to Lous . Snyder, trustee of the estate
of . W. hes, deceased, who had owned a the capta stock of the od
corporaton.
The offer to make the e change reads:
The od corporaton w transfer to the new corporaton a of
the assets of the od corporaton Incudng name and good w as a gong
concern. Ths e change of securtes I fnd to be convenent and
desrabe for the operaton of the propertes confded to me as such trustee.
of the abtes of the od corporaton are to be assumed by the new
one.
y operaton of aw, the company organzed n anuary, 1922, w cease to
e st on or about December 9, 1923.
November 30, 1923, the od corporaton was dssoved by the new corporaton
and the atter thereupon receved ts entre assets. The rea property was
paced on the books of the new corporaton at an apprased vaue. It ater
sod two parces of ts property durng the fsca years of 1925, and a thrd
parce n 192 . In ascertanng the gan or oss on these saes for ta purposes,
the Commssoner used as a bass, the cost bass to the od corporaton. The
pettoner contends that n determnng the gan or oss, the far market vaue
of the property on November 30, 1923, the date of the transfer from the od
corporaton to t shoud be used.
Secton 203(h) of the Revenue ct of 192 s appcabe and the e -
change of the corporate securtes n the new corporaton for the transfer of
the assets of the od corporaton foowed by the dssouton of the od corpo-
raton was a reorganzaton. Reorganzaton as used n secton 204(a)7 s
defned n secton 203(h) as ( ) a merger or consodaton, ncudng the
acquston by one corporaton of at east a ma|orty of the votng stock and
at east a ma|orty of the tota number of shares of a other casses of stock
of another corporaton or substantay a of the propertes of another corpo-
raton or ( ) a transfer by a corporaton of a or a part of ts assets to
another corporaton f mmedatey after the transfer the transferor or ts
stockhoders or both are n contro of the corporaton to whch the assets are
transferred or (C) a recaptazaton or (D) a mere change of dentty, form,
or pace of organzaton, however effected. In the nstant case, the pettoner
acqured a the capta stock of the od company and took over a ts prop-
erty, whereupon the od company ceased to e st. When ths transacton was
competed, t was found that the soe stockhoder of the od, the soe stock-
hoder of the new, had a 100 per cent contro over and nterest n the dentca
assets. Ths was a reorganzaton wthn the statute. Pneas ee rf CoW
Storage Co. v. Commssoner, 57 ed. (2d), 188 (C. C. . 5) affrmed 287 U. S.,
4 2 Ct. D. 30. C. . II-1, 1 1 Cortand Specaty Co. v. Commssoner,
0 ed. (2d), 937 (C. C. . 2) Ct. D. 08, C. . II-1, 1 4 everwq v.
Gregory, 9 ed. (2d), 802 (C. C. . 2).)
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247
04, rt. 1594.
It s argued that the takng1 over of the assets of the od company and ts
dssouton by the new company are separate transactons and therefore there
was no reorganzaton. There certany was no merger for the essence of
a merger s the absorpton by one corporaton of the propertes and franchses
of another whose stock t has acqured, whereupon the merged corporaton
ceases to e st and the mergng corporaton aone survves. Indeed, Snyder
n hs etter of November 20, 1923, referred to, says: Ths e change of secur-
tes I fnd to be convenent and desrabe for the operaton of the propertes
confded to me as such trustee. The e change was duy effected pursuant to
ths wrtng. Snyder stated: I own a of the capta stock of the hes
Reaty Corporaton organzed n anuary, 1922, and have caused your new
corporaton to be formed as a reorganzaton of the pror one. Ths eaves
tte doubt of the ntent to reorganze. There was a contnuty of nterest
n the transacton, a contnuance of the busness conducted by the od corpo-
raton under the modfed corporate form. fter reorganzaton, the soe
stockhoder became the soe stockhoder of the new, and the new corporaton
at competon- was possessed of the same assets as the od. s stated n secton
203(h) 1(D), t was a mere change of dentty, form, or pace of organzaton,
however effected.
snge transacton may not be broken tp nto varous eements to avod a
ra . (We t Te as Refnng f Deveopment Co. v. Commssoner, 8 ed. (2d),
777(C. C. . 10) Prare O d as Co. v. Motter, ed (2d), 309 (C. C. .
tt) Ct. D. 7 7, C. . III-1, 183 .)
The |ea estate was not acqured by the pettoner n qudaton proceedngs,
bat n connecton wth a reorganzaton. The bass of determnng the gan or
ow from the saes made n 1925 and 192 s f ed by secton 204(a)7 of the
Revenue ct -of 192 . Thus the bass s the same as t woud be n the hands
of the transferor, ncreased n the amount of gan recognzed to the transferor
upon such transfer, under the aw appcabe to the year n whch the transfer
was made, (Securtes Co. v. Commssoner, 4 ed. (2d), 330 (C. C. . 2).)
The bass to be used s the same as t woud be wth the same property n the
hands of the od corporaton. (Mente v. Commssoner, 24 . T. ., 401
Pedmont nanca Co., Inc., v. Commssoner, 2 . T. ., 1221.)
The partes have stpuated that the Commssoner n hs defcency notces
of December 18, 1928, and March 21, 1929, has correcty determned the ta abe
pnofts from these saes f the new corporaton s compeed to use the cost
bass of the od corporaton and If the oard fnds that the new corporaton
ff compeed to use the cost bass of the od corporaton n determnng the,
gate or oss from the saes accrung n the years 1925 and 192 , then the oard
shoud enter |udgment for the respondent and approve the defcences aa
proposed n the defcency notces.
Ths stpuaton s controng and makes t unnecessary to refer the matter
back for computaton and further consderaton by the oard. (Ta v. Western
Maryand Rocny Co., 289 D. S., 20 Ct. D. S3, C. . II-1, 351 .)
Order affrmed.
S CTION 204. SIS OR D T RMINING G IN OR
LOSS, D PL TION, ND D PR CI TION.
rtce 1594: Property acqured by gft or I -5-7288
transfer n trust on or before December 31, Ct. D. 915
1920, or by bequenst, devse, or nhertance.
INCOM T R NU CT O 192G D CISION O COURT.
1. Gan ob Loss ass Property cqured by equest Date
of cquston by Remanderman.
Where property was bequeathed n trust, the ncome therefrom to
be pad to a fe tenant wth remander over to the ta payer and
others, provded, however, the remandermen were to receve nether
ncome nor prncpa unt they reached a certan age, the date of
acquston by the ta payer, under the provsons of secton 204 of
083 35 9
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8204, rt. 1594.
248
the Revenue ct of 192 , was the date of the death of the testator,
at whch tme hs remander vested n nterest, and the bass for
determnng gan or oss upon hs subsequent sae of the property
was ts far market vaue at such date.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 815) affrmed.
3. Cebtobab Dened.
Petton for certorar dened October 8, 1934.
Unted States Crcut Court of ppeas for the Seventh Crcut.
arey opkns, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore schueb, vans, and Sparks, Crcut udges.
anuary 2G, 1934.
OPINION.
Sparks, Crcut udge: Ths petton for revew of a decson of the oard
of Ta ppeas presents much the same ssue as that nvoved n the case of
I otter v. Commssoner, decded by ths court, anuary 22, 1934. In that case
the queston was whether the pettoner took a vested or a contngent re-
mander n the resdue of her father s estate under the provsons of hs w,
und argument was confned to that pont as determnng the date of acquston
of the estate. Pettoner, however, nssts that that case and a number of
smar cases have emphaszed the wrong pont. The cases referred to have to
do wth the constructon of secton 204 of the Revenue cts of 1924 and 192 ,
Whch s as foows:
The bass for determnng the gan or oss from the sae or other dsposton
of property acqured after ebruary 28, 1913, sha be the cost of such property
e cept that
I
(5) If the property was acqured by bequest, devse, or nhertance, the
bass sha be the far market vaue of such property at the tme of such
acquston.
There have been a number of cases n whch the foregong secton was con-
sdered. Thus n rewster v. Gage (280 U. S., 327 Ct. D. 148, C. . I -1, 274 )
t was hed that a resduary egatee under a w had a vested nterest n the
property acqured by hm under the w, so that as to hm, the date of acqu-
ston of the property was the date of decedent s death. In uggett v. urnet
( 4 . (2d), 705) t was hed that a provson n a w eavng one-haf of the
ncome of the estate to testator s daughter durng her fetme, and at her
death, one-haf of the estate to certan named granddaughters created a vested
remander n the granddaughters so that the vaue of the propertes subse-
quenty turned over to the pettoner, one of the granddaughters, was to be
cacuated as of the date of death of the testator. In Cvander v. ed ( 3 .
(2d), 13) t was hed that the nterest of a remanderman under a w vested
upon the death of the testator, n spte of the fact that the property was not
to be dstrbuted to hm unt the death of the fe tenant, and then ony upon
hs reachng the ages of 30, 35, and 40 years, at whch tmes dstrbuton was
to be made n three equa nstaments. In Moter v. Commssoner supra,
ths court hed that the nterest of a remanderman under a w whch pro-
vded for dstrbuton of the remander n four equa nstaments to be pad
two years apart foowng the death of the fe tenant vested upon the death
of the testator. In Lane v. Coru n ( 3 . (2d), 7 7) t was hed that where the
termnaton of a trust was to occur upon the death of the two youngest of four
benefcares of the trust, or at an earer date at the dscreton of the trustees,
the nterest of the benefcares was a contngent one whch dd not vest unt
the property was actuay conveyed to them, hence the date of acquston was
the date of dstrbuton rather than the date of decedent s death.
It w be noted that n a of these cases, the queston Invoved was the same,
namey, what was the date of acquston of property, acqured under a w, the
sae of whch property foowng dstrbuton gave rse to a fund sub|ect to ta a-
ton. In a the cases, t was consdered that the controng factor was whether
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204, rt. 1594.
the Interest created by the w was a vested or a contngent one, thereby deter-
mnng whether the date of deat or the date of dstrbuton was to e taken as
the bass for ascertanng gan or oss from the sae of the estate propertes.
Pettoner n the case at bar, however, contends that the foregong dstncton
Is an atogether arbtrary one, and shoud not be permtted to contro the dec-
sons In these cases. e argues that t s very unfortunate that the amount of
ta es payabe shoud be made to depend upon such doubtfu questons as the
tme of the vestng of nterests for the reason that n cases whch nvove such
questons the courts ean to a constructon n favor of vestng n order to sustan
the vadty of the nterests created that the queston of whether an nterest s
vested or contngent often turns upon the form n whch the gft s e pressed,
athough as a matter of practca fact, the vested egatee obtans no more actua
domnon over the property where another estate ntervenes than the contngent
egatee obtans. e argues that snce ta es present a very practca probem,
and courts have hed that substance rather than form shoud contro decsons
nvovng that probem, for ta ng purposes, the date whch shoud be f as a
bass for ascertanng vaue s the date at whc the nterest of the egatee
becomes ndefeasbe, or the date of dstrbuton of the property to hm.
Whe ths precse queston has not yet been consdered by the Supreme Court,
we thnk that the anguage used by t n the case of rewster v. Gage, supra, s
broad enough to answer pettoner s contenton. There t was argued by counse
for the ta payer that to hod that the property sod was acqured at the date
of the testator s death woud resut n ncreasng or decreasng a ta payer s
Income on account of changes n vaue of property before t s sub|ect to the ds-
poston and contro of such ta payer. Ths shoud not be done n the absence
of ceary e pressed congressona ntent. In answerng ths argument, the
court sad, ut mmedatey upon the death of the owner there vests n each of
them the rght to hs dstrbutve share of so much as sha reman after proper
admnstraton and the rght to have t devered upon entry of the decree of
dstrbuton. The decree of dstrbuton confers no new rght t merey
dentfes the property remanng, evdences rght of possesson n the hers or
egatees and requres the admnstrators or e ecutors to dever t to them. The
ega tte so gven reates back to the date of the death. Pettoner s
rght ater to have hs share vested mmedatey upon testator s death.
t that tme pettoner became enrched by ts worth, whch was drecty reated
to and woud ncrease or decne correspondngy wth the vaue of the property.
nd, notwthstandng the postponement of transfer of the ega tte to hm,
Congress unquestonaby had power and reasonaby mght f vaue at the tme
tte passed from the decedent as the bass for determnng gan or oss upon sae
of the rght or of the property before or after the decree of dstrbuton. Whe
ths anguage was used n decdng as to the date of acquston of property b_y a
resduary egatee, we see no reason why t shoud not be equay appcabe n
the case of a remanderman whose nterest vested upon the death of the testator,
even though possesson was to be postponed for an ndefnte perod. Congress
had a rght to f such date as the bass for determnng gan or oss to the
egatee. Date of acquston has been hed to have a certan specfc mean-
ng, dfferng In the cases of the vested and the contngent remanderman. The
fact that a dfference n the amount of ta es payabe resuts from foowng such
a dstncton w not permt us to adopt a dfferent rue from that provded for
by Congress.
Pettoner further argues that n the event that ths court hods that ths case
Is to be decded on the queston of whether he took a vested or contngent nterest
under the w of hs grandfather, It shoud be hed that t was the atter. The
w provded that
My sad trustees sha pay over to my wfe one-haf of the net
annua Income so ong as she sha ve and upon her death they
sha pay one-haf of the ncome whch she woud have receved f vng
to each of my grandsons provded such grandson has attaned the age
of 25 years and unt he sha attan the age of 25 years my sad trustees sha
after the death of sad (wfe), accumuate and set apart one-haf of the ncome
for the beneft of each of my sad grandsons and after the death of
(wfe) and when each of my sad grandsons attans the age of 30 years or as
soon thereafter as (wfe) sha de, my sad trustees sha pay over to each of
sad grandsons respectvey one-fourth of the trust estate to be hs absoutey
together wth any accumuatons of ncome drected to be made for hs beneft.
n dentca provson was made wth respect to the other haf of the estate
whch was eft n trust for hs daughter, wth remander over for hs grandsons.
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250
Pettoner ctes the case of O are v. ohnston (273 111., 458) as hodng that
nn nterest n a grandchd after a fe estate n a parent, comparabe to pet-
toner s nterest n the case at bar, was a contngent one. Ths constructon of
the case Is, however, n error. The facts n t were that testator created a trust
for 30 years for the beneft of hs son and daughter who were to receve the
ncome from the fund semannuay, and the corpus of t n equa shares at the
end of the perod. s to that provson of the w the court hed that consder-
ng a the crcumstances t was cear that the postponement of possesson was
for the benet of the estate rather than for reasons persona to the egatees,
hence ther nterest was vested rather than contngent. The w further pro-
vded that n case ether the son or daughter ded wthout ssue durng the trust
perod, the survvor was to have the entre estate at the end of the perod, but
that f ether had chdren, those chdren were to receve the share to whch
ther parent woud have been entted, f st vng. The court hed that the
egacy vested n the grandchdren at the death of ther parent and not nt the
tme of the dstrbuton of the estate at the end of the trust perod. It seems
unnecessary to pont out that the facts of that case are n no way comparabe to
those of the case at bar, nor s the concuson as stated by pettoner.
We have found no Inos case n whch ths partcuar form of bequest was
construed, namey, n trust wth the ncome to be pad to a fe tenant, wth
remander over to named persons, provded, however, they were to receve nether
ncome nor prncpa unt they reached a certan age. It was hed n the case
of obt v. owscr (338 111., 328) that a devse, to have and to hod n fee
smpe, provded, however (devsee) ves to be 50 years of age, and n case she
ded before, over to her chdren, or f none, to the other chdren of the testator,
vested the fee n the devsee, sub|ect to beng dvested upon her death under the
prescrbed age. uthortes were cted for the hodng that devse to when
or f he attans a certan age, wth a devse over dependent upon hs death before
he attans that age or wthout ssue s not sub|ect to a condton
precedent that the devsee sha attan the age f ed, but t creates a vested estate,
sub|ect to a condton subsequent, by the happenng of whch t may be dvested.
We thnk t can make no dfference n prncpe that an ntermedate fe estate
ntervenes n the case at bar. s stated n the case of Lane v. Concn, supra,
Whether a gven remander s vested or contngent turns on testamentary
ntent, and where the ntenton s that the dstrbuton of the estate sha be post-
poned unt a future tme to persons then to be ascertaned, t s contngent, as
dstngushed from the nstance n and where the utmate takers are capabe
of dentty at the date of death.
Decson affrmed.
rtce 1594: Property acqured by gft or transfer n
trust on or before December 31, 1920, or by bequest,
devse, or nhertance.
R NU CT O 1928.
Modfcaton of Soctor s Memorandum 4882 (C. . -2, 13).
(See G. C. M. 14350, page 201.)
rtce 1594: Property acqured by gft or I -23-7535
transfer n trust on or before December 31, Ct. D. 975
1920, or by bequest, devse, or nhertance.
INCOM T R NU CTS O 1924 ND W28 D CISION O SUPR M
COURT.
1. Gan or Loss ass Sat.e Depeton or Deprecaton Prop-
erty n IIanos of ecutor.
The bass for computng gan or oss on the sae of property, and
ts depeton or deprecaton, for purposes of ta ng ncome re-
turned by an e ecutor under the Revenue cts of 1924 and 1920
s the vaue of the property at the date of the decedent s death,
rather than the cost to the decedent, or the vaue on March 1,
1913, f acqured before that date.
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204, rt. 1594.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, ghth Crcut (72
ed. (2d), 852), affrmng 27 . T. ., 952, affrmed.
Supreme Court of the Unted States.
Cavour artey, ecutor of the state of O. G. artey, pettoner, v.
Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ghth Crcut.
pr 29, 1935.
OPINION.
Mr. ustce Stone devered the opnon of the Court.
The Court of ppeas for the ghth Crcut (72 . (2d), 352) affrmed a
rung of the oard of Ta ppeas (27 . T. ., 952) and hed that under
secton 202 of the Revenue ct of 1921 (ch. 13 , 42 Stat., 227, 229) and secton
204 of the Revenue ct of 1924 (ch. 234, 43 Stat., 253, 258), the bass for com-
putng gan or oss on the sae of property, and Its depeton or deprecaton,
for purposes of ta ng ncome returned by the pettoner, an e ecutor, s ts
vaue at the date of the decedent s death, rather than the cost to the decedent,
or the vaue on March 1, 1913, f acqured before that date.
We granted certorar ( U. S., ), to resove a confct of the decson
beow, and of the ke decson, under secton 202 of the 1918 Revenue ct
(ch. 18, 40 Stat., 1057, 10G0), of the Court of ppeas for the S th Crcut n
dredge v. Unted States (31 . (2d), 924, 930), wth that of the Court of
Cams n Mc nney v. Unted States ( 2 C. Cs ISO). See mhrst v. Unted
States (38 P. (2d), 915), Myers v. Unted States (51 . (2d), 145) compare
UcCann v. Unted States (48 . (2d), 440 Ct. D. 349, C. . -, 348 ), each
decded by the Court of Cams.
Pettoner s ta returns1 were for the caendar years 1924 and 1925. Sec-
tons 202 (a), (b) and 214(a) (8), (10) of the 1921 ct, and secton 204 (a),
(b), (c) of the Revenue cts of 1924 and 192 (ch. 77, 44 Stat., 9), provde
that the bass for computng gan or oss on the sae of property, and depreca-
ton and depeton, sha be ts cost, or ts vaue on March 1, 1913, f acqured
before that date. None of the cts specfcay provdes a bass for makng
the computatons where return s made of ncome receved by the estate of a
decedent n the course of admnstraton. ut n the case of property acqured
by bequest, devse, or nhertance secton 202(a)3 of te 1921 ct and
secton 204(a)5 of the 1924 and 192 cts provde that the bass sha be the
far market vaue at the tme of acquston.
The Revenue cts consstenty treat the estate of a decedent n the hands
of an admnstrator or e ecutor as a separate ta payer. y secton 2 of the
1921, 1924, and 1920 cts the estate of a decedent s embraced wthn the term
ta payer. ach ct specfcay provdes for ta aton of the ncome of an
estate durng admnstraton. (Secton 219 of the 1921, 1924, and 192 cts.)
ach ncudes profts from the sae of property by the ta payer n ta abe In-
come (secton 213 of the 1921, 1924, and 192 cts), and provdes for the deduc-
ton of osses from gross ncome n arrvng at ta abe ncome (secton 214 of
the 1921, 1924, and 192 cts). (See Merchants Loan rf Trust Co. v. Smetanka,
255 U. S., 509, 51 , 517 Ct. D. , C. . 4, 34 .) ach makes provson for the
Imposton of a ta upon the estates of deceased persons, and the gross
estate whch s the bass for computng the ta s the vaue of the decedent s
property at the tme of hs death. (Secton 402, 1921 ct secton 302, 1924
and 192 cts.)
The Court of Cams hed that the tme of acquston, ndcated by secton
202(a) of the 1921 ct and secton 204(a) of the 1924 and 1920 cts as the con-
trong date for cacuatng gan or oss to the estate n the course of admns-
traton, must be taken to be the date of acquston by the decedent rather
than the tme of acquston by the e ecutor or admnstrator on the decedent s
death. Ths concuson, t was thought, was compeed by the statutory com-
mand that the bass of computaton sha be cost, whch coud have no app-
caton to the acquston by the e ecutor or admnstrator, who s not a pur-
s permtted by secton 702 of the Revenue ct of 1028 (ch. 852, 45 Stat, 791,
870), pettoner eected to have hs ta determned In accordance wth the aw propery
appcabe (secton 702(b)), rather than n accordance wth the reguatons n force
at the tme nch return was fed (secton 702(a)).
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204, rt. 159 .
252
chaser of the estate whch he admnsters. (Mc nney v. Unted States, supra,
188.) ut ths specfcaton s not enough to restrct the effect of the genera
provsons of these Revenue cts whch mpose a ta on the ncome, ncud-
ng capta gans, of ta payers. The use of the word cost does not precude
the compuaton and assessment of the ta abe gans on the bass of the vaue
of property, rather than ts cost, where there s no purchase by the ta payer,
and thus no cost nt the controng date. (See encr v. Tnde, 27 U. S., 082,
585, 58 T. D. 4212, C. . II-2, 272 Lucas v. e ander, 279 U. S., 573,
578, 079 Ct. D. 7 , C. . III-2, 273 .)
No pausbe reason has been advanced for supposng that Congress ntended
the capta gans or osses of the estate of a decedent to be treated any dffer-
enty from those resutng from the sae of property taken by bequest, devse,
or nhertance, as provded n secton 202(a)3 of the 1921 ct and secton
204(a)5 of the 1924 and 192 cts, or that t ntended to brng gans or osses,
accrung between the date of decedent s acquston of the property and hs
death, nto the computaton of both the estate ta and the ncome ta assessed
upon hs admnstrator or e ecutor. When t had a dfferent purpose n the
case of gfts nter vvos, not sub|ect to a gft ta , t specfcay drected that
gans or osses to the donee shoud be computed on the bass of the cost of the
property at the date of acquston by the donor. (Secton 202(a)2, 1921 ct
secton 204(a) (2), (4), 1924 and 192 cts see Taft v. owers, 278 U. S.,
470 ret. D. 49, C. . I -1, 22 Icverng v. New York Trust Co., 292 U. S.,
405, 4 2.) The concuson seems nescapabe that the ntended date of acqus-
ton by an e ecutor or admnstrator, where the estate s the ta payer, s the
date of the decedent s death. ( rewster v. Gage, 280 T . S., 327, 335 Ct. D. 14S,
C. . I -1, 274 .)
Possbty of doubt was removed by Treasury reguaton. rtce 343 of
Reguatons 40, under the 1918 ct, prescrbed that gans or osses of an estate
shoud be computed on the bass of the vaue of the property at the date of the
decedent s death. Ths was carred forward by artce 343 of Reguatons 2
under the ct of 1921, of Reguatons 5 under the ct of 1924, and of Regua-
tons 9 under the ct of 192 . oowng the decson of the Court of Cams
n Mc nney v. Unted States, supra, and wth the purpose of conformng
to t, the rung was amended by Treasury Decson 4011 (C. . I-1, 77), on,
pr , 1927, so as to make the cost to the decedent the bass of the computa-
ton. Doubts havng been rased as to the rung n Mc nney v. Unted States,
supra, by ater decsons, the amendment was revoked and artce 343 restored
to ts orgna form (T. D. 4177, C. . II-2, 134) on uy 7, 1928. The
substance of the reguaton In ts orgna and fna form was carred nto secton
113(a)5 of the Revenue ct of 1028 (ch. 802, 40 Stat., 791, 819), whch
drected that the bass for the computaton of gans or osses upon property
acqured by the decedent s estate from the decedent shoud be ts vaue at the
tme of the decedent s death.
The reeuactmeut of the pertnent provsons of secton 202 of the Revenue
ct of 1921 n the cts of 1924 and 192 , wthout matera change, was a
congressona recognton and approva of the nterpretaton of the secton
by the Treasury reguatons, whch gave them the force of aw. (Od Msson
Portand Cement Co. v. cvcrng, 293 U. S., 2S9, 293, 294 Ct. D. 903, page 332,
ths uetn rewster v. Gaye, supra, 337.) The ncorporaton of the reg-
uaton n secton 113(a)0 of the 1928 ct was ntended to carfy, but not
to change the aw. See report of ouse Commttee on Ways and Means, No.
2, Seventeth Congress, frst sesson, page 18 report of Senate Commttee
on nance, No. 9 0, Seventeth Congress, frst sesson, page 2 report of
ont Commttee on Interna Revenue Ta aton, . R. Doc. 139, Seventeth
Congress, frst sesson, pages 17, 18.
ffrmed.
rtce 109 : Property acqured upon an e change.
R NU CT O 1924.
Sae of stock acqured upon e change for partnershp nterest.
(See Ct. D. 929, page 242.)
Nchos v. Unted States (04 C. Cs., 241) ankers Trust Co. v. otcer (23 . (2 ,
941) (S. D. N. Y.) Straght v. Commssoner (7 . T. ., 177).
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253
204, rt. 1 02.
rtce 1 02: ass for aowance of depeton I -1-7229
and deprecaton. Ct. D. 905
( so Secton 234, rtce 5 1.)
INCOM T R NU CT O 192 D CISION O SUPR M COURT.
1. Deducton Depeton O and Gas Lease.
The bass for computng the depeton aowed by sectons
204(c)2 and 234(a)8 of the Revenue ct of 192 , n the case of
an assgnee of an o and gas ease who agreed to pay royates n
cash or n knd, s 27 per cent of the gross ncome from produc-
ton ess the royates pad, and n the case of the assgnor and
essor, respectvey, 27 per cent of the royates they receved.
Such apportonment has regard to the economc nterest of each
of the partes entted to partcpate n the depeton aowance.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Nnth Crcut (70
ed. (2d). 402), whch reversed the decson of the oard of Ta
ppeas (20 . T. .( 172), reversed.
Supreme Court of the Unted States.
Guy T. evcrng, Commssoner of Interna Revenue, pettoner, v. Twn e
O Syndcate.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
December 3, 1934.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
Under the Revenue ct of 192 the ta payer s entted, n the case of o
and gas wes, to deduct from gross ncome an aowance for depeton. The
reevant sectons of the ct are coped n the margn.1 The present tgaton
Revenue ct of 192 (44 Stat., 9, 14, 42).
Tte II. Income Ta .

Part III. -Corporatons.

D DUCTIONS LLOW D CORPOR TIONS.
Sec 234. (a) In computng the net Income of a corporaton sub|ect to the ta Im-
posed by secton 230 there sha be aowed as deductons :

(8) In the case of mnes, o and gas wes, other natura deposts, and tmber, a
reasonabe aowance for depeton and for deprecaton of mprovements, accordng to
the pecuar condtons n each case such reasonabe aowance n a cases to be made
under rues and reguatons to be prescrbed by the Commssoner wth the approva of
the Secretary. In the case of eases the deductons aowed by ths paragraph sha be
equtaby apportoned between the essor and essee. (U. S. C. pp., Tte 2 , secton
98 .)
Tte II. Income Ta .

Part I. Genera Provsons.

SIS OR D T RMINING G IN OR LOSS, D PL TION, ND D PR CI TION.
Sec. 204. (c) The bass upon whch depeton, e hauston, wear and tear, and ob-
soescence are to be aowed In respect of any property sha be the same as s provded
In subdvson (a) or (b) for the purpose of determnng the gan or oss upon the
sae or other dsposton of such property, e cept that

(2) In the case of o and gas wes the aowance for depeton sha be 27 per centum
of the gross Income from the property durng the ta abe year. Such aowance shn not
eceed 50 per centum of the net ncome of the ta payer (computed wthout aowance
for depeton) from the property, e cept that n no case sha the depeton aowance bo
ess than It woud be If computed wthout reference to ths paragraph. (U. S. C. pp.,
Tte 2 , secton 935.)
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254
cas for decson as to the tota aowance permtted and Its apportonment
between essor an essee where the ncome s derved from operaton under
an o and gas ense.
Durng 1925, 192 and 1927 the respondent, as assgnee of the essee named
In an o and gas ease, e tracted substanta quanttes of o. y the terms
of the ease and the assgnment It was obgated to pay royates n cash or
n knd, totang one-quarter of the o e tracted. The respondent camed
tat the gross proceeds of a the o produced shoud form the hass for the
computaton of the aowance for depeton granted by secton 204(c)2, hut the
pettoner rued that the deducton shoud be mted to 27 4 per cent of gross
producton ess royates pad. The oard of Ta ppeas sustaned the rung.
The Crcut Court of ppeas reversed the oard. The case s here on wrt of
certorar.4
The pettoner construes secton 204(c)2 n par matera wth secton 234(a)8,
and asserts the percentage deducton permtted by the former Is sub|ect to the
requrement of equtabe apportonment between the essor and essee requred
by the atter. The respondent urges that secton 204(c)2 s an ndependent and
compete provson, to be apped wthout reference to secton 234(a)8, and that
to attempt to apporton the aowance granted by secton 204(c)2 n te manner
ndcated by secton 234(a)S woud voate the pan terms of the statute.
Reference to the structure of the successve ncne ta aws w ad n a
souton of the probem. The Revenue ct of 191 5 mposed an ncome ta
by Tte I. It dvded the provsons as to ta nto two parts, Part I on ndvd-
uas, and Part II on corporatons. In each part the statute frst nys the ta
and n n subsequent secton grants certan deductons, those enumerated n
secton 5 of Part I beng avaabe to ndvduas, and those specfed n secton
12 of Part II to corporatons. oth sectons ncude a reasonabe aowance for
depeton n the case of o and gas wes. In the draftng of the Revenue ct of
1918 a new arrangement of the sub|ect matter was adopted. Tte I s composed
of defntons, Tte II treats of ncome ta . Part I of ths tte conssts of gen-
era provsons appcabe ake to ndvdua and corporate ta payers. Sectons
under ths part defne ta abe years and dvdends, and secton 202 prescrbes
the bass for determnng gan or oss, but makes no reference to depeton
of mnes, tmber, or o and gas wes. ddtona sectons have to do wth
nventores, net osses, and other genera matters. Part II eves the ta on
ndvduas, defnes net and gross ncome, and n secton 214 specfes the
deductons aowed from gross ncome. The openng sentence of subsecton
(a)10s:
In the case of mnes, o and gas wes, other natura deposts, and tmber,
a reasonabe aowance for depeton and for deprecaton of mprovements,
accordng to the pecuar condtons n each case, based upon cost ncudng
cost of deveopment not otherwse deducted.
Then foow two provsos, one drectng how cost sha be ascertaned n the
case of pro ertes acqured pror to March 1, 1913. and the other aowng an
aternatve method of cacuatng depeton upon the bass of dscovery vaue
of mnes and o and gas wes. The paragraph ends wth the sentence:
In the case of eases the deductons aowed by ths paragraph sha be
equtaby apportoned between the essor and essee.
In Part III. evyng the corporaton ta , secton 234(a)9 aows a deducton
for depeton n the dentca phraseoogy empoyed wth respect to ndvdua
ta payers n secton 214(a) 10.
The same method was foowed n the Revenue ct of 1921. The genera
provsons contaned no reference to depeton, but under Parts II and III of
Tte II the ta s f ed for ndvduas and corporatons and the aowabe
deductons from gross Income are set forth. The paragraphs of the pror ct
as to depeton of o and gas wes are teray reenacted, but there s nserted
n secton 214(a) 10 ns to ndvduas and secton 234(a)9 as to corporatons, an
addtona provso wth respect to dscovery vaue.
In the framng of the Revenue ct of 1924 the same arrangement was ob-
served. Genera defntons are found n Tte I Tte II treats of ncome ta ,
2G . T. ., 172.
70 . (2d), 402.
293 U. S., MO.
3 ) Stat., 7.r .
40 Stat., 1057.
42 Stat., 227.
43 Stat., 253.
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255
204, rt. 1 02.
and n Part I of that tte are Incuded genera provsons appcabe to both nd-
vdua and corporate ta es. mongst such genera provsons n the earer
cts there had been a secton entted ass for determnng gan or oss.
In the 1924 ct the draftsman emboded paragraphs smar to those of the
earer ct n secton 204, but enarged the capton to read ass for determn-
ng gan or oss, depeton, and deprecaton, and transferred to ths secton
that porton of the depeton provson deang wth the bass of the aowance
whch had formery appeared under the headng Deductons n Part II,
Indvduas, and Part III, Corporatons. Ths added to the od secton 204 a
new subsecton (c), whch permts the use of cost or dscovery vaue as the
bass of depeton n the case of mnes and o and gas wes. avng trans-
ferred these provsons from sectons 214(a)9 and 234(a)8, respectng ndvdua
and corporate deductons, there remaned n those sectons the anguage frst
found n the ct of 1918, above quoted, ncudng the concudng sentence reat-
ng to equtabe apportonment between essor and essee. The thought appar-
enty was that the authorty for the deducton shoud reman n the sretons
deang wth a deductons and the formua for cacuatng the deducton
shoud be reegated to a genera provson appcabe ake to corporatons and
ndvduas.
The depeton aowance based on dscovery vaue was found dffcut of
admnstraton, snce t requred a separate vauaton of each we, and was
abandoned n the Revenue ct of 192 .10 There was substtuted a fat aow-
ance of 27 per cent of gross ncome. In ths ct the same arrangement was
foowed as n that of 1924. Under Tte II, Income Ta , Part I was devoted
to genera provsons. s the bass for determnng gan or oss, depeton and
deprecaton, had been emboded n secton 204 of the genera provsons of the
ct of 1924, n whch was the permtted use of dscovery vaue as a bass for de-
peton, when that method was dscarded n favor of the fat percentage of
gross ncome t was ogca to nsert the substtuted paragraph n the pace
where the dscarded one had been. Thus we fnd the new formua nserted as
paragraph (c)2 of secton 204. The authorty for deducton of depeton
remans where t has aways been snce the ct of 1918, namey, n secton
214(a)9 of Part II, Indvduas, and secton 234(a)8 of Part III, Corpora-
tons, and naturay there st remans n these paragraphs the mtaton that
the aowance sha be apportoned between essor and essee.
Ths outne of the framework of the egsaton demonstrates that Congress
dd not nsert secton 204(c)2 as an ndependent secton grantng an aowance
or deducton for depeton. In the earer cts both the grant and the method
of computaton were embraced n a subsecton under the tte Deductons.
In the ater cts of 1924 and 192 the grant remaned n the deducton secton
and the ta payer was referred to a genera provson n secton 204 for the
method of ascertanng ts amount.
Respondent emphaszes the ast cause of secton 204(c)2, whch s: e cept
that n no case sha the depeton aowance be ess than t woud be f com-
puted wthout reference to ths paragraph. It s argued that as ths e cepton
gves the ta payer an opton to compute the aowance ether on the cost bass
or by the fat percentage method, f he eects the former e proceeds under 234
(a)8. Thus t s sad that secton appes ony n case the cost bass s chosen.
ut an e amnaton of the statute demonstrates the error of ths poston. No
bass or formua for computaton of the aowance s found n secton 234 on
the contrary a permssbe procedures are covered by secton 204. whether cost
depeton of mnes and o wes (paragraph (e)) dscovery vaue bass n the
case of mnes ((c)) or fat percentage of gross ncome n the case of o and
gas wes ((c)2). If, therefore, the ta payer does not compute under (c)2 he
Sec Senate Report No. 52, S ty-nnth Congress, frst sesson, page 17.
M44 Stat.. 9.
In framng the Revenue et of 1928 (45 Stat.. 791) the draftsman reverted to an
arrangement smar tn that found n the Revenue et of 191 . Thus under Tte I an
neome ta s ad on both ndvduas and corporatons, and n subsequent portons of
the et genera provsons are contaned. In ths ct the deductons from gross ncome
are found n secton 23 under Part II. Computaton of Net Income, and the anguage
of secton 214(a)9 and secton 2.14(a)10 of the Revenue et of If t s found ony
In ths secton, appcabe to both sorts of ta payers, corporate and ndvdua, as sub-
secton (1). new subsecton (n) s added, whch states: The bass upon whch
depeton, e hauston, wear and tear, and obsoescence are to be aowed n respect of
any property sha be as provded n secton 114. Secton 114 s found n Suppement
, and so far as matera here s the same wth respect to gas and o wes as the
anaogous portons of secton 204(c) of the ct of 192 .
It s qute cear, therefore, from ths cross-reference, that the framers of the ct under-
stood the deducton was aowed by secton 23(1) but the method of cacuatng t was to
be ascertaned by reference to a genera provson on that sub|ect, secton 114.
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5204, rt. 1 02.
25
must do so n accordance wth the cost method prescrbed by the earer para-
graph (c) of the same secton, and not, as contended, under 234(a)8.
It foows that whchever method outned n secton 204 s chosen for com-
putng the aowance granted by secton 234, the deducton must be apportoned
between essor and essee.
We come, then, to consder the proprety of the procedure foowed by the
Commssoner. What he dd, n effect, was to treat the gross producton ess
royates us the measure of the respondent s depetabe nterest n the property,
and the royates as the measure of the depetabe nterest of those entted to
receve them. The respondent says, however, that under secton 213 the gross
producton of the wes s respondent s gross ncome from the property, must
be reported as such, and secton 204(c)2 permts hm an aowance of 27
per cent thereof. It must foow that the royates (one-fourth of the same
gross producton) are gross ncome to those recevng them and are sub|ect to
depeton at the rate of 27 per cent. The resut woud be a tota aowance of
27 per cent of fve-fourths of the tota producton. Certany ths woud not
be a snge aowance, apportoned between essor and essee. nd we thnk
secton 204(c)2 does not requre such a resut. The words used are, the
aowance for depeton sha be 27 per centum of the gross ncome from the
property durng the ta abe year. Is the taczed phrase synonymous wth
the ta payer s gross ncome as defned n secton 213 It can not be f prop-
erty sgnfes the tract of and n a ts uses, others as we as the e tracton
of o and gas. (Darby-Lynde Co. v. e ander, 51 . (2d), 5 .) The phrase,
we thnk, ponts ony to the gross ncome from o and gas. (Compare Unted
States v. Dakota-Montana O Co., 288 U. S.. 459, 4C1 Ct. D. 55, O. . II-1,
243 Greensboro Oas Co. v. Commssoner, 30 . T. ., 13 1.) So restrcted
t presents no dffcuty where the owner of the and s aso the operator, and
there s none where the essee turns over royaty o n knd to the essor, for
the retaned o, n that case, s the base for the essee s computaton of depe-
ton and the royaty o that for the essor s. We thnk Congress dd not ntend
a dfferent resut where, as here, the essee ses a the o and pays over the
royaty n the form of cash.
t a events, as the secton must be read n the ght of the requrements of
apportonment of a snge depeton aowance, we are unabe to say that the
Commssoner erred In hodng that for the purpose of computaton gross
ncome from the property meant gross Income from producton ess the
amounts whch the ta payer was obged to pay as royates. The apporton-
ment gves respondent 27 per cent of the gross Income from producton whch
t had the rght to retan and the assgnor and essor respectvey 27 per cent
of the royates they receved. Such an apportonment as regard to the eco-
nomc nterest of each of the partes entted to partcpate n the depcton
aowance. (Compare Pamer v. ender, 287 T . S., 551, 558 Ct. D. 41, C. .
II-1, 235 .)
The respondent nssts that, so apped, the secton may work un|ust and un-
equa resuts but t s to be remarked that ths Is key to be so wherever a
rue of thumb s apped wthout a detaed e amnaton of the facts affectng
each ta payer. No doubt, as the pettoner ponts out, equay ogca resuts
mght ensue the appcaton of the secton as the respondent construes It. nd
t s aso to be remembered that depcton upon cost or March 1, 1913, vaue s
optona wth the ta payer, f that procedure s more favorabe to hm.
nay the respondent says that n the Revenue ct of 1932 the secton
correspondng to 204(c)2 was amended so as to authorze such a procedure as
the pettoner adopted n ths case, and therefore the secton as t stood n the
ct of 192 coud not have supported the Commssoner s rung. The amend-
ment aters the secton to read: In the case of o and gas wes the aow-
ance for depeton sha be 27 per centum of the gross ncome from the prop-
erty durng the ta abe year, e cudng from such gross ncome an amount equa
to any rents or royates pad or ncurred by the ta payer n respect of the
property . The pettoner says that the amendment was merey car-
fyng n purpose and decaratory of the e stng aw as admnstered. We
thnk ths s so. When t was offered the charman of the commttee havng
the b n charge so stated, and the conference report s to the same effect.
The |udgment Is reversed.
47 Stat., 1(19.
Secton 114(3) (47 Stat., 202).
14 Congressona Record, voume 75, part 10, pages 11029-11 30.
ouse Conference Report No. 1492, Seventy-second Congress, frst sesson, page 14.
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257
20 , rt. 1 22.
rtce 1 02: ass for aowance of depeton and
deprecaton.
R NU CT O 102 .
Percentage aowance for depeton where no producton of o n
ta abe year. (See Ct. D. 904, page 303.)
rtce 1 02: ass for aowance of depeton and
deprecaton.
R NU CT O 192 .
Revocaton of G. C. M. 11384 (C. . II-1, 4). (See G. C. M.
14448, page 98.)
S CTION 20 . N T LOSS S.
rtce 1 22: Cam for aowance of net oss. I -7-7315
( so Secton 234, rtce 5 1 Sectons 1003 Ct.D.921,
and 1004.)
INCOM T R NU CT O 1024 D CISION O COURT.
1. Deducton Net Loss ffated Corporatons.
Net osses sustaned n 1922 and 1023 by certan members of
an affated group may not be deducted from the tota net Income
of the group or from the net ncome of another affate, n comput-
ng consodated net ncome for 1924. The statute Intends that
the rght to deduct a oss sustaned by an affated corporaton
n an earer year shoud be mted to the Income of the corpora-
ton sustanng the oss.
2. Deducton ffated Corporatons Intercompany Dvdend.
dvdend receved by the ta payer from another member of
an affated group can not be treated as earnngs of the ta payer
on the ground that the affate earnng t performed functons
formery performed by the ta payer. The affate beng a separate
entty and ta payer, Its Income can not be treated as that of the
ta payer for ta aton purposes.
3. oard of Ta ppeas Dena of Rehearng.
The oard of Ta ppeas propery dened the ta payer s request
for a rehearng n order to permt t to charge tsef rent for the
years 1922, 1923, and 1924 for the use of pants beongng to two
of ts affates and to charge a thrd affate for the use of ta -
payer s factes and good w, where the purpose of such charges
and payments (whch were not n fact made) was to reduce the
ta abe ncome of the affated group.
4. Certorar Dened.
Petton for certorar dened November 5, 1934.
Unted States Crcut Court of ppeas, S th Crcut.
Seberng Rubber Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton to revew an order of the Unted States oard of Tar ppeas.
efore Moorman and cks, Crcut udges, and Tayor, Dstrct udge.
May 8, 1934.
opnon.
Moorman, Crcut udge: Durng the years 1922 and 1923 the pettoner, a
Deaware corporaton, was affated wth the Portage Rubber Co. and the
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20 , rt. 1 22.
258
Lehgh Rubber Co. wthn the meanng of secton 240(e) of the Revenue cta
of 1921 and 1924 (42 Stat., 2 0 43 Stat., 288). The affates ted a conso-
dated ncome ta return for those years. In 1922 each of them sustaned a
oss. In 1923 the pettoner made a proft, but each of the other two affates
sustaned a net oss. Ou ebruary 18, 1924, the Seberng Rubber Co., an
Oho corporaton, was brought nto the affaton. In 1924 the Portage and
Lehgh companes had net osses, but the pettoner had a net ncome of
291,395.32 and the new Oho corporaton had a net ncome of 713,427.2 . In
the 1924 consodated return the pettoner deducted the unabsorbed 1922 and
1923 net osses of the three orgna affates from the tota net ncome of
the group. The Commssoner dsaowed the deductons and made the de-
fcency assessment here n ssue. The oard of Ta ppeas sustaned the
assessment, hodng that under secton 200(b) of the Revenue ct of 1924
(43 Stat., 200) a net oss suffered by an affate n a pror year may not be
deducted from the tota net ncome of the group or the net ncome of another
affate for a subsequent year. (23 . T. ., 234.)
The rung of the oard of Ta ppeas s n accord wth Wooford Reaty
Co. v. Rose (28 U. S., 319 Ct. D. 493, C, . I-1, 154 ). The ony dfference
between that case and the case at bar s that the oss there sought to be de-
ducted was sustaned by a corporaton n the year precedng ts affaton,
whe here the osses were sustaned by corporatons whch were affated at
the tme. The court dd not, however, pace ts decson ou the ground that
the oss was sustaned pror to the affaton, but broady hed that the oss
of one affate coud not be set off aganst the net ncome of another n a
subsequent year, pontng out that whe t s proper for affated corpora-
tons to te consodated returns, the ta , when computed, s assessed, n the
absence of agreement to the contrary, upon the respectve affates on the
bass of the net ncome assgnabe to each, and that t was ntended by the
statute that the rght to deduct a oss sustaned by an affated corporaton n an
earer year shoud be mted to the ncome of the corporaton sustanng the
oss. The doctrne thus announced has been accepted as the setted aw
Deaware d udson, Co. v. Commssoner, 5 ed. (2d), 292 ( 2d C. C. .)
Ct. D. 801, C. . III-L 197 enefca Loan oc. v. Commssoner, 5 ed.
(2d), 759 ( 3d C. C. .) and s controng n the case at bar.
The Commssoner deducted from the pettoner s gross ncome a dvdend of
000,000 whch t receved from the Oho corporaton n 1924. Ths he was re-
qured to do by statute. 2 T . S. C. ., secton 98 (a) . The resut was a
reducton n ke amount of pettoner s net ncome, sub|ect to absorpton by ts
earer osses. The pettoner contends that the dvdend shoud be treated n
ts hands as earnngs, because the Oho corporaton earned t by performng
functons formery performed by the pettoner. suffcent answer to ths s
that the Oho corporaton was a separate entty and ta payer, and beng so,
there s no reason n fact or aw why ts ncome shoud be treated as the pet-
toner s ncome for the purpose of ta aton.
The fna contenton s that the oard erred n denyng the pettoner s re-
quest for a rehearng. In the petton for rehearng the pettoner camed that
for the ta abe years 1922, 1023, and 1924 t had used the pants of the Portage
and Lehgh companes n ts busness, for whch t had pad them nothng and
further, that t had not charged the Oho corporaton for the use of ts good
w and certan factes n seng ts product. What t desred to do was to
charge tsef rent for pants beongng to the Portage and Lehgh companes
and to charge the Oho company 00,000, the amount of the dvdend, for the
use by that company of ts factes and good w. Thus t desred to make
charges and payments for ntercompany transactons n order to reduce the
ta abe ncome of the affaton. The charges and payments were not n fact
made and were ony sought to be made for the purpose of ganng an advantage
n ta aton. Iu our vew, the oard dd not err In refusng to reopen the case
to permt such acton.
The order of the oard s affrmed.
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259
212, rt. 22-
P RT II. INDI IDU LS.
S CTION 212. N T INCOM O INDI IDU LS
D IN D.
rtce 22: Computaton of net ncome. I -13-7400
Ct. D. 939
INCOM T R NU CT O 1918 D CISION O COURT.
Sut ass for Computaton- or Ta stoppe enefts f
C I D.
ta payer whch fuy acquesced n the redetermnaton of ts
ta es for the years 191 to 1 )20, n accordance wth a decson of
the oard of Ta ppeas (for the year 1921) that computaton
shoud be made on the fsca rather than the caendar year bass,
and accepted the beneft of a substanta refund resutng from such
redetermnaton, s estopped to cam that the oard s decson was
erroneous and to repudate ts prevous approva of the trans-
actons.
Court of Cams of the Untkd States.
Stevens Manufacturng Co. v. The Unted States.
November 5, 1934.
OPINION.
Green, udge, devered the opnon of the court.
or the years 1919, 1920, and 1921, pantff fed ts returns and pad ts
ta es on a caendar year bass. or the year 1921, the Commssoner of
Interna Revenue proposed a defcency and the pantff appeaed to the oard
of Ta ppeas on the ground that the Commssoner erroneousy computed the
ta by determnng ts ncome on a caendar year bass. On the evdence
presented the oard hed that the ta payer s ncome shoud be computed on
a fsca year bass endng September 30, and determned that there was no
defcency for the year 1921.
Thereafter the pantff fed cams for refund for the yesrs 1910 to 1919,
ncusve, based on the decson of the oard that the ncome shoud be com-
puted on a fsca year bass. The Commssoner acquesced n the decson of
the oard, recomputed the ta es for the years 191 to 1020, and presumaby for
the purpose of ascertanng whether the ta payer had any ob|ectons thereto
sent pantff a statement showng defcences and overpayments as foows:
Years.
Defcency
n ta .
Overassess-
ment.
I d
191
814.08
1917
Perod Ian. 1 to Sept. 30. 1918
11 , 517.
sca year ended Sept. 30, 1919
1 , 25 . 33
sca year ended Sept. 30, 1920
53, 725. 10
117, 331.74
3, 0 . 04
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212, rt. 22.
2 0
Pantff responded that t acquesces n fu n the overassessnents and
defcences shown n the statement, e ecuted and returned a waver of rght
to te a petton before the oard of Ta ppeas wth reference to the de-
fcences, agreed to the assessment of the defcences, and further stated:
The case, therefore, may be cosed competey for a years n queston.
Shorty after the recept of ths communcaton from pantff, the Com-
mssoner assessed defcences wth nterest as set out n the statement above
and e ecuted certfcates of overussessment n accordance therewth, whch
overassessments were found to be overpayments. Part of the overpayments
were apped n satsfacton of the defcences for 1919 and 1920 and refunds
were made to pantff of the baance of the overpayments for those years and
1921 amountng to about 250,000. These refunds resuted from a determna-
ton that pantff s ta shoud have been computed on a fsca year bass
nstead of on the caendar year bass on whch the return was fed.
Later, the pantff fed tmey cams for refund for the years 1919 and
1920 n the respectve amounts of 1 ,25 .33 and 37,408.77, whch were the
amounts of defcences assessed for the years 1919 and 1920, as shown by the
statement sent pantff, and whch were pad out of the overassessment. The
ground of these cams for refund was that the amount of pantffs ta
shoud have been computed on a caendar year bass, ts books not havng
been cosed on the ast day of any month other than December.
The defense set up by defendant s that the facts In the ease show that
pantff s estopped from makng any cams for refund. The pantff con-
tends that there can bo no estoppe for the reason that t made no ms-
representatons to defendant and that defendant was not msed by pantff s
actons, aso that f there was any mstake on defendant s part t was not
as to the facts n the case but was one of aw whch woud not gve rse
to an estoppe.
We thnk that pantff msapprehends the aw whch s appcabe to the
facts n ths case. The estoppe set up s an equtabe estoppe. In Mahonng
Investment Co. v. Unted. States (78 C. Cs., 231) (certorar dened), we sad:
The doctrne of equtabe estoppe, or more propery as we thnk quas
estoppe, s graduay beng e tended by the modern courts to prevent a wrong
beng done wherever, n good conscence and honest deang, a party ought
not to be permtted to repudate hs prevous statements and decaratons,
and cted the case of Rothschd, v. Tte Guarantee Trust Co. (204 N. .,
458), n support of the doctrne, quotng the foowng therefrom:
When a party wth fu knowedge, or wth suffcent notce of hs rghts
and of a the matera facts, freey does what amounts to a recognton or
adopton of a contract or transacton as e stng, or acts n a manner ncon-
sstent wth ts repudaton, and so as to affect or nterfere wth the reatons
and stuaton of the partes, he acquesces n and assents to t and s equtaby
estopped from mpeachng t, athough t was orgnay vod or vodabe.
( ohmann v. Mche, 185 N. Y., 420 2 Pomeroy s quty ursprudence (3d
ed.), sectons 810-821, 9 5.)
We thnk ths anguage s partcuary appcabe to the case now before the
court. In the Rothschd case, supra, the party hed to be estopped made no
msrepresentaton to the other party. she dd was to recognze a certan
transacton as vad whch she afterwards sought to repudate. If the other
party had known of her poston t mght have avaed tsef of certan remedes.
We thnk the nstant case s even stronger aganst the pantff because t re-
ceved arge benefts from the transacton whch t ratfed and approved n
advance. fter the oard of Ta ppeas had decded pantffs appea on the
ta es of 1921 and hed that pantffs ta es shoud be computed on the bass of
a fsca year endng September 30, the Commssoner, as the fndngs show, ac-
quesced n fs decson and proposed to appy t to other years. Presumaby
for the purpose of ascertanng whether the pantff had any ob|ecton thereto,
he sent to panT the statement set out above. Pantff apparenty was
greaty peased wth the nformaton that n accordance wth the decson of the
oard of Ta ppeas t woud bo entted to a refund of about a quarter of a
mon doars. It hastened to e press ts approva thereof n the anguage
set out above whch, as w be seen, was n the most postve terms and stated
n substance that the years n queston mght be cosed competey. ccord-
ngy the Commssoner proceeded to cose the case by makng assessments and
certfyng to overpayments n accordance wth the statement. Ths showed, as
above stated, a arge refund due whch was accordngy pad and accepted by
pantff.
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2 1
213(a), rt. 31.
Pantff now comes nto ths court and urges that the decson of the oard
of Ta ppeas was wrong, and that the facts show that ts ncome shoud be
computed on a caendar year bass under the decson of ths court n Swft
Co. v. Unted, States ( 9 C. Cs., 171). The case cted by pantff s so dfferent
n ts facts as to have no appcaton, and n any event we do not need to de-
termne the somewhat compcated queston of whether the ncome of pantff
shoud be computed on a caendar year bass or that of a fsca year. If the
estoppe s sustaned by the evdence, t s mmatera whether the Commssoner
acted n accordance wth the aw n computng the ncome on a fsca year
bass for n such event the pantff can not ava tsef of ths pea. We are
cear that good conscence and honest deang prevent the pantff from
repudatng ts prevous statements and decaratons. It s not necessary n
order to create an equtabe estoppe that there shoud he any msrepresentaton
as to the facts. It s suffcent f the party aganst whom an equtabe estoppe
s set up acquesced n the transacton n such a manner as to change the re-
atonshp of the partes and make ts repudaton of the proceedngs contrary
to equty and good conscence. ere the pantff was sent a statement of how
the defendant proposed to sette ts account for ta es of the years n controversy.
It gave ts unquafed assent to the appcaton of the ta es n the manner con-
taned n the statement receved and assured the defendant that the case was
cosed. We are not requred to determne what mght have been the aw f the
pantff had kept sent. In other words, t s not necessary to support the
estoppe that It shoud be shown that defendant woud not have made the re-
fund f pantff had not approved the proceedngs. The estoppe s based
upon the acton of the pantff. It s merey necessary that we shoud pass on
the effect of ts havng consented to the defcency assessments, ratfed the
ovcrassessments, stated that the case mght be cosed n that manner, and ac-
cepted the refund whch resuted from a transacton to whch t had gven ts
unquafed approva. We are cear that n equty and good conscence pantff
s estopped from now aegng the nvadty of the transactons whch t had
eo emphatcay approved.
It s urged on behaf of pantff that there was no mstake of facts on the
part of the defendnnt but a mstake as to the aw whch determned the knd of
return whch shoud be fed. s we have stated above, t s not necessary to
determne whether there was any mstake as to the aw on the part of the
oard of Ta ppeas or the Commssoner. Ths s not the matter upon whch
the equtabe estoppe n ths case s based, whch s the conduct of pantff n
Rvng the defendant to understand that t rntfed and consented to the manner
n whc defendant proposed to treat pantff s ta es and ts promse n effect
that the whoe controversy woud be setted thereby. fter It had obtaned a
refund resutng from proceedngs whch t had ratfed n advance, t was
ceary estopped from denyng ther vadty.
Pantffs petton must be dsmssed, and t s so ordered.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome. I -13-7399
G. C. M. 14198
R NU CTS O 1 )21 ND 1028.
The decson of the Crcut Court of ppeas n Uevvrng v.
ckman (70 ed. (2d), 985, Ct. D. 8C , C. . III-2, 274), hodng
that under Caforna aw compensaton receved by the wfe n
1923 shoud not be treated as communty ncome and ta ed to the
husband where there was an agreement that the wfe s earnngs
shoud be her separate property, s not to be consdered as revokng
G. C. M. 9938 (C. . -2, 115) and G. C. M. 99-3 (C. . I-1, 13).
dvce s requested reatve to the decson of the Crcut Court
of ppeas for the Nnth Crcut n everng v. ckman, supra,
n whch the court hed that where an agreement was entered nto n
1907 between husband and wfe, resdents of Caforna, that com-
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213(a), rt. 31.
2 2
pensaton receved by the wfe for persona servces shoud be her
separate property, the wfe s compensaton receved durng the year
1923 shoud not be treated as communty ncome and ta ed to the
husband. That decson sustaned the decson of the. oard of Ta
ppeas n oward C. ckman v. Commssoner (27 . T. ., 807,
nonacquescence, C. . II-2, 20).
The queston now presented s whether the decson of the Crcut
Court of ppeas n the ckman case, whch s contrary to the
genera prncpes contaned n G. C. M. 9938 (C. . -2, 115) and
G. C. M. 9953 (C. . I-1, 13), shoud be consdered as revokng
those pubshed memoranda.
In G. C. M. 9938 t was hed (syabus):
Under secton 1 1(a) of the Cv Code of Caforna, whch became effectve
uy 29, 1927, a husband s earnngs n Caforna consttute communty ncome.
n agreement between husband and wfe domced n Caforna, e ecuted
ugust 1, 1927, whch provdes that the husband s persona earnngs and saary
are hs separate property and ncome, s not effectve to precude the ta aton
of hs saary as communty ncume.
To the same effect s G. C. M. 9953, where the saares of both
husband and wfe were nvoved.
The queston whether n Caforna the entre communty ncome
shoud be ta ed to the husband pror to the amendment to the cv
code effectve uy 29,1927, was setted by the Unted States Supreme
Court n Unted States v. Robbns et a. (2 9 U. S., 315, T. D. 3817,
C. . -, 188). In that case t was hed that the wfe under the
aw as t then e sted had a mere e pectancy and that the communty
ncome shoud be ta ed to the husband. In a ater case Lucas v.
ar, 281 U. S., I), decded March 17,1930, t was hed that regard-
ess of a contract between the husband and wfe to the effect that a
property thereafter acqured, ncudng earnngs of ether spouse,
shoud be hed as |ont tenants, the husband s saary shoud never-
theess be ta ed to hm. The oard of Ta ppeas n construng
smar agreements (n cases whch nvoved the wfe s compensaton)
has hed that the wfe s saary s ta abe to her, ether because under
the aws of Caforna the wfe s saary had by agreement become her
separate property, or because she earned t. or e ampe, t was
stated n ndrew . C. Dohrmann v. Commssoner (19 . T. .,
4CG, nonacquescence, C. . III-1, 21) as foows:
Under the ar case, we hod that the saary n queston was correcty
returned by the wfe who earned t. Itacs supped.
The ar case, however, nvoved the earnngs of the husband, not
of the wfe, and the concuson reached s n harmony wth Unted
States v. Robbns. supra. In other words, the husband s saary
n the ar case havng been receved n 1920 and 1921, woud, under
the Robbns decson, propery have been ta abe to the husband not
because he earned t but because under the aws of Caforna t was
communty ncome. Ths offce, therefore, s unabe to agree wth
the constructon paced on the ar case by the oard to the effect
that the wfe s saary, under the Caforna aw (pror to the amend-
ment of uy 29, 1927), s ta abe to her merey because she earned
t.
The Supreme Court n Poe v. Seaborn- (282 U. S., 101, Ct. D. 259,
C. . I -2, 202), whch nvoved the communty property aws of
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213(a), rt. 31.
Washngton where the wfe has a vested nterest, dscussed both the
obbns case and the ar case n the foowng anguage:
In the Robbngs cose, we found that the aw of Caforna, as construed by
her own courts, gave the wfe a mere e pectancy and that the property rghts
of tho husband durng the fe of the communty were so compete that he was
n fact the owner.
ut here the husband never has ownershp. That s n the com-
munty at the moment of acquston.
In the ar case a husband and wfe contracted that any property they had
or mght thereafter acqure n any way, ether by earnngs (ncudng saares,
fees, etc.), or any rghts by contract or otherwse, sha be treated and con-
sdered and hereby s decared to be receved, hed, taken, and owned by us
as |ont tenants . We hed that, assumng the vadty of the con-
tract under oca aw, t st remaned true that the husband s professona
fees, earned n years subsequent to the date of the contract, were hs ndvdua
ncome, derved from saares, wages, or compensaton for persona servces
under sectons 210, 211, 212(a), and 213 of the Revenue ct of 1918. 40 Stat.,
10G2-100T . The very assgnment n that case was bottomed on the fact that
the earnngs woud be the husband s property, ese there woud have been nothng
on whch t coud operate. Itacs supped.
In ar v. Roth (22 ed. (2d), 932, T. D. 4152, C. . TI-1, 215,
certorar dened, 277 U. S., 588), there was an agreement between
the husband and wfe that the earnngs of both shoud be contrbuted
to a common fund of whch they shoud be the owners, share and
share ake. The court hed that the agreement dd not prevent the
earnngs of the wfe from beng ta ed to the husband as communty
ncome under the Revenue ct of 1921 on the bass of Unted States
v. Robbns, supra. (See aso Wehe v. McLaughn, 30 ed. (2d),
217.) urthermore, n ar v. Roth, supra, the court stated that t
concurred n the vew of the Commssoner that at the nstant they
were receved, the saares were, by the aw, mpressed wth the
status of communty property and were ta abe wth reference to
that status . The court aso commented that the obgaton
to pay the ta coud not be escaped under that agreement any more
than t coud be escaped under a smar agreement between one mem-
ber of the communty and a thrd person.
Under the aws of Caforna as nterpreted by the State courts,
saares beng the product of to or taent of ether husband or
wfe are communty property. (Mc ay on Communty Property
(2d ed.), sectons 201 and 29 Martn v. Southern Pac. Co., 130
Ca.. 285, 02 Pac, 515 enne v. Drnkhouse, 131 Ca., 447, 3 Pac,
734.) It s undsputed that they may by contract change such prop-
erty from communty to separate property. (Wren v. Wren, 100
Ca., 27 , 34 Pac, 775 Tte Ins. Trust Co. v. Ingerso, 153 Ca.,
1, 94 Pac, 94 atschmdt v. Weber, 145 Cab, 59 , 79 Pac, 272
Perkns et u . v. Sunset Teephone Teegraph Co., 155 Ca., 712,
103 Pac, 190, etc.) ut these agreements, athough vad n so far
as they seek to change property rghts of husband and wfe n Ca-
forna, may not be avaed of for the purpose of avodng ncome ta
abty. ( ar v. Roth, supra Wehe v. McLaughn, supra Lucas
v. ar, supra.)
The ureau has consstenty hed that regardess of any agreement
between husband and wfe n Caforna seekng to change the status
of ther persona earnngs from communty to separate property
compensaton earned by ether spouse pror to uy 29, 1927 (the
effectve date of the amendment to the Caforna Cv Code known
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213(a), rt. 42.
2 4
as secton G(a)), s ta abe to the husband n accordance wth the
rue ad down n Unted States v. Robbng, supra and that com-
pensaton earned by ether spouse on and after uy 29, 1927, s
ta abe one-haf to each, where separate returns are fed, n accord-
ance wth the prncpes contaned n I. T. 2457 (C. . TII-1, 89)
and Unted States v. Macom (282 U. S., 792). change n that
poston s not deemed proper n the ght of the decsons above
dscussed.
In vew of the foregong, the decson of the Crcut Court of
ppeas n everng v. ckman, supra, s not to be consdered as
revokng G. C. M. 99138 and G. C. M. 9953.
Robert II. ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 39: Sae of stock and rghts.
R NU CT O 192 .
Commssoner s apportonment of cost between preferred and
common stock. (See Ct. D. 912, page 1G8.)
rtce 42: Sae of persona property on I -12-7384
nstament pan. Ct. D. 937
INCOM T R NU CT O 192 D CISION O COURT.
Net Income Instament Sae Statute of Lmtaton.
Where a ta payer n 1918 sod certan stock on the nstament
pan, receved payments n 1018, 1910, and 1920, but dd not refer
to the transacton n hs returns for those years and n 1924
reported the entre proft n an amended 1918 return, e ecuted
a waver for that year, and pad the ta upon that bass, he s not
entted to the beneft of secton 212(d) of the evenue ct of
1920 (made retroactve by secton 1208), whch aows the proft
to be reported over the years n whch nstament payments are
receved, snce no wavers had been fed for the years 1919 and
1920. It woud be grossy nequtabe to permt the payment of
ta on the sma porton of the proft receved n 1018, aocate
the baance to 1010 and 1020 where t woud be free from abty
under the statute of mtatons, and by recovery n an assumpst
acton evade ta aton upon more than 90 per cent of the entre
proft.
Unted States Crcut Court of ppeas, Tenth Crcut.
rank W. otcbert, as Coector of Interna Revenue, appeant, v. Chares M.
Norrs, appeee.
ppea from te Dstrct Court of the Unted States for the Dstrct of Coorado.
September 20, 1934.
OPINION.
ratton, Crcut udge, devered the opnon of the court.
In ugust, 1018, Chares M. Norrs sod certan shares of capta stock n
the Scuy-Norrs Co., a Coorado corporaton. The purchaser pad 00 n
cash and e ecuted three promssory notes evdencng the baance of the purchase
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2 5
t 213(a), rt. 42.
prce. The frst was for 5,000 and matured months after date the other
two were for 7,23 .02 each and fe due 12 and 18 months after date, respec-
tvey. ach note was pad when due, that s the frst and second In 1919
and the thrd n 1920. Norrs receved a net proft of 14,712.54 n the trans-
acton, but faed to make any reference to t n hs ncome ta returns for
the years 1918, 1919, and 1920.
In une, 1924, a deputy coector caed on Norrs, nvestgated the stuaton
and prepared an amended return for the ta abe year 1918, n whch the entre
proft was ncuded. Norrs e ecuted and caused the return to be fed, aso
a waver consentng to the assessment and coecton of any ta due under
any return made for the year 1918, rrespectve of any perod of mtaton
provded by aw for ts assessment and coecton. fter protestng and cha-
engng the vadty of the ta refected by the amended return, and foowng
a reaudt of the books resutng n reducton of the amount due, he pad
2,338.78. That was done n anuary, 192 . t about the same tme he
e ecuted an offer to compromse the camed nterest and penates for 140,
whch offer was subsequenty accepted.
In November, 1929, a cam for refund of 2,309.15 for the ta abe year
1918 was fed. It s set forth n the compant and contans the foowng
whch refects the theory and method of computaton upon whch the cause of
acton heren s predcated:
It w be ready seen that the nta payment receved by me durng the
caendar year 1918, other than evdences of ndebtedness of the purchaser,
totaed 00, whch was pad n cash, whch nta payment s appro matey
3 per cent of the fnay ad|usted sae prce of 18,4 2.54. urther, an
e amnaton w revea that the proft reazed or to be reazed s 79. 9 per
cent of the sae prce and the cost s 20.31 per cent of the sae prce. ppyng
79. 9 per cent of 00 actuay coected by me n cash durng 1918 w brng
about a ta abe proft to me for 1918 of 478.14 nstead of 14,712.54.
n ad|usted statement of ncome and deductons and resutant ta abty
for 1918 woud then appear as foows:
Saary receved from Scuy-Norrs Motor Co. of Denver, Coo 4, 780. 53
Pro rata proft on sae of stock of Scuy-Norrs Motor Co 478.14
Rents, net 47. 50
Interest 2.18
Tota 5,308. 33
Interest pad 7 .00
Ta es pad 55. 94
Contrbutons:
Natona Red Cross Socety 27.00
Unted War Socetes 50.00
oy Scouts 5.00
82.00
213. 94
Net ta abe ncome o SSnS
Less persona e empton 2,000.00
aance ta abe at per cent 3,094. 39
Norma ta at per cent on 3,094.39 185.
Surta at 1 per cent on 94.88 94
Tota ta abty 38 . 0
Ta prevousy pnd durng 1919 15 .97
On anuary 25, 192 2, 338. 78
2, 49 . 75
Ta overpad under statements set forth n second
petton 2,309.15
Norrs was advsed by etter from the Commssoner that the cam had
been aowed, but was subsequenty nformed n ke manner that t was
dsaowed. Ths sut foowed to recover the amount of the cam as an over,
payment of ta es for the year 1918. ury was waved and the cause sub
ntted to the court udgment was rendered for Norrs.
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213(a), rt. 42.
2
The sae was a casua one and the asserted rght to report the Income
therefrom on the nstament pan s founded upon the provsons of secton
212(d) of the Revenue ct of 192 (made retroactve by secton 1208 of the
same ct). (2 U. S. C. ., 053(d).) That statute s n ths anguage:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, a person who reguary ses or otherwse dsposes of persona prop-
erty on the nstament pan may return as ncome therefrom n any ta abe
year that proporton of the nstament payments actuay receved n that
year whch the tota proft reazed or to be reazed when the payment Is com-
peted boars to the tota contract prce. In the case (1) of a casua sae or
other casua dsposton of persona property for a prce e ceedng 1,000, or
(2) of a sae or other dsposton of rea property, f n ether case the nta
payments do not e ceed one-fourth of the purchase prce, the ncome may, under
reguatons prescrbed by the Commssoner wth the approva of the Secretary,
be returned on the bass and n the manner prescrbed n ths subdvson- s
used n ths subdvson the term nta payments means the payments re-
ceved n cash or property other than evdences of ndebtedness of the purchaser
durng the ta abe perod n whch the sae or other dsposton s made.
Pror to the Revenue ct of 192 Congress had authorzed ony the cash and
the accrua bases for ncome ta returns. owever, recognzng the obvous
hardshp n appyng ether of those methods to saes upon the nstament pan,
the Commssoner by reguatons authorzed the vendor to dstrbute the pur-
chase prce through the years durng whch t was actuay receved. ut n
1920 the oard of Ta ppeas dsapproved that pocy because t was outsde
the two permtted methods. Thereupon Congress enacted secton 212(d) re-
ferred to, n order to empower the Commssoner to resume the prevous pocy.
( urnet v. S. L. udng Corporaton, 2SS U. S., 400 Ct. D. 051, C. . II-1,
105 .)
The statute contempates payment of ncome ta es on a dfferent bass from
that theretofore e stng, not the escape of ta es In any form. The formua
provded s that such proporton of each nstament payment sha be returned
for the ta abe year durng whch t s actuay receved as the tota proft
reazed or to be reazed when payment s competed bears to the tota sae
prce. ut t s not sought to appy that formua here. Norrs asserts that
79. 9 per cent of the sae prce represents proft he seeks to pay ta es on
478.14, beng that proporton of the 00 receved n 1918, and to e cude from
consderaton the remander of such proft, e ceedng 12,000, thereby renderng
t mmune from ta aton n any amount because the tme wthn whch an
assessment for the years 1919 and 1920 coud he made and payment enforced
e pred fve years after the return was due. e thnk Congress dd not ntend
to create such a haven aganst payment of ta es n any form. No such asyum
of mmunty was contempated. To permt a ta debtor to make the attempted
use of the statute ong after the bar of mtaton has precuded assessment
and coecton woud consttute a pan dstorton of the egsatve ob|ect and
purpose. The retroactve provson of the statute ndcates ceary a egsatve
ntent that one havng aready pad hs ta es on a cash bass may nvoke the
nstament method and receve a refund for the dfference resutng from the
change due to smaer sums returned and ower rates, but that ntent does not
go to the e tent of empowerng a ta payer to empoy the procedure as a vehce
to escape ta es n toto upon more than 9 per cent of a net reazed proft.
Ths s an acton n assumpst to recover money had and receved. ut
an assumpst of ths knd s governed by equtabe prncpes. (Unted State
v. efferson ectrc Co., 291 U. S., 38 Ct. D. 803, C. . III-1, 3931 New
York Lfe Insurance Co. v. nderson. 203 ., 527 Champ Sprng Co. v. Unted
States, 47 . (2d), 1 Ct. D. 323, C. . -, 44 Dt|fn v. Lucas, 55 . (2d),
78 artcc Ms v. Rose, 1 . (2d), 441 Raston Purna Co. v. Unted
States, 58 . (2d), 10 5 Ct. D. 584, C. . I-2. 3401.) It woud be grossy
nequtabe to permt the payment of the ta on 478.14, representng ess than
4 per cent of the en|oyed proft, aocate the baance to the years 1919 and 1920
where t woud be free from abty under the statute of mtaton, and by
means of recovery heren evade a ta aton on t. or that reason such a
shft can not be made. (Commssoner v. Moore, 48 . (2d), 52 Ct. D. 407,
C. . -2, 2331.)
The |udgment s reversed and the cause remanded for further proceedngs
In harmony herewth.
Reversed and remanded.
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2 7
213(a), rt. 50.
rtce 50: When ncuded n gross ncome. I - -7301
Ct D. 918
INCOM T R NU CT O 1921 D CISION OP COURT.
L Gan or Loss Sae Contract to Cut and Remove Tmber.
Under a contract whereby the ta payer and others agreed to the
cuttng and remova of merchantabe tmber from ands owned by
them, the vendees agreeng to ncorporate and to pay specfed
amounts for tmber cut and sod, and to dvde one-haf of ther
stock among the tmber owners as soon as the earnngs equaed
ther capta nvestment, the sae was not of the tmber as a whoe
at the tme of e ecuton of the contract, but occurred ony as the
tmber was cut and removed, and the ta payer s share of the
accumuated profts from tmber cut and sod, as represented by
her share of the corporate stock receved n une, 1921, accrued
and was ta abe to her n that year.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (2 . T. ., 781) affrmed.
3. Certorar Dened.
Petton for certorar dened October 8, 1934.
Unted States Crcut Court op ppeas for the fth Crcut.
Carre Luteher rotcn-, pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of Te as),
efore kyan, Sbey, and Waker, Crcut udges.
March 22, 1934.
OPINION.
Sbey, Crcut udge: The ta payer receved n une, 1921, shares of
corporate stock havng a far market vaue at that tme of 11 ,800, whch
the oard of Ta ppeas hed to be a ta abe gan n that year. The rung
s companed of. The stock came to the ta payer because of a contract made
n 1917 by hersef and others wth one Wer, whereby the former partes agreed
to the cuttng and remova of merchantabe tmber on 8 ,000 acres of ther and
n Te as by Wer, who on hs part was to erect and equp sawms and to
ncorporate a company wth 400,000 capta to take over the contract and
the sawms: The tmber was to bo cut at an average rate of 40,000,000 feet
annuay. or the tmber cut per thousand feet was to be pad each month,
and In addton every s months 25 per cent of the seng prce of the umber
at the m n e cess of 13.50 per thousand feet. It was further provded that
the corporaton shoud pay out ts net profts as cash dvdends, and so soon
as the earnngs equaed the f ed nvestment of Wer and the other ncorporators
a the stock shoud be surrendered and one haf of t be ressued to the sur-
renderng stockhoders and the other haf dvded among the tmber owners.
Ths ta payer accordngy got each year her part of the f ed prce of per
thousand feet of tmber cut, and her part of the prce of the umber above
13.50 per thousand feet, and n une. 1921, her part of the accumuated profts
of the corporaton as represented n the redstrbuton of ts stock. The
standng tmber whch was acqured before March 1, 1913, was worth on that
date 5.80 per thousand, so that the f ed prce for t of yeded a tte gan
on the tmber cut, and the sharng n the profts of mng t were a gan
f to be attrbuted ony to the tmber that had then been cut. The ta payer,
however, contends -that the tmber as a whoe was e changed for the stock,
an that the vaue of the whoe body of the tmber must be returned before
a gan on the stock s determned and f ths be not the case, that the gan
represented by the stock dd not accrue n 1921.
The contract says: The partes of the frst part, for the consderaton and
upon the terms and condtons herenafter mentoned, by these presents do
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213(a), rt. 50.
2 8
hereby gve am grant unto the party of the second part the e cusve rght to
enter upon wth teams, trams and n other proper ways, to turpentne and cut
and remove a the merchantabe pne tmber measurng 10 nches In dameter
and upwards at the stump at the tme of remova, on and from a ands fuy
descrbed. The per thousand feet to be pad each month s e pressed to
be for the tmber cut the precedng month, md the 25 per cent heren provded
for (the profts over 13.50 per thousand feet of umber) sha be determned
and estmated at the end of each s months of operatons. No speca pay-
ments for the turpentnng are provded. The ega effect of ths grant depends
upon Its terms. Te as aw s controng. In ouston O Co. v. amton
(100 Te as, 270, 20 S. W., 817) the nstrument nvoved for a cash consdera-
ton barganed, sod, transferred and devered the standng merchantabe pne
tmber on descrbed and, to have and to hod t, wth the rght of way to go on
and across the and for the purpose of removng t. forever. Ten years ater the
prves of the grantors began cuttng the tmber and the prves of the grantee
were hed to be the owners of the growng tmber whose rghts had not been for-
feted by not removng t n a reasonabe tme. y contrast n the companon
case of ouston O Co. v. oykn (109 Te as, 270. 20 S. W., 815) t was hed
that an nstrument whch for a cash consderaton barganed and sod the mer-
chantabe tmber standng and growng on and and provded that the vendee
have berty to go upon the aud to cut and carry t away n such manner as
shoud be convenent to hm was not a perpetua grant of the trees but the
mpcaton was that they were to be removed wthn a reasonabe tme. Ths
case fuy asserts the rue tbat where a tme s stpuated for the remova tte
passes ony to such trees as are n fact removed wthn that tme. In the pres-
ent case the tera words are not a grant of the tmber but of the e cusve
rght to go on the and and turpentne, cut and remove the tmber. Payment s
to be made ony for such tmber as s cut. The contract does not e pressy mt
the tme for whch ths rght sha ast e cept that the cuttng must average
40,000,000 feet per year, but at the end of 12 years It s provded that under
stated condtons the grantors may themseves begn to cut and remove the re-
manng tmber. Canceaton of the entre contract for defauts contnung 30
days after notce and for une cuscd faure for months to operate the sawm
s provded for. We are of the opnon that the tmber was not sod as a whoe,
that a sae of none of t occurred upon the e ecuton of the contract, but that
saes were accompshed ony as the tmber was cut and removed. ( oster v.
Commssoner, 57 ed. (2d), 51 ouston O Co. v. oykn, supra.) Therefore
the money receved under the contract was receved for tmber theretofore cut
and not for that remanng to be cut. Ths s true, not ony as to the per
thousand feet pad each month, but aso as to the share of profts accrung each
s months from ts manufacture, and the share of profts accumuated by the
corporaton and reazed by the tmber owners n the ssuance to them of stock
n the corporaton. The tmber owners had from the begnnng an nchoate haf
nterest n the profts of the corporaton, but t was reazabe ony f and when
the profts shoud n dvdends redeem the capta nvestment. Ths happened
n 1921. Thereupon the tmber owners haf nterest n the accumuated profts
was turned over to them n the shape of haf the corporate stock. One-haf of
the profts to accrue n the future from manufacturng the remanng tmber
woud come to them as future dvdends on the stock. The remanng tmber
was n nowse represented n the dstrbuton of stock made n 1921. No new
or more absoute dsposton of It was then made. The stock represented profts
on the tmber cut and thereby sod pror to une, 1921. The ta payer s capta
nvestment n that tmber had been more than returned n the per thousand
feet pad for t, so that a ese was gan. The gan represented by her share
n the accumuatng corporate not profts dd not accrue to and was not ta aby
reazed by her unt the condton of fu rembursement of the nvestment of
te od stockhoders was fufed, and unt she receved some separate ds-
posabe thng whch had a market vaue. The market vaue of the stock was
reazed ncome n 1921 and was then ta abe. The capta nvested n uncut
tmber s not to be compensated from It, for that tmber was not yet sod. The
petton to revse the concuson of the oard of Ta peas s therefore
dened.
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213(a), rt. 2.
btce 50: When ncuded n gross ncome.
R NU CT O 1918.
Commssons charged by banks on oans. (See Ct. D. 9 5,
page 183.)
btce 50: When ncuded n gross ncome.
R NU CTS O 1918, 1921, 1924, ND 192 .
ank dscounts and commssons charged by banks on oans. Soc-
tor s Memorandum 3820 (C. . I -2, 32) modfed. (See G. C. M.
14839, page 73.)
rtce 52: ampes of constructve recept. I -14-7415
Ct. D. 944
ncome ta revenue act of 1921 decson of court.
1. Gross Income Uncoected Interest Coupons Constructve
Recept.
Interest coupons whch matured between December 31, 1922, and
September 18,1923. the date of decedent s death, but whch were not
cpped and cashed durng that perod because of hs physca and
menta dsabty, consttuted ncome constructvey receved by hm
n the year 1923, athough not reduced to actua possesson and
reazaton.
2. Decson ftbmed.
Decson of Dstrct Court, Western Dvson of Western Dstrct
of Mssour (4 ed. Supp., 375, Ct. D. 745, C. . II-2, 182),
affrmed.
Unted States CmctnT Court of ppeas, ghth Cbcut.
a C. Loose, as ecutr of the Last W and Testament of acob L. Loose,
Deceased, and Indvduay, appeant, v. Unted States of merca, appeee.
ppea from the Dstrct Court of the Unted States for the Western Dstrct of Mssour.
efore Stonb, Crcut udge, and oyce and e, Dstrct udges.
November 17, 1934.
opnon.
oyce, Dstrct udge, devered the opnon of the court.
ppeant, pantff beow, s the e ecutr of the estate of her husband acob
L. Loose, who ded on September 18, 1923. t hs death and for some years
pror thereto Loose owned certan coupon-bearng bonds. Coupons n the amount
of 34, 87.50 matured between December 31, 1922, and September 18, 1923, and
had not been cpped and cashed at the tme of hs death. Pantff as e ecutr
cpped and cashed them after hs death. Pantff dd not report these coupons
as ncome to the deceased for the year 1923 but dd report them as assets of
Loose s estate sub|ect to the edera estate ta . The Commssoner determned
that the proceeds were a part of the ncome of deceased and sub|ect to ta aton
as such. The Commssoner s fndng was uphed by the oard of Ta ppeas
n 15 . T. ., 1(59. Pantff then pad the ta and accrued nterest. Ths
appea Is from the |udgment of the court beow entered aganst pantff on
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213(a), rt. 52.
270
sut for refund of the ta . The case was tred upon a stpuaton of facts and
throe affdavts deang wth the physca and menta condton of Mr. Loose.
Pror to 1918 t was Mr. Loose s custom to go to New York twce each year
where e kept a safety depost ho and he woud cp and cash the matured
coupons on these bonds. Durng that year he suffered a paraytc stroke
foowed by two months of ness and thereafter he was abe to be about wth
the assstance of a nurse unt May, 11123, when a second stroke occurred
foowed by severe ness cumnatng n hs death. fter the stroke n 1918
he dscontnued the semannua trps to New York and between that tme and
the second stroke he woud stop n New York n une and September en route
to and from hs summer home n Goucester, Mass. fter the ast attack n
May, 102 , deceased was not abe, physcay or mentay, to attend to any
busness or to stop at New York on hs way to Goucester n une of that year
or at any tme thereafter. fter 1918 the safety depost bo was rented n
the name of Mrs. Loose wth power of attorney for access to Mr. Loose, and
upon a trps to the bo between the frst and second nesses he was accom-
paned by Mrs. Loose, who performed the actua operaton of cppng the bonds
and attendng to hs other busness affars n New York. e never gave anyone
ese authorty to open the safety depost bo and hs wfe never went to t
wthout hm. It further appears that foowng the second stroke In May,
1923, Mrs. Loose was never away from her husband a haf an hour, because
hs condton was so serous that hs death mght occur at any tme, and for.
that reason she dd not go to the bo durng the ast trp to Goucester n 1923,
or thereafter before hs death.
Deceased made ta returns upon a cash recepts and dsbursements bass
and the sovency of the corporatons ssung the bonds was stpuated.
Whe varous matters are argued under numerous headngs, the broad
queston presented n the case s whether the nterest represented by the
coupons on these bonds, whch matured before but were not cpped and pre-
sented unt after the death of Mr. Loose, consttuted hs ncome or a part of
the estate.
The Revenue ct of 1921 and the appcabe reguatons authorzed thereunder
govern ths case. Secton 213 of sad ct (42 Stat., 237) defned gross ncome
to ncude gans, profts, and ncome derved aso from nterest,
rent, dvdends, securtes . The amount of a such tems (e cept
as provded n subdvson (e) of secton 201) sha be ncuded n gross ncome
for the ta abe year n whch receved by the ta payer, uness, under methods
of accountng permtted under subdvson (b) of secton 212, any such amounts
are to e propery accounted for as of a dfferent perod.
Secton 201(e) of that ct (42 Stat., 228) reads:
or the purposes of ths ct, a ta abe dstrbuton made by a corporaton
to ts sharehoders or members sha be ncuded n the gross Income of the
dstrbutees as of the date when the cash or other property s unquafedy
made sub|ect to ther demands.
y secton 1303 of the ct (42 Stat., 309) the Commssoner was authorzed
to make a needfu rues and reguatons for the enforcement of the provsons
of the ct, pursuant to whch authorty the foowng reguatons, among
others, were promugated:
rtce 52 of Reguatons 02:
Income whch s credted to the account of or set apart for a ta payer
and whch may be drawn upon by hm at any tme s sub|ect to ta for the
year durng whch so credted or set apart, athough not then actuay reduced
to possesson. To consttute recept n such a case, the ncome 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.

rtce 53 of Reguatons 02:
When nterest coupons have matured and are payabe, but have not been
cashed, such nterest payment, though not coected when due and payabe, s
nevertheess avaabe to the ta payer and shoud therefore be ncuded n hs
gross ncome for the year durng whch the coupons matured.
There are two ma|or contentons urged by appeant: rst, that Congress
dd not ntend to appy the ncome ta ng statute to constructve recept of
ncome and second, that f such was Its Intenton It shoud not be apped
In the pecuar stuaton presented by the above facts.
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271
1213(a), rt. 52.
Consderng ony the statute and the reguatons Issued thereunder, It woud
eem to foow that the coupons were ncome of the deceased as of the year
1923. They represented Interest aud fa faty wthn the defnton of gross
Income. Cases nvovng stock dvdends afford an nterestng anaogy. The
stuaton where a dvdend was decared and checks sent out on December 31
so that none woud be devered before anuary 2 of the foowng year have
presented the probem whether the ncome represented by sad dvdends was
receved n the year of decaraton or n the year of recept of the check.
Some decsons favored the former date. (Commssoner v. ngham (C. C. .
), 35 ed. (2d), 503, cert, den., 281 U. S., 729 Ct. D. 207, C. . I -2, 289
Shearman v. Commssoner (C. C. . 2), ed. (2d), 25 Ct. D. 770, C. .
III-1, 118 .) Others favored the atter date. (Commssoner v. dams
(C. C. . 1), 54 ed. (2d), 228 ppea of Georga State Savngs ssoc., 4
. T. ., 748.) The dams and Shearman cases dscuss the ntent of the
statute to cover constructve recept of ncome, the former negatvng and
the atter affrmng the prncpe. mong other cases whch throw ght upon
the matter are very v. Commssoner (292 U. S., 210 TCt. D. 828, C. . III-1,
131 ) North mercan O Consodated v. urnet (28 U. S., 417, 423 fCt. I .
499, C. . I-1, 293 ) Massachusetts Mutua Lfe Insurance Co. v. Unted
States (288 U. S., 2 9 Ct. D. 38, C. . II-1, 28 ) Unon Guardan T-ust Co.
v. urnet ( 4 ed. (2d), 712, 715) ( pp. D. C.) Darcy v. Commssoner ( 0
ed. (2d), 581 (C. C. . 2) Ct. D. 814, C. . III-1, 238 ) Schoenhet v. Lucas
(44 ed. (2t), 47 , 480) (C. C. . 4) adey v. Commssoner (3 ed. (2d),
543 ( pp. D. C.) Ct. D. 153, C. . I -1, 2 ) rooks v. Commssoner (35
ed. (2d), 178) urns v. Commssoner (31 ed. (2d), 399, 401 (C. C. . 5),
cert, dened 280 U. S., 5 4) Raegh v. Unted States (5 ed. Supp., 22) (Ct.
CI.) reeman v. Unted States (3 ed. Supp., 301) (D. C. Pa.) aes v.
Woodworth (20 ed. (2d), 395, 401 (D. C. Mch.), affrmed n 32 ed. (2d),
37 (C. C. . ), cert, dened 280 U. S., 570 T. D. 4080, C. . I-2, 149 )
Park v. Ggan (293 ed., 129, 131) (D. C. Oho) akns v. Unted States
(3 ed. (2 1), 9 1) (D. C. N. Y.) Nchos v. Unted States ( 4 Ct. CI., 241).
( so, see Maryand Casuaty Co. v. Unted States, 251 U. S., 342: mercan
Natona Co. v. Unted States, 274 U. 8., 99 T. D. 4099, C. . I-2, IftS
Od Coony Trust Co. v. Unted States, 279 U. S., 71 Ct. D. SO, C. . III-2,
222 Unted States v. oston Mane Raroad Co., 279 U. S., 732 Rouss v.
owers. 30 ed. (2d), 28 (C. C. . 2), cert, dened 279 U. S., 853, and
Great Northern Raway Co. v. Lynch, 292 ed., 903 (D. C. Mnn.) T. D. 3147,
C. . 4, 277 drdge v. Commssoner, 30 . T. ., 202.)
In many of the above cases e pressons ke the foowng appear:
The ncome that Is sub|ect to a man s unfettered command and that he Is
free to en|oy at hs own opton may be ta ed to hm as hs ncome, whether
he sees ft to en|oy t or not. (Corss v. owers, 281 U. S., 370, 378 Ct. I
188, C. . I -1, 254 .)
In the very case the Supreme Court came to the concuson reached In the
dams case, namey, that stock dvdend checks athough maed December
31 are, when not receved unt anuary 2 of the foowng year, ncome of the
new year. It was noted that there s nothng to show that pet-
toner coud have obtaned payment on December 31. Nothng nd-
cates that t recognzed an unrestrcted rght of stockhoders to demand pay-
ment e cept through checks sent out the usua way. The checks dd not con-
sttute payments pror to ther recept.
Ths anguage appes wth pecuar force to the nstant case. ere, asde
from deceased s physca handcap, there was nothng to prevent hs obtan-
ng payment of the coupons n 1923. e had an unrestrcted rght to demand
payment.
Not recognzng constructve recept of Income as ncome reazed woud
open the door to fraud by eavng t wthn the power of the ta payer to
reduce ncome to possesson at such tme as woud best sut hs ta aton
purposes. Such rght of seecton does not rest wth the ta payer, nor docs t
fnd approva n the cases. (Newman v. Commssoner (C. C. . 10), 41 ed.
(2d), 743 reeman v. Unted States, 3 ed. Supp., 301 (D. C. Pa.) Ct. D.
703, C. . II-2, 17 Securty rst Nat. ank v. Commssoner, 28 . T. .,
289.)
or some years pror to the enactment of the revenue aw here nvoved
the Commssoner had promugated and enforced admnstratve rues to the
genera effect that Income sub|ect to contro and possesson shoud be regarded
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5213(a), rt. 2.
272
ns receved or reazed for ncome ta purposes, athough not actuay re-
duced to possesson. The subsequent enactment of statutes wthout substan-
ta change theren rases a strong presumpton that the Congress vewed the
reguatons as n accord wth ts ntent. (See Sknner v. aton, 45 ed.
(2d), 508 rewster v. age, 280 U. S., 327 Ct. D. 148, C. . I -1, 274 .)
Our concuson as to the frst of the two matters urged s that the statutes
Invoved shoud be construed as coverng constructve recept of ncome when
apped to ta payers on the cash bass. s bearng on ths concuson see
In rc ooth s state (248 N. Y. S., 2 4), decded by the Surrogate s Court
of ngs County, N. Y., whch nvoved a State ta and a stuaton where a
dvdend was decared and avaabe before death but not reduced to pos-
sesson, the court hodng that a dvdend decared before death becomes the
property of the deceased and passes to hs estate by hs death.
We then come to a consderaton of appeant s contenton that even though
the constructve recept of ncome be wthn the ntent of the statute, t does
|ot appy n that respect to the pecuar stuaton here brought about by the
physca handcap under whch the deceased abored, whch condton rendered
hm poweress to ava hmsef of the actua recept of the ncome wthn hs
fetme. If the soe bass and reason for constructve recept of ncome
were the avodance of fraud n ta evason, ths argument woud carry much
force because there was obvousy no thought of ta evason here. owever,
the strongest reason for hodng constructve recept of ncome to be wthn
a statute s that for ta aton purposes ncome s receved or reazed
when t s made sub|ect to the w and contro of the ta payer and can be,
e cept for hs own acton or nacton, reduced to actua possesson. So vewed,
t makes no dfference why the ta payer dd not reduce to actua possesson.
The matter s n no wse dependent upon what he does or upon what he fas
to do. It depends soey upon the e stence of a stuaton where the ncome s
fuy avaabe to hm. ere the crcumstances are pecuar and perhaps
harsh n ther consequences, but That t was not convenent and was per-
haps physcay Impossbe for hm to appear at the offces of the varous
corporatons before the year cosed and demand the cash dd not destroy
hs ega rght to do so. (Commnsoner v. ngham (C. C. . ), 35 ed.
(2d), 503, 504, cert, dened, 281 U. S., 729.)
So far as the ncome tsef was concerned t was entrey avaabe to hm
and coud have been reduced to actua possesson and reazaton.
We have not undertaken to dscuss each of the matters urged by appeant
but ony the two ssues whch seem to us to be of most mportance aud
controng.
The |udgment s affrmed.
rtce 52: ampes of constructve recept. I -15-7425
Ct. D. 94
ncome ta revenue act of 10 2 0 decson of court.
1. Income Royates Tte Teust greement.
n o and gas ease owned by M Company, whch was n proc-
ess of qudaton, was transferred to the ma|orty stockhoders,
who, to satsfy credtor banks to whch ther stock was pedged,
conveyed the ease to the presdent of one of the banks, as trustee.
y a separate nstrument, M Company assgned to the trustee a
ts rght, tte, and nterest n and to the ease. N Company was
then organzed to take over the property (ts presdent beng
the ndvdua named as trustee), the ma|orty stockhoders of M
Company became the stockhoders of N Company, and the trustee
e ecuted, but dd not physcay dever, a deed of the property to
N Company n consderaton of the capta stock of the atter, whch
was hed by the trustee as coatera to the carryng out of a
trust agreement entered nto by a the nterested partes. The
trustee coected the royaty payments from the ease and apped
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273
5213(a), rt. 2.
them to the qudaton of the Indebtedness of M Company before
makng dstrbuton to N Company s stockhoders. Under the
crcumstances, there was suffcent devery of the deed, N Company
was the owner of the ease, and was abe for the ta upon
the ncome therefrom. The trustee was merey a condut through
whch the ncome was coected and dsbursed.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 9 0) affrmed.
Unted States Crcut Court of ppeas, ghth Crcut.
No. 9902. Marquette O Dstrbuton Co., pettoner, v. Commssoner of Interna
Revenue, respondent.
No. 9903. Marquette O Dstrbuton Co., pettoner, v. Commssoner of Interna
Revenue, respondent.
On pettons to revew decson of Unted States oard of Ta ppeas.
efore ooth, Crcut udge, and unger and e, Dstrct udges.
October 3, 1934.
OPINION.
ooth, Crcut udge, devered the opnon of the court.
There are here two pettons for revew of one decson of the oard of Ta
ppeas, whch decson covered two matters: (1) the aeged defcency n the
Income ta es of the Marquette O Dstrbuton Co. for the year 1925 (2)
the aeged smar defcency for the years 1920 and 1927.
The oard of Ta ppeas, by ts order of redetermnaton (n ts case No.
39127) found a defcency for the year 1925 and by a smar order (n ts
case No. 48743) found a defcency for the years 192 and 1927. The two orders
were made pursuant to the one decson above mentoned.
. Pettons for revew foowed and were consodated for hearng In ths
court.
The facts n the controversy are argey undsputed and are substantay
as foows:
The pettoner s a South Dakota corporaton, organzed on September 24,
1924, wth ts prncpa offce n St. Pau, Mnn. It was organzed to take over
a certan o and gas property from the ma|orty stockhoders of the Iowa
O Refnng Co. whch was n process nf qudaton.
Pror to 1924 the Iowa O Refnng Co. and certan ndvduas, who were
the ma|orty stockhoders of that company, became ndebted to the rst
Natona ank of Sou Cty, Iowa, the Sou as Trust Savngs ank of
Sou as, S. Dak., and the Mdand Natona ank of Mnneapos. s co-
atera securty for such ndebtedness the ndvduas deposted ther stock
of the Iowa company. ary n 1924 dssenson arose among the stock-
hoders and t was determned to qudate by transferrng to the ma|orty
stockhoders a certan o and gas property known as the orton ease, the
mnorty stockhoders recevng certan other property. efore the proposed
qudaton coud be effected, t was necessary to satsfy the credtor banks.
Under date of une 12, 1924, the ndvduas e ecuted and devered a warranty
deed coverng the orton property to C. . Ms, who was presdent of the
Mdand Natona ank, whch was one of the credtors. On September 5,
1924, the Iowa company assgned to Ms a of Its rght, tte and nterest
n and to Its o and gas ease on the orton property.
Ms thus became the hoder of the ega tte to the orton property.
On December 10, 1924, a trust agreement was entered nto between C. .
Ms as trustee, party of the frst part the three banks mentoned above,
partes of the second part the ndvduas mentoned above, partes of the
thrd part and the pettoner corporaton, party of the fourth part
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5213(a), rt. 52.
274
The provsons of the trust agreement, so far as here matera, are set out
In the margn.1
efore the trust agreement was entered nto, and apparenty before Ms
had obtaned tte to the orton property, he e ecuted on ebruary 5, 1924, a
speca warranty deed coverng the property to the Marquette company. The
deed was acknowedged ebruary 5, 1025.
fter the trust agreement was entered nto, and on pr 10, 1927, Ms
e ecuted a speca warranty deed of the orton property to the Marquette
company. Ths deed was acknowedged pr 10, 1927. Nether ths deed
nor the deed of ebruary 5, 1924, was ever recorded nor was physca devery
1 Whereas. . D. orton, ohn . Large and the estate of . . Watkns, deceased,
are |onty and severay ndebted to the banks, n varous amounts herenafter set
forth, and
Wherens, heretofore there had been deposted wth the trustee certan stock of the
Iowa O Refnng Co. beongng to some of the partes of the thrd part, as coatera
securty for the payment of sad obgatons, among other thngs, and
Whereas, there are certan other obgatons e stng on the part of the Iowa O
ennng Co. to be pad, whch obgatons are herenafter specfcay descrbed, and
Whereas, there are certan other obgatons e stng as between some of the
partes of the thrd part, to whch specfc reference s herenafter made, and
Whereas, It was desred by a the partes hereto that arrangements be made for
the purpose of reducng and dschargng a of sad ndebtedness under the terms and
condtons herenafter set forth, and
Whereas to that end and purpose the Iowa O Refnng Co. transferred certan
propertes ocated n the State of Okahoma, descrbed as the orton ease, to some of
the partes of the thrd part, n consderaton among other thngs, of the surrender
by sad thrd partes of ther stock n the Iowa O Refnng Co. herenbefore descrbed,
and
Whereas, sad property was afterwards deeded to the company, for the sum of one
hundred thousand ( 100,000) doars, pad In and by the capta stock of sad company
whch stock was duy ssued and s now hed n the foowng amounts:

Whereas, sad stock, e cept certan quafyng shares thereof has been transferred
to the trustee for the purposes and under the terms and condtons herenafter set
forth and contaned, and
Whereas, there w be from tme to tme pad to the company certan royaty pay-
ments upon sad orton ease (under and pursuant to certan wrtten Instruments
coverng such payments) whch royaty payments as herenafter provded, arc to
be apped aganst sad ndebtedness before any dstrbuton thereof sha be made to
the stockhoders of the company, and
Whereas, the partes hereto desre to enter nto ths Indenture defnng, determnng
and mtng the varous rghts and Interests of the partes hereto e stng and grow-
ng out of the premses and by reason of the facts herenbefore rected and to that end
and purpose have entered nto ths ndenture.
Now therefore, for and n consderaton of one ( 1) doar and other vauabe con-
sderaton pad and receved by each of the partes hereto, to and from each of the
other partes, the recept and suffcency whereof Is by the e ecuton of these presents
acknowedged by each and a the partes hereto, and n further consderaton of the
promses, agreements and undertakngs of the partes hereto to be kept and performed
as herenafter contaned, and n consderaton of other vaunbe consderaton pad
and receved by each of the partes hereto, the partes hereto do promse and agree, to
and wth each other, as foows, that s to say:
btce I.
The trustee does hereby promse and agree:
1. That he w receve and hod as the same are pad hra from tme to tme by
the company, durng the e stence of ths ndenture, sad royaty payments, n trust
nevertheess, for the foowng uses and purposes:
(a) To appy the same upon the ndebtednesses n the ne t succeedng paragraph hereof
descrbed and whch ndebtednesses are defned mmedatey n the terms of the obgees
thereof, but whch ndebtednesses are to be pad n the sequence hereafter n ths
ndenture provded and not otherwse :

3. To account from tme to tme to the partes to ths Indenture for hs recepts
and dsbursements n connecton herewth, provded that such accountng need not be
rendered more often than once every three (3) months.
4. To return the stock of the partes of the thrd part now Indorsed n bank and
hed by hm as coatera hereunder, to the respectve owners thereof, or to persons
duy desgnated by them n wrtng upon the termnaton of ths Indenture by the ds-
charge of the ndebtedness heren descrbed, but not otherwse.
Tcr. II.
The banks, and each of them, do hereby promse and agree, for themseves, as the
case may be, and Indvduay but not |onty :
1. To forbear any enforcement at uw, or by acton or other procedure of any of
the obgatons or notes herenbefore descrbed of whch they are the respectve owners
and hoders so ong as they sha receve payments from sad trustee under the terms
nd condtons hereof, provded, however.
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275
5213(a), rt. 52.
of ether ever made. Mr. Ms, who e ecuted these deeds, testfed I e e-
cuted them, n order that they mght be used In case of my death.
t the tme of the e ecuton of the ater deed, Mr. Ms was trustee under
the trust agreement of December 10, 1924, and was aso presdent of the
Marquette company.
One of the fndngs of fact of the oard of Ta ppeas s that the provsons
of the trust agreement were carred out.
Ms acted as trustee unt the atter part of 1927, when he was succeeded
by . D. orton, who was vce presdent of the Marquette company.
rtce III.
The partes of the thrd part, and each of them, do hereby promse and agree :
1. To ndorse In bank and depost wth the trustee ther respectve stock u the com-
pany as coatera securty for the payment of the obgatons herenbefore descrbed,
but sad coatera sha be hed by the trustee as securty for sad obgatons n the
same sequence as sad obgatons are descrbed n paragraph (1) of rtce (I) hereof
and not equay or rataby for a of sad obgatons, and the e ecuton by the trustee
of a copy of ths Indenture w be an acknowedgment by the trustee of the recept and
depost of a of sad stock.
2. To, and by the e ecuton of ths Indenture do onty and severay consent that
no dstrbuton of the funds of the company sha be made to the stockhoders of the
company as dvdends or other dstrbuton, regardess of form (e cept, however, e penses
of the company) unt a of sad obgatons and the accrued Interest thereon sha have
been pad and the terms of ths Indenture performed and dscharged.
f. To vote ther stock at any meetng of the stockhoders of the company durng the
term of ths ndenture as the trustee sha Indcate

5. To, and by the e ecuton of ths Indenture do hereby consent to the payment by
the company to the trustee of any and a sums receved by the company as royates
or .otherwse from tme to tme, durng the e stence of ths Indenture, wthout further
acton by the stockhoders or drectors of the company, and at such payments made
by the company to the trustee and a acts of the offcers of the company under the
provsons hereof, are In a respects ratfed, confrmed and adopted.
The company docs hereby promse and agree
1. To pay to the trustee from tme to tme, as the same sha be receved, Its ncome,
ess n e penses, charges, deductons, ta es and other dsbursements necessary n the
course and conduct of Its busness, but such payments made to the trustee are made
wthout any abty whatsoever on the part of the company as to the dstrbuton thereof
by the trustee and provded further, that the company sha be under no abty, or duty
to account to the trustee for Its Income, but the amount to be pad by the company
to the trustee hereunder sha be determned soey and e cusvey by the company.
htcb I .
It s further understood and agreed, by a the partes hereto:
1. That If the trustee Is sub|ect to any e penses of any knd or nature, he sha
rat have the rght to deduct such e penses from any and a sums receved by hm,
and sad e penses sha be deemed to ncude the empoyment of counse In connecton
wth any matters arsng under the admnstraton or constructon of ths ndenture, or by
reason of any sut or acton whch may arse therefrom.

That no saares sha be pad to Its offcers so ong as ths Indenture sha reman
In force and effect, and the entre Income of the company from sad orton ease, ess
Its ta es and other e penses and deductons, sha be pad to the trustee unt ths trust
ha have been fuy admnstered.
That the trustee sha not be In any way personay abe for any act or omsson
on the part of any of the partes hereto, nor for any error of udgment or mstake of
fact or aw, nor for anythng whatsoever, e cept for hs own Indvdua, wfu ma-
feasance or negect and nothng n ths Indenture sha be In any way construed as
requrng the trustee to take any steps at aw or equty or otherwse to carry out and
perform the terms of ths Indenture, e cept those to be performed by hmsef but n the
event any of the partes hereto sha for any reason fa or refuse to perform any part
of ths ndenture to be carred out or performed by such party or partes the trustee
sha, upon wrtten request of a ma|orty of the banks, If the defaut be on part of any
of the thrd partes or of the fourth party, but In the event the Indebtednesses to the
banks have been fuy satsfed, then, upon the wrtten request of a ma|orty of the re-
manng benefcares hereunder, or f the defaut be on the part of the banks or any
of them, then, upon wrtten request of the ma|orty of the thrd partes, and upon
beng furnshed wth assurance suffcent to the trustee of proper ndemnfcaon to
the trustee, for a purposes, proceed to empoy counse and to take such acton aganst
such defautng party or partes as may be necessary or advsabe, and as often as the
same may occur.

ma|orty of the benefcares hereunder sha have at a tmes the rght to remove any
trustee hereunder, f In ther |udgment such acton sha be deemed e pedent or neces-
sary and n the event and as often as the same may occur that any of the ndebted-
nesses to be pad to any benefcary hereunder sha have been pad, such benefcary
or benefcares sha no onger have any rght as to the remova or appontment of a
trustee, and for the purposes of ths Indenture, benefcares sha be construed
and hed to mean the Indvduas, representatves and/or corporatons named as cred-
tors In subdvsons 1 to 8, both Incusve of secton (a) of paragraph 1 of rtce I
hereof.
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5213(a), rt. 52.
27
deed and aso an assgnment of royaty were thereupon e ecuted and de-
vered by Ms to orton coverng the orton property.
The man dutes of the trustee conssted n coectng the royates under
the orton ease and n makng payments out of the proceeds n accordance
wth the terms of the trust agreement.
The royaty checks were made payabe to Ms as trustee, and were paced
n a bank account n the mme of the Marquette company. The proceeds were
then transferred to a persona account of Ms, and he gave hs checks on that
account to the benefcares of the trust.
The Marquette company had no ncome e cept the royates from the orton
ease.
Ms knew that the stock of the Marquette company represented the owner-
shp of the orton ease and that the ease consttuted the asset behnd the
stock.
The Marquette company reported the ncome from the orton ease for the
caendar year 1925, n ts ncome ta return for that year, but the Com-
mssoner made certan correctons and determned a defcency n ta of
521.27.
or the caendar years 192 and 1927, the Marquette company made no return
of ncome from the orton ease, but the returns for those years contaned
the statement: Ths company has no ncome nor e pense on ts own account,
No tems of ncome or deducton were shown. The Commssoner determned
the defcences for those years respectvey at 4,509.31 and 2,31 .89. The
oard of Ta ppeas redetermned the defcences for the three years at the
same fgures.
The soe man queston nvoved n the pettons for revew s whether the
pettoner, the Marquette company, s abe for ncome ta upon the ncome
made up of the royates from the orton ease.
The reevant statutes are set out n the margn.
There s no queston Invoved as to the constructon of the anguage of the
statutory provsons, but the contenton of pettoner, the Marquette company,
s that t s not ta abe on the ncome so made up durng the ta abe years
n controversy, because t was not the owner of the orton ease, but that
Ms was the owner thereof.
We can not agree wth ths contenton for severa reasons. rst, the whoe
theory of the structure of the trust agreement s that the Marquette company
was the owner of the orton ease. We thnk that ths s demonstrated by
the provsons of the nstrument tsef. One of the rectas of the trust agree-
ment s:
Whereas, there w be from tme to tme pad to the company certan
royaty payments upon sad orton ease (under and pursuant to certan
wrtten nstruments coverng such payments) whch royaty payments as
herenafter provded, are to be apped aganst sad ndebtedness before any
dstrbuton thereof sha be made to the stockhoders of the company.
1 Secton 230 of the Revenue ct of 1924 :
In eu of the ta Imposed by secton 230 of the Revenue ct of 1921 there sha
be eved, coected, and pad for each ta abe year upon the net Income of every
corporaton a ta .
Secton 230 of the Revenue ct of 192 :
(a) In eu of the ta mposed by secton 230 of the Revenue ct of 1924, there
sha be eved, coected, and pad for each ta abe year upon the net Income of every
corporaton, a ta .
Secton 233 of the Revenue cts of 1924 and 192 :
(a) In the case of a corporaton sub|ect to the ta mposed by secton 230 the term
gross ncome means the gross Income as defned In sectons 213 .
Secton 213 of the Revenue cts of 1924 and 192 :
or the purposes of ths tte, e cept as otherwse provded n secton 233
(n) The term gross ncome ncudes gans, profts, and ncome derved from
saares, wages, or compensaton for persona servce of whatever knd and
n whatever form pad, or from professons, vocatons, trades, busnesses, commerce,
or saes, or deangs n property, whether rea or persona, growng out of the
ownershp or use of or nterest In such property aso from nterest, rent, dvdends,
securtes, or the transacton of any busness carred on for gan or proft, or gans
or profts and Income derved from any source whatever. The amount of a such
tems sha be ncuded n the gross ncome for the ta abe year n whch receved by
the ta payer, uness, under methods of accountng permtted under subdvson (b)
of secton 212, any such amounts are to be propery accounted for as of a dfferent perod.
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277
213(a), rt. 2.
rtce I of the trust agreement provdes:
The trustee does hereby promse and agree:
1. That he w receve and hod as the same are pad hm from tme to
tme by the company, durng the e stence of ths ndenture, sad royaty pay-
ments, In trust nevertheess, for the foowng uses and purposes.
Paragraph 3 of rtce I provdes that the trustee sha account from tme
to tme to the partes to ths ndenture for hs recepts and dsbursements.
Paragraph 4 of the same artce provdes that the trustee sha return to the
owners thereof, upon termnaton of the trust, the stock of the Marquette1
company hed by hm as coatera.
rtce III aso provdes that the owners of the stock n the Marquette com-
pany sha ndorse ther stock to the trustee to be hed by hm as coatera to
the carryng out of the trust agreement.
Paragraph 2 of rtce III provdes that there sha be no dstrbuton of
funds of the Marquette company to ts stockhoders unt dscharge has been
made of the obgatons mentoned n the trust agreement. The same paragraph
provdes for payment of the e penses of the company out of the funds of the
company.
Paragraph 5 of rtce III provdes that the stockhoders of the Marquette
company do hereby consent to the payment by the company to the trustee of
any and a sums receved by the company as royates or otherwse from tme
to tme, durng the e stence of ths ndenture.
It s aso provded n rtce III that the Marquette company sha pay to
the trustee from tme to tme, as the same sha be receved, ts ncome, ess a
e penses, charges, deductons, ta es and other dsbursements necessary n the
course and conduct of ts busness provded that the com-
pany sha be under no abty or duty to account to the trustee for ts
ncome, but the amount to be pad by the company to the trustee hereunder
sha be determned soey and e cusvey by the company.
rtce I , paragraph 1, provdes: That f the trustee s sub|ect to any
e penses of any knd or nature, he sha frst have the rght to deduct such
e penses from any and a sums receved by hm.
In the addenda to the trust agreement t s provded :
That no saares sha be pad to ts offcers so ong as ths ndenture sha
reman n force and effect, and the entre ncome of the company from sad
orton ease, ess ts ta es and other e penses and deductons, sha be pad to
the trustee unt ths trust sha have been fuy admnstered.
so n the addenda t s provded:
ma|orty of the benefcares hereunder sha have at a tmes the rght
to remove any trustee hereunder, f n ther |udgment such acton sha be
deemed e pedent or necessary.
Many of these quoted provsons woud be meanngess uness the Marquette
company was the owner of the orton ease they are harmonous and pregnant
wth meanng, however, f the Marquette company was the owner of that ease.
Second, we thnk that ownershp by the Marquette company of the orton
ease s shown by the acts of the varous nterested partes after the makng of
the trust agreement.
The oard of Ta ppeas has found that the provsons of the trust agree-
ment were carred out. Ths fndng ncudes, among other matters, the coec-
ton of the royates under the orton ease the pacng of the same (ess
e penses of the Marquette company) n the hands of the trustee the dsburse-
ment of the same (ess e penses of the trustee) by the trustee n accordance
wth the terms of the trust. of these steps were taken durng the ta abe
years n controversy.
It s true that nstead of the coectons beng made by the Marquette com-
pany and turned over to the trustee, the coectons were made by the trustee
but ths was smpy a short hand method of gettng the funds nto the hands
of the trustee.
The funds were treated by the trustee not as hs own but as beongng to the
Marquette company and for the year 1925 an ncome ta return for that com-
pany was made, verfed by Ms and coverng the coectons of royates from
the orton ease for that year, and tems of e pense amountng to 3,457 of the
Marquette company as deductons from those coectons.
In the face of these acts and admssons, the ater cam that Ms was the
owner of the orton property takes on a feebe aspect
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213(a), rt. 52.
278
Thrd, n support of the contenton that the Marquette company was not the
owner of the orton ease, the cam s made that the tte whch at one tme
was vested In Ms never passed from Ms to the Mnrquette company because
there was no devery of the deeds e ecuted by Ms whch purported to convey
the property from hm to the company.
We thnk that the cam of nondevery of the deeds can not be sustaned.
In reference to ths matter, the oard of Tu ppeas found as foows:
y warranty deed dated day of ebruary, 1924, but bearng an
acknowedgment under date of ebruary 5, 1025, Ms conveyed the orton
property to pettoner. There was no physca devery of the deed to t.
Counse for pettoner apparenty takes the poston that ths fndng s equva-
ent to one that there was no devery of the deed mentoned, and hence that
the tte remaned n Ms. We do not so construe the fndng of the oard of
Ta ppeas.
It s. of course, eementary that as a genera rue the devery of a deed s
essenta to ts vadty but whether or not there has been a devery must be
determned upon the facts of each partcuar case. manua bandng the
nstrument over by the grantor to the grantee s not ndspensabe. Such we
understand to be the genera aw, and aso the aw n Okahoma, where the and
covered by the orton ease was stuated. (In re ackson Irck Te Co., 180
., 30 ohnson v. Crag, 37 Oka., 378 Ia v. Doarhde, 11G Oka., 180.)
What are the facts as to devery dscosed by the record n the case at bar
In an attempt to qudate and sette the affars of the Iowa O Refnng
Co., the orton ease was transferred by that company to ts ma|orty stock-
hoders. Later, n the same attempt and for the same specfc purpose, those
stockhoders and the Iowa company, by separate nstruments, conveyed the
orton ease to Ms. St ater n the same attempt, and for the same spechtc
purpose, the trust agreement of December 10, 1924, was entered nto. Ths
agreement was sgned, among others, by Ms and by the Marquette company.
The trust agreement rected that the orton ease had been conveyed to the
Marquette company and that company had pad 100,000 of ts stock for the
same. There s no queston that the stock was ssued, and that t was paced
by the owners thereof n the hands of Ms as coatera to the carryng out
of the trust agreement.
deed of the orton ease had, n fact, been e ecuted by Ms to the
Marquette company. Ms was presdent of that company. The devery of
the deed by Ms, grantor, to Ms, presdent of the Marquette company
(grantee), coud be nothng but a gesture pus an ntent on the part of Ms,
grantor. Dd he have such ntent
The varous provsons above set out of the trust agreement gve a con-
cusve answer to the queston. To hod that Ms hud no ntent to dever
the deed to the Marquette company, n vew o a the facts and crcumstances,
woud be to hod that severa of the varous partes to the trust agreement had
Stutfed themseves.
The fact that the deed from Ms to the Marquette company was not recorded
does not affect ts vadty as between the partes. Ths matter s e pressy
covered by secton 5251, Comped Okahoma Statutes (1 )21).
We have no hestaton n hodng that there was a suffcent devery of the
deed from Ms to the Marquette company coverng the orton ease.
It s further contended on behaf of the Marquette company that even
though the tte to the orton ease was hed by the company, yet n vew
of the trust agreement, the company was a mere condut through whch the
ncome from the ease passed to the benefcares under the trust.
The case of Centra Lfe ssur. Soc, Mut., v. Com r (51 . (2d), 939)
(C. C. . 8) s cted. We thnk the facts n that case, when propery under-
stood, do not support the contenton of pettoner n the case at bar.
In the case at bar, the condut was Ms, the trustee confessedy so by
the terms of the trust agreement and by hs own testmony. The Marquette
company had a rea and substanta nterest n the royaty payments, frst,
to deduct any e penses propery ncurred n connecton therewth, as was
done by that company n 1925 second, after the obgatons mentoned n the
trust agreement were qudated, the whoe of the royaty payments under
the orton ease beonged to the Murquette company. The Marquette company
was the earner of the ncome through ts ownershp of the orton ease.
(See an Meter v. Commssoner of Interna Revenue, 1 . (2d), 817 (C. C.
. 8) Ct. D. 75, C. . II-1, 207 .)
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279
213(a), rt. 52.
Ths s not a case of confctng ega rghts between the grantee of a
recorded deed and the grantee of a pror unrecorded deed but a case nvov-
ng the queston of aocaton of ncome ta es to the owner of the ncome.
The burden of proof was upon the pettoner to show that the determnaton
of the Commssoner was not correct. We thnk ths burden has not been
sustaned. ( urnet v. ouston, 283 U. S., 223, 227 Ct. D. 328, C. . -, 343
Croce v. Commssoner, 2 . (2d), 1.)
Our concuson Is that the pettoner, the Marquette company, was the owner
of the property n queston, and that t was abe for the ta upon the ncome
therefrom for the ta abe years n controversy.
The decson and order of the oard of Ta ppeas are confrmed.
rtce 52: ampes of constructve recept. I -18-74 8
Ct. D. 95
ncome ta revenue act of 1020 decson op court.
1. Income Testamentary Trust ssgnment of uture Income.
Where the fe benefcary of the net Income from a testamentary
trust e ecuted decaratons of trust n favor of her two chdren,
authorzng the testamentary trustees to retan one-haf of the
dvdends from certan stock ncuded n the trust corpus and to
pay them nto the trusts estabshed for her chdren, and by a
second nstrument reeased a cam to that porton of the dv-
dends, there was no vad assgnment of a property rght but merey
an antcpatory assgnment of future ncome, and the benefcary s
not reeved from ta abty upon that part of the ncome re-
eased by her to the trustees for the chdren.
2. Decson ffbmed.
Decson of the oard of Ta ppeas (27 . T. ., 1308) affrmed.
Unted States Crcut Court of ppeas, S th Crcut.
dth R. Wood, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton to revew an order of the Unted States oard of Ta ppeas.
efore cks, Smons, and en, Crcut udges.
December 14, 3934.
opnon.
en. Crcut udge: The Commssoner determned a defcency of 3,097.02
n ncome ta aganst the pettoner for the year 192 . The oard of Ta p-
peas sustaned the Commssoner (27 . T. ., 130S), and pettoner appeas.
The soe ega queston s whether one-haf of the dvdends pad by dngton.
Co., Inc., n 192 , on shares of stock hed by the trustees of the estate of
Wam M. Wood, r., was ncome to pettoner who receved, under the de-
cedent s w, the rght to the net ncome from such estate for fe, or whether
such sum was ncome to pettoner s chdren, to whose trustees she had re-
eased one-haf of the net ncome resutng from the nvestment n dngton
Co., Inc.
The facts are conceded, and so far as matera for the purposes of ths case,
are as foows:
The pettoner s husband n hs w estabshed a trust n the resdue of hs
estate. The pettoner was named fe benefcary of the net ncome arsng
therefrom and her two chdren were named remandermen. Upon the death
of the husband, the estate possessed certan stock n dngton Co., Inc., a
corporaton whch pad arge dvdends but was sub|ect to fuctuaton n profts.
The trustees, who were gven broad authorty to nvest and renvest under the
w, had the power to se ths stock.
Pettoner desred to have the stock retaned n the estate, and therefore on
November 29, 1922, e ecuted a wrtten decaraton n whch she agreed to estab-
sh trusts for each of her two chdren and to pay over to the trustees of such
083 35 10
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213(a), rt. 52.
280
trusts one-haf of a ncome pad to her under the trust estabshed by the w,
derved from the nvestment n dngton Co., Inc., sad payments by me to
be made smutaneousy wth the recept by me, from tme to tme, of any
ncome derved from the nvestment n sad dngton Co., Inc.
Ths document authorzed the trustees of her husband s estate to retan one-haf
of such future ncome, and to pay t n equa shares nto the trusts estabshed
for the chdren. The consderaton stated was that the trustees agreed that
the nvestment fn dngton Co., Inc., shoud not be mmedatey qudated,
but bound the trustees to contnue the nvestment for the perod of s months
ony. Ths document, whch was not sgned by ether of the trustees, was
consdered by the Unted States Court of Cams n a proceedng brought by the
pettoner wth reference to the determnaton of a defcency n ncome ta for
the year 1025. (Porter v. Unted States, 52 ed. (2d), 105 (Ct. CI.) Ct. D.
452, C. . I-1, 1 0 .) The queston nvoved n that case, so far as the
document of November 29, 1922, s concerned, was dentca wt that presented
here. The Court of Cams hed that the assgnment of ncome as t s re-
ceved does not reeve from ta thereon the person to whom the ncome was
payabe n the frst nstance.
Ths decson was correct, (oseucad v. Commssoner, 33 ed. (2d), 423
(C. C. . 7) ng v. owers, Coector, 2 ed. (2d), 1017 (C. C. . 2).)
Subsequenty the pettoner, n a second document e ecuted anuary 1, 192 ,
purportng to carfy the frst, agreed that n consderaton that the sad
trustees w not mmedatey qudate the sad nvestment n dngton Co.,
Inc., but w hod sad nvestment under the terms of ths agreement, sad
dth R. Wood, ndvduay, does hereby reease a cam to one-haf ( ) of
the net ncome receved by the trustees from sad nvestment, and the sad
trustees agree to pay over one-haf ( ) of the sad net ncome from sad
nvestment to sad dth It. Wood, and to pay over the other one-haf ( )
of the sad net ncome to the trustees of the trusts created for the chdren.
In ths document the trustees reserved the rght at any tme they deemed t
benefca to the estate to dspose of the nvestment n dngton Co., Inc.
The pettoner s man contenton s that ths second Instrument consttutes
a vad assgnment of a property rght, and that she hence s reeved from
abty for ta upon that part of the ncome from dngton Co., Inc., re-
eased by her to the trustees of her two chdren. The Commssoner urges
that ths document merey emboded an antcpatory assgnment of future
ncome. Wth ths contenton we are n accord. The property hed n the
trust estates created by pettoner for the chdren orgnay conssted of a
reatvey sma amount, namey, 1,48S.75 for each chd, presumaby ncome
aready receved from the nvestment n dngton Co., Inc. future
payments nto the trust estates were of antcpatory ncome. The trustees
coud at any tme dspose of the stock n dngton Co., Inc. The dvdends
attempted to be reeased mght never be receved. There was no assgnment,
reease or transfer of the property rght whch produced the ncome. very
case cted on ths pont for the pettoner depends for ts decson upon a fndng
that an e stng property rght had been assgned. We search ths record n
van for an assgnment n praesent, and fnd ony a reease of ncome that
mght or mght not be earned n the future. Such an arrangement coud not
reeve the pettoner of the ta . (Lucas. Commssoner, v. ar, 281 U. S.,
I urnet, Commssoner, v. Lennper, 285 U. S., 13 an Meter v. Comms-
soner, 1 ed. (2d), 817 (C. C. . 8) Ct. D. 75, C. . II-1, 207 shop v.
Commssoner, 54 ed. (2d), 298 (C. C. . 7) Ct. D. 477, C. . I-1, 1 4
Lcydg v. Commssoner, 43 ed. (2d), 494 (C. C. . 10).)
The order of the oard of Ta ppeas s affrmed.
rtce 52: ampes of constructve recept. I -21-7509
Ct D. 9 8
ncome ta revenue act op wa decson of count.
1. Income Testamentary Trust ssgnment of uture Income.
The benefcary of a testamentary trust who assgned a porton
of the trust ncome to hs wfe, pursuant to a separaton agreement
n settement of ther respectve property rghts, and drected the
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281
821300, rt. 52.
trustees of the estate to pay specfed sums out of the ncome, as
t accrued, drecty to hs wfe, dd not assgn a preseut property
ownershp n the corpus of the trust fund or the ncome therefrom,
and the amounts pad to the wfe by the trustees consttuted ta -
abe ncome to the benefcary.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 123-1) affrmed.
Unted States Court of ppeas for the Dstrct of Coumba.
ames McDonad, pettoner, v. Ouy T. everng, Commssoner of Interna
Revenue.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Obsde, tz, and Gkoker,
ssocate ustces.
December 10, 1934.
OPINION.
Mabtn, Chef ustce: n appea from a decson of the oard of Ta p-
peas (28 . T. ., 1234), affrmng a determnaton by the Commssoner of
Interna evenue of a defcency of 12, 81.70 u pettoner s ncome ta return
for the year 1927.
The queston arses upon the dsaowance by the Commssoner of a deduc-
ton camed by pettoner n the amount of 25,000, because of the payment
of that sum to pettoner s dvorced wfe from hs share of hs father s estate,
the payment beng made by the trustee of the estate by authorty of an agree-
ment between pettoner and hs dvorced wfe.
The controng facts n the case are as foows:
The pettoner and hs wfe, euah McDonad, were marred on pr 17,
1912. They have two sons, namey, ames McDonad, r., born September 10,
1913, and Robert e ander McDonad, born May 12, 1915, both of whom are
vng.
The pettoner s father, ames McDonad, Sr., ded testate on anuary 13,
1915, whe a resdent of the Dstrct of Coumba, and hs ast w was duy
admtted to probate n the Dstrct. y the terms of the w the estate was
to be hed by the testator s e ecutors and trustees who were to pay certan
annutes to pettoner and others unt the pettoner s odest survvng chd
shoud reach the age of 30 years, at whch tme the pettoner was to receve
one haf of the estate and the other haf was to be dvded between hs chdren.
On May 3, 1922, pettoner brought sut n the Dstrct of Coumba to have
the w decared vod on the ground that t voated the rue aganst per-
petutes. The case was dsmssed by the court, and an appea was taken to
ths court.
On December 11, 1924, whe the sut and the admnstraton of the estate
were st pendng, the pettoner and hs wfe, wth a vew of effectng a
permanent separaton between them, entered nto a wrtten agreement for
the purpose of f ng, settng, and determnng ther respectve property
rghts. The pettoner agreed, n the event of a decson n the pendng
sut ad|udgng hm to be the soe her of the estate of hs father to assgn
and transfer for the use of hs two sons an undvded one-haf nterest n
a of the estate whch be mght so nhert, and, n present terms, assgned
and transferred such nterest, n trust, for ther use and beneft. In paragraph
7 of the agreement t was provded that the pettoner shoud pay to hs wfe
the sum of 400,000 n fu settement of a cams and demands of every
knd or character then e stng or whch but for ths agreement mght there-
after arse. Ths payment of 400,000 was to be made by pettoner to hs
wfe when he became entted to hs share of the estate of hs father, whether
pursuant to the provsons of the w, or as hs her at aw, or pror thereto
f pettoner so eected. or the purpose of assurng the payment of such
400,000 to the wfe, the pettoner does hereby assgn, transfer, and sot
over to the sad party of the second part an nterest n hs share of the property
of the estate of ames McDonad, Sr., n the amount of four hundred thousand
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5213(a), rt. 52.
282
doars ( 400,000) and drects the trustees named In the w of ames
McDonad, Sr., or ther successors, to pay and dever to the party of the
second part, whenever such payment may be by such trustees awfuy made,
the sad sum of four hundred thousand doars ( 400,000), and In the event
that the trust provsons of sad w sha hereafter fnay be decared vod
or the sad party of the frst part sha for any other reason succeed to
the estate of ames McDonad, Sr., then the e ecutor of sad ast w and
testament and the court n whch the admnstraton of sad estate s then
pendng are, and such e ecutor, and such court s hereby authorzed, empowered,
and drected to cause to be dstrbuted and pad to the sad party of the
second part the sad sum of four hundred thousand doars ( 400,000).
It may be noted at ths pont that by a subsequent agreement, ne t hereafter
referred to, the provsons of ths paragraph were novated and reformed, by
the emnaton of the provsons theren contaned, e cept the provson that
pettoner shoud pay hs wfe the sum of 400,000 n fu settement.
fter December 11, 1924, and pror to December 21, 1925, the pettoner and
hs wfe were dvorced and she resumed her maden name of euah Martn.
On December 21, 192. ), the partes entered nto a second wrtten contract
provdng that n event the court of appeas shoud hod that one-haf of
the accumuated ncome then n the bauds of the e ecutors and trustees shoud
)e pad over to pettoner, then and n such event out of the accumuated
ncome payabe to pettoner there shoud be pad to euab Martn the sum
of 150,000 to be apped as a credt on the contract dated December 11, 1924,
under the terms of whch she was to be pad 400.000 and after the appcaton
of such payment as a credt on the contract, euah Martn was to accept
the sum of 25,000 per year to be pad drecty to her unt the baance of
the 400,000 shoud be qudated. The second contract aso contaned the
foowng provson emnatng paragraph 7 of the frst contract, as above
stated: It s further agreed n the event sad decree s entered that sad
contract of December 11, 1924, w be novated and reformed by the emnaton
of a of paragraphs 5, (|, and 7, and the copy of sad contract now on fe
wth the uton Trust Co. of New York w be wthdrawn and another
contract e ecuted and fed In ts stead n accordance wth the stpuaton
heren.
On ebruary 2, 1920, pettoner entered nto a thrd wrtten agreement wth
hs former wfe, euah Martn, whch provded that there shoud be pad to
her the sum of 100,000 (nstead of 150,000 as provded by the pror agree-
ment) out of accumuated ncome payabe to pettoner, and that such pay-
ment shoud be apped as a credt on the contract entered nto by and between
the partes on the 11th day of December, 1924, under the terms of whch she
was to be pad the sum of 400,000. fter the appcaton of the payment of
100,000 as a credt on sad contract. euah Martn agreed to accept the sum
of 25,000 per year wthout nterest on such contract unt the sum of 400,000
sha have been fuy pad and an order was gven to the uton Trust Co.,
trustee of the estate, to pay to euah Martn 25,000 per annum unt the
baance of the sum of 400,000 shoud be fuy pad. The payment of 25,000
per year was to be made to euah Martn for the perod of 12 years uness
wthn that perod the one-haf of the property of the estate shoud be devered
to pettoner, and n that event the uton Trust Co. was then to pay to
euah Martn such sum as woud compete the tota of 400,000.
On May 3, 192 , ths court entered a decree n McDonad v. Ma re (12 .
(2d), 822), hodng that upon the death of ames McDonad, Sr., the pettoner
took a present vested nterest n the undvded one-haf of the testator s estate,
to be pad to hm by the e ecutors when hs odest chd vng at the testator s
death shoud reach the age of 30 years: that pendng the payment to pettoner
of the prncpa of hs one-haf nterest n the estate the e ecutors and
trustees were to pay hm n addton to the annuty provded for hm by the
w, te cash ncome accrued upon hs one-haf nterest to date and the future
cash ncome thereon from tme to tme as the same shoud thereafter accrue.
Pursuant to ths decree there was pad to the pettoner n 192 by the uton
Trust Co., as trustee, a sum n e cess of 500,000 representng the cash ncome
accrued upon hs one-haf nterest n the estate to that date as provded n
the decree. Out of the 500,000 thus pad to pettoner he pad to euah
Martn the 100,000 n cash provded for n the agreement of December 21,
1925, as modfed by the agreement of ebruary 2, 192 .
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283
213(a), rt. 52.
Id the fducary return of the uton Trust Co., as trustee, for the year 1927
It charged tsef wth the fu amount of ncome receved hy t In that year,
and reported that one-haf of ths amount had been pad to the pettoner and
one-haf retaned by the trustee for pettoner s chdren n accordance wth
the terms of the w. Out of the sum thus charged to pettoner the trustee
pad the sum of 25,000 drecty to euah Martn.
The pettoner, n fng hs ncome ta return for the year 1027, reported as
dvdends the sum 90,552.20, beng the fu amount charged to hm as dstrb-
utee n the account of the trustee as aforesad, and camed the foowng
deducton: Dvson of ncome, former wfe euah Martn 25,000 repre-
sentng the sum whch the trustee pursuant to the agreements of December
21, 1925, and ebruary 2, 192 , had pad to euah Martn n that year.
The Commssoner of Interna Revenue n arrvng at the pettoner s ta abe
net ncome for the year 1927 dsaowed the 25,000 deducton thus taken by
the pettoner on hs return. Upon appea the oard of Ta ppeas entered
|udgment for the Commssoner, affrmng the dsaowance of the deducton
camed by pettoner. The present proceedng was brought to revew ths
decson of the oard of Ta ppeas.
We are of the opnon that the decson of the oard of Ta ppeas s correct.
s appears from the statement of facts, the pettoner was entted to be pad
annuay the ncome from the one-haf of the trust estate hed by the trustee
under the order of ths court n the case of McDonad v. Ma we, supra. The
queston presented n the nstant case s whether the pettoner assgned and
transferred to hs wfe a present property ownershp n pettoner s ncome n
the amount of 25,000 a year. If such a transfer was actuay made by pet-
toner to hs wfe, he woud not be sub|ect to ncome ta upon the transferred
nterest. owever, we are of the opnon that no such transfer was made as
woud nvest pettoner s wfe wth the actua tte to any present nterest or
estate n nny part of the corpus of the trust property or the ncome therefrom.
revew of the contracts e ecuted by the pettoner and hs wfe dscoses as
ther centra purpose that pettoner shoud pay to hs wfe the sum of 400,000
n settement of a cams e stng between them.
In the frst contract the pettoner, for the purpose of assurng the payment of
such 400,000, assgned, transferred, and set over to hs wfe an nterest n hs
share of the property of the trust estate. It must be observed that ths assgn-
ment was not made for the purpose of e tngushng the debt of 400,000 by a
transfer of an nterest n the trust property. The debt was to contnue, and the
transfer was made as securty for ts payment. The transfer served no purpose
e cept to secure the payment of that amount by pettoner to hs wfe. ven
ths transfer, however, was rescnded by the subsequent agreement between them.
In the second contract the ndebtedness of 400,000 from pettoner to hs wfe
was recognzed as the bass of settement between them. nd t was provded
that under certan condtons the pettoner was to pay hs wfe the sum of
150,000, to be apped as a credt on the contract for the payment of 400,000,
as provded n the frst agreement. nd t was stpuated that after the appca-
ton of such payment as a credt on the ndebtedness the wfe was to accept the
sum of 25,000 per year to be pad to her drecty by the trustee unt the baance
of the 400,000 shoud be qudated.
In the thrd contract t was stpuated that the cash payment provded for n
the precedng contract shoud be reduced from 150,000 to 100,000, whch was
to be apped as a credt upon the 400,000 debt, after whch the wfe was to
accept the sum of 25 000 per year wthout nterest on sad contract unt the
sum of 400,000 sha have been fuy pad.
There s no provson n the second and thrd contracts, whch are n fact the
e stng contracts between the partes, for an assgnment by the pettoner to
hs wfe of any nterest n the trust fund. n order, however, was fed wth the
trustee to pay these sums to the wfe out of the ncome of the husband, as t
accrued n the hands of the trustee.
These provsons a mped that the debt of 400,000 frst agreed upon by
the partes contnued to e st throughout ther dfferent transactons and that the
wfe n fact never renqushed her cam to the fu amount of such ndebtedness.
Ths manfesty was the constructon paced upon the agreement of the partes
by the uton Trust Co., trustees, for n the accounts of that company the fu
amount of ncome due to pettoner was credted to hm athough n conformty
wth the order fed wth the trustee the amount of 25,000 was pad to the wfe
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5213(b), rt. 71.
284
and charged to pettoner. In other words, there was no dvson of the trust
fund hed by the trustee or of the ncome arsng therefrom between pettoner
and hs wfe. The pettoner therefore never dvested hmsef of any nterest
In the trust fund or ts ncome, but remaned at tmes the true ega owner
thereof. The tota ncome accordngy was credted to the pettoner athough
part of t upon hs order was pad to hs wfe. The determnaton of the Com-
mssoner was correct. (Lucas v. ar, 281 T . S., I Corss v. orers, 2S1
U. S., 37 Ct. D. 188, C. . I -1, 254 Iunrt v. Lennger, 285 U. S., 130:
Ltre v. urnet, 55 . (2d). 751 Lans v. urnet. 58 . (2d). 512.)
The decson of the oard of Ta ppeas s affrmed.
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 71: cusons from gross ncome. I -8-7334
Ct. D. 92
INCOM T R NU CTS O 101 ND 1921 D CISION O COURT.
Income empton Puhc Utty Corporaton.
Income earned by a pubc utty corporaton operatng a trans-
portaton system under a contract wth a cty, whereby the atter
shared equay n the net earnngs above a f ed percentage on the
capta stock of the corporaton and had certan other rghts n ts
management and poces, s not e empt from edera ncome ta
under the provsons of secton 11(b) of the Revenue ct of 191
and secton 213(b)7 of the Revenue ct of 1921, upon the porton
thereof to whch the corporaton was entted under the contract.
Dstrct Court of the Unted States for the astern Dstrct ok
Pennsyvana.
Phadepha Rapd Transt Co. v. Unted States.
September 5, 1934.
opnon.
rkpatrck, .: The pettoner, Phadepha Rapd Transt Co., fed wth
the Commssoner of Interna Revenue cams for refund of the entre amount
of ncome and profts ta es pad by t for the caendar years 1917, 1922, and
1923, amountng n a to 591,900. 2, and upon re|ecton of the cams brought
ths acton to recover the ta es pad.
The pettoner contends that Its ncome for the years n queston was
whoy e empt from ta aton under the provsons of secton 1 b) of the Rev-
enue ct of 1910, and secton 213(b)7 of the Revenue ct of 1921. The two
enactments are substantay ake, and the pertnent portons of secton 213(b)
of the ct of 1921 may be taken as controng the queston nvoved. That
secton enumerates varous knds of ncome e cuded from gross ncome and
consequenty e empt, among whch s the foowng:
(7) Income derved from any pubc utty accrung to
any potca subdvson thereof.
Whenever any potca subdvson of a State or Terrtory
pror to September 8. 1910. entered n good fath nto a contract wth
any person, the ob|ect and purpose of whch s to acqure, construct, operate,
or mantan a pubc utty, no ta sha be eved under the provsons of ths
tte upon the ncome derved from the operaton of such pubc utty, so far
as the payment thereof w mpose a oss or burden upon such po-
tca subdvson but ths provson s not ntended and sha not be con-
strued to confer upon such person any fnanca gan or e empton or to
reeve such person from the payment of a ta as provded for n ths tte
upon the part or porton of such ncome to whch such person s entted under
such contract.
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285
213(b), rt. 71.
The facts matera to the ssue are the foowng: In 1907 the cty of
Phadepha entered n good fath nto a contract wth the pettoner, the
ob|ect and purpose of whch was to operate and mantan and, possby, to
acqure the transportaton system then servng t. Under ths contract
(artce ) the cty shares wth the stockhoders equay n a net earnngs
of the company, payabe n dvdends, over and above a return of per cent,
cumuatve from 1907, upon the pad-n capta stock of the company. There
s a provson (artce 9) for a snkng fund to be n the custody of the cty
nto whch monthy payments n graduated amounts are to be made by the
company to be treated by the company as f ed charges, reducng the ncome
appcabe to dvdends to the stockhoders and to the cty. When the snk-
ng fund amounts to 5,000,000 the cty may requre t to be pad nto the cty
treasury and thereafter a payments upon t are to be made drecty nto
the cty treasury. nother provson (artce 11) gves the cty the opton
to purchase the pettoner s entre system on or after uy 1, 1957, upon s
months notce, for an amount equa to the company s capta stock outstand-
ng at that tme, the snkng fund, f not aready pad nto the cty treasury,
to be avaabe to the cty for such purpose. Severa other provsons gve
the cty certan rghts n the management and poces of the company, n-
cudng the rght to pass upon changes n ts capta structure, eases, ob-
gatons, guarantees, e tensons, addtons or betterments, requrng addtona
capta, aso gvng the cty the rght of representaton upon the board of
drectors.
Wthout gong more eaboratey nto the reatons between the cty and the
pettoner (snce the concuson reached makes t unnecessary), I am sats-
fed that, by reason of the nature of the contract, the payment of these
ta es from the ncome and profts of the pettoner w resut n mposng
a burden upon the cty wthn the meanng of the ct, and I so fnd. The
fact s that both partes to the contract have an nterest n the ncome In
queston. The utty s nterest s drect and mmedate. It coects t and
uses t for ts own purposes, and of course s entted to ts ncome under
the contract. The cty s Interest s remote and contngent, but nevertheess
s a rea nterest whch ta aton w burden, snce ta aton mght operate
to postpone the tme when the cty woud be entted to receve drect payments
of money out of ncome or to decrease the vaue of the pant f, and when, the
cty came to acqure t under ts opton.
Ths brngs us drecty to the nterpretaton of the cts of Congress nvoved.
The frst paragraph of the quoted e cerpt apparenty was ntended to e empt
the cty from ta aton upon ncome whch t actuay receves (the words are
derved from the pubc utty and accrung to the cty) from pubc
utty companes, a whoy unnecessary provson snce no ta coud be const-
tutonay mposed upon the cty, but probaby nserted to avod possbe ms-
understandng of the succeedng paragraph. No one woud queston that n-
come whch s pad by a utty to the cty, thus becomng part of the htter s
revenue, must be free from ta aton.
In enactng the second paragraph, Congress undoubtedy had n mnd certan
ncome of uttes n whose operatons the cty has some nterest, but whch
ncome s not pad to the cty and therefore does not become any part of the
cty s revenue. So far as the ta ng power s concerned ths was debatabe
ground, and t s qute cear that Congress meant to renqush t n part, as
w be seen, but by no means entrey.
The second paragraph has two causes. The purpose underyng the frst of
these s to avod any ta aton of pubc uttes whch adversey affects the
cty fnancay and the words n whch that thought s emboded are so far as
the payment thereof woud mpose a oss or burden upon such pot-
ca subdvson . If the paragraph ended at ths pont there woud
be no doubt, n vew of the fndng made, that the pettoner s ncome woud a
be e empt because the payment of any ta reduces t and, pro tanto, burdens the
cty. owever, a second cause s added whch appears to be n the nature of a
constructon cause or nterpretaton by the Legsature of ts own enactment. It
amounts to a decaraton by Congress that, when, n the precedng cause, It
e empted the utty s ncome of n ta aton whch woud mpose a burden upon
the cty, t dd not mean to e empt such part of t as the utty was entted to
keep for tsef, or, to put t n another way, Congress was decarng that when,
n the frst cnuse, t sad no ta sha be eved upon ncome derved
from the operaton of such pubc utty, so far as the payment thereof w
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213(b), rt. 88.
28
Impose a burden, etc., t meant by ncome derved, ncome derved
by the cty, pad to t and thus a part of ts revenues. nd ths regardess of
whether the payment of the ta woud actuay mpose a burden on the
muncpaty or not. The anguage s too ph n to admt of any dspute as to
what t means ths provson shoud not be construed to
reeve such person from the payment of a ta upon the part or
porton of such ncome to whch such person s entted under such contract.
It s not to be questoned that the egsature passng an act may decare ts
meanng and constructon, and such decaraton s bndng by the courts. In
ths case, the constructon cause may be the equvaent of an e cepton from the
genera terms of the rst cause and, to that e tent, n confct wth t, but from
ether pont of vew t supersedes t at a ponts of confct.
The pettoner argues that the resut of gvng ths effect to the ast cause
s to nufy the precedng one to wrte t out of the ct entrey. It may be
that the effectve margn of the frst cause eft standng s not a wde one.
ut there mght be stuatons whch, even as so cut down, t woud st govern.
or e ampe: Suppose under the contract the utty was bound to e pend a
percentage of ts own ncome for street repars n reef of a muncpa duty,
whch otherwse the cty woud have to perforn at ts own e pense. I shoud
say that the porton of ts ncome so e pended woud not be the part or porton
of such ncome to whch such person (the utty) was entted under such
contract, and I shoud aso say that the ta aton of that percentage of ncome
woud mpose a burden upon the cty and therefore woud be e empt under
the earer cause. It may be that other ustratons coud be found. The
pont s that the causes can stand together and the ater s not necessary
n hopeess confct wth the earer. If t were, there mght be a somewhat
dfferent queston to decde, though I do not say that the same resut woud
not be reached.
It foows from the constructon adopted that the ncome n queston here s
ta abe and the petton must be dsmssed.
The agreed statement of facts and the suppementa addtona statement of
facts, and the facts set forth n the suppementa agreed statement of facts are
a adopted by the court as speca fndngs of fact.
Pettoner s requests for concusons of aw are refused, and the pettoner s
moton for |udgment dened.
The respondent s moton for |udgment s granted.
rtce 72: Proceeds of nsurance Compensaton Pensons.
Contrbutons by tbe M Unversty toward the purchase of annu-
tes for members of ts facuty. (See I. T. 2874, page 49.)
ncome ta revenue act of 192 decson of court.
1. Income empton Compensaton of ttorney mpoyed fob
Snge Ltgaton.
Compensaton receved by an attorney under appontment as
speca deputy attorney genera to represent the State of New York
n a partcuar case pendng before the mercan- rtsh rbtra
Trbuna s not e empt from edera ncome ta under the prov-
sons of artce 88 of Reguatons 9, reatng to the Revenue ct
of 192 .
2. Certorar Dened.
Petton for certorar dened October 8, 1934.
R NU CT O 192 .
rtce 88: Compensaton of State offcers
and empoyees.
I -3-7259
Ct. D. 910
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287
5213(b), rt. 88
Unted States Crcut Coubt of ppeas foe the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. Chares . Murphy,
respondent.
ppea from the Unted States oard of Ta ppeas.
efore L. and, Swan, and Chase, Crcut udges.
May 21, 1934.
OPINION.
Petton by the Commssoner of Interna Revenue to revew an order deter-
mnng a defcency n the ncome ta of the respondent for the year 102 .
Order reversed.
Swan, Crcut udge: The respondent s an attorney at aw engnged n
genera practce n New York Cty. In the year 192 he receved compensaton
from the State of New York for servces n representng the State n a case
pendng before the mercan- rtsh rbtra Trbuna. e cams that such
compensaton was e empt from edera ncome ta , and the oard of Ta
ppeas so hed. The Commssoner seeks to reverse ths rung.
The prncpes whch must govern our decson are e pounded n Mctcaf f
ddy v. Mtche (2 9 U. S., 514 T. D. 3824, C. . -, 218 ). If the respond-
ent was an offcer or empoyee of the State, hs pay as such was mmune
from edera ta aton but If he was merey empoyed as ega counse n a
speca case, the compensaton pad for hs servces must be ncuded n tn -
abe ncome. (Lucas v. Reed, 281 U. S., C99 Lucas v. ocard, 280 U. S.,
52 .) These prncpes are not dsputed the dspute reates to the appcaton
of them to the facts at bar.
On anuary 8, 1925, the attorney genera of the State of New York sent
the respondent the foowng etter:
You are hereby apponted a speca deputy attorney genera for the purpose
of representng the State of New York n a matters pertanng to the cnm
made by the Government of Great rtan n behaf of certan members of the
Cayuga Naton of Indans n respect to certan aeged rghts of sad Cyuga
Naton of Indans aganst the State of New York now pendng before the
mercan- rtsh rbtra Trbuna and to confer wth the agent of the
Unted States before that trbuna as to the defense and proofs to be advanced
n the answer to the memora fed by the Government of Great rtan n sup-
port of the cam and to arrange wth hm for such further partcpaton n the
arbtra proceedngs whch may be for the nterest of the State of New York
or for the mutua nterest of the Unted States and the State of New York,
and to perform a such other dutes n connecton wth sad matter as may
be proper and approprate for the attorney theren for the State of New York,
and for those purposes ony.
Ths appontment s to take effect anuary 8, 1925.
On anuary 28, 1925, he took an oath of offce as speca deputy attorney
genera, whch was fed wth the secretary of state of New York. Durng
1925 and 192 the respondent, asssted by members of the staff of hs aw
offce, spent a consderabe amount of tme on the Cayuga Indan case. fter
decson of the case by the arbtra trbuna n 192 , he was pad 7,000 by the
State of New York. Ths was but a sma fracton of hs professona earnngs
(urng the years 1925 and 192 .
The respondent contends that he was apponted under secton 1 of the e ecu-
tve aw (L., 1919, ch. 1 5), whch authorzes the attorney genera to appont
such deputes as he may deem necessary and f ther compensaton, wthn
amounts approprated therefor by the egsature whe the Commssoner
contends that the appontment was made under secton 5. whch authorzes
the attorney genera to desgnate and empoy such addtona attorneys or
counse as may be necessary to assst n the transacton of any ega busness
mentoned n secton 2 of ths chapter, and provdes for payment to them
of a reasonabe fee. It seems probabe that the deputes whose appontment
s authorzed by secton 1 are the reguar members of the staff of the attorney
era who succeed n prescrbed order to hs statutory dutes n the event of
death. (See secton 9, pubc offcers aw.) ut however ths may be,
r
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213(b), rt. 88.
288
the present record does not enabe us to determne under whch secton the
attorney genera purported to act. (Cf. Peope e re. Osborne v. oard
of Supervsors, 108 N. Y. pp. Dv., 705.) It does not dscose how or when
the amount of the res ndent s compensaton was f ed, nor whether t wag
pad out of the appropraton referred to n secton 1, or from the source
mentoned n secton 05. The respondent s testmony refers to hs compensaton
as saary, but ths s scarcey sgnfcant. e argues that the amount pad
hm woud not be a reasonabe fee for the work done, but that mpes
there was no agreement n advance, as to whch we know nothng. Nor can
much mportance be attached to hs tte he secured the same desgnaton,
wthout saary, for a cerk n hs own aw offce who was assstng hm n the
case. In Metaf ddy v. Mtche (209 U. S., 514, 520), the tests reed
upon as ndcatng that the engneers, whose status was there nvoved, were
not pubc offcers, were stated as foows:
They took no oath of offce they were free to accept any other concurrent
empoyment none of ther engagements was for work of a permanent or con-
tnuous character Ther dutes were prescrbed by ther contracts
and t does not appear to what e tent, If at a, they were defned or prescrbed
by statute.
The defnton of artce 88, Reguatons 9, s to smar effect n specfyng
that the poston must be one the tenure of whch s contnuous and not
temporary and the dutes of whch are estabshed by aw or reguatons and
not by agreement.
The respondent In the case at bar does not satsfy these tests. It s true
that he took an oath of offce, but ths can scarcey be deemed concusve,
and partcuary where, as here, t does not appear that he was requred by aw
to do so. (See Peope v. no . 231 N. Y. pp. Dv., 490.) e had no pos-
ton of permanent or contnuous tenure, was free to carry on concurrenty
s genera aw practce, and was empoyed for a snge tgaton. s own
offce empoyees asssted hm In the preparaton and presentaton of the case,
|ust as n any ordnary pece of tgaton. We can see no dstncton between
hs empoyment and that of the attorney hed not to be an offcer n Lucas v.
Reed (281 U. S., 99). The respondent does not cam to have been an em-
poyee of the State, and certany s not wthn the defnton of that word n
artce 88 of the reguatons.
or the foregong reasons we thnk the oard erred n e cudng the 7,000
fee from the respondent s ncome. The order s reversed and the cause remanded.
rtce 88: Compensaton of State offcers I -10-735
and empoyees. I. T. 2870
R NU CT O 1921.
I. T. 1 93 (C. . II-, 72), whch hods that the compensaton of
a pubc admnstrator n the State of Mssour s e empt from ed-
era ncome ta , s revoked, n vew of G. C. M. 1411 . (See page 102.)
rtce 88: Compensaton of State offcers I -10-7357
and empoyees. L T. 2871
R NU CT O 1921.
I. T. 2030 (C. . III-, 117), whch hods that the compensaton of
a pubc admnstrator of a county n Montana s e empt from edera
ncome ta , s revoked, n vew of G. C. M. 1411 . (See page 102.)
rtce 88: Compensaton of State offcers and empoyees.
R NU CT O 1020 ND TRIOR R NU CTS.
Compensaton for servces rendered as pubc admnstrator. (See
G. C. M. 1411 , page 102.)

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289
213(b), rt. 88.
rtce 88: Compensaton of State offcers
and empoyees.
I -13-7401
Ct. D. 941
INCOM T R NU CT O 192 D CISION O CODRT.
1. Geoss Income empton Saary of Manages of Munc-
pay Owned Waterworks System.
muncpaty s not e ercsng an essentay governmenta
functon n the ownershp and operaton of a waterworks system
whch suppes water both to the cty and to prvate consumers
(about 40 per cent of the water furnshed beng used by the
cty), and the saary of the manager of the system s not e empt
from edera ncome ta .
2. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 25 ) affrmed.
Unted States Cbcut Court of ppeas, ghth Crcut.
M. S. Denman, ecutor of the state of C. S. Denman, Deceased, pettoner,
v. Commssoner of Interna Revenue, respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Gardner, Woodrough, and an akenbubgh, Crcut udges.
an akenbubgh, Crcut udge, devered the opnon of the court.
Ths s an appea from orders of redetermnaton of the oard of Ta p-
peas, affrmng the rungs of the Commssoner of Interna Revenue, and
decdng that there were defcences n ncome ta es for the years 1925, 192 ,
and 1927. The amounts are not n controversy. Decedent, durng these years,
was empoyed as manager of the waterworks system of the cty of Des Mones,
Iowa, and the ony queston presented s whether hs saary as such manager
s e empt from payment of edera ncome ta . The orgna pettoner, now
deceased, was frst empoyed as genera manager of the Des Mones Water Co.
n 1892, before the cty bought the pant. The purchase was made n 1919,
and decedent was retaned n the same poston by the cty under the board
of waterworks trustees. s saary was 8,000 per annum durng the years n
queston. The Muncpa Des Mones Waterworks was organzed under acts
of the Genera ssemby of the State of Iowa, provdng for a board of water-
works trustees to be apponted by the cty counc, such hoard havng power to
appont the genera manager, treasurer and accountants. Decedent s com-
pensaton was pad by the cty through the board of waterworks trustees. The
muncpa waterworks suppes a the water used by the cty for a purposes,
and by prvate consumers. bout 40 per cent of the water furnshed s used
by the cty. The board was empowered to determne the rates to prvate con-
sumer and to the cty, and the atter was authorzed to evy a ta suffcent to
pay for the water used by t for pubc purposes. ny surpus remanng after
payment of operaton e penses, nterest of the debt of the pant, deprecaton,
and snkng fund for the payment of purchase bonds mght be used for the
mprovement, e tenson and betterment of the waterworks. So far as appears
from the record, decedenfs dutes and servces, and the conduct of the enter-
prse, were substantay the same after the purchnse by the cty as they were
before.
The cam of the pettoner s that an empoyee of a water company owned
and operated by a muncpaty s engaged n the e orcse of an essenta
governmenta functon and that hs saary s e empt from the payment
of edera ncome ta . The queston s not a new one n ths crcut, and
the controng prncpe, now frmy estabshed, s that ony the Instrumen-
tates, means and operatons, whereby the States e ert the governmenta
powers beongng to them, are e empt from ta aton by the Unted States.
In Inos Trust Savngs ank v. Cty of rkansas Cty (7 ., 271,
282) ths court stated the dstncton between the governmenta or pubc, and
October 11, 1934.
OPINION.
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23(b), rt. 88.
290
the propretary or busness, powers of a muncpaty a subdvson of a
State. udge Water . Sanborn, speakng for the court, sad:
cty has two casses of powers the one egsatve, pubc, governmenta,
n the e ercse of whc t s a soveregnty and governs ts peope the other,
propretary, quas prvate, conferred upon t, not for the purpose of governng
Its peope, but for the prvate advantage of the nhabtants of the cty and
of the cty tsef as a ega personaty.
The same prncpe was reterated n Pkes Peak Power Co. v. Cty of
Coorado Smngs (C. C. . 8) (105 .. 1, 10). In Omaha Water Co. v. Cty
of Omaha (147 ., 1), ths court was st more e pct. It hed that:
Muncpa corporatons have two casses of powers, the one governmenta,
n the e ercse of whch ther offcers may not bnd the muncpates beyond
ther terms of offce, the other busness or propretary, n the e ercse of
whch they are governed by the same rues as ndvduas or prvate cor-
poratons.
cty e ercses ts busness or propretary power n purchasng water-
works or contractng for ther constructon or operaton.
In Cty of Wnona v. otzet (C. C. . 8) (1 9 ., 321) the dstncton between
the two casses of powers of muncpates s agan e pressy stated.
In ar v. ycrs (35 . (2d), 32 Ct. D. 14 , C. R. I -1, 247 ), ths court
bad before t ths same muncpaty-owned waterworks system. n attorney,
seekng to be decared an empoyee of the system, camed Immunty from
edera ta aton. It was hed that he was not such an empoyee, but the court
propery had occason and |ursdcton to consder the merts of the contenton
from a anges. We hed that the budng and operaton of a waterworks
system by a muncpaty consttutes the e ercse of a propretary, rather than
a governmenta, functon. In support of ths hodng we cted the decson
of the Supreme Court n nt v. Stone Tracy Co. (220 U. S., 107, 172), that
t s no part of the essenta governmenta functons of a State to provde
means of transportaton, suppy artfca ght, water and the ke. It was
ponted out that these ob|ects are often accompshed through the medum of
prvate corporatons. The means and nstrumentates empoyed n carryng
on the governmenta operatons of a State, whch the cases unte n e emptng
from ta aton, are of a nature such as the estabshment of a |udcary to
admnster |ustce through the courts, and the empoyment of a necessary
agences for egtmate purposes of State government. (Coector v. Day,
11 Wa., 113.) ut n nt v. Stone Traey Co., supra, t was hed that the
rue to be deduced from the prevous cases of the court s that the e empton
of State agences and nstrumentates from nntona ta aton was mted
to those of a strcty governmenta character, and dd not e tend to those used
by the State n carryng on busness of a prvate character.
To ths dstncton the Supreme Court of the Unted States has consstenty
adhered. (South Carona v. Unted States. 199 D. S., 437, 4 1 Metcaf t
ddy v. Mtche, 2 9 U. S.. 514, 523 T. D. 3824. C. . -, 2181 Weuts v.
unn, 282 U. S 210 Ct. D. 280, C. . -, 309 o m Corporaton v.
Doya, 28 U. S.. 123, 128 urnet v. ergns Trust. 288 U. S.. 508. 51 Ct. D.
053, C. . II-1, 214 oard of Trustees v. Unted States, 289 U. S., 48, 59
State, of Oho v. everng, 292 U. S 300, decded May 21, 1934 Ct. D. 83 ,
C. . III-1. 531 .)
It Is true, as stated n Metcaf d ddy v. Mtche, supra, and as quoted n
urnet v. Coronado O d as Co. (285 U. S., 393. 399 Ct. D. 485, C. . I-1,
2 5 ), that:
ust what Instrumentates of ether a State or the edera Government
are e empt from ta aton by the other can not be stated n terms of unversa
appcaton. ut ths court has repeatedy hed that those agences through
whch ether government mmedatey and drecty e ercses Its soveregn
powers, are mmune from the ta ng power of the other.
nd the courts, n ther desre to preserve unburdened the rght of the States
to admnster ther governmenta affars wthn ther own sphere, have e er-
csed e treme cauton n drawng the ne whch separates those actvtes
havng some reaton to government, whch are nevertheess sub|ect to ta aton,
from those whch are Immune. (Metcaf f ddy v. Mtche, supra, 1. c, 23.)
Compare, upon ths pont, South Carona v. ntcd States, supra, and mbrosnt
v. Unted States (187 U. S., 1). ut n substantay a cases, whatever the
decson, care has been taken to restate the prncpe that the mtaton upon
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291
214(a) 1, rt. 101.
the ta ng power of the Government appes ony to such nstrumentates,
means and operatons whereby the States e ert ther strct governmenta
powers, and t s unformy hed that, to entte the State to mmunty, the
edera ta es eved must not be n ther bearng so ndrect or remote ns to
pace them outsde ths estabshed prncpe. (Indan Motocyce Co. v. Unted
States, 283 U. S., 570 rCt. D. 354, C. . -, 439 WUouts v. unn, 282 U. S.,
21 , 225 Trntyfarm Constructon Co. v. Gros|ean, 291 U. S. 4 .) The
queston before us seems to be very we answered by the anguage of Chef
ustce ughes n o m Corporaton v. Doya, supra (1. e., 128) :
The prncpe of the mmunty from State ta aton of nstrumentates of
the edera Government, and of the correspondng mmunty of State nstru-
mentates from edera ta aton essenta to the mantenance of our dua
system has ts nherent mtatons. It s amed at the protecton of the opera-
tons of government (McCuoch v. Maryand, 4 Wheat., 31 , 43 ), and the
mmunty does not e tend to anythng yng outsde or beyond governmenta
functons and ther e erton. (Indan Motocyce Co. v. Unted States, 283
T . S., 570, 57 , 579.) Where the mmunty e sts, t s absoute, restng upon
an entre absence of power ( ohnson v. Maryand, 254 U. S., 51, 55, 5 ),
but t does not e st where no drect burden Is ad upon the governmenta
Instrumentaty, and there s ony a remote, f any, nfuence upon the e ercse
of the functons of government. (Wcuts v. unn, 282 U. S., 21 , 225.)
The danger whch woud menace the revenues of the Unted States f the
mmunty from edera ta aton here camed shoud be nduged, s thus we
stated by ustce rewer n South Carona v. Unted States, supra (1. c, 455) :
Obvousy, f the power of the State s carred to the e tent suggested, and
wth t s reef from a edera ta aton, the Natona Government woud be
argey crpped n ts revenues. Indeed, If n the States shoud concur n
e ercsng ther powers to the fu e tent, t woud be amost mpossbe for the
Naton to coect any revenues. In other words, n ths ndrect way t woud be
wthn the competency of the States to practcay destroy the effcency of the
Natona Government.
ke warnng has been ssued from ths court n State of North Dakota v.
0/ ow (33 . (2d), 848).
Our attenton has been drected to the decson of the Dstrct Court for the
astern Dstrct of Mchgan n rcy v. Woodcorth (2 . (2d), 725), whch
hods that a cty operatng a street raway s engaged n a governmenta
functon, and that the empoyees thereof are not sub|ect to edera ta aton
and to the decson of the Crcut Court of ppeas for the rst Crcut n
Powers v. Commssoner ( 8 . (2d), 34). n e amnaton of the facts stated
n the opnons, and the bases of the concusons reached, suggests that those
cases may be ready dstngushed ron the case at bar. ut f t be n-
ssted that those concusons shoud be deemed appcabe to the facts of the
nstant case, we must respectfuy re|ect them as n confct, not ony wth the
unform hodngs n ths crcut, but aso wth the prncpes estabshed by
the Supreme Court of the Unted States.
It foows that the orders of the oard of Ta ppeas are affrmed.
rtce 89: ddtona e cusons from gross ncome.
R NU CT O 102C.
arned ncome of nonresdent ctzen. (See Ct. D. 924, page 217.)
S CTION 214(a) 1. D DUCTIONS LLOW D INDI-
IDU LS: USIN SS P NS S.
rtce 101: usness e penses. I -9-7343
( so Secton 215, rtce 293.) I. T. 28G7
R NU CT O 1921.
I. T. 1511 (C. . 1-2, 88) s modfed, n vew of G. C. M. 14375
(see page 52).
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5214(a), rt. 101. 292
rtce 101: usness e penses.
R NU CT O 192 ND PRIOR R NU CTS.
Premums pad on fe nsurance by a credtor to whom the pocy
has been assgned to secure a debt. (See G. C. M. 14375, page 52.)
rtce 101: usness e penses. I -20-7497
Ct. D. 9 3
INCOM T R NU CT O 1924 D CISION O SUPR M COURT.
L Deducton ttorney s ee: Ordnary and Necessary us-
ness pense: Guardan and Ward.
n attorney s fee pad by a guardan for conductng tgaton
to secure trust ncome for hs ward s not deductbe from the
ward s gross ncome as a busness e pense wthn the meanng of
secton 214 (a) of the Revenue ct of 1924. The ward, not the
guardan, was the ta payer and the ward was not engaged n any
busness.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, fth Crcut ( 9
ed. (2d), 299), affrmed.
Supreme Court of the Unted States.
Catherne Leweyn an Wart, by Roy Tan Wart, Natura Tutor, pettoner, v.
Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
pr 29, 1935.
OPINION.
Mr. ustce McReynods devered the opnon of the Court.
The soe queston for determnaton s whether an attorney s fee pad by tha
guardan for conductng tgaton to secure ncome for hs ward, was a busness
e pense wthn secton 214(a), Revenue ct, 1924, and therefore deductbe
from the mnor s gross ncome. The facts, as stated by the court beow, were
these
Catherne L. an Wart, a mnor, was the benefcary of a trust created
by the w of her grandfather, enkns ones, deceased. Dr. Roy M. an Wart,
Catherne s father, wth whom she resded n Oreans Parsh, La., after beng
confrmed by order of the dstrct court for that parsh n accordance wth the
aws of Lousana as her natura tutor or guardan, and after duy quafyng
as such, demanded of the trustees under the w that they pay over to hm the
accrued ncome of the trust created n favor of hs ward. The trustees, cam-
ng among other thngs the rght to keep possesson of the accumuatons of
such ncome unt Catherne shoud become of age, when they conceded she
woud be entted to the corpus as we as a accumuated ncome, decned
to compy wth that demand. Thereupon sut was brought n the name of
the mnor, by her father as ne t frend, n the edera court for the dstrct
n West rgna n whch the testator was resdng at the tme of hs death,
aganst the trustees to compe dstrbuton of the ncome nvoved n accord-
ance wth the guardan s prevous demand. That sut fnay was decded n
favor of the pantff, t beng hed that the guardan was entted to receve
from the trustees hs ward s accumuated ncome and future ncome as t
annuay accrued. an Wart v. ones, 295 ., 287.) ccordngy, n 1924
the trustees pad over to Dr. an Wart as guardan the accumuated ncome
of . 100,000 and current Income of 80,000 and Dr. an Wart, actng
as guardan and by authorty of the court of hs appontment, pad out of
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293
214(a), rt. 112.
the funds so receved by m a fee of 30,000 to the attorneys who brought the
sut for ther servces n the tgaton. In the ncome ta return for 1924,
whch was fed by the guardan on behaf of hs ward, a deducton of the
attorneys fee was camed.
Pertnent provsons of the Revenue ct of 1924 are n the margn.1
The oard of Ta ppeas hed the attorney s fee was deductbe as an ord-
nary and necessary e pense n carryng on busness. (Secton 214(a).) The
Commssoner camed t was persona e pense of the mnor ta payer, e cuded
from deducton by secton 215(a) 1, and the court beow uphed ths vew. It
decned to foow Commssoner v. Wurs-Dundas (Crcut Court of ppeas,
Second Crcut, 54 P. (2d), 515). ecause of ths confct the cause s here.
We agree wth the concuson that the ward, not the guardan, was the ta -
payer. The return was fed by hm n her behaf the ta abe ncome was
hers, not hs. The attorney s fee arose out of tgaton conducted n the name
of the ward. It was pad for her beneft out of her ncome.
In reuer v. cverng (291 U. S., 35, 44 Ct. D. 782, C. . III-1, 242 ),
we sad: The whoe of the mnor s ncome receved by hs guardan s ta -
abe to the mnor rrespectve of ts accumuaton n the guardan s hands, ds-
trbuton to the mnor or payment for hs support or educaton.
ther the mnor or hs guardan must make the return, but n ether case
t embraces a the ncome and s the mnor s ndvdua return, not that of the
guardan or the trust.
The ward was not engaged n any busness. So far as appears the same
thng s true of the guardan. (See ornhauser v. Unted States, 27 U. S.,
135 T. D. 4222, C. . II-2, 2 7 Commssoner v. ed, 42 . (2d), 820
utchngs . urnet, 58 . (2d), 514 Waker v. Commssoner, 53 . (2d),
351 Lndey v. Commssoner, 3 . (2d), 807 Ct. D. 724, C. . II-2, 108 .)
Moreover, guardanshp s not recognzed by the statute as a ta abe entty.
The |udgment under revew must be affrmed.
ffrmed.
rtce 112: When charges deductbe. I -12-7385
Ct. D. 938
INCOM T R NU CTS O 1921, 1924, ND 192 D CISION O COURT.
1. Deducton Losses Not Compensated fob by Insurance.
oss of property by fre, not compensated for by nsurance
or otherwse, s deductbe ony n 1921, when the fre occurred,
and s not deductbe partay n 1924, when, as the resut of a
tort acton for damages, a |udgment was obtaned for a porton of
the oss, and the remander n 1925, when the |udgment was
reversed.
2. Decson Reversed.
Decson of the oard of Ta ppeas (28 . T. ., 792) reversed.
3. Certobab Dened.
Petton for certorar dened anuary 7, 1935.
1 Revenue ct of 1924 (ch. 234. 43 Stat., 253) :
Sec. 2. (a) When used n ths ct
(1) The term person means an Indvdua, a trust or estate, a partnershp, or a
corporaton.

(9) The term ta payer means any person sub|ect to a ta Imposed by ths ct.
Sec. 214. (a) In computng net Income there sha be aowed as deductons :
(I) the ordnary and necessary e penses pad or ncurred durng the ta abe
year n carryng on any trade or busness, .
Sec 215. (a) In computng net ncome no deducton sha n any ease be aowed
n respect of
(1) Persona, vng, or famy e penses.
Sec. 225. (a) very fducary (e cept n recever apponted by authorty of aw n
possesson of art ony of the property of nn ndvdua sha make under oath a return
for any of the foowng Indvduas, estates, or trusts for whch he acts, statng
specfcay the tems ot gross ncome thereof and the deductons and credts aowed
under ths tte
(1) verv ndvdua havng a net ncome for the ta abe year of 1,000 or over, If
snge, or f marred and not vng wth husbard or wfe.
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214(a), rt. 112.
294
Unted States Ckcut Court of ppeas fob the Seventh Crcut.
Commssoner of Interna Revenue, pettoner, v. yhway Traer Co.,
respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore .schueu, vans, and Sparks, Crcut udges.
uy 25, 1934.
OPINION.
Sparks, Crcut udge: Ths petton to revew a decson of the oard of
Ta peas presents the very troubesome queston as to the year n wnch
Ihe ta payer shoud be aowed to take a deducton for oss by fre under
the statute whch provdes that deductons sha he aowed for osses sustaned
durng the ta abe year and not compensated for by nsurance or otherwse.
(2 U. S. C. ., secton 98 (4).)
Respondent, a Wsconsn corporaton engaged n the manufacture of traer
and stee dump bodes, suffered a fre n 1921 whch destroyed property to
the vaue of 1 5.7.19 not covered by nsurance. It camed that the greater
part of the oss resuted from the neggence of the anesve ectrc Co.,
whch was under contract to suppy the power needed to operate the water
pumps, n cuttng off the power |ust as the tre department was gettng the
re under contro. In 1921 respondent brought sut aganst the ectrc com-
pany for the entre amount of the oss not covered by nsurance. In the tra
court u demurrer to the compant was sustaned whch rung was. however,
reversed by the Wsconsn Supreme Court n 1922. In the hearng whch
foowed, respondent obtaned a |udgment for S47.703 damages n 1924. It
thereupon wrote off ts books the dfference between the tota unnsured oss
and the amount of damages aowed by the court, and camed the deducton
for the dfference, 118,03 , In ts return for the year 1924. The company,
however, appeaed from the |udgment, and n 1925 t was reversed by the
Supreme Court of Wsconsn, and the acton dsmssed. Respondent thereupon
camed a deducton of the . 47,703 for the year 1925. The Commssoner ds-
aowed both these deductons, hodng that the entre deducton shoud have
been camed for the year 1921 when the fre occurred. On appea to the
oard of Ta ppeas, the ma|orty of the oard sustaned the contenton of
the respondent, hodng that snce the amount of the oss actuay suffered
by the ta payer dd not become f ed unt the outcome of the tgaton over
the oss, t was correct to aow the deducton as of the years In whch the
oss was fnay ascertaned.
There have been many eases before the courts nvovng ths queston, and t
must be admtted that the decsons do not appear aways to be consstent.1
It Is dffcut, therefore, to deduce a rue from whch to decde ths case. The
oard reed upon a number of cases whch aowed the deducton for the
ater year In whch the oss was fnay determned. These ncuded the three
Supreme Court cases, Lucas v. mercan Code Co. (2S0 U. S.. 445 TCt. D. 1 8,
C. . I -1, 314 ), urnet v. uff (2S8 U. S., 15 Ct. D. 40, C. . II-1,
2 0 ), and Lewcyn v. ectrc Reducton Co. (275 U. S., 243). In the Lucas
case the ta payer sought n deducton for 1919 n whch year a abty for a
breach of contract arose, the amount of whch was not setted unt |udgment
was rendered n 1922 whch t pad n 1923. The court hed that a oss occa-
soned by the ta payer s breach of contract s not deductbe n the year of
the breach uness where wthn the ta year there s a defnte admsson of
abty, negotatons for settement are begun, and a reasonabe estmate of
See Dougas County Lght f Water Co. v. Commssoner (43 . (2d). 004) : Centra
Trust Co. v. urnct (45 . (2d), 922) Darng v. Commssoner (40 . (2d), 111)
erguson . Commssoner (51) . (2d), 89:: rst Natona ank of Sharon, Pa., v.
encr (O . (2d). 925) Ledger Co. v. Unted Mates C7 . (2d). 775): Dresser v.
Unted States (55 . (2d), 403 Ct. D. 503, C. . I-1. 2 7 ) Consodated Tea Co. v.
owers (1 ) . (2d). : 82 T. D. 4020, C. . -1, 214 ) : Pke Countg Coa Corporaton
v. Commssoner 4 . T. .. 25): ed urrers Corporaton v. Commssoner (24
. T. .. 457) : Martn eneer Co. v. Commssoner ( . T. ., 207) : Peterson I.nn-
tupn Co. v. Commssoner (10 . T. .. 542) : .uard . R. Green v. Commssoner
(19 . T. .. I04) Lane Constructon Corporaton v. Commssoner (17 . T. .. 82G).
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295
214(a), rt. 112.
the amount of the oss s accrued on the books. In the uff case t was ke-
wse hed that where one partner had to make good the defacaton of another
partner, he was entted to the deducton ony n the year n whc he actuay
pad the money, and not n the year n whch he dscovered the oss. The
court there sad, If there s abty on hs part for the msappropraton,
t does not create a certanty of oss, as the defacaton may be made good by
the one who caused t, or the abty of the ta payer may be enforced ony to
a mted e tent or not at a. The requrement that osses be deducted n the
year n whch they are sustaned cas for a practca test. The oss must
e actua and present. In the Leweyn case, the court refused to aow a
buyer who had pad n advance for certan goods whch n fact were never
devered, to deduct for ts oss n the year n whch the payment was made
where t contnued to carry the tem off ts books n ts bs recevabe account
unt the outcome of tgaton whch ndcated that t woud not be abe to
recover from the seer or a guarantor, whereupon t sought to amend ts return
for the year n whch the prepayment was made and sued to recover an aeged
overpayment of ts ta for that year.
It seems to us that none of the above cases s as neary n pont as another
Supreme Court case whch was not consdered by the oard, and whch we
thnk contros the decson n ths case. We refer to the case of Unted Stars
v. 8. S. Whte Denta Manufaeturug Co. (274 U. S., 398 T. D. 4059, C. .
I-2. 198 ). There the ta payer sued to recover for overpayment of a ta
for the year 191S camng a deducton n the amount of ts nvestment n a
subsdary German corporaton the entre property of whch, vaued at 130,000,
was sezed by the German Government n that year as enemy property. The
property was returned n 1920, and sod n 1922 for 0,000, whch amount was
returned as ncome by the ta payer n that year. Subsequenty a cam for
70,000 was aowed by the M ed Cams Commsson, no part of whch had
been pad. The ta payer had charged off ts entre nvestment n 1918 and
camed ts deducton for that year, payng Its ta under protest when the Com-
mssoner dsaowed the deducton. The court hed that the oss was so ev-
denced by a cosed transacton as to authorze ts deducton from gross ncome
for the year n whch t occurred, sayng:
The statute obvousy does not contempate the deduc-
ton of osses resutng from the mere fuctuaton n vaue of property owned
by the ta payer. ut wth equa certanty they do contempate the
deducton from gross ncome of osses, whch are f ed by dentfabe events,
such as the sae of property or caused by ts destructon or physca
n|ury .

We need not attempt to say what consttutes a cosed transacton evdenc-
ng oss n other stuatons. It s enough to |ustfy the deducton here that the
transacton causng the oss was competed when the sezure was made. It was
none the ess a deductbe oss then, athough ater the German Government
bound tsef to repay and an award was made by the M ed Cams Commsson
whch may resut n a recovery.
It seems to us that the three cases reed upon by the oard, a of whch
were decded after the Whte Denta case, do not overrue t, but merey rep-
resent qute dfferent states of fact. Where, as n the case at bar, an actua
physca oss occurs, resutng n a certan defnte, f ed amount of damage, t
seems better practce to aow the deducton for that entre amount of damage
(not covered by nsurance) n the year n whch the oss actuay occurs, ac-
cordng to the rue n the Whte Denta case, rather than to defer t unt sub-
sequent events ndcate whether or not a recovery s to be had from other par-
tes for a part of the oss. We thnk that ths does not confct wth the rue
of the uff case, supra, that the oss must be actua and present, because
the oss s actua and present as soon as the physca damage occurs, as dstnct
from the stuaton where the oss camed arses from a abty whch may or
may not ever materaze.
The decson s reversed, and the cause remanded to the oard of Ta p-
peas for further proceedngs In harmony wth ths opnon.
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|214(a), rt. 112.
29
rtce 112: When charges deductbe. I -23-7537
a. D.97
INCOM ND PRO ITS T R NU CT O 1918 D CISION O COURT.
Deducton Reserves for reght owances and Cash Ds-
counts ccrua asts stoppe.
ta payer on the accrua bass was aowed a deducton for
1917 on account of a reserve for freght aowances and cash ds-
counts on 1917 saes whch were refected n accounts recevabe
at the end of the year, and a deducton for 1918 for smar aow-
ances and dscounts In the amount actuay aowed to customers
durng that year, ess the dfference between the reserve set up
at the end of 1917 and aowed as a deducton for that year and
the reserve set up at the end of 1918 and aowed as a deducton
for the atter year. The deducton for 1917 havng been made at
the ta payer s request and n accordance wth the reserve set up
on ts books under ts estabshed bass of accountng, the ta -
payer, after the statute of mtaton as e pred for the coecton
of 1917 ta es, s estopped to cam that the accrua method em-
poyed In ts returns and accepted by the Commssoner was erro-
neous and that the amount of dscounts actuay aowed customers
durng 1918 shoud be deducted n Its return for that year.
Court op Cams of the Unted States.
Oant urnture Co., a ody Duy Incorporated Under the Laws of the State
of North Carona, v. The Unted States.
anuary 14, 1935.
OPINION.
Green, udge, devered the opnon of the court.
The pantff seeks to recover the sum of 5, 85.01 wth Interest as refund
of payments made to the defendant for corporaton ncome and profts ta es
for the caendar year 1918.
une 14, 1919, the pantff duy fed Its ncome and profts ta return for
1918 whch showed a net ncome of 1 ,215.18 and that the ta due thereon was
1,987.11. Pantff pad ths ta and ts recovery s not now n controversy.
The Commssoner audted the return and on December 25, 1925, assessed an
addtona ta for 1918 of 10,120.91 whch was pad by the pantff n nsta-
ments from May, 192 , to March, 1927. On pr 28, 1930, the pantff fed a
cam for refund, one of the grounds of whch and the one upon whch the
sut s based was the refusa of the Commssoner to aow ,S99.29 as a de-
ducton from gross ncome for dscounts aowed pantff s customers. Ths
cam for refund was re|ected and the ssue In the case s the amount of
deducton to whch the pantff s entted for the year 1918 on account of
dscounts aowed ts customers.
The net charges for dscount on pantff s books for 1918 were 71,417.35.
Of ths amount, 17,107. 4 was aowed as a deducton for 1917 havng been
set up on pantff s books as a reserve for dscount at the end of that year. If
ths amount was a proper deducton for 1917 t woud eave 54,309.71 as the
proper deducton for 1918 pus such a reserve as was set up at the end of that
year. Ths reserve whch was aowed by the Commssoner was 10,208.35.
The actua deducton aowed by the Commssoner for dscount for 1918 was
the sum of the ast two amounts specfed above, namey, 4,51S.O0 and ths
was the e act amount camed by pantff In ts return. The addtona amount
now camed by pantff, namey, 0,899.29 s the dfference between the reserve
set up at the end of 1917 and aowed as a deducton for that year and the
reserve set up at the end of 1918 and aowed by the Commssoner for that
year. s the amount camed by pantff was aowed as a deducton for
1917 and not aowed for 1918. t Is apparent that the controversy between
the partes s as to the year for whch ths deducton shoud be taken.
s shown n the fndngs, the pantff provded n ts nvoces for certan
dscounts condtoned on payment wthn specfed perods. The bs were
rendered for the fu amount whch was ncuded In the gross saes. When the
customer pad hs b wthn a gven dscount perod and took advantage of
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297
214(a), rt. 112.
the dscount aowabe, the remttance woud be for the net amount of the b.
In some nstances the saes were made wth the understandng that the
pantff woud pay the freght thereon and accordngy n makng payment
the pantff deducted the amount of the freght. The amount of the freght
and dscount was charged on pantff s books to an account entted reght
and dscount and pantff set up an amount each year to take care of possbe
future dscounts or ad|ustments on saes for whch coectons had not been made.
Orgnay ths amount was charged to Proft and oss and credted to
Reserve for dscount. fter 191S the method used was to make a charge
to Reserve for dscount and a credt to reght and dscount. The
pantff now cams that to the e tent of the amount n controversy the ds-
counts made were contngent upon the payment of cash at a specfed tme
and consequenty coud ony be deducted n the year n whch they were actuay
aowed and that the fact that a reserve had been set up upon ts books n
the prevous year to take care of such aowances s mmatera.
The queston upon whch the decson n the nstant case turns has often
been rased, but nether the practce of the ureau, the rungs of the oard
of Ta ppeas, nor the decsons of the courts have been unform, and both
pantff and defendant have no dffcuty n fndng authortes whch support
ther respectve postons. The oard of Ta ppeas seems to have fnay
setted upon the rue that deductons for cash dscounts whch are contngent
n ther nature can be aowed ony for the year n whch they are made. The
defendant rees upon the comparatvey recent case of rgna-Lncon urn-
ture Corporaton v. Commssoner (50 ed. (2d), 1028), In whch the Crcut
Court of ppeas reversed the oard and hed that a ta payer keepng books
on an accrua bass was entted to deduct a reserve propery set up to meet
dscounts antcpated n the future n accordance wth prevous e perence.
ut snce the decson n rom v. evcrng (291 U. 8., 193 Ct. D. 780, C. .
III-1, 2231), the rgna-Lncon case, supra, can not be taken as an author-
ty as t s dsapproved by the Supreme Court In so far as t s nconsstent wth
ts opnon wrtten n rown v. evcrng, supra. In that case the Supreme
Court ad down the genera rue
ut no abty accrues durng the ta abe year on account of cancea-
tons whch t s e pected may occur n future years, snce the events neces-
sary to create the abty do not occur durng the ta abe year. cept as
otherwse specfcay provded by statute, a abty does not accrue as ong
as t remans contngent.
The court, however, approved the Treasury reguaton of anuary 8, 1917
(No. 2433), that
In cases wheren, pursuant to the consstent practce of accountng of the
corporaton corporatons set up and mantan reserves to meet a-
btes, the amount of whch and the date of payment or maturty of whch s
not. defntey determned or determnabe at the tme the abty s ncurred,
t w be permssbe for the corporatons to deduct from ther gross ncome
the amounts credted to such reserves each year, provded that the amounts
deductbe on account of the reserve sha appro mate as neary as can be de-
termned the actua amounts whch e perence has demonstrated woud be
necessary to dscharge the abtes ncurred durng the year and for the pay-
ment of whch addtons to the reserves were made.
When we come to consder ths reguaton n connecton wth the facts n the
Instant case the matter s st eft somewhat n doubt as pantff had set up n
ts reserve what presumaby was the amount whch e perence has demon-
strated woud be necessary to dscharge the abtes ncurred durng the year
and for the payment of whch addtons to the reserves were made. s was
sad n Lucas v. mercan Code Co. (280 U. S., 445 Ct. D. 108, C. . I -1, 314 ) :
The genera requrement that osses be deducted n the year n whch they
are sustaned cas for a practca, not a ega test. nd the drecton that net
ncome be computed accordng to the method of accountng reguary empoyed
by the ta payer s e pressy mted to cases where the Commssoner beeves
that te accounts ceary refect the net ncome. Much attude for dscreton
s thus gven to the admnstratve board charged wth the duty of enforcng
the ct
and t was hed In substance that the nterpretaton of the statute and the prac-
tce adopted by the Revenue ureau shoud not be Interfered wth uness
ceary unawfu. In the Lucas case, supra, the Commssoner dsapproved the
accountng practce used by the ta payer. In rou n v. everng, the method
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214(a)4, 5, 0, rt. 141.
298
of the ta payer was approved. In the ease now before ths court the Comms-
soner approved the accountng method used by the ta payer and the ta payer
now cams that the Commssoner erred. It mght be argued that the Com-
mssoner s act n so dong was not ceary unawfu, but t s not necessary
for us to decde ths pont and we prefer to rest our determnaton of the case
upon another matter.
In ths connecton t shoud be noted that the dscounts nvoved n the n-
stant rase were not a for cash payments. Part of them were for payments
of freght whch coud not be propery hed to be contngent. If pantff
agreed to pay the freght t was abe for t f the customer pad t and In
case of advance payment by pantff n accordance wth the agreement there
was no abty on the part of the customer. In cases where pantff agreed
to p y the freght and dd not, the customer must have pad t on arrva of
the goods and as a matter of course woud deduct t from the b for the
goods shpped.
We thnk that the defendant has another defense ndependent of the ques-
ton whch we have dscussed above. The fndngs show that the addtona
amount now camed by pantff, namey, G,N99.29. s the dfference between
the reserve set up at the end of 1917 and aowed as a deducton for that
year and the reserve set up at the end of 1918 and aowed by the Comms-
soner for 1918. It thus appears that the pantff cams t shoud be aowed
an amount for 1918 whch has aready been aowed for the year 1917. The
aowance for 1917 was made n accordance wth the reserve set up on the
books of the ta payer and n accordance wth the ta payer s return. In other
words, the ta payer requested that ths aowance be made for 1917 and the
request was granted. The ta payer now, after the statute of mtatons has
e pred for coecton of the ta es of 1917, comes nto court and asks that
another aowance based on the same matters be made for 1918. When the
pantff n ts return for 1917 sted the dscounts nvoved heren as a de-
ducton and obtaned a credt thereby, the defendant s offcas had reason
to beeve that t woud not aso cam a credt for the same dscounts n
computng ts ta for 1018.
In the case of Mahonng Investment Co. v. Unted States (78 C. Cs., 231)
we dscussed at some ength the doctrne of equtabe estoppe and quoted
from Dckcrson v. Cogrove (100 U. S., 578, 580), where t s sad:
There s no rue more necessary to enforce good fath than that whch
compes a person to abstan from assertng cams whch he has nduced
others to suppose he woud not rey on.
See aso aumkcag Steam Cotton Co. v. Unted States (7 C. Cs.. 0S7).
We thnk the rue ad down n these cases appes to the case at bar and
that pantff s estopped from camng the deducton or aowance whch |t
seeks to have made and whch woud reduce ts ta es for 1918.
It foows that pantff s petton must be dsmssed and t s so ordered.
S CTION 214(a)4, 5, . D DUCTIONS LLOW D
INDI IDU LS: LOSS S.
rtce 141: Losses. I - -7302
Ct. D. 919
INCOM T R NU CT O 1920 D CISION O COURT.
1. Deducton Loss ountary Payment to Credtors.
member of a partnershp whch compromsed the cams of ts
credtors n 1905 wth money advanced by a thrd party, to whom
the credtors assgned ther cams and the partners gave notes as
securty for the money advanced, s not entted to deduct as a
oss n 1027 the amount of payments e vountary made n that
year to the persons who had been credtors of the partnershp n
1905.
2. Ckrtorar Dened.
Petton for certorar dened October 8, 1934.
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299
214(a)4, 5, , rt. 141.
Unted States Crcut Court of ppeas for the Seventh Crcut.
Thomas . Donneey. Thome Donneey, and eanor Donneey rdman, Co-
secutors of the state of Reuben . Donneey, Deceased, pettoners, v.
Commssoner of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore vans, Sparks, and tzhenry, Crcut udges.
anuary 24, 1934.
opnon.
vans, Crcut udge: Ths appea nvoves the deductbty of an aeged
oss by a vountary payment made by ta payer n 1927 to persons who had been
hs credtors n 1905, and whose cams had been e tngushed n 1905 for sums
ess than the fu amount of the ndebtedness. oth the Commssoner and the
oard of Ta ppeas dsaowed the deducton and assessed a defcency
ta of f S.439.34.
euben . Donneey and one nght were n partnershp n the brokerage
busness n 1900. ankruptcy proceedngs were nsttuted aganst the frm
and the members, whch proceedngs were dsmssed before a dscharge was
ordered, because of the settement of a the nn s debts. One Morrs, an at-
torney, negotated the settement of a cams of the bankrupts credtors for
from 20 cents to 100 cents on the doar. The money used was furnshed by
Mr. Thome, brother-n-aw of Donneey. The credtors e ecuted assgnments
of cams n bank or runnng to Morrs or to Thome or to some one ese.
In addton to the meager assets of the frm, Donneey and hs partner each
gave hs note for 300,000, due n 10 years, to Thorne, as securty for hs
advances. There s no evdence as to whether Donneey s note was pad. In
1927, Donneey, havng become affuent, pad 141,087.82, as prncpa, and
131,850.53, as nterest, to the od credtors of the frm. These sums, totang
273,544.35, consttute the tem n Issue. Ther payment n 1927 consttutes
the bass of a deducton n sad year from the ta payer s ncome.
It s pettoners contenton that Donneey was fufng a mora obgaton
to pay hs od credtors 100 cents on the doar that Thorne merey oaned the
settement money to Donneey so that he mght effect a settement that the
payment of the baance of the prncpa was deductbe under secton 214(a)
(4), ( ), as a oss sustaned n 1927 and that the nterest tem was deductbe
under secton 214(a)2.
The Commssoner denes that ths payment was a deductbe oss, as that
term s used n secton 214(a) of the Revenue ct. e further says that there
was no composton wth credtors of the frm because the cams were sod to
Thorne, and snce the payments n 1927 were gratutous, there shoud be no
aowance for nterest payment.
Secton 214(a) provdes:
In computng net ncome there sha he aowed as deductons:

(4) Losses sustaned durng the ta abe year and not compensated for by
Insurance or otherwse, f ncurred n trade or busness

( ) Losses sustaned durng the ta abe year of property not connected wth
the trade or busness f arsng from fres, storms, shpwreck, or
other casuaty, or from theft, and f not compensated for by nsurance or
otherwse.
Whe confessng to a desre to reward such acton as s here under revew,
we fnd no |ustfcaton for decarng the transacton to be a oss whch mght
be deducted from the ta payer s ncome. The debts of the od frm were
assgned by the credtors to a thrd party. The bankrupts setted the cam
of sad thrd party for moneys advanced by gvng ther notes therefor. There
was no debt from the ta payer to the orgna credtors. The sums whch he
pad them n 1927 were gfts whch, though the egtmate ob|ect of commenda-
ton, can not be converted nto osses by the ta payer.
More |ustfcaton e sts for cang t the payment of a debt than a oss, on
the theory that a debtor occasonay pays an obgaton whch has been egay
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214(a)4, 5, , rt. 141. 300
satsfed by a dscharge n bankruptcy or by the statute of mtatons or by
compromse. We have endeavored, though unsuccessfuy, to evove a theory
u )n whch a deducton mght be predcated. None has been found.
The nstant case Invoves no such consderaton for the payment of the
satsfed obgatons of the ta payer as e sted n the ease of Wech v. ever-
ng. Commssoner, decded November , 1933 ( 290 U. S., I Ct. D. 755, C. .
II-2, 112 ). Nevertheess, the court n that cuse dsaowed the deducton.
The decree s affrmed.
rtce 141: Losses.
R NU CT O 1020.
Gambng osses. (See Ct. D. 924, page 217.)
rtce 141: Losses. I -13-7402
Ct. D. 940
INCOM T R NU CT O 192 D CISION O COURT.
1. Deducton Loss Purchase op Stock.
Where a bank, for the purpose of acqurng and operatng a
branch bank, purchased a the stock and then took over at book
vaue a the assets of another and In the same year receved
from t as a fna qudatng dvdend an amount ess than that
pad for the stock, the events connected wth the purchase were, n
effect, one transacton, and the bank was not entted to deduct
as a oss the dfference between the cost of the stock and the qu-
datng dvdend.
2. Decson Revkrked.
Decson of the oard of Ta ppeas (29 . T. ., 170) reversed.
Unted States Crcut Court of ppeas, ourth Crcut.
Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. Securty
Savngs Commerca ank, respondent.
On petton to revew the decson of the Unted States oard of Ta| ppeas.
efore Parker and Nokthcott, Crcut udges, and Chesnut, Dstrct udge.
October 2, 1934.
OPINION.
Northcott, Crcut udge: Ths s a petton to revew a decson of the Unted
States oard of Ta ppeas (29 . T. ., 170), nvovng edera ncome ta es
for the years 1927 and 1928, n the amount of 4,450.79.
The respondent, herenafter referred to as the bank, s a corporaton, ncor-
porated under the aws of West rgna, and durng the year 1927 was engaged
n the bankng busness n Washngton, D. C. On une 14, 1927, the presdent
of the bank obtaned an opton from the then presdent of the Centra Savngs
ank, a Dstrct of Coumba corporaton, engaged n the bankng busness n
Washngton, for the acquston by purchase of 1,001 of the 2,000 shares of the
capta stock of the Centra Savngs ank at a prce of 140 per share. t a
speca meetng of the board of drectors of the bank, hed une 24, 1927, the
board voted to take over the opton for the bank and took steps to appy to
the Comptroer of the Currency for authorty to estabsh a branch bank at
the pace of busness then used by the Centra Savngs ank and to take over
a the assets and abtes of the Centra Savngs ank for the purpose of
operatng sad branch bank. The bank s vce presdent was authorzed to vote
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301
214(a)4, 5. , rt. 141.
the stock of the Centra Savngs ank for the purpose of qudatng that
bank and canceng ts charter. uthorty to estabsh and operate the branch
bank was granted.
On une 25, 1927, a contract was entered nto between the bank and certan
stockhoders of the Centra Savngs ank for the purchase of 1,701 shares
of the capta stock of the ast named bank at the same prce of 140 per
share. y une 30, 1927, the bank had acqured addtona shares of the stock
of the Centra Savngs ank and on that date owned 1,839 shares of such
stock, for a of whch the prce of 140 per share had been pad. y the
contract of une 25, 1927, t was agreed that before makng fna payment
for the stock, agents of the bank mght nspect the books and records of the
Centra Savngs ank, and such nspecton was made before the purchase
of the stock was competed.
t a meetng of the board of drectors of the Centra Savngs ank hed on
une 30, 1927, the then actng drectors of that bank resgned and were repaced
by nomnees of the bank. The presdent, vce presdent and treasurer of the
Centra Savngs ank aso resgned and the vacances were fed by the eec-
ton of nomnees of the bank. On the same day the Centra Savngs ank,
wth the approva of ts stockhoders, entered nto an agreement wth the bank
by whch the Centra Savngs ank sod and devered to the bank a of ts
notes, edgers and other accounts, choses In acton, bs recevabe,
rea estate and any and a other assets, rea, persona and m ed of every
nature, knd and character whatever , for the sum of 250,00 .07.
The statement of the Centra Savngs ank at the cose of busness on une
30, 1927, the date of the sae, showed that that bank had savngs deposts of
over 000,000. t the tme of the sae ( une 30, 1927), there remaned out-
standng and not owned by the bank 1 1 shares of the capta stock of the
Centra Savngs ank. These shares were acqured by the bank between uy
1 and October 18, 1927, at the same prce as that pad for the other shares,
140 per share. On November 9, 1927, the stockhoders of the Centra Savngs
ank drected the payment of a fna qudatng dvdend of 124.21 on each
of the 2,000 shares of stock or a tota dvdend of 248,420. y ths payment
the Centra Savngs ank dvested tsef of a ts assets and no further dstr-
buton to stockhoders was ever made by It.
Immedatey after the transacton of une 30, 1927, the bank took possesson
of a the assets of the Centra Savngs ank and of ts bankng house and
conducted a branch bankng busness at that ocaton for a perod of 10 months,
after whch the ocaton of the branch bank was moved. On December 28,
1927, n conformty wth resoutons duy adopted by ts board of drectors,
the bank charged to proft and oss, on ts books, the sum of 31,580, the oss
camed to have been sustaned by t through the purchase and qudaton of
2,000 shares of Centra Savngs ank stock.
In computng net ncome for the caendar year 1927 the bank camed as a
deducton the sum of 31,580, representng the dfference between the cost of
the 2,000 shares of the Centra Savngs ank stock, purchased at 140 per
share, and the amount dstrbuted by the Centra Savngs ank as a qudat-
ng dvdend, namey, the sum of 248,420. Ths deducton was dsaowed by
the Commssoner of Interna Revenue, and upon petton of the bank the
oard of Ta ppeas hed aganst the Commssoner.
The soe queston presented here s whether the bank sustaned a deductbe
oss where It bought a of the stock of another bank, took over a the tangbe
and ntangbe assets of that bank at a prce equa to the book vaue of ts stock,
whch prce was ess than the bank pad for the stock of the purchased bank,
when the ob|ect was to obtan the busness of a rva concern wth a arge
amount of deposts and to estabsh a branch bank at the pace of busness of
the purchased bank.
survey of the transacton as a whoe eads us to the concuson that the
course of events connected wth the purchase of the stock and assets of the
Centra Savngs ank were, n effect, one transacton. The record dscoses the
fact that the ony ob|ect the bank had n payng a greater vaue for the stock
of the Centra Savngs ank than It was shown to be worth on the books, was
the acquston of the busness, ncudng the ocaton of the purchased bank
that these ntangbe assets had a vaue to the purchasng bank Is not to be
doubted, ese the transacton n tsef woud have been a foosh one, wthout
e cuse. That the bank thought t was purchasng somethng of vaue n add-
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214(a)4, 5, , rt. 141.
302
ton to the tangbe assets s shown by the fact that t pad 140 per share for
the 1C1 shares of stock t dd not own on une 30, 1927, when t was defntey
known that the qudatng dvdend woud ony amount to 124.21 per share. In
other words, after havng purchased a the assets of the Centra Savngs ank
at a fgure that woud gve to the stockhoders ony 124.21 for a share of stock,
t contnued to pay 140 a share. The sae of the assets was made by ts own
offcers actng as offcers of the Centra Savngs ank and was nothng more
than a formaty that was gone through wth the purpose of carryng out the
pan as orgnay conceved the bank knew that t woud not get back n actua
dvdends the amount pad for the stock but unquestonaby e pected to get vaue
receved for the dfference by the acquston of the busness and ocaton of the
purchased bank and, as t was st n possesson of the busness and ocaton at
the tme the return was made, for the purposes of ta aton, for the year 1927,
there coud have been, at that tme, no defntey ascertaned oss upon the trans-
acton. The vaue of the assets tangbe and ntangbe whch the bank acqured
shoud be treated, for the purposes of ta aton, as equa to the cost of the stock.
(.Prare O Gas Co. v. Matter, ed. (2d), 309 Ct. D. 7 7, C. . III-1,
183 .)
The seres of acts corporate and otherwse eadng up to the purchase of the
stock and of the busness of the Centra Savngs ank consttuted ony a snge
transacton n whch the bank purchased certan assets tangbe and ntangbe
for the prce pad for the stock. The whoe transacton consttuted the means
wth whch to carry out the pan and n the appcaton of ncome ta aws the
substance and not the form shoud contro. (S. . Mac ueen Co. v. Comms-
soner, 7 . (2d), 857 Ct. D. 830, C. . III-1, 2 Prare O Gas Co. v.
Matter, supra Tusa Trbune Co. v. Commssoner, 58 . (2d), 937 West
Te as Refnng d Deveopment Co. v. Commssoner, 8 . (2d), 77.)
It s uot necessary to cte authorty to the effect that ntangbe assets, whe
not usuay carred on the books of banks, can be of great vaue and t s a
recognzed fact that the good w of a gong concern has a defnte vaue how-
ever dffcut t may be to accuratey estmate that vaue.
The bank purchased the stock at a certan f ed prce knowng a the cr-
cumstances connected wth ts vaue and t s setted that the far sae of
stock s the best evdence of ts market vaue. (Standard O Co. v. Southern
Pacfc Co., 2 8 U. S., 14 Muscr v. Magone, 155 U. S., 240 Tabor Manufactur-
ng Co. v. Commssoner, 34 . (2d), 140.) Moreover, after the absorpton
of the purchased bank the bank had everythng that t had before and t had
ost nothng because of the purchase made of the assets of the Centra
Savngs ank. Paper transactons of ths knd do not of themseves prove a
oss. ( pha Portand Cement Co. v. Unted States, 2 1 ed., 339 Guf O
Corporaton v. Lccoyn, 248 U. S., 71.)
Respondent rees upon the decson of ths court n the case of urnet v.
Rggs Natona ank (57 ed. (2d), 980), but that case s easy dstngush-
abe from the nstant case. In the Rggs Natona ank case, that bank, at the
soctaton of the Comptroer of the Currency for a commendabe purpose,
took over the assets and busness of the amton Savngs ank. The transac-
ton was not entered nto wth any hope of gan by the acquston of the
amton Savngs ank but was done soey to avod a dsorganzaton of
the bankng busness n the Dstrct of Coumba. The Rggs ank conducted
the busness of the purchased bank at a oss and we propery hed that such
a oss as was shown to have been ncurred n the transactons was a deduct-
be oss under the ncome ta aws. ere no such condton e sted the
bank purchased the Centra Savngs ank stock wth the hope and e pecta-
ton of makng a proft by the transacton and so far as the facts dscosed
by the record go, no oss has been shown. Whe t s true, as we sad n the
Rggs Natona ank case, that separate corporate enttes are not to be
entrey gnored n consderng questons of ta aton, where, as here, the
soe of the assets was made between two banks wth dentca offcers and
practcay dentca stockhoders, separate corporate enttes become so merged
that the ne of demarcaton s scarcey vsbe.
The oss camed was not proven and the acton of the Commssoner n
determnng a defcency n the ncome ta aganst the bank was correct. The
decson of the Unted States oard of Ta ppeas s accordngy reversed.
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303
214(a)9, rt. 204.
S CTION 214 (a) 9. D DUCTIONS LLOW D
INDI IDU LS: D PL TION.
rtce 204: mount returnabe through depe- I -1-7230
ton and deprecaton deductons n the case of Ct. D. 904
essor.
( so Secton 204, rtce 1 02.)
INCOM T R NU CT OP 192 D CISION O SUPR M COURT.
L Deducton Depeton dvance Royaty or onus.
In computng net ncome under the Revenue ct of 192 essors
are entted to deduct from advance royates or bonuses receved
upon e ecuton of o and gas eases the statutory percentage
aowance for depeton under sectons 214(a)9 and 201(c)2 of
that ct, even though there was no producton of o when the
eases were made or at any tme wthn the ta abe year.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, fth Crcut (70
ed. (2d), 785), affrmng memorandum opnon of the oard of
Ta ppeas (28 . T. ., 1349), reversed.
Supreme Court of tub Unted States.
No. 17 . Wam . errng, pettoner, v. Commssoner of Interna Revenue.
No. 177. n Day errng, pettoner, v. Commssoner of Interna Revenue.
On wrts of certorar to the Unted Staes Crcut Court of ppeas for the fth Crcut.
December 3, 1934.
OPINION.
Mr. ustce Roberts devered the opnon of the Court
The pettoners are husband and wfe and the ncome whch gves rse to
ths controversy s derved from communty property. We are to determne
whether n computng net ncome under the Revenue ct of 192 they were
entted to deduct from advance royaty or bonus receved upon the e ecuton
of o and gas eases the statutory percentage aowance for depeton, t ap-
pearng that there was no producton when the eases were made, or at any
tme wthn the ta abe year.
The pettoners communty estate hed a haf nterest n a partnershp
whose prncpa busness was catte rasng. The frm owned a tract near
maro, Te . In 192 t eased portons of ths and for the purpose of
mnng and operatng for o and gas. In that year the essees pad :n
aggregate of 83,793.75 as advance royates or bonuses, and were obgated
to pay addtona royates of one-eghth of the product or ts vaue as o and
gas were e tracted. The eases were for terms of fve years and so ong
thereafter as o and gas shoud be produced. When the nstruments were
e ecuted there was no o we wthn 3 mes of the demsed and. The
essors had no rght to compe the drng of wes and none were put down
durng 192 . In 1930 four were dred whch proved to be commerca gas
wes, a made a showng of o, and one produced from 8 to 10 barres a day.
In ther ta returns for 192 the pettoners each camed a pro rata share
of a depeton aowance of 188,043.28, beng 27 per cent of the bonus pay-
ments to the partnershp. The Commssoner dsaowed the cam. The
oard of Ta ppeas sustaned hs decson. The Crcut Court of ppeas
affrmed the oard s acton. We granted certorar.
The pertnent sectons of the Revenue ct of 192 are 214(a)9 grantng
a reasonabe deducton for depeton n the case of o and gas wes, and
204(c)2 permttng computaton of the aowance at 27 per centum of the
gross ncome from the property.
1 70 . (2d), 785.
2 3 C. S.. 541.
44 Stat., 9. 14, 2 -27 U. S. C. pp., Tte 2 , sectons 935, 955.
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214(a)9, rt. 204.
304
bonus s not proceeds from the sae of property, but payment n advance
for o and ps to be e tracted, and s therefore ta abe ncome. s such t s
a part of the gross ncome from the property as the phrase s used n secton
204(c)2 to desgnate te base for the appcaton of the percentage deducton.
rom these premses the pettoners argue that the bonus receved does not ose
ts character as ncome sub|ect to depeton, merey because t happens that n
the year of recept there was no producton of the depetabe asset.
The respondent repes that the aowance for depeton s a matter of grace,
not of rght, and that the ct fas to grant any aowance on ncome such as
that here nvoved. The argument s that n both the reevant sectons of the
ct, the statute says n the case of o and gas wes and ths
e presson necessary e cudes a case where no we e sts. In support of ths
asserted statutory e cuson t s urged that a depeton aowance s essentay
and e cusvey rembursement for wastage or e hauston of assets, and Con-
gress coud not have meant to permt an aowance n any year n whch there
was no e tracton of o or gas, and no practca assurance of producton n Ihe
future. We thnk these arguments can not prevn to defeat the pettoners
rght to the deducton.
ach of the Revenue cts, 191 to 1934, ncusve, has granted as a deducton
from gross ncome a reasonabe aowance for depeton n the case of
o and gas wes. The reguatons under the 192 ct and ts predecessors
deang wth cost depeton treated bonus or advanced royaty as sub|ect to
depeton, and these have been approved by reenactment of the statutory pro-
vson wthout ateraton. That under the aw and the reguatons a essor s
entted to a depeton aowance on bonus payments s setted by the decsons
of ths court.7 It has never been hed here that the e stence of a we cond-
toned the rght to depeton. Nor, unt recenty, has the Treasury so rued.
fter the decson of the Murphy O Co. case, supra, there arose a doubt as to
how the fat percentage aowance frst permtted by the ct of 192 shoud be
apped to bonus payments. In answer to a request, the Genera Counse of the
ureau of Interna Revenue rendered an opnon n whch he sad:
The four stuatons to whch attenton s caed are as foows:
(1) No o beng produced when the bonus was receved, but future produc-
ton practcay assured because of near-by wes and geoogca ndcatons.
(2) No o beng produced when the bonus was receved, but property
became productve wthn the ta abe year.
(3) No o beng produced when the bonus was receved, and not more than
a specuatve prospect of future o producton at that tme, but property s now
known to have become productve after the ta abe year.
(4) Property has never become productve.
and hed that depeton shoud be aowed n stuatons (1) and (2) and dened
n stuatons (3) and (4).
In the present case the oard of Ta ppeas foowed an earer decson n
whch t bad referred to portons of the Genera Counse s opnon wth dsap-
prova, but found t unnecessary to decde whether t was sound In that case
no we had been dred on the eased property wthn the ta abe year n
whch the bonus was pad, and the oard, sayng that depeton coud not be
aowed e cept as an ncdent of actua producton, refused the camed per-
centage deducton. In a ater case10 where t appeared the whoe of the pet-
toner s and was proved o and gas terrtory and a gas we had been dred
n a pror year and shut n for ack of ppe-ne factes, so that there was
no actua producton durng the ta abe year n whch the bonus was receved,
the oard overrued the ta payer s cam for depeton, adherng to ts poston
that producton durng the year was prerequste to any aowance and refusng
to foow Genera Counse s opnon.
The stuaton presented by the admnstratve rungs s ths: bonus s not
a recept from a sae of a capta asset and may not be returned as such t s
urnet v. arme (287 U. S., 103 ret. D. 11, C. . I-2, 2101) Murphy O Co. v.
urnet (., 299 Ct. D. 19, C. . II-1, 231 ) ankers Coa Co. v. urnet (d.. 30S).
5 S -e I nte Mate v. Dakota Montana O Co. (2 S U. S.. 459) ctvcrng v. Twn e
O syndcate. No. 170, October term. 19: ,4, decded ths day e. venue ct 1932, secton
23(1) (-17 Stat., 1 9. 181) Revenue ct 1934. secton 23(m) Sesson Laws, Part I.
80, 89.
Murphy O Co. v. urnet (287 U. S.. 299, 303).
7 urnet v. arme, supra Murphy O Co. . urnet, supra Pamer v. ender (287
T . S.. 551 Ct. ). 41, C. . II-1. 235 ).
G. C. M. 11384 (C. . II-1. 4).
Wde v. Commssoner (27 . T. ., 12 4). See aso Umeted v. Commssoner (28
. T. ., 17 . affrmed. 72 h (2d), 328).
10Snecd v. Commssoner (30 . T. ., 1121).
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305
214(a)9, rt. 223.
ncome n the year receved f any depeton s to be aowed aganst the
recept, the aowance must be camed for the year of recept t can not bo
aowed n any ater year f the ta payer computes depeton upon the bass
of cost or March 1, 1913, vaue he may deduct depeton from a bonus payment,
rrespectve of the snkng of a we or the producton of any o or gas f,
however, he eects to ava hmsef of the aternatve method of computng
deducton at a per cent of gross ncome, thoush the nature of the deducton s
unchanged, he may not have any uness there be producton wthn the ta abe
year f the producton be but trfng he may take a fu percentage deducton
upon the entre bonus, however dsproportonate the aowance to the actua
e tracton of o durng the year. To condton the aowance on actua produc-
ton, however sma, or the mmnent probabty of producton, and to dea n
refnements as to the degree of probabty of future producton s n many cases
to deny any deducton where the ta payer eects to compute t under 204(c)2
(fat percentage of gross ncome from the property) and permt t where he
eects to compute t under 204(c) (on the bass of cost). ut the nature and
the purpose of the aowance s the same n both cases, and we fnd nether
statutory authorty nor ogca |ustfcaton for wthhodng t n the one and
grantng t n the other much ess for makng the decson turn upon the
crcumstance that no producton s obtaned wthn the year n whch the bonus
Is pad.
s to ncome ta abty n the year of termnaton of the ease, on account
of bonus pad at the e ecuton of the ease, f no mnera has then been
e tracted, we e press no opnon.
The |udgments are reversed.
rtce 21 : Depeton d|ustments of accounts based on
bonus or advanced royaty.
R NU CT O 192G.
Restoraton of bonus depeton deducton on percentage of ncome
bass to ncome at termnaton of ease n case of no producton from
eased premses. (See G. C. M. 14448, page 98.)
rtce 221: Depeton n the case of o and gas wes.
R NU CT O 102 .
Whether percentage depeton shoud be computed on gross ncome
from each separate tract rather than aggregate gross ncome from
a. ttempt to change from method of captazng drng and
deveopment e penses to deductng such e pendtures as busness
e penses. (See Ct. D. 925, page 17 .)
rtce 223: Charges to capta and to e pense I -22-7523
n the case of o and gas wes. Ct. D. 971
( so Secton 1113, rtce 1351.)
INCOM T R NT CTS O 1918 ND 1021 R IS D ST TUT S-
D CISION O COURT
1. Deducton Depeton Casng-head Gas Contracts.
Certan ndvduas entered nto contracts, whch cost nothng,
wth o producng companes to purchase ther casng-uead gas,
and began constructon of a pant to e tract the gasone. It was
then decded to ncorporate, and the partay constructed pant,
the contracts, some money, and some accounts recevabe were
turned over to the corporaton for ts nonpar stock. Under the cr-
Compare urnet v. Thompson O Oas Co. (283 U. S., 301, 30 ).
s See the reguatons cted In Murphy O 0 Oas Co. v. urnet, supra, at page 303.
u Dakota-Montana O Co. v. Unted States, supra, at page 4 7.
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214(a)9, rt. 223.
30
cumstances of the case, the corporaton s not entted to a deduc-
ton for depeton, snce the contracts dd not vest n t any nterest
n the gas reserves or n the gas n pace, and snce the evdence
s nsuffcent to show that the contracts had any cost or far mar-
ket vaue at the tme they were acqured by the corporaton.
2. Sut Statute of Lmtaton.
Sut to recover payments of ncome ta s not barred, under the
provsons of secton 322 , Revsed Statutes, f brought wthn fve
years after payment of the ta athough more than two years after
dena of a tmey cam for refund.
Unhd States Dstrct Court for tub Northern Dstrct of Okahoma.
. I . urey, Recever of urey Gasone Co., a Corporaton, pantff, v.
Unted States of merca, defendant.
cton at aw to recover ncome ta for the years 1920, 1921, and 1922. udgment
for defendant.
anuary 14, 1935.
OPINION.
McDermott, Crcut udge: Ths s an acton1 at aw to recover 1 ,527.42
ncome ta es for the years 1920, 1921, and 1922. In the orgna returns for
those years the pantff took certan deductons for depeton, whch the Com-
mssoner dsaowed upon an audt, and assessed a correspondng defcency.
The ta as assessed was pad n nstaments, the ast two nstaments beng
pad on pr , 1929, In the amount of 5,383.27, and on pr 10, 1929, n the
amount of 1,040.89. Whereupon a seasonabe cam for refund was made, and
seasonaby dened, and ths sut foows.
y an amended answer, and aso by an ob|ecton to the ntroducton of any
evdence, the defendant rases the queston of the statute of mtatons.
The appcabe statute (R. S., 3220, 2 U. S. C. ., secton 150) provdes that
no such sut or proceedng sha be begun after the e praton of
fve years from the date of payment of such ta , penaty, or sum, uness such
sut or proceedng s begun wthn two years after the dsaowance of the part
of such cam to whch sut or proceedng reates. The pantff concedes that
ths statute bars recovery e cept for the two payments made n 1929, whch
were made wthn fve years from the date the sut was fed. The Government
contends that the sut must be brought not ony wthn fve years from the date
of the payment of the ta , but aso wthn two years after the cam for refund
s dened. The statute docs not so read. The statute gves fve years after the
payment of the ta for the brngng of such suts as these n any case, and
further provdes that suts may be brought after the e praton of the 5-year
perod, f wthn two years from the dsaowance of the cam. I concude,
therefore, that the statute of mtatons s no bar to a recovery of the sums
pad n 1929, whch was wthn fve years of the date of the fng of ths sut on
October 5, 1933.
The facts are not serousy n dspute. One . W. urey came to Oka-
homa from Caforna n 1919 wth the dea of makng some contracts for the
purchase of casng-head gas, and the constructon of a casng-head gasone
pant for the purpose of recoverng the gasone from the gns. e spent
severa months tme n ookng over the fed, and n negotatng contracts
for such casng-head gas. Later on hs brother, who was n the casng-head
gasone busness, came on from Caforna, and hs brother spent some tme
n a smar nvestgaton. fter an nvestgaton of the fed, and tests of
the casng-head gas avaabe, both for quaty and amount, s contracts were
acqured from arge o producng companes, by the genera terms of whch
urey agreed to take ther casng-bead gas, transport t to a casng-head
gasone pant, there recover the casng-head gasone, and return the dry
or resdue gas to the ease for the use of the o essee. In the manufacture
of casng-head gasone arge compressors are constructed at the gasone pant,
whch are connected wth the mouth of the o we, whch serve the doube
purpose of transportng the gas from the wes to the gasone pant, and of
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214(a)9, rt. 223.
ncreasng the producton of o and casng-head gas by the vacuum method.
Where the o we producng the casng-head gas was ocated at a consderabe
dstance from the centra compressng pant, t was necessary to set up a
booster staton, wth compresson power, to transport the gas.
fter these contracts were negotated, but before a of them were e ecuted,
Mr. urey and hs brother nterested others, and among them cash to the
amount of 93,000 was rased for the purpose of constructng a casng-head
gasone pant and ayng the necessary nes to and from the wes. efore
the pant was competey constructed and a of the contracts e ecuted, and
n uy, 1920, t was decded to ncorporate, and the partay constructed
pant, wth the gas contracts, and some money eft n the hands of the asso-
cates, was turned over to the new corporaton, and stock was ssued to the
assocates representng ther prevous nterests.
Nether Mr. urey, nor hs assocates, pad anythng to the o companes
wth whom they made these contracts for casng head gas. The corporaton
ssued 7,500 shares of nonpar stock to the assocates for the pant, the money
turned over, and the contracts. Stock was not ssued for the contracts as a,
separate transacton. The pant, the contracts, some money, and some bs
recevabe were turned over for the 7,500 shares of stock. The evdence does
not show the vaue of the tme, or the e pense nvoved, n negotatng the
contracts.
The determnaton by the Commssoner that the corporaton was not entted
to any deducton for depeton s prma face correct, and the burden s
upon pantff to overcome hs fndng. The statute n force durng the ta abe
years n queston s secton 234(a)9 of the Revenue ct of 1921, and the
correspondng provson n the 1918 ct. It reads as foows:
(a) That n computng the net ncome of a corporaton sub|ect to the ta
mposed by secton 230 there sha be aowed as deductons:
(9) In the case of mnes, o and gas wes, other natura deposts, and
tmber, a reasonabe aowance for depeton and for deprecaton of mprove-
ments, accordng to the pecuar condtons n each case, based upon cost ncud-
ng cost of deveopment not otherwse deducted.
There s no queston here nvoved as to an aowance for the deprecaton
of the casng-head gasone pant. The soe queston nvoved s whether the
pantff s entted to a deducton for depeton of the gas reserves from whch
the o companes had agreed to se t gas. ny aowance for depeton s a
matter o grace, and uness Congress has provded for depeton, there can be
no deducton therefor. (Darby-Lyndc Co. v. Commssoner (C. C. . 10), 51
. (2d), 32.) In order to come wthn the quoted secton the pantff s busness
must fa wthn the category of mnes, o and gas wes. The pantff was
operatng a pant desgned to e tract gasone from gas t was not operatng
a mne, nor an o or gas we. It s true that, as ncdenta to the transporta-
ton of the gas from the we to the casng-head pant, the compressor served
to ncrease the producton of o and gas from the we owned by the o essees,
but n no other sense can t be sad that the pantff was operatng a gas
we t dd not own a gas we t had no nterests n the ease, nor n tha
gas reserves, save and e cept that f the gas reserves became e hausted t woud
be necessary for t to fnd another gas suppy, f t was to operate ts pant.
It seems to me that ths stuaton s cosey anaogous to that of an o refnery,
whch s constructed for the purpose of refnng crude o. It buys the crude
o fn.m others, but the ordnary refnery coud hardy cam a rght to de-
peton because the feds from whch t was purchasng ts o were beng
e hausted, and thus n an ndrect way |eopardzng ts nvestment n the
refnery. y the same token, t seems to me, the pantff, as the operator
of the casng-head gas pant, s not entted to a depeton because of the
e hauston of gas reserves whch beong to another.
In determnng who s entted to depeton, the courts do not concern them-
seves wth ncetes of ega tte, but brng wthn the statute those who
have any nterest n the mneras n pace that s, a rght to share In the
mneras produced and an economc nterest n the mneras n pace. (Pa-
mer v. ender, 287 T . S., 551 Ct. D. 41, C. . II-1, 235 Reynods, Co., v.
Cooper (C. C. . 10), 4 . (2d), 44, affrmed, 291 U. S., 192 Ct. D. 785, 0. .
III-1, 250 .) In these cases, the ta payer had an nterest n the mneras
n pace as essor, essee, or the assgnee of some nterest n the ease, and
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214(a)9, rt. 223.
308
the court was partcuar twce to mt ts hodng to o In pace. One who
buys the o at the mouth of the we owns the o, but has no nterest n t
n pace. ppe ne carrer, a refner, has an economc nterest n the fe
of the feds they serve, n that ther nvestment becomes |unk when the feds
pay out. ut no case has been found where a ppe ne company or an o
refnery has been aowed a credt for depeton of the feds from whch they
buy ther o. So here the ta payer buys gas as It s produced he has no
nterest n the gas n pace. It may aso be ponted out that any aowance
for depeton to a manufacturer must ether be deducted from the aowance
to the essor or the essee, or the depeton w run more than 100 per cent.
I do not beeve the statute contempates any such aowance.
owever, the Commssoner rued otherwse durng the years In controversy.
rtce 223 of the appcabe reguatons (45 and 02) reads In part:
Casng-head gas contracts have been construed to be tangbe
assets and ther cost may be added to the capta account returnabe through
depeton, foowng the rate set by the o wes from whch the gas s derved,
or, f the fe of the contract s shorter than the reasonabe e pectaton of the
fe of the wes furnshng the gas, the capta nvested n the contract may be
wrtten off through yeary aowances equtaby dstrbuted over the fe of
the contract.
Ths reguaton was dropped n 1920. Counse rees upon Sgna Gasone
Corporaton v. Commssoner (C. C. . 9) ( . (2d), 88 ), whch may be
dstngushed on the facts, snce In that case the ta payer pumped gas after
the wes ceased producng o, a condton not here present. ere, the vacuum
pressure whch ncreased recovery was ncdenta to the transportaton of the
gas. The soe authorty for ths decson s Pamer v. ender, but the court
overooked entrey the quafyng words n pace twce used n that opnon.
Some eary decsons of the oard of Ta ppeas are cted, but the oard
ater decded to the contrary, as dscosed by the Sgna case, supra. Two
other cases cted, Pugh v. Commssoner (C. C. . 5) (49 P. (2d), 7 ) and
e ander v. Contnenta Petroeum Co. (C. C. . 10) (G3 . (2d), 927), have
no bearng, for each nvoves an nterest n mneras In pace.
If necessary, I woud be strongy ncned to hod that the Commssoner
has no power to aow depeton to manufacturng pants where Congress
mted t to mnes, o and gas wes, for by so dong, he must take depeton
from the owner of the mneras n pace and gve t to a manufacturer, or aow
more than 100 per cent of the reserves to be recovered through depeton.
ut t s not necessary to hod the reguaton nvad, for the unsatsfactory
proof of costs of the contracts whch was the bass of depeton under these
statutes s not suffcent to overturn the fndng of the Commssoner. In a
case nvovng the queston of whether reserve stee was a part of current
nventory or of pant equpment, the Supreme Court hed that the Court of
ppeas coud not overturn the Commssoner s fndng e cept upon cear and
cogent proof, sayng n concuson:
The company s ease fas far short of meetng the heavy burden of provng
that the Commssoner s acton was pany arbtrary. (Lucas v. Structura
Stee Co., 2S1 U. S., 2 4, 271.)
It w serve no usefu purpose to deta the evdence. fter hearng the
wtnesses, I concuded that the o companes seng the gas had made a good
bargan, as had the pantff that pantff had not, by superor powers of
negotaton, taked the abe managers of these great o companes out of con-
tracts of great vaue wthout any consderaton. It s true that one o ease
woud not |ustfy the constructon of a casng-head gas pant or an o re-
fnery, but that contracts from many eases woud. ut that does not gve
to contracts to buy o or gas a arge cash vaue. One e pert for pantff
testfed that the contracts were worth from nothng to 100 a gaon of day
capacty ess the cost of the pant, whch amounts to no evdence. nother
e pert had not even read the contracts. nother but up a vaue based on
estmates of reserves mutped by an estmated vaue of natura gasone-
found ater to be erroneous ess an estmated cost of manufacture, dscounted
by 50 per cent as a margn of safety. If ths prophecy had been haf-way
correct, pantff woud not be n the hands of a recever. Such wzardry wth
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309
214(a)9, rt. 223.
fgures Is of vaue n a stock-seng campagn, but s too hypothetca to sup-
port court decrees. In Unted Gas Co. v. R. R. Commsson (278 U. S., 300,
317), such con|ectures as to the vaue of gas reserves were re|ected, and cost
was taken as vaue nstead. See, aso, Wchta Gas Co. v. Pubc Servce
Commsson (2 P. Supp., 792). The ony satsfactory evdence here of the
vaue of these contracts s ther cost, whch was nothng. I therefore fnd
the fact to be that these contracts had no far market vaue when the corpora-
ton acqured them.
If the ta payer were the assocates who ncorporated, t woud he apparent
that no depeton woud be aowabe. The argument s that snce they n-
corporated, ther corporaton pad a prce for the contracts, to wt, ts stock.
If the Standard O Co. ssues stock wth a market vaue for property, t has
pad an ascertanabe prce. nd there are occasons, such as notced n
O cara v. Commssoner (C. C. . 10) (34 . (2d), 390) and Champn v.
Commssoner (C. C. . 10) (71 . (2d), 23), where the vaue of the prop-
erty transferred may be resorted to n order to f the vaue of the stock.
ut here nether the stock nor the property transferred had a market vaue.
Nor does ths record dscose how much stock was ssued for these contracts.
the record dscoses s that 7,500 shares of stock were ssued for the
pant, contracts, accounts recevabe, and money. Pautff undertakes to
cover ths gap by provng that an estabshed casng-head gas pant, as a
gong concern, has a market vaue of somewhere between 50 and 100 a
gaon of day capacty from that vaue the pantff then subtracts the cost
of the pant, the vaue of the bs recevabe, and the cash, and says that
the baance represents the cost to te corporaton of these contracts.
ut there s no need of such roundabout methods of arrvng at the vaue of
contracts acqured practcay contemporaneousy wth the transfer to the
corporaton. Cost n the market, arrved at by negotaton between abe bus-
ness men famar wth vaues and not compeed to buy or se, s e ceent
evdence of vaue. That cost was nothng e cept the tme spent n negotatng
them.
The truth about ths case, as I get t, s ths: The contracts negotated by
pantff wth the capabe busness men representng the o companes, retaned
to the o companes such a arge royaty, and put upon pantff such burden-
some condtons of operaton, that the contracts when made were far to both
partes, but were worth |ust what they cost, and that s nothng. If a refnery
entered nto contracts to buy crude o from eases ad|onng the refnery at
the prevang market prce of crude o, the contracts have a vaue n the
sense that they enabe the refnery to run, but t coud not fary be sad that
the contracts had a far market vaue.
In any event the evdence s not at a of that character or probatve force
whch woud |ustfy the court n overturnng the deberate |udgment of the
Commssoner on ths queston of fact.
There s st another reason whch to my mnd bars recovery. Secton
203(b)4 of the Revenue ct of 1924 provded that where a group of persona
ncorporated ther hodngs, no ta abe gan sha arse from the transacton,
and under that ct ceary there woud be no cost to the corporaton arsng
from such a transacton. (Darby-Lyn c Co. v. Commssoner (C. C. . 10),
51 . (2d), 32.) That secton of the 1924 ct does not appear n the earer
cts. owever, n O Meara v. Commssoner, supra, our court hed there was
no ta abe gan under the 1921 ct where a group of assocates ncorporated
ther nterests In property. The O Meara ease paraes ths one on ts facts.
group of assocates ncorporated for convenence. There s no proof here,
as there was none n the O Meara case, of any market vaue of the stock
when ssued. The vaue of the propertes transferred In both nstances was
specuatve.
Our Court of ppeas hed, n both the O Meara and the Champn cases,
that the ncorporaton gave rse to no ta abe gan. Ceary In ths case, too,
no ta abe gan arose, and t s not Intmated that any ta abe gan was re-
turned by the assocates. It seems to me to be essentay far to hod that
no ta abe deducton can arse from a transacton whch can gve rse to no
ta abe gan.
udgment w be entered for defendant for costs.
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218, rt. 33 .
310
S CTION 215. IT MS OT D DUCTI L .
rtce 292: Capta e pendtures.
R NU CT O 192 .
Payments by corporaton to fe benefcary of former owner of
rea estate. (See Ct. D. 978, page 178.)
rtce 293: Premums on busness nsurance.
Modfcaton of I. T. 1511 (C. . 1-2, 88). (See I. T. 28 7,
page 291.)
ST T T INCOM T R NU CT O 1918 D CISION O SUPR M
COURT.
1. Income Gross state Partnershp Profts Pad fter
Death Partnershp greement.
The decedent, who ded ebruary 13, 1 )20, was a member of a
persona servce partnershp, the partnershp agreement provdng
that n the event of the death of any partner the survvors shoud
be at berty to contnue the busness for one year after such
death, and, f contnued, the estate of the deceased partner shoud
partcpate n profts or osses to the same e tent as the de-
ceased partner woud, f vng or, the estate shoud have the
opton of wthdrawng the deceased partner s nterest wthn 30
days after probate of the w, a ad|ustments of profts or osses
to be made as of the date of such wthdrawa. The survvng
partners eected to contnue the busness unt December 31, 1920,
and the e ecutor dd not e ercse hs opton to wthdraw. Under
these crcumstances, the profts resutng from the new reaton-
shp between the e ecutor and the survvng partners durng the
perod from ebruary 13, 1920, to December 31, 1920. consttuted
ncome to the estate, but formed no part of the decedent s gross
estate for edera estate ta purposes.
2. Sut Income Ta Recoupment of state Ta Statute of
Lm tatons.
The e ecutor of the w of a deceased member of a partnershp
pad a defcency n estate ta n 1921 determned by treatng as
part of the estate partnershp profts earned subsequent to the
decedent s death, and n 1928 pad a defcency n ncome ta .
assessed n 1925, upon the same profts. In a sut for recovery of
the atter payment, brought n 1930, the estate s entted to re-
coupment of the overpayment of estate ta by way of credt
aganst the ncome ta defcency, notwthstandng the statute of
mtatons had barred an ndependent sut therefor.
R NU CT O 1921.
S CTION 218. P RTN RS IPS.
rtce 33 : Dstrbutve shares of partners.
( so Secton 284, rtce 1305.)
I -21-7510
Ct. D. 9 9
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311
218, rt. 33 .
SUP M COU T O T UNIT D ST T S.
rnest t. u, Soe Survvng ecutor and Trustee of the state of rchbad
. u, Deceased, pettoner, v. The Unted States.
On wrt of certorar to the Court of Cams.
pr 29, 1935.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
rchbad . u ded ebruary 13, 1920. e had been a member of a
partnershp engaged n the busness of shp brokers. The agreement of asso-
caton provded that n the event a partner ded the survvors shoud contnue
the busness for one year subsequent to hs death, and hs estate shoud re-
ceve the same nterests, or partcpate n the osses to the same e tent, as
the deceased partner woud, f vng, based on the usua method of ascer-
tanng what the sad profts or osses woud be. Or the estate of the
deceased partner sha have the opton of wthdrawng hs nterest from the
frm wthn 30 days after the probate of w and a ad|ustments of
profts or osses sha be made as of the dnte of such wthdrawa. The
estate s representatve dd not e ercse the opton to wthdraw n 30 days,
and the busness was conducted unt December 31, 1920, as contempated by
the a Tcemen(.
The enterprse requred no capta and none was ever nvested by the part-
ners. u s share of profts from anuary 1, 1920, to the date of hs death,
ebruary 13, 1920, was 24,124.20 he had no other accumuated profts and no
nterest n any tangbe property beongng to the frm. Profts accrung to the
estate for the perod from the decedent s death to the end of 1920 were 212,-
718.79 200,117.90 beng pad durng the year, and 12, 01.70 durng the frst
two months of 1921.
The Court of Cams found :
When fng an estate ta return, the e ecutor ncuded the decedent s nter-
est n the partnershp at a vaue of 24,124.20, whch represented the decedent s
share of the earnngs accrued to the date of death, whereas the Commssoner,
n 1921, vaued such nterest at 235,202.99, and sub|ected such ncreased vaue
to the payment of an estate ta , whch was pad n une and ugust, 1921. The
ast-mentoned amount was made up of the amount of 24,124.20 pus the
amount of 212,718.79, herenbefore mentoned. The estate ta on ths ncreased
amount was 41,517.45.1
pr 14, 1921, pantff fed an ncome ta return for the perod ebruary
13, 1920, to December 31, 1920, for the estate of the decedent, whch return
dd not ncude, as ncome, the amount of 200,117.09 receved as the share of
the profts earned by the partnershp durng the perod for whch the return
was fed. The estate empoyed the cash recepts and dsbursements method
of accountng.
Thereafter, n uy, 1925, the Commssoner determned that the sum of
200,117.00 receved n 1920 shoud have been returned by the e ecutor as
ncome to the estate for the perod ebruary 13 to December 31, 1920, and
notfed pantff of a defcency n ncome ta due from the estate for that
perod of 2 1,212. 5, whch was due n part to the ncuson of that amount
as ta abe ncome and n part to ad|ustments not here n controversy. No
deducton was aowed by the Commssoner from the amount of 200,117.0 )
on account of the vaue of the decedent s nterest n the partnershp at hs
death.
September 5, 1925, the e ecutor appeaed to the oard of Ta ppeas from
the defcency of ncome ta so determned. The oard sustaned the Com-
1 It w be noted there s nn error n Iho fgures set out n trs fndng, the tota of
the two smaer sums beng 230,842.99, but the dscrepancy s not matera to any ssue
n the case.
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312
nssoner s acton n ncudng te tem of 200,117.99 wthout any reducton
on account of te vaue of the decedent s nterest n the partnershp at the
date of death, and determned a defcency of 55,1 .49, whch, wth nterest
of 7,510.95, was pad pr 14, 1028.
uy 11, 1928, the e ecutor ted a cam for refund of ths amount, settng
forth that the 200,117.99, by reason of whch the addtona ta was assessed
md pad, was corpus that t was so orgnay determned by the Comms-
soner and the estate ta assessed thereon was pad by the e ecutor and that
the subsequent assessment of an ncome ta aganst the estate for the recept
of the same sum was erroneous. The cam was re|ected May 8, 1929. Sep-
tember 1 , 19 0, the e ecutor brought sut n the Court of Cams, and n hs
petton, after settng forth the facts as he aeged them to be, prayed |udg-
ment n the aternatve (1) for the prncpa sum of 2, 77.44, the amount
pad pr 14, 1928, as a defcency of ncome ta unawfuy assessed and
coected, or (2) for the sum of 47, 43.44 on the theory that f the sum of
. 200,117.99 was ncome for the year 1920 and ta abe as such, the Unted
States shoud have credted aganst the ncome ta attrbutabe to the recept
of ths sum the overpayment of estate ta resutng from ncudng the amount
n the ta abe estate 34,035, wth nterest thereon.
Te Court of Cams hed that the tem was ncome and propery so ta ed.
th respect to the aternatve reef sought t sad: We can not consder
whether the Commssoner correcty ncuded the tota amount receved from
the busness n the net estate of the decedent sub|ect to te estate ta for the
reason that the sut was not tmey nsttuted. udgment went for the Unted
States. ecause of the novety and mportance of the queston presented we
granted certorar.
1. We concur n the vew of the Court of Cams that the amount receved
from the partnershp as profts earned pror to u s death was ncome earned
by hm n hs fetme and ta abe to hm as such and that t was aso corpus
of hs estate and as such to be ncuded n hs gross estate for computaton
of estate ta . We aso agree that the sums pad hs estate as profts earned
after hs death were not corpus, but ncome receved by hs e ecutor and to be
reckoned n computng ncome ta for the years 1920 and 1921. Where the
effect of the contract s that the deceased partner s estate sha eave hs
nterest n the busness and the survvng partners sha acqure t by pay-
ments to the estate, the transacton s a sae, and payments made to the estate
are for the account of the survvors. It resuts that the survvng partners are
ta abe upon frm profts and the estate s not. ere, however, the survvors
have purchased nothng beongng to the decedent, who had made no nvest-
ment n the busness and owned no tangbe property connected wth t. The
porton of the profts pad hs estate was, therefore, ncome and not corpus
and ths s so whether we consder the e ecutor a member of the od frm
for the remander of the year, or hod that the estate became a partner n a
new assocaton formed upon the decedent s demse.
2. serous and dffcut ssue s rased by the cam that the same recept
has been made the bass of both ncome and estate ta , athough the tem
can not n the crcumstances be both ncome and corpus and that the aterna-
tve prayer of the petton requred the court to render a |udgment whch woud
redress the egaty and n|ustce resutng from the erroneous ncuson of
the sum n the gross estate for estate ta . The respondent presents two
arguments n opposton, one addressed to the merts and the other to the bar
of te statute of mtatons.
On the merts t s nssted that the Government was entted to both estate
ta and ncome ta n vrtue of the rght conferred on te estate by the
partnershp agreement and the fruts of t. The poston s that as the con-
tract gave u a vauabe rght whch passed to hs estate at hs death the
Commssoner correcty ncuded t for estate ta . nd the proprety of treat-
ng the share of profts pad to the estate as ncome s sad to be equay cear.
Te same sum of money n dfferent aspects may he the bass of both forms
of ta . n e ampe s found n ths estate. The decedent s share of profts
accrued to the date of hs death was 24,124.20. Ths was ncome to hm n
hs fetme and hs e ecutor was bound to return It as such. ut the sum
- 13. . a.., WCTO.
a r appears from the quoted fndng, the Court of Cams found the overpayment was
41,517.45.
f P. Supp., 141.
L 04 U. S., .
U v. Commssoner (38 . (2d), 1C5) Pope v. Commssoner (39 . (2d), 420).
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313
218, rt. 33 .
was pad to the e ecutor by the survvng partners, and thus became an asset
of the estate accordngy the pettoner returned that amount as part of the
gross estate for computaton of estate ta and the Commssoner propery
treated t as such.
We are tod that snce the rght to profts s dstnct from the profts nctuay
coected we can not now say more than that perhaps the Commssoner put
too hgh a vaue on the contract rght when he vaued t as equa to the
amount of profts receved 212,718.99. Ths error, f error t was, the
Government says s now beyond correcton.
Whe, as we have sad, the same sum may n dfferent aspects be used for the
computaton of both an ncome and an estate ta , ths fact w not here serve
to |ustfy the Commssoner s rungs. They were nconsstent. The dentca
money not a rght to receve the amount, on the one hand, and actua recept
resutng from that rght on the other was the bass of two assessments. The
doube ta aton nvoved n ths nconsstent treatment of that sum of money
s made cear by the ower court s fndng we have quoted. The Commssoner
assessed estate ta on the tota obtaned by addng 24,124.20 the decedent s
share of profts earned pror to hs death, and 212,718.79, the estate s share
of profts earned thereafter. e treated the two tems as of ke quaty, con-
sdered them both as capta or corpus and vewed nether as the measure
of vaue of a rght passng from the decedent at death. No other concuson
may be drawn from the fndng of the Court of Cams.
In the ght of the facts t woud not have been permssbe to pace a vaue
of 212,718.99 or any other vaue on the mere rght of contnuance of the
partnershp reaton nurng to u s estate. ad he ved hs share of profts
woud have been ncome. y the terms of the agreement hs estate was to
sustan precsey the same status quoad the frm as he had, n respect of profts
and osses. Snce the partners contrbuted no capta and owned no tangbe
property connected wth the busness, there s no |ustfcaton for characterz-
ng the rght of a vng partner to hs share of earnngs as part of hs capta,
and If the rght was not capta to hm, t coud not be such to hs estate.
Let us suppose u had, whe vng, assgned hs nterest n the frm, wth
hs partners consent, to a thrd person for a vauabe consderaton, and
n makng return of ncome had vaued or captazed the rght to profts
whch he had thus sod, had deducted such vauaton from the consderaton
receved, and returned the dfference ony as gan. We thnk the Commssoner
woud rghty have nssted that the entre amount receved was ncome.
Snce the frm was a persona servce concern and no tangbe property
was nvoved n ts transactons, f It had not been for the terms of the agree-
ment, no accountng woud have ever been made upon u s death for any-
thng other than hs share of profts accrued to the date of hs death
24,124.20 and ths woud have been the ony amount to be ncuded n hs
estate n connecton wth hs membershp n the frm. s respects the status
after death the form of the stpuaton s sgnfcant. The decaraton s
tbat the survvng partners are to be at berty to contnue the busness
for a year, n the same reaton wth the deceased partner s estate as f
t were n fact the decedent hmsef st ave and a member of the frm.
s persona representatve s gven a veto whch w prevent the contnuance
of the frm s busness. The purpose may we have been to protect the good
w of the enterprse In the nterest of the survvors and to afford them a
reasonabe tme n whch to arrange for ther future actvtes. ut no sae
of the decedent s nterest or share In the good w can be speed out. Indeed
the Government strenuousy asserted, n supportng the treatment of the pay-
ments to the estate as ncome, that the estate sod nothng to the survvng
partners and we agree. n anaogous stuaton woud be presented f u
had not ded, but the partnershp had termnated by mtaton on ebruary
13, 1920, and the agreement had provded that, f u s partners so desred,
the reaton shoud contnue for another year. It coud not successfuy be
contended that, n such case, u s share of proft for the addtona year
was capta.
We thnk there was no estate ta due n respect of the 212,718.79 pad to
the e ecutor as profts for the perod subsequent to the decedent s death.
The Government s second pont s that f the use of profts accrung to the
estate n computng estate ta was wrong, the statute of mtatons bars cor-
recton of the error n the present acton. So the Court of Cams thought.
We hod otherwse.
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218, rt. 33 .
314
The pettoner Incuded n hs estate ta return, as the vaue of u s In-
terest n the partnershp, ony 24,124.20, the proft accrued pror to hs death.
The Commssoner added 212,718.79, the sum receved as profts after
u s death, und determned the tota represented the vaue of the nterest.
The pettoner acquesced and pad the ta assessed n fu n ugust, 1921.
e had no reason to assume (he Commssoner woud ad|udge the 212,718.79
ncome and ta abe as such. Nor was ths done unt uy, 1925. The pet-
toner thereupon asserted, as we thnk correcty, that the tem coud not he
both corpus and ncome of the estate. The Commssoner apparenty hed
a contrary vew. The pettoner appeaed to the oard of Ta ppeas from
the proposed defcency of ncome ta . s appea was dsmssed pr 9, 1928.
It was then too ate to fe a cam for refund of overpayment of estate ta
due to the error of ncuson n the estate of hs share of frm profts.
Inabty to obtan a refund or credt, or to sue the Unted States, dd not,
however, ater the fact that f the Government shoud nsst on payment
of the fu defcency of ncome ta , t woud be n possesson of some 41,000
n e cess of the sum to whch t was |usty entted. Payment was demanded.
The pettoner pad pr 14, 1928, and on .Tune 11, 1928, presented a cam
for refund, n whch he st nssted the amount n queston was corpus, had
been so determned and (state ta pad on that bass, and shoud not be
cassfed for ta aton as ncome. The cam was re|ected May 8, 1929, and
the present acton nsttuted September t, 1930.
The fact that the pettoner reed on the Commssoner s assessment for
estate ta , and beeved the nconsstent cam of defcency of ncome ta was
of no force, can not ava to to the statute of mtatons, whch forbade the
brngng of any acton n 1930 for refund of the estate ta payments made
n 1921. s the ncome ta was propery coected, sut for the recovery of
any part of the amount pad on that account was fute. Upon what theory,
then, may the pettoner obtan redress n the present acton for the unawfu
retenton of the money of the estate efore an answer can be gveu, the
system of enforcng the Government s cams for ta es must be consdered
n ts reaton to the probem.
ta s an e acton by the soveregn, and necessary the soveregn has an
enforcbe cam aganst everyone wthn the ta abe cass for the amount
awfuy due from hm. The statute prescrbes the rue of ta aton. Some
machnery must be provded for appyng the rue to the facts n each ta -
payer s case, n order to ascertan the amount due. The chosen nstrumen-
taty for the purpose s an admnstratve agency whose acton Is caed an
assessment. The assessment may be a vauaton of property sub|ect to ta a-
ton whch vauaton s to be mutped by the statutory rate to ascertan
the amount of ta . Or t may ncude the cacuaton and f the amount of ta
payabe, and assessments of edera estate and ncome ta es are of ths type.
Once the ta s assessed the ta payer w owe the soveregn the amount when
the date f ed by aw for payment arrves. Defaut n meetng the obgaton
cas for some procedure whereby payment can be enforced. The statute mght
remt the Government to an acton at aw wheren the ta payer coud otfer
such defense as he had. |udgment aganst hm mght be coected by the
evy of an e ecuton. ut ta es are the febood of government, and ther
prompt and certan avaabty an mperous need. Tme out of mnd, there-
fore, the. soveregn has resorted to more drastc means of coecton. The
assessment Is gven the force of a |udgment, and f the amount assessed s
not pad when due, admnstratve offcas may seze the debtor s property
to satsfy the debt.
In recognton of the fact that erroneous determnatons and assessments w
nevtaby occur, the statutes, n a sprt of fa rness, nvaraby afford the
ta payer an opportunty at some stage to have mstakes rectfed. Often an
admnstratve hearng s afforded before the assessment becomes fna or
admnstratve machnery s provded whereby an erroneous coecton may be
refunded n some nstances both admnstratve reef and redress by an acton
aganst the soveregn n one of ts courts are permtted methods of resttuton
of e cessve or ega e acton. Thus the usua procedure for the recovery of
debts s reversed n the fed of ta aton. Payment precedes defense, and the
burden of proof, normay on the camant, s sh .fted to the ta payer. The
assessment supersedes the peadng, proof and |udgment necessary n an acton
Revenue ct of 1024, sectons 1012 and 281 (43 Stat., 342 and 301) Revenue ct
of 1U20, sectons 1112 and 319 (44 Stut., 115 and 84).
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at aw, and has the force of such a udgment. The ordnary defendant stands
n |udgment ony after a hearng. The ta payer often s afforded hs hearng
after |udgment and after payment, and hs ony redress for un|ust admns-
tratve acton s the rght to cam resttuton. ut these reversas of the
norma process of coectng a cam can not obscure the fact that after a what
s beng accompshed s the recovery of a |ust debt owed the soveregn. If that
whch the soveregn retans was un|usty taken n voaton of ts own statute,
the wthhodng s wrongfu. Resttuton s owed the ta payer. Nevertheess
he may be wthout a remedy. ut we thnk ths s not true here.
In a proceedng for the coecton of estate ta , the Unted States through
a papabe mstake took more than t was entted to. Retenton of the money
was aganst moraty and conscence. ut cam for refund or credt was not
presented or acton nsttuted for resttuton wthn the perod f ed by the
statute of mtatons. If nothng further had occurred congressona acton
woud have been the soe avenue of redress.
In uy, 1925, the Government brought a new proceedng arsng out of the
same transacton Invoved In the earer proceedng. Ths tme, however, ts
cam was for ncome ta . The ta payer opposed payment n fu, by demandng
recoupment of the amount mstakeny coected as estate ta and wrongfuy
retaned. ad the Government nsttuted an acton at aw, the defense woud
have been good. The Unted States, we have hed, can not, as aganst the cam
of an nnocent party hod hs money whch has gone nto ts Treasury by means
of the fraud of ther agent. (Unted States v. State ank, 9 U. S., 30.) Whe
here the money was taken through mstake wthout any eement of fraud, the
un|ust detenton s mmora and amounts n aw to a fraud on the ta payer s
rghts. What was sad n the State ank case appes wth equa force to ths
stuaton. n acton w e .whenever the defendant has receved money whch
s the property of the pantff, and whch the defendant s obged by natura
|ustce and equty to refund. The form of the ndebtedness or the mode n whch
t was ncurred s mmatera. In these cases (cted n the opnon),
and many others that mght be cted, the rues of aw appcabe to ndvduas
were apped to the Unted States (pages 35, 3 ). cam for recovery of
money so hed may not ony be the sub|ect of a sut n the Court of Cams, as
shown by the authorty referred to, but may be used by way of recoupment and
credt n an acton by the Unted States arsng out of the same transacton.
(Unted States v. Macdane, 7 Pet., 1, 1 , 17 Unted States v. Rnggod, 8 Pet,
150, 1 3-1 4.) In the atter case ths anguage was used: No drect sut can
be mantaned aganst the Unted States. ut when an acton s brought by the
Unted States, to recover money n the hands of a party, who has a ega cam
aganst them, t woud be a very rgd prncpe, to deny to hm the rght of set-
tng up such a cam n a court of |ustce, and turn hm round to an appcaton
to Congress. If the rght of the party s f ed by the e stng aw, there can be
no necessty for an appcaton to Congress, e cept for the purpose of remedy.
nd no such necessty can e st, when ths rght can propery be set up by way of
defense, to a sut by the Unted States. 9 If the cam for ncome ta defcency
had been the sub|ect of a sut, any counter demand for recoupment of the over-
payment of estate ta coud have been asserted by way of defense and credt
obtaned notwthstandng the statute of mtatons had barred an ndependent
sut aganst the Government therefor. Ths s because recoupment s n the
nature of a defense arsng out of some feature of the transacton upon whch
the pantff s acton s grounded. Such a defense s never barred by the statute
of mtatons so ong as the man acton tsef s tmey.
The crcumstance that both cams, the one for estate ta and the other
for ncome ta , were prosecuted to |udgment and e ecuton n summary form
does not obscure the fact that n substance the proceedngs were actons to
coect debts aeged to be due the Unted States. It s mmatera that n
the second case, owng to the summary nature of the remedy, the ta payer
was requred to pay the ta and afterwards seek refundment. Ths procedura
requrement does not. obterate hs substanta rght to rey on hs cross de-
mand for credt of the amount whch f the Unted States had sued hm for
ncome ta he coud have recouped aganst hs abty on that score.
See aso Mr nght . Unted tatc.t (OS U. S., 170, ISO).
Seo aso The Sren (7 Wa.. 152. 154).
m Wam v. ce (134 ed., 1) Conner v. Smth (S8 a.. 300) : Stewart v. Smon
(111 rk.. :.18) ecchcr v. adwn (55 Conn., 410) aekuhear v. Dekc (120 Ga..
utman v. Torre// (55 Mnn., 402) aup v. tSc nst.ck (f S Nb., 05) C amp tf
. ughes (73 un (N. 1 .), 14).
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219, rt. 341.
31
To te ob|ecton that the soveregn Is not abe to respond to the pettoner
the answer s that t has gven hm a rght of credt or refund, whch though
e coud not assert t n an acton brought by hm n 1930, had accrued and was
avaabe to hm snce t was actonabe and not barred n 1925 when the
Government proceeded aganst hm for the coecton of ncome ta .
The peadng .was suffcent to put n ssue the rght to recoupment. The
Court of Cams s not bound by any speca rues of peadng a that s
requred s that the petton sha contan a pan and concse statement of the
facts reed on and gve the Unted States reasonabe notce of the matters t s
caed upon to meet. nd a prayer for aternatve reef, based upon the facta
set out In the petton may be the bass of the |udgment rendered.
We are of opnon that the pettoner was entted to have credted aganst
the defcency of ncome ta , the amount of hs overpayment of estate ta
wth nterest and that he shoud have been gven |udgment accordngy. The
|udgment must be reversed and the cause remanded for further proceedngs
n conformty wth ths opnon.
So ordered.
S CTION 219. ST T S ND TRUSTS.
rtce 341: states and trusts. I -19-7481
Ct. D. 959
INCOM T R NU CTS O 1921 ND 1028 D CISION O COCRT.
1. Income Testamentary Trust Ta abe to enefcary.
Income pad to the benefcary of a testamentary trust durng
the perod of admnstraton s ta abe to the benefcary and not
to the trust estate under the provsons of secton 219 (c), (d), and
(e) of the Revenue ct of 1921.
2. Deducton State Transfer Ta Retroactvty.
Where both the estate and the benefcary cam deducton for
State transfer ta es pad n 1923, and the ta was actuay pad
by the estate, the deducton s propery aowed to the estate, under
the provsons of secton 703(a)3 of the Revenue ct of 1928.
Congress had the rght to egsate retroactvey n such cases as
that secton was ntended to meet.
Unted States Crcut Court of ppeas for the Second Crcut.
Rckard 0. ackson, pantff-appeee, v. Warren G. Prce, ormer Coector of
Interna Revenue for the rst Dstrct of New York, defendant-appeant.
anuary 7, 1935.
opnon.
ppea from the Dstrct Court for the astern Dstrct of New York. Sut
to recover ncome ta es pad under coercon. udgment for pantff defendant
appeas. Reversed.
Manton, Crcut udge: Wam P. Tabot ded ebruary 18, 1923, eavng
a w grantng many egaces and bequests. The resdue of hs property was
devsed and bequeathed to ds e ecutors n trust, to pay the ncome thereof
u Unted Mates v. ums (12 Wa., 240, 234) Dstrct of Coumba . arnes (197
. 8.. 140, 153-154).
Merrtt v. Unted Sates (207 U. S.. 338. 341).
Unted States v. ISehan (110 U. S 338. 347).
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317
219, rt. 341
to the appeee unt he reached the ape of 40 years by whch tme he woud
receve the corpus of the trust. Durng the year 1923, the estate, st un-
setted, receved an ncome of over 73,000. The appeee receved 50,595. 2
from the estate durng the year. In 1923, the New York State transfer ta
amountng to 0,000 was pad by the e ecutors. The record does not ds-
cose what the tota transfer ta on the tota of the egaces provded for n
the w amounted to nor s there suffcent nformaton furnshed by the record
as to what, f any, part of the 0,000 was pad on account of the appeee s
egacy as dstngushed from other egaces provded for by the decedent. Out
of the 73,000 gross ncome for 1923, there was pad by the estate oss of
prncpa, nterest charges, and transfer ta , amountng n a to 85,020.50.
In the appeee s ncome ta return for 1923, he showed gross ncome of
4,3S5.84, wth deductons eavng a net ncome of 3,855.15, from whch was
deducted the e empton and credt of 2,900, and a net ta abe ncome of
955.15.
The Commssoner added to the ta payer s ncome, as reported for ths
year, the ncome whch he receved from the estate amountng to 59,595. 2, and
ncreased hs ta accordngy. Ths assessment was pad ebruary 28, 1928,
and the present acton s to recover ths addtona ta .
In a refund cam fed March 8, 1928, t was contended that the Income
receved by the ta payer from the estate was not ta abe to hm, or, In the
aternatve, t was contended that appeee was entted to deductons from
the 0,000 of New York transfer ta whch became due and was pad n 1923.
It was the ast aternatve whch was urged In ths sut as the compant reads
(paragraphs 15, 18, 19, 22). The opnon rendered beow ( ed. Sup., 182)
seems to rest upon the bass that the ncome receved from the estate was not
ta abe. The refund cam was re|ected by the Commssoner.
The queston presented Is whether the ncome receved by the appeee from
the estate came to hm ta free. The court ndcated that the ncome pad
over to the appeee was dentca wth the ncome of the estate, and the
estate havng aready been sub|ected to the ta on ts Income, the Income of
the appeee was e empt from ta aton. The court beow was n error n
concudng that the estate was ta ed for ths ncome.
When the terms of secton 219 of the Revenue Ta of 1921 (42 Stat., 227)
and secton 703 of the Revenue ct of 1928 (45 Stat., 791) are consdered, t
e dear that the ncome pad over to the appeee s sub|ect to a ta . Secton
219 provdes, n part, as foows:
(a) That the ta mposed by sectons 210 and 211 sha appy to the ncome
of estates or of any knd of property hed n trust, ncudng
(4) Income whch Is to be dstrbuted to the benefcares perodcay,
whether or not at reguar ntervas, .
(c) In cases under paragraphs (1), (2), or (3) of subdvson (a) or In
any other case wthn subdvson (a) of ths secton e cept paragraph (4)
thereof the ta sha be mposed upon the net ncome of the estate or trust
and sha be pad by the fducary, e cept that n determnng the net ncome
of the estate of any deceased person durng the perod of admnstraton or
settement there may be deducted the amount of any ncome propery pad or
credted to any benefcary.
(d) In cases under paragraph (4) of subdvson (a), and n case of any
ncome of an estate durng the perod of admnstraton or settement permtted
by subdvson (c) to be deducted from the net ncome upon whch ta s to
be pad by the fducary, the ta sha not be pad by the fducary, but there
sha be ncuded In computng the net ncome of each benefcary that part of
the Income of the estate or trust for ts ta abe year whch , s ds-
trbutabe to such benefcary, .
(e) In the case of an estate or trust the ncome of whch conssts both of
ncome of the cass descrbed In paragraph (4) of subdvson (a) of ths
secton and other ncome, the net ncome of the estate or trust sha be com-
puted and a return thereof made by the fducary n accordance wth subdvson
(b) and the ta sha be mposed, and sha be pad by the fducary n accord-
ance wth subdvson (c), e cept that there sha be aowed as an addtona
deducton n computng the net ncome of the estate or trust that part of ts
ncome of the cass descrbed n paragraph (4) of subdvson (a) whch,
s dstrbutabe durng ts ta abe year to the benefcares. In cases under ths
subdvson there sha be ncuded, as provded n subdvson (d) of ths sec-
ton, n computng the net ncome of each benefcary, that part of the ncome
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219, rt. 341.
318
of the estate or trust whch, pursuant to the nstrument or order governng
te dstrbuton, s dstrbutabe durng the ta abe year to such benefcary.
The amount receved by the appeee from the estate was, when n the hands
of the estate, wthn the cass descrbed u paragraph (1) of subdvson (a)
of secton 219. It was ncome receved by estates of deceased persons durng
the perod of admnstraton. It mght aso be desgnated as beng n the
cass descrbed by paragraph (4) of subdvson (a) of secton 219, that s,
ncome whch s to be dstrbuted to the benefcares perodcay. If the
ncome pad here s embraced wthn ether cass the estate s e empted from
ta abty and the apeee s abe for the ta .
Subdvson (c) provdes that the estate sha pay a ta on the net ncome
of the estate, but that n computng the net ncome of the estate amounts pad
to benefcares may be deducted. Subdvson (d) provdes that the ta on
ncome whch ether Is to be pad to benefcares perodcay ((a)(4)) or
whch consttutes an tem permssby deductbe by the estate under subdv-
son (c), sha not be pad by the estate, but that such ncome sha be consd-
ered part of the net ncome of the benefcares. Subdvson (e) provdes
that the estate sha pay a ta on ts net ncome as computed under subdvson
(c), e cept that an addtona deducton In computng the net ncome of the
estate may be made for that part of ts ncome descrbed n paragraph (4) of
subdvson (a). so provded for by subdvson (e) s the ncuson n the
net ncome of the benefcary of that part of the ncome of the estate whch
e receves from the estate.
When these sectons are apped here, secton 219 forbds a payment by the
estate of a ta on the 59,595.02 and requres that the appeee make the pay-
ment of the ta thereon. Subdvson (d) by ts terms provdes that a ta on
ncome descrbed n subdvson (a), paragraph (4) or whch Is permssby
deductbe under subdvson (c) sha not be pad by the fducary. The
ncome receved by the apwee was ermssby deductbe under subdvson
(c) and the estate s to pay no ta on t. Ths beng so, t s unnecessary to
decde whether the T 9,53.U2 was ncome of the cass descrbed n subdvson
(a) (4). so subdvson (d) provdes that n computng the net ncome of the
benefcary, there sha be ncuded that part of the ncome of the estate whch
s dstrbutabe to hm. The ncome appeee receved was part of the ncome
of the estate whch was dstrbutabe to the appeee and therefore must be
Incuded n computng hs net ncome. Secton (e) contans the same
provsons.
Consequenty, the estate was not to pay a ta on the 59,595. 2 snce t dd
not consttute a part of ts net ncome. The appeee s obged to pay a ta
on ths sum snce under the provsons of secton 219 t consttutes a part of
hs net ncome. Secton 219 provdes for the ta aton of net ncome not
ncome. The 59,595.02 was part of the net ncome of the appeee but not
part of the net ncome of the estate. It Is ths dstncton whch the dstrct
|udge faed to observe. It s true that part of the gross ncome of the appeee
was dentca wth the gross ncome of the estate, but no part of the ncome
of the appeee whch s ta abe under secton 219 as beng part of hs net
ncome, Is ta abe to the estate as part of ts net ncome.
The queston remans whether or not the appeee s entted to deduct from
hs net ncome that whch the coector refused to deduct, namey, the trans-
fer ta payment. Ths transfer ta was pad by the e ecutors n 1923.
Whether t was a ta on the transfer of the entre estate, or for ony the
transfer of that part of the estate gong to the appeee, or party for hs and
party for other parts of the estate, s not dscosed by the record. In the
absence of defnte fndngs as to ths affrmance of the dstrct court w b.
mpossbe even though t were correct In ts constructon of the aw. part
from ths, however, even f the fndngs of fact have been so drawn as to show
that the 0,000 was pad entrey on the appeee s share of the estate, the
ower court coud not have rued that such sum was deductbe by the appeee.
Secton 703 of the Revenue ct of 1928 ( 45 Stat., 791) reads, n part, as
foows:
Deducton of estate and nhertance ta es Retroactve.
(a) In determnng the net ncome of an her, devsee, egatee, dstrbutee, or
benefcary or of an estate for any ta abe year, , the
amount of estate, ta es pad or accrued wthn such ta abe year
sha be aowed as a deducton as foows:
(1) If the deducton has been camed by the estate, but not by the bene-
fcary, t sha be aowed to the estate
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(2) If the deducton has boon camed by the benefcary, but not by the
estate, t sha be aowed to the benefcary
(3) If the deducton as been camed by the estate and aso by the bene-
fcary, t sha be aowed to the estate (and not to the benefcary) f the ta
was actuay pad by the ega representatve of the estate to the ta ng au-
thortes of the |ursdcton Imposng the ta and t sha be aowed to the
benefcary (and not to the estate) f the ta was actuay pad by the benefcary
to such ta ng authortes .
Paragraph 3 makes t cear that where, as here, both the estate and the ap-
peee cam the deducton and the ta was actuay pad by the estate, the deduc-
ton sha be aowed to the estate (and not to the benefcary).
The dstrct court hed that secton 703, havng been approved n May, 1028,
over four years after the ncome In queston had been receved and not
reed upon when the assessment was made coud be of no assstance n de-
cdng the case. True t s that, at the tme the addtona assessment aganst
the appeee was made, the Treasury was endeavorng to appy artce 134 of
Reguatons C2 n the ght of the then decsons. eth v. ohnson, 271 U. S., 1
T. D. 38 4, C. . -, 23 armers Loan Trust Co. v. Unted States, 9 ed.
(2d), 88.) ut there s no doubt that Congress had the rght to egsate retro-
actvey n such stuaton as secton 703 was ntended to meet. (Cooper v.
Unted States, 280 U. S., 409 TCt. D. 1 3, C. . I -1, 272 MacLaughn v. ance
Insurance Co., 2S D. S., 244 Ct. D. 490, C. . I-1, 124 Phpps v. ocers,
49 ed. (2d), 99 TCt. D. 3 5, C. . -2, 348 .)
udgment reversed.
rtce 342: Method of computaton of net I -17-745
ncome and ta . I. T. 2887
R NU CT O 1018.
Offce Decson 1040 (C. . 5, 18 ) s revoked, n vew of G. C. M.
14 93. (See page 197.)
rtce 347: Income of trusts ta abe to grantor.
R NU CT O 102 .
Trust created by grantor to provde ncome to dvorced wfe n
eu of amony and nterest n hs estate. (See Ct. D. 913, page 228.)
P RT III. CORPOR TIONS.
S CTION 233. G OSS INCOM O CORPOR -
TIONS D IN D.
rtce 545: Sae and retrement of corporate I -5-7289
bonds. Ct. D. 917
ncome ta revenue acts of 1924 and 102 decson of court.
1. Income Purchase anu Retrement of Sera Notes.
Where a corporaton n 1 C2 acqured a feet of shps, gvng as
part payment therefor sera notes secured by mortgage on the
shps, and n 1924 and 1925 retred some of the notes, purchasng
them at ess than ther face vaue, the gan reazed by the essen-
ng of ts obgatons was ta abe ncome.
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233, rt. 545.
320
2. Decson Reversed.
Decson of the oard of Ta ppeas (28 . T. ., 725) reversed.
3. Certorar Dened.
Petton for certorar dened October 8, 1034.
Unted States Crcut Court of ppeas for the rst Crcut.
Commssoner of Interna Revenue, pettoner for revew, v. Coastwse Trans-
portaton Corporaton.
ppea from oard of Ta ppeas. .
efore ngham, Wson, and Morton, .
May IS, 1934.
OPINION.
ngham, .: The Coastwse Transportaton Corporaton acqured a feet
of shps from the mercan awaan Co. n 1022 and gave, as part payment
therefor, sera notes of the face vaue of 08,400 secured by mortgage on
the shps. In 1024 the corpora on purchased for . 75,000 two of these notes
havng a face vaue of 152,000, thereby makng a gan of 77,100 and n
1925 by negotatons through a syndcate, acqured 45 ,300 of the notes n
e change for bonds havng a par vaue of 375,000, thus makng a gan of
81,300. The mortgage notes were retred by the corporaton. In makng a
defcency return for the years 1924 and 1925 the Commssoner assessed these
two amounts of 77,100 and 81,300 as ta abe ncome for the respectve years,
from whch assessments the corporaton np ened to the oard of Ta ppeas.
The oard reversed the rung of the Commssoner and the case came before us
on hs petton for revew. It aso appeared that n 1924, wthout takng nto
consderaton the gan for that year by the purchase of the two notes, the
corporaton suffered a net oss of 100,338.25, whch t took as a deducton n ts
return for 1925.
Upon these facts we hed when the case was prevousy before us ( 2 . (2d),
332) that t was governed by the decson n Unted States v. rby Lumber Co.
(284 U. S., 1 Ct. D. 420, C. . -2, 35 ), and that the Commssoner was
correct n treatng the gans reazed by the purchase of the notes for ess than
ther face vaue as ta abe ncome. The case, however, was remanded to the
oard of Ta ppeas to fnd further facts as to the deprecaton of the assets
of the corporaton through osses n operaton and by deprecaton, whether the
negotatons wth reference to these notes amounted to a reorganzaton of the
corporaton, and for further proceedngs not nconsstent wth our opnon.
On rehearng the oard found no evdence of a reorganzaton of the corpora-
ton. It aso found that from the tme the vesses were purchased n 1922
down to December 31, 1924, they had deprecated n vaue from 1,2 7,500 to
1,083,419.73, or to the e tent of 1S4,080.25 that as of December 31, 1923, the
baance sheet of the corporaton showed a defct of 73,340.24, and as of De-
cember 31, 1924, after fakng nto consderaton the mortgage notes, a defct
of 113,883.31, and appyng the 81,300 by whch the abtes were further
reduced, there woud st reman a defct of 32,583.31, whch was not key
to have been wped out durng the frst part of anuary, 1925 that ths was n
addton to the oss by deprecaton of the vesses, whch n tsef amounted to
more than the sans made from the purchase of the notes and that at the cose
of 1025 there was a surpus of 40,452.52.
The oard, n ts fndngs gves the detas of the negotatons wth the
mercan awaan Co. and the syndcate resutng n retrng the mortgage
notes for ess than ther face vaue and comes to the concuson that The trans-
actons merey amounted to a reducton n the purchase prce of the feet of
vesses, that there was no reease of free assets by the transactons nvoved,
and that the operaton n 1024 resuted n a oss. It was therefore of the
opnon that Unted States v. rby Lumber Co., supra, dd not appy and the
gans were not ta abe ncome.
We have carefuy revewed these transactons and can fnd nothng theren
that ndcates they had anythng to do wth the purchase prce of the vesses.
The partes deat soey about the notes and ther vaue and not about the
shps or ther vaue. The offer of the Coastwse corporaton and the acceptance
of the mercan awaan Co. were n wrtng and were for the purchase and
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234, rt. 5 1.
ae of the notes at a- reduced prce and not an agreement that the awaan
company shoud reduce the purchase prce of the shps. The gans came about
from a reducton n the vaue of the notes. The contract beng n wrtng, ts
constructon and meanng are for the court.
We st are of the opnon that the prncpes upon whch the rby Lumber
Co. case was decded appy here, and especay so n vew of the decson o
the Supreme Court n cverna, Commssoner, v. mercan Chce Co. (291,
. S., 42 Ct. D. 809, C. . III-1, 2 5 ). In the atter case, f not In the
former, the ta payer assumed the obgatons of the seer as a part of the
purchase prce of the assets (whch were not cash), but the Supreme Court
reversed the decson of the Crcut Court of ppeas for the Second Crcut,
whch affrmed the oard of Ta ppeas, and hed that the gan reazed by
the purchase of the obgatons of the Chce company was ta abe ncome,
thereby affrmng the rung of the Commssoner. It s true that n both the
rby and the Chce company cases the notes or bonds were purchased n the
open market and not, as here, from the seer of the property. ut ths can
make no dfference n the character of the gans. In each of those cases, as
In ths, the abtes of the ta payer were dmnshed wthout a dmnuton of
the assets.
The oard aso rued and the Coastwse corporaton here contends that,
because of the osses In operaton snce the purchase of the vesses, the depre-
caton of the vesses, and the genera defct at the end of 1924 and the frst
of 1925, whch was more than the amount of the gans n queston, the case
does not come wthn the rby company or the Chce cases, where no such
osses were shown, but that o cers v. erbaugh- mpre Co. (271 U. S., 170
T. D. 3881, C. . -, 199 ), contros. That case deas wth a competed
transacton, and, athough the debt ncurred by the borrowng of god German
marks or ther equvaent n doars, was pad n deprecated marks and to that
e tent a gan was reazed, there was a net oss, the money borrowed havng
been ost In the busness of the company. ere the operaton of the vesses
had not ceased and they were st n the possesson of the Coastwse corpora-
ton. Whe as a mere matter of bookkeepng the assets had shrunk, no one
coud say what the utmate resut woud be, for the market vaue of the shps
at the end of 1924 and the frst of 1925 may or may not have been equa to
the purchase prce. The corporaton, n 1925, made a arge net gan and ev-
denty there were prospects of wpng out the osses. that coud have been
sad wth postveness was that the property mortgaged to secure the notes
(whch were ony a sma part of the purchase prce) was of a vaue more than
suffcent to pay the ndebtedness of 08,400 and was, by the payment of
450,000, reeased therefrom a cear gan of 158,400.
The ta ng statute does not contempate awatng the sae of the shps and
the wndng up of the busness to determne whether the transactons on the
whoe brought about a gan or a oss. The year was the ta ng perod specfed
and any ncome from any source whatever wthn that year was ta abe. The
pans n 1924 and 1925 essened the obgatons of the corporaton by 150,400,
thereby ncreasng ts free or net assets by the same amount and we hod they
were ta abe ncome.
The rung of the oard of Ta ppeas s reversed and that of the Com-
mssoner Is affrmed.
rtce 545: Sae and retrement of corporate bonds.
R NU CT O 102G ND PRIOR R NU CTS.
penses ncdenta to ssuance of bonds, ta payer beng on accrua
bass. (See G. C. M. 14349, page 47.)
S CTION 234. D DUCTIONS LLOW D
CORPOR TIONS.
rtce 5C1: owabe deductons.
R NU CTS O 1021, 1924, ND 192 .
Contrbutons by a corporaton to communty chest. (See Ct. D.
003, page 332.)
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rtce 5G1: owabe deductons.
R NU CT OP 102 .
pportonment of depeton between essee and assgnor and
essor. (See Ct. D. 905, page 253.)
rtce 5 1: owabe deductons.
R NU CT O 1024.
Dvdends receved by one affate from another. (See Ct. D. 921,
page 257.)
rtce 5G1: owabe deductons. I -10-7358
Ct. D. 932
INCOM T R NU CT O 1918 D CISION O COURT.
1. Deducton Loss Ordnary and Necessary pense Cap-
ta pendture.
Where the essee of raroad property agreed to pay as renta
a net earnngs derved from operaton of the eased property,
and n the event such net earnngs were not suffcent therefor,
to pay a ta es, nsurance, etc., t beng further agreed that any
amounts pad by the essee n e cess of net earnngs shoud be
deemed advances to the essor, and where the amounts advanced
durng the years 1909-1020 were reguary deducted as operat-
ng e penses n e cse and ncome ta returns for those years,
they may not be aowed as a oss n 1920, when the essee trans-
ferred the ease to another company, on the ground that they
were capta e pendtures.
2. Deducton Ordnary and Necessary pense Mante-
nance Rembursement by Drector Genera.
Where the Drector Genera of Raroads rembursed the ta -
payer, whose property was taken over and operated by the
Unted States Government durng the perod of edera con-
tro, for uudermantenance of ts propertes whe under edera
contro, amounts e pended to rehabtate the propertes are not
deductbe to the e tent of the rembursement.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (2 . T. ., 1229) affrmed.
Court of ppeas of the Dstrct of Coumba.
The New York, Chcago tt St. Lous Raroad Co., Successor Corporaton to
the Lake re Western Raroad Co., pettoner, v. Guy T. everng,
Commssoner of Interna Revenue, respondent.
The New York, Chcago f St. LouU Raroad Co., pettoner, v. Guy T. ever-
ng, Commssoner of Interna Revenue, respondent.
On pettons for revew of decsons of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Oksde, tz, and Groner,
ssocate ustces.
une 4, 1934.
opnon.
Groner, ssocate ustce: Pettoner Is a raroad company formed In
1923 by the consodaton of fve raroad companes, one of whch was Lake
re Western Raroad Co., herenafter referred to as Lake re. The case
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234, rt. 5 1.
nvoves the ta abty of Lake re for the ta abe year 1920. Pettoner
admts abty for whatever ta may be found to be due by Lake re for
the year n queston.
The oard s fndngs of fact cover 1 pages of the prnted record, and the
opnon 57 prnted pages. Many of the tems deat wth n the fndngs of
fact and much of the dscusson n the opnon we thnk unnecessary, ether
to a correct understandng of the facts or to a decson of the case. The
reevant facts are these: In 1895 Lake re eased the propertes of North-
ern Oho Raway Co. n perpetuty and as a part of the same transacton
acqured a of that company s common stock. The stock was acqured wth-
out cost, but Lake re agreed to pay as renta a the net earnngs derved
from the operaton of the eased raroad, and n the event the net earn-
ngs were not suffcent therefor, a ta es, nsurance, organzaton e penses
to the e tent of 1,000 a year, and nterest on the Northern Oho s bonds.
Lake re aso undertook to mantan the propertes n good order and repar.
The amount pad by Lake re n e cess of the net earnngs was to be deemed
an advance on the part of the essee to the essor.
or the 18-year perod from 1895 to 1913, the cost to Lake re over and above
the net operatng revenue was neary two and a haf mon doars, and from
1913 (March 1) to the end of edera contro (March 1, 1920) the out-of-pocket
cost to Lake re was n e cess of a mon and a quarter. Lake re charged
these tems to operatng e penses, and of the amount e pended or advanced pror
to March 1, 1913, neary three-quarters of a mon were taken as deductons
from ncome n ts e cse ta returns for the years 1909-1912. The entre sum
advanced from 1913 to 1920, ncusve, was deducted n Lake re s ncome ta
returns for those years.
Lake re never receved back any of the advances, nor anythng on account
of tbem, but on March 1, 1920, t transferred the stock of the Northern Oho
and the ease to the kron, Canton, Youngstown Raway Co., and the atter
assumed a of the obgatons and abtes of Lake re whch woud there-
after accrue under the ease. On March 1, 1920, Lake re s books showed a net
baance due from the Northern Oho Raway Co. of 92, 1.33. Ths tem repre-
sented n part cash outays, the dates of whch do not appear, and n part an
amount at whch the Drector Genera of Raroads nventored the materas
and suppes on the Northern Oho nes at the date of the termnaton of ed-
era contro. rom the tota of these tems certan credts were deducted, eav-
ng the tem as above stated. In ts ncome ta return for 1920 Lake re de-
ducted ths amount as a oss for that year. The Commssoner dsaowed t,
and the oard of Ta ppeas sustaned hs acton. On the appea to the oard
and kewse n ths court, pettoner camed and cams an addtona deduc-
ton n the amount of at east a mon and a haf doars, as a further oss,
based on the contenton that the e pendtures under the ease were capta e -
pendtures and shoud be treated as the cost for acqurng the ease and the
Northern Oho s stock. The oard kewse dsaowed ths cam.
The sum of a mon and a haf, whch we have |ust mentoned ns camed by
Lake re as deductbe n the year 1920, s an arbtrary fgure. s a matter of
fact, the record shows the tota net e pendtures of the Lake re on account of
ts ease of the raroad of the Northern Oho amounted to neary two and a
haf mons for the perod pror to March 1, 1913, and a mon and a quarter
after March 1, 1913, or n a appro matey three and three-quarter mon do-
ars. of ths tota advanced after edera e cse and ncome ta es were n
force was currenty deducted by Lake re n ts ta returns. or some reason,
not qute cear, pettoner captazed n ts account wth the Northern Oho Co.
the 92,000 tem to whch we have referred, and ths tem t charged to proft
and oss at the tme of dsposng of ts ease and stock nterest n the Northern
Oho. The Commssoner, n dsaowng the 92,000 tem, treated the sums enter-
ng nto t as renta due by the Lake re for ts ease of the Northern Oho. The
oard hed that these as we as a other sums e pended by the Lake re n
e cess of the revenue derved from the operaton of the eased property were
advances, and sad t was cear from the contract and the manner of deang
between the essor and essee that t was contempated by the partes that such
advances shoud be deducted from subsequent earnngs derved from the opera-
ton of the property that such earnngs were the ony source of ncome from
wch such advances coud be repad, and n ths vew the oard hed the entre
ndebtedness of the Northern Oho to Lake re became worthess and uncoect-
be before 1920, and hence concuded that snce the statute requres the deducton
to be made n the year n whch the worthessness and uncoectbty are ascer-
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234, rt. 1.
324
taned. the faure to take them n the approprate year woud not |ustffy a ater
deducton.
We aus unabe to say from anythng whch appears n the record, or to
whch our attenton has been caed, that the oard was not correct n ths
hodng and concuson. The evdence shows that the revenues were nsuffcent
from the begnnng to meet the e pendtures requred to- be made by Lake
re under the ease. s far back as 1899, the charman of the board of Lake
re stated that the ease was a serous dran upon the earnngs of that
company and that there was no hope of gettng rd of It. Ths abty
contnued unabated and undmnshed for the quarter of a century durng
whch the property was operated by Lake re, and the fna dsposton of
the ease and of the stock was wthout monetary consderaton. The argument
before us s that the amounts e pended by Lake re under the ease were
capta e pendtures and shoud be treated as the cost of acquston of the
stock and ease, but no vad grounds upon whch ths theory can be sustaned
are suggested to us. The Lake re treated ths outgo as an operatng e pense
durng the whoe perod of the ease, and reguary deducted the e pense n
Its e cse ta and ncome ta returns for the years 1909 to 1920, ncusve.
To treat these e penses now as capta e pendtures and permt ther deducton
n the year 1920 woud be, n the frst pace, a dupcaton of deductons, and.
In the second pace, woud be to treat as capta e pendtures operatng osses
whch have no reaton, so far as we can see, to the acquston of the stock
or the ease. We thnk t cear that the consstent treatment by Lake re of
these annua outays was the correct one deductbe, as they were deducted,
under secton 234(a) 1, of the Revenue ct of 1918. The fndng of the oard
that they were advances s abundanty supported by the admtted facts, and
the fndng that when made they were known to be uncoectbe and a oss
to the company makng them, s a fndng of fact aso supported by the record.
We fee ths fndng shoud not be dsturbed.
There s, however, another queston n the case whch we must decde. In
computng ts ta abe net ncome n ts return for 1920, the Lake re deducted
from gross ncome, as an ordnary and necessary e pense of busness, the
sum of 4,401,355.90. Of the tota sum so deducted, the Commssoner dsa-
owed 459,35 .19 on the ground that the Lake re was rembursed to that
e tent by the Drector Genera In the fna settement by hm on account of
undermantenance of the propertes of the Lake re durng the perod of
edera contro. The evdence shows that the four mon odd thousand
doar e pendture for mantenance n the 10 months perod was more than
suffcent to make up the undermantenance durng the perod of edera
contro. The oard sustaned the Commssoner n hs dsaowance of the
sum receved by Lake re from the Drector Genera.
The propertes of the Lake re were under edera contro and operaton
for the perod, anuary 1, 1918, to ebruary 29, 1920. In the succeedng 10
months the Lake re, as we have seen, e pended over 4,000,000 n the
mantenance of ts propertes and deducted that sum n ts ta return as an
ordnary and necessary busness e pense (secton 234(a)1, Revenue ct of
1918, ch. 18, 40 Stat., 1077). The Commssoner dsaowed the deducton to
the e tent of , 459,000, ou the ground that to ths e tent pettoner s ostensbe
mantenance cost was reay not ts own, but the resut of an obgaton
assumed and dscharged by the Drector Genera.
It s not dsputed that the Drector Genera faed n hs contractua duty
to mantan pettoner s property n accordance wth the contract durng edera
contro, nor s t serousy dsputed that when the settement was made, the
amount pad by the Drector Genera was an aowance for undermantenance
arsng out of hs faure to dscharge hs contractua duty. When settement
was made, separate and ndependent accountng entres were made by the
Drector Genera and by pettoner, n whch the four hundred ffty-nne
thousand odd doar tem was charged to deferred mantenance account. Nor
s It dsputed that pettoner s books were on the accrua bass and that the
tem accrued to pettoner n 1920.
We have, therefore, here a case n whch athough the Lake re spent more
than 4,400,000 for mantenance In 1920, ths e pendture ncuded the cost of
restorng the undermantenance whch occurred durng the edera contro
perod. On behaf of the Commssoner t Is nssted that of the tota sum
spent In 1920 for mantenance, 459,35 .19 was spent for the account of the
Drector Genera and was n fact pad by hm, and t Is argued from ths
premse that n such crcumstances a raroad may not deduct payments the
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234, rt. 5 1.
burden of whch Is borne by another. The queston of the treatment of aow-
ances made by the Drector Genera for undermantenanee has been before the
courts and before the oard of Ta ppeas a number of tmes, but the facts
In each of the cases whch we have e amned are dfferent and n arge meas-
ure the decsons, especay the decsons of the courts, turn upon facts not
present here, and so we have not much hep from any of them. ut wthout
regard to what may have been decded before, we thnk t s too cear for argu-
ment that pettoner shoud not be aowed any deducton for the e pense of
restorng undermantenanee n the year n whch the undermantenanee was
restored, when the cost of restorng t s borne by the Drector Genera. If
the atter had comped wth hs contract and mantaned the Lake re s
propertes durng edera contro, as he contracted to do, t s perfecty ob-
vous the four hundred odd thousand doars of addtona e pendture by the
raroad n 1920 woud have been unnecessary. It woud n that case have made
ts norma e pendture for mantenance, and under the statute woud have
rghty deducted the whoe of that amount, but n the case we are consderng,
t was requred to e pend n 1920 four hundred odd thousand doars more
money than was the norma deprecaton or mantenance cost for those 10
months. The dfference between the norma and the actua s represented by
the payment made by the Drector Genera. The effect of the payment was
compance by hm wth hs contract. The resut was to remburse the ra-
road company to the e tent of the amount pad by hm, and to that e tent
ts payment for mantenance was not an e pense of Lake re. There s noth-
ng n ths concuson at a dfferent from the decson n Tunne Raroad v.
Commssoner ( 1 . (2d), 1 ), for In that case the pont was one of fact,
namey, whether the aowance made by the Drector Genera was for under-
mantenanee, and the court found t was not. Nor s t at a dfferent from
that of Commssoner v. Norfok Southern R. Co. ( 3 . (2d), 304), for n
that case the queston was whether the amount pad by the Drector Genera
for undermantenanee was gross ncome whch the ta payer was requred to
report, and the court very propery hed t was not.
The ony case, to whch our attenton has been caed, n whch the concu-
son appears to be dfferent from that reached by us s Chcago f N. W. Ry. Co.
v. Commssoner ( . (2d), 1). There the raroad had receved over
,000,000 from the Drector Genera for undermantenanee and had e pended
over haf of t n e cess of norma mantenance, n the year n queston. The
Court of ppeas appears to have decded that the fact of payment by the
Drector Genera woud not affect the rght to deducton as an ordnary e -
pense. pparenty the court took the vew that to hod otherwse woud be
to cassfy the money receved from the Drector Genera as ncome, but, wth
great deference to the vews e pressed there, we thnk the queston nvoved
n ths case need not be compcated by a dscusson of whether the effect of
dsaowance of the deducton woud be the equvaent of defnng the payment
made by the Drector Genera as ncome for that queston s not pertnent
to the facts here, nor are we concerned wth the other queston, whether t may
or may not be desgnated as a restoraton of capta. It s not, we thnk,
deductbe n the crcumstances we have narrated above. It s perfecty
cear that f the Raroad dmnstraton had e pended the amount n ques-
ton and had returned the propertes to Lake re free of any undermante-
nanee, there coud be no cam to a deducton on that account, for n that case
obvousy t had not been e pended by pettoner. That here t was e pended
by pettoner s whoy due to the faure of the Iaroad dmnstraton,
pror to the return of the propertes, to e pend t, and n recognton of ths
faure and n dscharge of ts defaut, It pad the agreed amount to the ra-
road n cash. When the raroad got t and e pended t, t e pended t, to a
ntents and purposes, for the account of the Drector Genera. It came out
of the pocket of the Government and not out of the pocket of the raroad, and
t was to that e tent not an ordnary and necessary e pense n carryng on
ts busness, and ths, as we thnk, because the deducton whch the appcabe
secton of the ncome ta aw permts, contempates an e pense ony out of the
funds and property of the person camng the deducton. On the other hand,
f the Lake re had shown that the money e pended n the 10 months perod
of 1920 was ony norma mantenance, the deducton of the fu amount e -
pended woud have been permssbe, and the payment woud not have been
ta abe as ncome. In such case t woud have been e pendng ony ts own
funds and the payment from the Drector Genera woud have been hed by
the raroad company n the pace and nstead of ts capta deprecaton, and
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238, rt. 11.
32
that s |ust what was decded n the Norfok Southern case, supra but here,
as we have sad aready severa tmes, the raroad as found by the oard,
spent not ony the amount of money ordnary requred for ts mantenance
account, but n addton the money whch t receved from the Drector Genera.
s to the former, t was a deductbe e ense. s to the atter, t was money
pad sub|ect to a contract of rembursement, and, so far as we know, such an
outay has never been consdered to be deductbe. (See Oendnnng v. Com-
mssoner, 1 P. (2d), 950 Gt D. 81, C. . II-1, 279 .)
The concuson we have reached, therefore, s that the decsons of the oard
of Ta ppeas shoud be, and are, affrmed.
S CTION 238. CR DIT OR T S IN C S
O CORPOR TIONS.
rtce 11: Credt for foregn ta es. I -1-7231
G. C. M. 14021
R NU CT O 102 .
Method of computng the credt for foregn ncome ta pad for
the ta abe year 1925 by a foregn subsdary of a domestc corpora-
ton where a the accumuated profts of the foregn subsdary are
receved as a dvdend durng the ta abe year 1925.
n opnon s requested reatve to the method of computng the
credt for foregn ncome ta pad for the ta abe year 1925 by a
foregn subsdary of a domestc corporaton.
Secton 238(e) of the Revenue ct of 192 , whch s appcabe
to the ta abe year 1925, provdes n part that for the purposes of
that secton a domestc corporaton whch owns a ma|orty of the
votng stock of a foregn corporaton from whch t receves dv-
dends (not deductbe under secton 234) n any ta abe year sha
be deemed to have pad the same proporton of any ncome, war-
profts, or e cess-profts ta es pad by such foregn corporaton to
any foregn country or to any possesson of the Unted States, upon
or wth respect to the accumuated profts of such foregn corporaton
from whch such dvdends were pad, whch the amount of such
dvdends bears to the amount of such accumuated profts.
The same provson of aw desgnated as secton 131(f) of the
Revenue ct of 1932 has been hed n G. C. M. 12882 (C. . III-1,
89) to mean that the ta pad upon or wth respect to the accumu-
ated profts s not the whoe ta , but that proporton ony of the
whoe ta whch the accumuated profts s of the tota ncome. The
term accumuated profts means the amount of the foregn cor-
poraton s ncome n e cess of ts foregn ta upon such ncome.
The foowng ustraton on ths pont appears n artce 98,
Reguatons 77, page 234:
Income and profts ta es deemed under secton 131(f) to have been pad,
computed as foows:
Dvdend receved on December 31 of the ta abe year 50,000
Income of rench corporaton earned durng ta abe year 200, 000
Income and profts ta es pad to rance on 200,000 30. 000
ccumuated profts ( 200,000 mnus 30,000) 170,000
rench ta es appcabe to accumuated profts
dstrbuted ( 00 of (g o 000))... _ 7 500
Lmtaton under secton 131 (f) ( ssn (nn
of 45,375) ,875
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327
240, rt. 32.
In G. C. M. 12882, supra, t was hed that nasmuch as the pro-
vsons of secton 131(f) of the Revenue ct of 1932 are substantay
smar to those contaned n secton 238(e) of the Revenue cts of
1921, 1924, and 192 and secton 131(f) of the Revenue ct of 1928,
the formua quoted above from artce G98, Reguatons 77, shoud bo
apped under those cts.
The specfc queston n the nstant case s whether the foregong
formua shoud be apped where a the accumuated profts of the
foregn subsdary are receved as a dvdend durng the ta abe vear
1925/
In the opnon of ths offce, the formua contaned n artce G98,
Reguatons 77, page 234, shoud be apped regardess of whether
a or a porton of the accumuated profts of the foregn subsdary
are receved as a dvdend durng the ta abe year by the domestc
parent corporaton. If, n the ustraton gven, the entre accumu-
ated profts of 170,000 were dstrbuted to the domestc corporaton,
the amount of ta deemed to have been pad on the profts of the
v r n u 170,000 , /170.000 . nnnn
trench subsdary woud be OOOO 900)00 30,000 ), or
25,500. The amount of ta deemed to have been pad woud, of
course, be sub|ect to the mtaton contaned n secton 238(e) of
the Revenue ct of 192 , namey, that t can not e ceed that pro-
porton of the Unted States ta ( 45,375) aganst whch the credt
s taken whch the amount of dvdends ( 170,000) receved from
the rench subsdary bears to the entre net ncome ( 330,000) of
the domestc corporaton (from sources wthn and wthout the
Unted States) n whch such dvdends are ncuded. In other
words, the mtaton under secton 238(e) of the Revenue ct of
192 woud be of 45,375, or 23,375.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 32: Consodated returns. I -7-7317
Ct. D. 922
INCOM ND C SS PRO ITS T R NU CT O 1918 D CISION O
COURT.
1. Income ffated Corporatons greement as to oca-
ton of Ta vdence.
Upon the evdence n the case the oard of Ta ppeas was
warranted n hodng that there was an agreement among certan
affated corporatons that the entre ta aganst the group shoud
be pad by the parent, whch owned a the stock of the subsdares
and derved a ts ncome from dvdends upon ther stock and from
commssons as ther seng ngeut the subsdares, whose offcers
were the same as those of the parent (wth one e cepton), havng
fed separate returns for 1917, 1018, and 1919, the parent ater
fng consodated returns for those years, and cams for abate-
ment and refund makng no menton of mproper aocaton of ta
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2-10, rt. 32.
328
but beng based upon other grounds. The statute does not requre
that such uu agreement shoud be made wth the Commssoner, nor
that t be n wrtng, nor that t be fed.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (23 . T. ., 70) affrmed.
3. Certorar Dened.
Petton for certorar dened October 8, 1934.
Unted States Crcut Court of ppeas, S th Crcut.
mercan Te te Wooen Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
ppea to revew an order of the Unted States oard of Ta ppeas.
efore Moorman, cks, and IIcke.m.ooper, Crcut udges.
ebruary 1C, 1934.
OPINION.
cks, Crcut udge: Petton by mercan Te te Wooen Co. to revew a
decson of the oard of Ta ppeas n assessng on redetermnaton defc-
ences of 53,37 . 2 and 39,3 2.70 n ncome and e cess-profts ta es for the
years 1917 and 1918, respectvey and n estabshng an overassessment of
120,317.48 for the year 1919, whch overassessment the partes are agreed was
equvaent to a defcency aganst the pettoner n the amount of 38,990.79.
Pettoner s a Deaware corporaton wth ts prncpa offce at Sweetwater,
Tenn. or tsef and ts four affates (a) Sweetwater Wooen Ms, Sweet-
water, Tenn., heren caed the Sweetwater company (ft) thens Wooen Ms,
thens, Tenn., heren caed the thens company (c) Park Wooen Ms,
Rossve, Ga., heren caed the Park company and (d) Lousve Wooen
Ms, Lousve, y., heren caed the Lousve company, t fed a con-
sodated and amended e cess-profts ta return for 1917, and a consodated
ncome and e cess-profts ta return for 1918 and 1919. Upon the bass of these
consodated returns the Commssoner assessed the ta es aganst pettoner
aone and the oard confrmed the assessments (23 . T. ., 70) wth certan
modfcatons not necessary to consder here, statng
We are of opnon that there e sted among the pettoner and
ts subsdares an agreement that consodated ta abtes of the affated
group for the years 1917, 1918 and 1919 shoud be aocated for assessment to
pettoner aone.
The oard reached ts concuson upon stpuated facts and the addtona test-
mony of . . Carter, presdent and genera manager, C. L. Cark, secretary and
treasurer, of pettoner, and Lee . atte, a certfed pubc accountant and
audtor of pettoner. ctng thereupon t based ts order upon the authorty of
Revenue ct of 1918 (40 Stat., 1057) secton 240 (a), n connecton wth Treasury
Reguatons 41, artce 78, and Treasury Reguatons 45 (1920 edton), artce
32. Such portons of the statute and of Treasury Reguatons 41, artce 78, as
are here nvoved are prnted n the margn.1
Consderng ony such facts as are matera to the present ssue, our soe
queston s, whether they are suffcent to sustan the order of the oard.
(Phps v. Commssoner, 283 U. S., 589, 00 Ct. D. 350, C. . -, 2 41
Tracy v. Commssoner, 53 ed. (2d), 575, 579 (C. C. . ) Ct. D. 350, C. .
-, 2 4 .)
1 Itevenue ct of 1918 (ch. 18, 40 Stat., 1057) :
Sec 240. (a) In any case n whch n ta s assessed upon the bass of a
consodated return, the tota ta sha be computed n the frst nstance as a unt and
sha then be assessed upon the respectve affated corporatons n such proportons as
may be agreed upon among them, or, n the absence of any such agreement, then on the
bass of the net ncome propery assgnabe to each.
Treasury Reguatons 41 :
rt. 78. When affated corporatons may be requred to make consodated return.
In eases where consodated returns are accepted, the tota ta w be com-
puted n the frst Instance as a unt upon the bass of the consodated return and w
be assessed upon the respectve affated corporatons n such proportons as may be
agreed among them. If no such agreement s made the ta w be assessed upon each
uch corporaton n accordance wth the net Income and nvested capta propery assgn-
abe to ft.
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329
240, rt. 32.
Pettoner was the domnant corporaton, and the four other companes,
subsdares, and durng the years nvoved pettoner owned a ther capta
stock and acted as ther seng agent. The offcers of each of the fve companes
were . . Carter, presdent, ames May, vce presdent, and C. L. Cark,
secretary and treasurer, wth the e cepton of the thens company, whch
had a separate secretary and treasurer, C. . eard. Lee . atte was tho
common audtor and accountant. These offcers, common to pettoner and a
the affates, handed a ther ta matters.
Pettoners ncome was derved from dvdends upon the stock of the four
subsdares and from commssons as ther seng agent.
or the year 1917 each company fed separate ncome and e cess-profts ta
returns. or the year 1918 each fed separate, combned ncome and e cess-
profts ta returns. These returns seem to have been treated temporary by the
Commssoner as suffcent.
On March 14, 1920, each company fed separate tentatve returns for 1919
and on May 14, 1920, each fed separate, compete ncome and profts ta returns
for that year.
On May 15, 1920, pettoner fed a consodated return for 1919 on behaf
of tsef and the four subsdares and transmtted t to the approprate co-
ector at Nashve aong wth the separate compete returns of pettoner
and the thens company, and n the transmttng etters t was stated that
the parent company (the mercan company) was fng a consodated return
for the group and that the ta w be pad on the consodated return.
In the etters of May 14, 1920, transmttng to the proper coectors the
separate 1919 returns above referred to of the Sweetwater, Lousve and Park
companes, each advsed that pettoner, as the parent company of the con-
sodated group, was fng a consodated return for 1920 but t s proper to
state that these etters made no menton of the bass upon whch the ta
woud be pad. ach of these etters, e cept that of the Lousve company,
was wrtten upon the statonery of pettoner.
The Lousve company pad 17,250 of the assessment aganst t for 1910
and thereupon fed an abatement cam for the baance, 51,098.98, upon the
ground that a consodated return had been fed for the group wth the
coector at Nashve. No proceedng by court acton or otherwse has ever
been commenced by the Commssoner for the coecton of ths baance.
On ugust 27, 1920, the Sweetwater company on orm 1122 (see Treasury
Reguatons 45, 1920 edton, artce 032) fed an nformaton return for the
year 1919. Ths orm 1122 contaned queston 7 as foows:
7. In case of a consodated returns, the Department prefers that the
tota ta assessed aganst the affated group be pad by the parent or prncpa
reportng company, nstead of beng apportoned among the affated companes.
If apportonment s made state the amount of ncome and profts ta for
the ta abe year to be assessed aganst the subsdary or affated company
makng ths return .
The Sweetwater company eft bank the space provded for the answer, nd-
catng that nothng was to be assessed to t. Ths nformaton return was
sgned by Carter as presdent and Cark as secretary and treasurer, both of
the Sweetwater company, and pettoner. t the same tme the Sweetwater
company fed an abatement cam sgned by Cark upon the ground that a
consodated return for the group had been fed by the parent company whose
ta payment on une 15, 1920, ncudes the ta assessed aganst the Sweet-
water Wooen Ms.
On ugust 28, 1920, the thens company fed an nformaton return on orm
1122 for 1919 and aso eft bank the space provded thereon for an answer to
queston 7. Ths return was sgned by Carter, presdent, and eard, treasurer
of the thens company. t the same tme It fed an abatement cam sgned by
Cark, who was not an offcer of the thens company, for the ta es shown on
ts separate return for that year, statng that pettoner was affated wth the
thens company, and that the ta assessed aganst the atter s beng pad
by the parent company.
On March 14, 1920, the Park company pad to the coector for the dstrct
of Georga 5,750 of the 1919 assessment aganst t and ater ted an abatement
cam for the baance, upon the ground that pettoner had fed a consodated
return and that the remanng nstaments of the ta were beng pad by the
pettoner to the coector at Nashve on the consodated return. Ths abate-
ment cam was sgned try Cark, secretary and treasurer. The Park company
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240, rt. 32.
330
aso fed an nformaton return for 1919 on orm 1122 and nserted n the
space provded for an answer to queston 7 the fgures 2 ,324.23.
Durng 1920 pettoner pad to the coector at Nashve 102,381.91. Ths
represented the ta due upon the consodated return for 1919. fterwards, on
December 15, pettoner fed an abatement cam for the ta es pad for that
year by the Lousve and the Park companes, to wt, 23,000, upon the ground
that these payments shoud appy on pettoner s consodated return.
On October 2 , 1920, the Commssoner wrote pettoner that the ve com-
panes woud be requred to te a consodated e cess-profts ta return for
1917 and consodated ncome and e cess-profts returns for 1918 and 1919. On
November 2, 1920, pettoner reped that a consodated return for 1919 had
aready been fed and that such returns woud be fed for 1917 and 1918 and
on ebruary 12, 1921, forwarded to the Commssoner for tsef and the four
subsdares (1) a consodated e cess-profts ta return for 1917 dscosng
a ta abty of 18,128.15 (2) a consodated ncome ta return for 1917 ds-
cosng a abty of 27,90S.2 and (3) a consodated ncome and profts
tu return for 1918 dscosng a abty of 351,034.14. ach of these returns
bore the pettoner s name on ts face and the accompanyng schedue showed
the names and addresses of the subsdares.
On October 28, 1921, pettoner receved from the Interna Revenue Depart-
ment a notce of a tentatve assessment aganst t of 400,885. 1 coverng the
years 1917, 1918, and 1919. Pettoner made no contenton that any part of
ts amount shoud have been aocated to ts subsdares but wrote the coec-
tor at Nashve that t fet that ths tentatve assessment was far n e cess
of any addtona ta es whch mght be found to be due and that t desred
to have a hearng before the Commssoner to show that the ta es were e ces-
sve. Wth ths etter t maed to the coector a check for 100,000 as a voun-
tary payment to be apped to any ta es whch mght be found due for the
years stated and two days ater pettoner notfed the Commssoner of ths
oayment. To make the payment pettoner borrowed 30,000 of the amount
from the Lousve company. The coector advsed the Commssoner that
ths payment had been deposted n ts undentfed account 9-D to awat
the assessment to be made by your offce and t was fnay credted upon
the ta es due for the year 1918.
On November 21, 1921, pettoner s secretary and treasurer, Cark, wrote to
the Commssoner and asked for a new assessment of the ncome and e cess-
profts ta for 1917, 1918, and 1919, under secton 210 of the Revenue ct of
1917 and sectons 327 and 328 of the Revenue ct of 1918.
On une 13, 1924, pettoner wrote the Commssoner reatve to ts ta es
for 1917 to 1919 ncusve and asked a correcton n respect to nvested
capta and stated that we w rey entrey for any further reef on our
request for consderaton under the provsons of secton 210 of the Revenue
ct of 1917 and sectons 327 and 328 of the Revenue ct of 1918.
On March 13, 1924, pettoner fed wth the coector at Nashve refund
cams for ta es for the years 1917 and 1918 n the amount of 45,000 each,
but made no menton n ether cam that the defcences assessed upon the
consodated returns for those years had been mpropery aocated.
On September 24, 1924, pettoner e ecuted and ted wth the Commssoner
an appea from fe premnary determnaton of the consodated ta abtes
for the years 1917 to 1919 ncusve and agan made no menton of any
aocaton of the defcences.
On October 7, 1925, the Commssoner maed to pettoner and ts subsdares
the fna defcency etter for the years 1917, 1918, and 1919 heren com-
paned of and n response thereto no cam was made by pettoner of mproper
aocaton.
On September 8 and 9. 1925. the coector wrote to the Park company
askng t to e ecute wavers e tendng the perod for the assessment and
coecton of the ta es shown to be due on the separate returns of that company
for the years 1918 and 1919 respectvey. Carter, presdent and genera manager
of pettoner, answered these etters on the statonery of pettoner and sad:
In retard to these two cams woud state, ths cam for abatement
was made when our ncome ta reports were made by the ndvdua ms. The
Income Ta Department afterwards requred us to fe a consodated return
whch covered the returns for the Park Wooen M wth our other ms and we
understand that ths dd away wth the ndvdua m returns and shoud have
done away wth these cams.
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331
240, rt. 32.
Oar whoe ncome ta matter for the years 1918 and 19 s beng handed
In Washngton as a consodated return for these years.
On September 12, 1928, pettoner wrote the coector at Lousve as foows:
We are at a oss to know why we can not get ths 51,000 ceared
out at your offce as no doubt you remember that we fed ndvdua report and
then the Government came aong and made us fe consodated report and a
the ta has been pad on the consodated report. Therefore the Government
shoud cear us of ths 1919 ta as t has been setted.
No ssue nvovng the mproper aocaton of defcency assessments was ever
rased unt 1928 when pettoner became represented by new counse. It was
at hs suggeston that on anuary 30, 1929, an amended petton was fed whch
rased for the frst tme that queston.
We thnk there can be tte doubt upon the facts stated that pettoner ntended
that the ta es for the years n queston shoud not ony be assessed aganst t
but that they shoud be pad by t and f ths be true t necessary foows that
the subsdares were n accord because a fve corporatons had the same offcers
and agents n charge of ts ta matters wth the one e cepton above noted. It
s nconsstent to say that the offcers and agents actng for the parent company
have agreed for t that a thng shoud be done and nt the same tme say that
these same offcers and agents actng for the subsdares have ntended other-
wse. We thnk there s substanta evdence, n the course foowed by these
offcers n representng a the companes throughout the whoe controversy, to
show an agreement among them a that the entre ta aganst the group shoud
be assessed and pad by the parent company. (See In re Temtor Corn rut
Products Co., 299 ed., 32 , 329.) It s dffcut to thnk otherwse. We thnk,
wthout a reteraton of the facts, that the Commssoner was |ustfed n makng
the assessment from ths nference.
sse Coa Co. v. Commssoner (39 ed. (2d), 892) (C. O. . f ) s urged upon
us n support of the contrary vew. In that case t s true the offcers of the two
corporatons nvoved were the same ndvduas. (See sse Coa Co. v. Com-
mssoner, 12 . T. ., 994, 998.) ut ths court n ts opnon save no consdera-
ton to that feature. In ths case the dentty of offcas s a fact whch shoud
be consdered aong wth a the other facts and crcumstances. We recognze
that the court n that case dd say, The statute ceary contempates the e st-
ence of an agreement or the absence of one at the tme of the fng of the return
and the makng of the assessment. ut the statute does not contempate nor
requre that such an agreement shoud be made wth the Commssoner, nor that
t be n wrtng nor that t be fed. It requres ony that the agreement be among
the affates. We see no reason why t may not, ke many other agreements,
be mped from crcumstances. It s a forced nterpretaton to say that the
statute requres the common offcers of a the companes to enter nto a forma
and e press contract wth themseves as to the aocaton of the ta es.
Pettoner tsef never rased the pont, that there was any ack of under-
standng that the ta es nvoved shoud be assessed aganst t, unt new
counse made the suggeston n 192S. Upon the other hm. on une 13, 1924,
t wrote the Commssoner that t woud rey entrey for further reef upon
another and dfferent statute. When t fed the consodated return for 1919
t wrote the coector that the ta w be pad on the consodated return
and when t fed the consodated return for 1917 and 1918 t vountary pad
100,000 of the ta even before t was fnay assessed. The hstory of the
case, wth tte to the contrary, ndcates that the affates themseves acted
upon the assumpton that after the consodated returns were fed the ta
woud be assessed aganst and pad by pettoner.
The abatement cams fed by the four subsdares can be e paned upon
no other hypothess than that after the consodated returns were fed they
each understood and e pected that the ta es woud be assessed aganst the
parent company.
Pettoner urges that the oard dd not make a fndng of fact that the
agreement requred by the statute e sted. ut. as stated at the outset, the
oard dd so fnd n ts opnon and that s a that s requred. Sheppard
f Myers v. Commssoner, 45 ed. (2d), 50, 51 (C. C. . 3).)
The order of the oard of Ta ppeas s affrmed.
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240, rt. 35.
332
rtce 35: Consodated net ncome of I -1-7232
affated corporatons. Gt. D. 902
INCOM T R NU CTS O 1924 ND 1920 D CISION O SUPR M
COURT.
1. Deducton mortzaton of ond Dscount ffated Cor-
poratons Intercompany Transacton.
Where a parent corporaton acqured a the bonds of a subsd-
ary, the atter corporaton havng sod them at a dscount at
varous dates between 1913 and 191 and havng amortzed the
amount of the dscount over the remanng fe of the bonds, the
annua amortzed dscount for the years 1924 to 192 . ncusve,
may not be deducted n computng the consodated net ncome of
the group, whch ted consodated returns on the accrua bass,
for those years. The transacton, beng between affated corpora-
tons, was propery emnated from consodated net ncome, n
accordance wth artce 3 of Reguatons 5 and artce 35 of
Reguatons 9, pertanng to the Revenue cts of 1924 and 192 ,
respectvey.
2. Decson ffrmed.
Decson of the Unted States Court of ppeas for the Dstrct
of Coumba (Ct. D. 879, C. . III-2, 278 71 ed. (2d), 953),
affrmng decson of the oard of Ta ppeas (22 . T. ., 233),
affrmed.
Supreme Court of the Unted States.
Guf, Mobe northern Raroad Co., pettoner, v. Guy T. everng, as
Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Court of ppeas for the Dstrct of Coumba.
December 3, 1934.
OPINION.
Mr. ustce Stone devered the opnon of the Court.
Certorar was granted n ths case mted to the queston of the rght of
the ta payer to deductons on account of amortzaton of bond dscount.
(293 U. S., 548.) t varous dates between 1913 and 191 , Merdan Memphs
Raway Co. sod ts 30-year 5 per cent god bonds at a dscount. Durng the
years 1924 to 192 , ncusve, whe pettoner was the owner and hoder of
the entre bond ssue, It |oned wth the Merdan Memphs n fng conso-
dated ncome ta returns as affated corporatons. In each year the atter
deducted from gross ncome the amortzed bond dscount. The deductons were
dsaowed by the Commssoner. s acton was sustaned by the oard of
Ta ppeas (22 . T. ., 233) and by the Court of ppeas for the Dstrct
of Coumba. (71 . (2d), 953.) The queston presented s the same as that
decded ths day n No. 107, Od Msson Portand Cement Co. v. everng
Ot. D. 903, beow . The |udgment of the court beow was therefore rght
and s affrmed.
Mr. ustce uter and Mr. ustce Roberts thnk the |udgment shoud be
reversed.
rtce 35: Consodated net ncome of I -1-7233
affated corporatons. Ct. D. 903
( so Secton 234, rtce 5 1.)
INCOM T R NU CTS O 1921, 1924, ND 192 D CISION O SUPR M
COURT.
1. Deducton mortzaton of ond Dscount ffated Cor-
poratons Intercompany Transacton.
Where a parent corporaton purchased bonds of one of ts aff-
ates, the affate havng ssued them at a dscount n 1912 and hav-
ng deducted from gross Income the amortzed dscount on the
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333
240, rt. 35.
bonds durng each of te years 1923 to 192 , Incusve, the amount
of amortzaton appcabe to the bonds purchased by the parent
may not be deducted n computng the consodated net ncome of
the group, whch fed consodated returns on the accrua bass for
those years. The transacton, beng between affated corpora-
tons, was propery emnated for consodated net Income, n ac-
cordance wth artce 03 of Reguatons 02 and 05 and artce 35
of Reguatons 9, pertanng to the Revenue cts of 1921, 1924,
and 192 , respectvey.
2. Deducton Contrbutons to Communty Chkst Ordnary
and Necessary usness pense.
Contrbutons made by a corporaton to the communty chest are
not deductbe as ordnary and necessary busness e pense, under
secton 234(a) 1 of the Revenue cts of 1921, 1924, and 192 , n the
absence of evdence of any drect beneft therefrom fowng to the
corporaton s empoyees or busness, such as s contempated by the
reguatons nterpretng the above secton.
3. Decson ffrmed.
Decson of the Crcut Court of ppeas, Nnth Crcut ( 9 ed.
(2d), 7 ), affrmng decson of the oard of Ta ppeas (25
. T. ., 305), affrmed.
Supreme Court of the Unted States.
Od Msson Portand Cement Co, pettoner, v. Guy T. everng, as
Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut
December 3, 1934.
opnon.
Mr. ustce Stone devered the opnon of the Court.
In ths case certorar was granted (293 . S., 544), mted to the queston
of the rght of the ta payer to deductons (a) on account of amortzaton of
bond dscount, and ( ) on account of contrbutons to the San rancsco
Communty Chest.
Durng each of the years 1923 to 192 , ncusve, pettoner and two corpora-
tons affated wth t fed consodated ncome ta returns on the accrua bass.
Iu each year one of the affated corporatons deducted, from gross ncome,
amortzed dscount aowed upon an ssue of ts bonds n 1912. In computng
the ta abe ncome to be assessed to pettoner, the parent corporaton, under the
appcabe Revenue cts of 1921 (ch. 13 . 42 Stat., 227), 1924 (ch. 234, 43 Stat.,
253), and 192 (ch. 27, 44 Stat, 9), the Commssoner refused to aow the deduc-
ton of so much of the amortzed dscount as was appcabe to bonds, ssued by
ts affate, whch pettoner had acqured by purchase. e aso refused to aow
credt for the contrbutons to the communty chest as not an ordnary and
necessary e pense, deducton of whch the statute permts. s acton was
sustaned both by the oard of Ta peas (25 . T. ., 305) and the Court
of ppeas for the Nnth Crcut ( 9 . (2d), 7 ).
1. It Is no onger open to queston that amortzed bond dscount may be
deducted n the separate return of a snge ta payer. (See No. 51, everng v.
Unon Pacfc Raroad Co. Ct. D. 901, C. . III-2, 305 , decded ths day.)
ut the Government nssts that the deducton by one affate, n a consodated
return, of amortzed dscount upon ts bonds, whch are owned by another
affate, Invoves an Intercompany transacton whch, under the appcabe
statutes and reguatons, must be emnated from the computaton of the ta
n order to arrve at the true ta abe ncome.
Secton 240 of the Revenue cts of 1921, 1924, and 192 e tends to affated
corporate ta payers the prvege of makng a consodated ta return, sub|ect
to such restrctons as may be mposed by Treasury reguatons. The purpose
of the secton was to provde a method of computng the ta upon the true net
ncome of what s n practca effect a snge busness enterprse, wth sub-
stantay common ownershp, as though t were that of a snge ta payer,
despte the fact that t s carred on by separate corporatons whose ta woud
otherwse be Independenty computed. (See urnet v. umnum Goods Manv
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240, rt. 35.
334
facturng Co., 2S7 U. S., 544, 547 Ct. D. 031. C. . III, 2831 : andy d Uar-
tnnn v. urnet, 284 U. S., 13 , 140 Ct. I). 425, C. . -2, 370 tantc Cty
ectrc Co. v. Commssoner, 2S8 U. S 152, 154 Ct. D. tS37, C. . I-1, 2S1)
Wooford at/ Co., Inc., v. Ro f, 28 U. S., 310 Ct. D. 442. ( . . I-1, 1451
ppeas of uud Couper Co.. 5 . T. ., 499, 514-510 cf. Treasury Reguatons
02, artce . 0. under the 1921 ct Treasury Reguatons 5, artce 03 , under
the 1924 ct Treasury Reguatons 09, artce 035, under the 102 ct)
ach of the reguatons controng consodated returns, under the app-
cabe Revenue cts, drects that ony one specfc credt of 2,000, whch secton
230(b) aows to each ndvdua ta payer, sha be aowed to the consodated
group, and provdes that sub|ect to the provsons coverng the determnaton
of ta abe net ncome of separate corporatons, and sub|ect further to the
emnaton of ntercompany transactons (whether or not resutng n any
proft or oss to the separate corporatons), the consodated ta abe net ncome
sha be the combned net ncome of the severa corporatons consodated.
It s by the emnaton of ntercompany transactons from the computaton, n
order to ascertan the combned net ncome of the severa corporatons con-
sodated, that the purpose of the statute s effected. (See urnet v. umnum
Goods Manufacturng Co.. supra, 549, 550.) The Government, havng thus
conferred upon groups of affated ta payers the prvege of computng ther
ta as though they were a snge ta -payng entty, t woud requre pan
anguage n statute and reguatons to support the concuson that t was
aso ntended that they shoud retan the advantages whch, before affaton,
attached pecuary to ther status as ndependent ta computng enttes.
The reguatons are amed at the preventon of a doube advantage, to be
secured ony f affated ta payers are aowed to treat themseves, at the
same moment, as one or many, accordng to ther convenence for purposes
of ta computaton.
mortzed bond dscount s deductbe from the ta payer s gross ncome
ony by way of antcpaton of payment of the bonds at maturty. It s then
that the ta payer pays the dfference, between the amount reazed upon the
sae of the bonds and ther par vaue, whch s the sub|ect of the amortzaton.
( evcrng v. Unon Pacfc Raroad Co., supra.) ere the payment antc-
pated s from one affate to another, an ntercompany transacton. If we
emnate t from the computaton of ncome upon the consodated return,
as the reguaton drects, there s no antcpated payment of the dscount to
be amortzed and no bass for the deducton.
snge ta payer who had purchased hs own bonds before maturty coud not
afterwards deduct, from gross ncome, the amortzed dscount on the bonds, n
antcpaton of ther payment at maturty. Ths s equay the case where
the obgor and obgee are affated corporatons camng the beneft of a
statute whch permts them to compute ther ta as though they were one.
It s true that In ether case the bondhoder may se hs bonds before maturty,
and thus renew hs obgaton to pay them. ut n nether s the ta payer n
a poston to requre the Government to antcpate an event whch may never
occur, by conferrng upon hm the beneft of a deducton to whch, wthout
Its occurrence, he woud not be entted. avng eected to take the beneft
of affaton, the ta payer can not compan of a burden whch s nseparabe
from the beneft and whch fnds ts source n the very method of computng
the (a from whch the beneft s derved.
2. The prvege of deductng chartabe donatons from gross ncome, con-
ferred on ndvdua ta payers by secton 214(a) of the Revenue cts of 1921,
1924, and 1920, has not been e tended to corporatons. proposa to e (end
It to them was re|ected by Congress pendng the passage of the Revenue ct
of 191S. (Congressona Record. ouse, voume 5 . part 10,1042 -10428.) Secton
234(a) 1 of the Revenue cts of 1921, 1024, and 1920 authorzes corporatons to
deduct from gross ncome a the ordnary and necessary e penses pad or
ncurred durng the ta abe year n carryng on any trade or busness. rtce
502 of Treasury Reguatons 2, nterpretatve of the 1921 ct, decared that
corporatons were not entted to deduct chartabe donatons. ut t recognzed
the rght to deduct donatons made by a corporaton for purposes connected
wth the operaton of ts busness when mted to chartabe nsttu-
tons, hosptas or educatona nsttutons conducted for the beneft of ts em-
poyees, and aso donatons whch egtmatey represent a consderaton for
a beneft fowng drecty to the corporaton as an ncdent of ts busness.
These provsons were retaned, wthout substanta change, n the reguatons
promugated under the 1924, 1820, and 1928 cts. ( rtce 5 2 of Treasury
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240, rt. 35.
Reguatons 5. 9 artce 2G2 of Treasury Reguatons 74.) s secton 234(a)
to whch they pertan has been reenacted n severa Revenue cts, the reguaton
now has the force of aw. (McCaughn v. ershcu Chocoate Co., 283 U. S., 488,
493 Ct. D. 345, C. . -, 444 Massachusetts Mutua Lfe Insurance Co. v.
Unted States, 288 D. S., 2 9, 273 Ct. D. (138, C. . II-, 280 .)
It s a queston of fact n each case whether a donaton s made to an nsttu-
ton conducted for the beneft of the donor s empoyees or s consderaton for
a beneft fowng drecty to the donor as an ncdent of ts busness. ere the
rung of the Commssoner, that the deducton was not permssbe under the
statute and reguatons, presumaby rests upon a correct determnaton of the
facts. (Wech v. everng, 200 U. I, 115 Ct. D. 75 . C. . I1-2, 112 .)
The oard of Ta ppeas found that the gts to te San rancsco Communty
Chest were apportoned among the chartabe organzatons of the cty and that
the gfts of pettoner were made n the beef that they resuted n good w
toward the pettoner and ncreased ts busness. ut the oard made no
fndng of any drect beneft to pettoner s empoyees or busness whch the
reguatons contempate. Nor was there evdence before t to support such a
fndng. Our revew of determnatons by the oard s mted to questons
of aw rased by ts fndngs or ts faure to make fndngs requred by the
statute. (See Od Coony Trust Co. v. Commssoner. 279 U. S., 71 . 728 Ct. I).
80, C. . -2, 222 Phps v. Commssoner. 283 II. S., 589. 599, 00 Ct. D.
350, C. . -, 2 4 . Compare endrck Coa t Dock Co. v. Commssoner, 29 .
(2d), 559, 5 4 (C. C. . 8) Commssoner v. La tg we Rea state Corporaton,
47 P. (2d), 841, 842 (C. C. . 7) Ct. D. 348, C. . -, 3 1 .)
ffrmed.
Mr. ustce uter and Mr. ustce Roberts thnk that so much of the |udg-
ment as sanctons the Commssoner s refusa to deduct the bond dscount
shoud be reversed.
rtce 35: Consodated net ncome of I -2-7244
affated corporatons. Ct. D. 907
ncome ta revenue act of 1021 decson of supreme court.
1. Deducton Losses ffated Corporatons urden of
Proof.
parent and ts subsdary havng made separate and conso-
dated returns for the years 1920-1923, ncusve, pad ncome ta es
on the consodated return bass and used arge net osses of the
subsdary to reduce the parent s ta ed ncome, the parent was not
entted to a deducton n ts consodated return for the year 1923
for osses on qudaton of the subsdary n that year, where the
Commssoner determned that such further deducton woud re-
fect drecty or ndrecty the same osses and the parent faed to
sustan the burden of provng the essenta fact that the aowance
of the deducton woud not amount to twce subtractng the same
osses.
2. Decson Reversed.
Decson of the Crcut Court of ppeas, Nnth Crcut (
ed. (2d), 895), reversed.
Supreme Court of the Unted States.
ohn P. McLaughn, Coector of Interna Revenue for the rst Dstrct
of Cufm-ta, pettoner, v. Pacfc Lumber Co.
On wrt of certorar to the Unted Statos Crcut Court of ppeas for the Nnth Crcut.
December 10, 1934.
OPINION.
Mr. ustce uter devered the opnon of the Court
Respondent brought ths acton n the Dstrct Court for Northern Caforna
to recover 143,122.23 t had pad as ncome ta for 1923. The compant aeges
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240, rt. 35.
33
facts upon whch respondent cams to have been overassessed In that sum
ns a resut of faure to take nto account deductbe osses. One oss ( 479, 25)
resuted from the qudaton n 1023 of . . Thane Co., a whoy owned
subsdary. The other ( 933,134.49) was the ndebtedness of that company
to respondent, ascertaned to be worthess and charged off by the atter n
that year. Pettoner s answer put n ssue some and admtted other aegatons
of the compant. The partes stpuated for tra by the court wthout a |ury.
The evdence conssted of an agreed statement of facts and the separate and
consodated ta returns for 1920 to 1923, ncusve, of respondent, Thane
Co., and Pacfc Lumber Co. of Inos. t the cose of the evdence each
party moved for |udgment. The court dened pettoner s moton, granted
that of respondent and gave t |udgment n the amount sued for wth nterest
and costs. The Crcut Court of ppeas affrmed. ( . (2d), 895.)
The aegatons of the compant admtted by the answer, the agreed state-
ment and the ta returns show:
Durng 1918 . . Thane Co. had outstandng 00 shares of capta stock
of the par vaue of 100 each respondent owned 540 for whch t had pad
31,500 and . . Thane owned 0. In 1920. the company ncreased ts cap-
ta to 5,000 shares, respondent subscrbed and pad to the company par vaue,
100 per share, for 3.9 0 and Thane took the remanng 440 shares. In 1921
respondent bought these shares for 52,125 and so became the owner of a, for
whch t had pad 479, 25. t the cose of 1923, Thane Co. was dssoved
and ts remanng assets were transferred to respondent. etween March
17, 1921, and the end of 1923, respondent bad advanced to t and pad for ts
account arge sums. fter deductng the amount repad pus the vaue of the
assets transferred at qudaton, Thane Co. was ndebted to respondent n the
sum of 953,134.49. efore the end of 1923, respondent charged ths off as a
debt ascertaned to be worthess n that year.
rom 1920 to 1923, ncusve, respondent, Thane Co. and the Pacfc Lum-
ber Co. of Inos made separate ncome ta returns and aso consodated
returns as affated corporatons. Ther ncome ta es were pad on the atter
bass. In each year respondent had a arge net ncome and Thane Co. ost
heavy the Pacfc Lumber Co. of Inos ost n the frst and had reatvey
ma net ncome In each of the other years. Ther separate returns for 1923
respectvey showed net ncome of 1,379,494.78, net oss of 229,942.15, and
net ncome of 8,809.83. The consodated return reported net ncome of
1,158,3 2.4 on whch respondent pad 144,795.31 as the tota ncome ta .
Upon e amnaton and audt n the ureau, a greater deducton was made for
deprecaton than was camed n the return, overpayment was found n the
amount of 1, 73.08 and that was refunded.
Insstng that the osses here n queston were deductbe, respondent fed
a cam for refund of the baance, 143,122.23. The etter of the deputy com-
mssoner notfyng t that the cam woud be re|ected stated that, snce Thane
Co. was affated wth respondent and aowance was made, n computng
consodated net ncome, for a deductbe osses sustaned by the subsdary
durng the severa years, a further deducton refectng drecty or ndrecty
the same osses was not aowabe. nd the cam was dsaowed.
Pettoner s moton at the cose of the evdence for |udgment n hs favor
rased the queston of aw whether the evdence s suffcent to warrant |udg-
See foowng tabe:
1920.
1921.
1922.
1923
Pacfc Lumber Co. of Mane, respondent...
. . Thane Co.
2,2 2,959.39
I 443,821.95
23, 052. 35
379, 24. 88
548. 1 .82
18,314.97
1,2 ,450.51
344, 791. 49
31,198.03
1,379,494.78
229,942.15
8,809.83
Pacfc Lumber Co. of Inos
1, 79 , 085. 09
150, 220. 97
952,857.05
1.158,3 2.4
Net oss.
The consodated net oss of 150,22 .97 for 1021 wns aowed ns a deducton from the consodated net
ncome for 1922, resutng n a consodated net ncome for the atter year of -C2, 30.08f upon whch the
ta was pad.
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337
240, rt. 035.
ment for respondent and the tra court s decson of that queston was
revewabe n the Crcut Court of ppeas and s here for decson. (Unted
States v. efferson ectrc Co., 291 U. S., 3S , 407 Ct. D. 803, C. . III-1,
393 .)
Secton 240(a) of the Revenue ct of 1921 decares: That corporatons
whch ore affated wthn the meanng of ths secton may make
separate returns or under reguatons prescrbed make a conso-
dated return of net Income n whch case the ta es thereunder sha
be computed and determned upon the bass of such return. (42 Stat., 227,
2 0.) Treasury Reguatons 2 provde: Consodated returns are based
upon the prncpe of evyng the ta accordng to the true net ncome and
nvested capta of a snge enterprse . rtce C31. Sub|ect
to the emnaton: of ntercompany transactons the con-
sodated ta abe not ncome sha be the combned net ncome of the severa
corporatons consodated. ( rtce 3 .)
If not nconsstent wth ts obgaton under the statute accuratey to report
ta abe ncome for 1923, respondent may deduct the osses t sustaned n that
year as the resut of ts nvestment n the stock of Thane Co. and ts advances
to or for that company. ( urnet v. umnum Goods Co., 287 U. S., 544, 550
Ct. D. 31, C. . II-1, 283 .) ut a consodated return must truy refect
ta abe ncome of the untary busness and consequenty t may not be em-
poyed to enabe the ta payer to use more than once the same osses for reduc-
ton of ncome. Losses of Thane Co. that were subtracted from respondent s
ncome are not drecty or ndrecty agan deductbe. ( andy arman v.
urnet, 284 U. S., 13 , 140 Ct. D. 425, C. . -2, 370 Unted States v. Ludey.
274 U. S., 295, 301 T. D. 404 , C. . I-2, 157 Ifed Co. v. ernandez, 292
D. S.. 0, 8.) Respondent vountary pad the ta . When dsaowng the
cam for refund, the ureau notfed t that osses n 1923 refectng other
deductons woud not be aowed. Presumaby respondent had wthn ts
contro the records showng facts that woud fuy dscose the reatons be-
tween such osses and those reported n the returns of Thane Co. The Crcut
Court of ppeas states that there s no evdence of doube deducton or any
specfc Instance of such deducton. ut that absence of proof does not support
the |udgment. Respondent had the affrmatve of the Issue, and the burden
was on It to show that aowance of the deducton camed woud not amount
to twce subtractng the same oss. That s an essenta fact whch can not be
assumed. Respondent may not rey on mere asserton or specuaton. (Cochran
v. Unted States, 254 U. S., 387, 393 dety Tte Co. v. Unted States, 259
U. S., 304, 30 T. D. 3353, C. . 1-2, 344 Unted States v. nderson, 2 9 U. S.,
422, 443 T. D. 3839, C. . -, 179 Compana Genera v. Coector, 279 U. S.,
30 , 310 Unted States v. efferson ectrc Co., supra. 400.)
The evdence not ony fas to estabsh that essenta fact but s tte, f
ttny, ess than enough to show that the aowance of the deductons camed
woud be a second use of the same osses. The detas, gven n the tabuar
statement prnted n the margn of an earer page of ths opnon, show
that the osses of Thane Co., whch operated through consodated returns
to reduce respondent s ncome ta ed, amount n a to more than respondent s
asserted 1923 osses and to more than Its ncome ta ed n that year. Thane
Co. s statements attached to ts separate ta returns show abtes n
e cess of assets n each year of the affated perod ncreasng annuay unt
by the end of 1923 the defct had become . 1,453,134.49. Pror to 1920 Thane
Co. had outstandng ony 0,000 of capta stock, 90 per cent of whch was
acqured by respondent for ess than par. Durng the affated perod ts de-
ductbe osses amounted to more than three tmes ts capta. Whe t
s concevabe that, as suggested by respondent, the osses do not necessary
Indcate that thereby Thane Co. became unabe to pay ts debts, the cr-
cumstances tend strongy to ndcate that they dd cause ts breakdown re-
sutng n respondent s 1923 osses here camed. If these osses dd not
cause, or are not refected n, those sustaned by respondent n 1923 as the
resut of Its nvestment n and advances to that company, t reasonaby may
be presumed that respondent woud have shown that fact.
The tra court shoud have granted pettoner s moton for udgment n
hs favor.
Reversed.
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8240, rt. 35.
338
bttc e 35: Consodated net ncome of
affated corporatons.
I -11-7372
Ct. D. 934
INCOM T R NU CT O 1924 D CISION O COURT.
1. Income Consodated Net Income ffated Corporatons
Deangs by Subsdary n Stock of Parent.
Profts derved by a subsdary corporaton from the purchase of
stock of the parent corporaton from nonmembers of the affated
group and ts sae to other nonmembors consttute ncome of the
subsdary whch must be ncuded In the consodated net ncome of
the group.
2. Certorar Dened.
Petton for certorar dened November 20, 1934.
Unted States Crcut Court of ppeas for the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. Genera Gas d ectve
Corporaton, respondent.
Petton to revew a decson of the oard of Ta ppeas. Reversed.
The ssue presented Is whether a subsdary member of an affated corporate
group whch owned some of the capta stock of the parent corporaton t
had acqured from thrd partes and sod such stock at a proft n 1924 to thrd
partes thereby receved ta abe ncome.
Chase, Crcut udge: The facts are not n dspute. The respondent owned
a of the capta stock of ts subsdary, Genera nance Corporaton, durng
1924. In that year, Genera nance Corporaton sod 7,300 shares of the
convertbe preferred stock of the respondent to purchasers other than members
of the affated group. It had prevousy acqured ths stock from nonmembers
of the group for 227, 2.2 ess than the prce for whch t sod the stock.
The Commssoner ncuded n gross ncome ths e cess of the sae prce over
the cost or bass of the stock to the Genera nance Corporaton and so
computed the ta . The oard of Ta ppeas hed that such e cess was not
ta abe ncome and the matter s here on petton to revew that decson.
The oard based ts decson on severa of ts prevous hodngs to the effect
that the affated group was the ta payer and treated the deangs of Genera
nance Corporaton n the stock of ts parent, the respondent, the same as
though a corporaton had egay deat n ts own stock. Under Treasury regu-
atons such transactons woud resut n nether ta abe gan or deductbe
oss. (Treasury Reguatons 5 artce 543.) mong ts own decsons to
that effect was an Camp Packng Co., Inc. (2 . T. ., 25 ), whch has
snce been reversed. (Commssoner of Interna Revenue v. an Cump packng
Co.. Inc., 7 ed. (2d). 59 (C. C. . 7).)
It has now been setted that an affated group s not a ta payer but a ta -
computng unt and that the corporatons themseves are the ta payers.
(Wooford Reaty Co. v. Rose, 28 U. S., 319 Ct. D. 493, C. . I-1, 154
Commssoner v. en Gnsburg Co., 54 ed. (2d), 238 (C. C. . 2) Ct. D. 479,
C. . I-1, 151 Deaware udson Co. v. Commssoner. 5 ed. (2d). 292
(C. C. . 2).) The respondent s affate, Genera nance Corporaton, ceary
had, as the resut of ts purchase and sae of the respondent s stock, a proft
n the amount of the dfference between what t pad for the stock and ts
sae prce. Ths proft was wthn the defnton of ncome n the statute.
(Secton 213 of the Revenue ct of 1924.) ( sner v. Macom er. 252 U. 8.,
188 T. D. 3010, C. . 3, 25 Merchants Loan Trust Co. v. Smctanka, 255
U. S., 509 Ct. D. , C. . 4, 34 .) It was ncome derved by one corporaton
from deangs n the stock of another uness, because the respondent owned
a of ts stock, we shoud dsregard the corporate dentty of Genera nance
Corporaton for purposes of ta aton. Congress, however, has never seen ft
to treat a whoy owned affate as dentca wth the parent corporaton for
efore L. and, Swan, and Chase, Crcut udges.
uy 1 , 1934.
OPINION.
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330
245, rt. 31.
ta purposes and t Is ncumbent upon the courts to foow the scheme of
ta aton prescrbed by Congress save ony when t may contravene the Con-
sttuton. It has been hed, moreover, that the gan derved by a corpora-
ton from awfu deang n ts own stock s ta abe ncome. (See Com-
mssoner v. 8. . Woods Mach. Co., 57 ed. (2d), 35 Ct. D. 0, C. . II-1,
275 .) That s not, however, the ssue n ths case.
Snce the amount nvoved was ncome to Genera nance Corporaton, t
was propery taken to be such by the Commssoner n computng the net
ncome of that unt n the group and then carred nto the computaton of
the net ta abe ncome payabe by any corporaton or corporatons n the
affaton. Ony to ths e tent were they entted to beneft by the fng of
a consodated return. (Commssoner nf Interna Revenue v. an Camp Pack-
ng Co., Inc., supra.)
Decson reversed and cause remanded to the oard of Ta ppeas for
further proceedngs consstent wth ths opnon.
S CTION 245. T S ON INSUR NC COMP NI S.
rtce 81: Reserve funds. I -1G-7443
Ct. D. 950
INCOM T R NU CT O 1921 D CISION OP SUPR M COU T.
1. Deductons Lfe Insurance Company Reserve unds Re-
qured by Law Matured Coupon Labty.
ssets hed by a fe nsurance company aganst abtes on
matured coupons attached to 20-payment fe coupon nonpartcpat-
ng poces are not reserve funds requred by aw wthn the
meanng of secton 245(a)2 of the Revenue ct of 1921. mounts
hed aganst the contngency that the fe nsurance w mature by
reason of the death of the nsured, aone consttute the base on
whch the deducton s to be computed. Reserves aganst matured
coupons are e cuded.
2. Decson Reversed.
Decson of the Crcut Court of ppeas. Tenth Crcut (71 ed.
(2U), 9 2), reversed.
Supreme Court of the Unted States.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. Intcr-
Uountan Lfe Insurance Co.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Tenth crcut.
pr 1, 19. 5.
OPINION.
Mr. ustce utt.kr devered the opnon of the Court.
The queston for decson s whether assets hed by the company n 1922
aganst matured and unpad coupons attached to 20-payment fe coupon non-
partcpatng poces consttuted a reserve fund requred by aw wthn the
meanng of secton 245(a)2 of the Revenue ct of 1921.
That secton decares that net ncome means gross ncome ess, among other
permssbe deductons, an amount equa to 4 per cent of the mean of the
reserve funds requred by aw hed at the begnnng and end of the ta abe
year. Respondent, a stock company, ncorporated under Utah aw and com-
menced busness n 1911. The aws of that State requre, as a condton of
dong fe nsurance busness, that the assets of the company sha equa or
e ceed a abtes for osses reported, e penses, ta es and other outstandng
1 Skc. 245. fa) That In the case of a fe nsurance company the term net ncome
mvans the pross ncome ess (2) n amount equa to the e cess, f any, over
the deducton specfed n paragraph (1) of ths subdvson, of 4 per centum of the
mean of the reserve funds requred by aw and hod at the begnnng and end of the
ta abe year . (42 Stat., 2 1.)
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245, rt. 81.
340
abtes ncudng the ega reserves. nd tey prescrbe the rate of nterest
to be assumed and the mortaty tabe to be used for the purpose of makng
vauatons of fe nsurance poces and determnng the reserves requred to be
mantaned.2
The record contans a specmen pocy for . 10,000 appcabe to age 35 ssued
n consderaton of 20 annua premums of . 420.90. ttached are 19 coupons
maturng seray on annversary dates of the pocy begnnng wth the frst and
endng wth the nneteenth. ach coupon s a promse that at ts maturty the
company w pay the amount specfed to the owner of the pocy.
The pocy states: The company w credt nsured the face amount of any
matured coupon as t becomes due and pay compound nterest thereon, thereby
creatng a fund to the credt of the nsured whch may be apped to the pay-
ment of premums or at any tme wthdrawn n cash and, f not so apped
or wthdrawn pror to bs death, t w pay the coupon vaues wth nterest
to date of death to the benefcary n addton to the face amount of the pocy.
The nsured durng the frst year or wthn a month after the due date of
the second annua premum may eect to convert the coupons as they mature
nto pad-up fe addtons to the pocy whch are ony reconvertbe nto
cash surrender vaue.
t the end of 20 years f a premums have been pad n cash and f the
amount of each matured coupon has been eft wth the company to accumuate
at nterest, then upon surrender of the pocy and a coupons the nsured sha
seect one of the foowng optons: guaranteed cash payment of 8,000
a pad-up pocy for 14,130, sub|ect to nsurabty a guaranteed annua ncome
of 490 for at east 20 years and as many more as the nsured sha survve
a pad-up pocy for 10,000 and an annua ncome of 174.40 durng fe.
t the end of 15 years the company w ssue a fuy pad-up pocy of 10,000
upon surrender of the orgna pocy and the frst 14 coupons representng
vaues eft on depost at compound nterest.
The mean of the company s reserve funds n 1922 set up aganst abtes
other than matured coupons was 942,751.40. Later heren these are referred
to coectvey as nsurance reserves. The company camed and the Com-
mssoner aowed as a deducton 4 per cent of that amount. It carred a
separate reserve aganst matured, unsurrendered and unpad coupons, the
moan of whch n that year was 130,523.39. In ts return the company de-
ducted 4 per cent of that amount but the Commssoner dsaowed the tem.
The oard of Ta ppeas, n harmony wth ts pror constructons of the
cause n queston, hed the coupon reserve deductbe. It was sustaned by
the court, foowng cases n that and other Crcut Courts of ppeas.4 (71 .
(2d), 902.) That beng n confct wth a recent decson of the Court of Cams,
ths court granted a wrt of certorar. (293 U. S., 553.)
In the reserves requred by the aws of Utah and of the other States n whch
the company ssues poces of the descrbed cass, there s ncuded an amount
suffcent to cover not ony a eements of nsurance but aso the coupon ab-
ty. We are not here deang wth reserves n reaton to sovency of the
company. The thng to be ascertaned s the meanng that Congress Intended
by the anguage 4 per centum of the mean of the reserve funds requred by
aw. The cause to be construed reates e cusvey to fe nsurance com-
panes. It s ntended to defne a deducton whch they are permtted to make
n the cacuaton of the net amount to be ta ed. The rue that ambgutes
n statutes mposng ta es are to be resoved n favor of ta payers does not
Revsed Statutes of T tah, 1933, tte 43, chapter 3, secton 4 : No stock company
sha do any Insurance busness n ths State before ts capta s fuy pad up. Sad
capta must be unmpared, that s. the assets of such company must equa or e ceed
a abtes for osses reported, e penses, ta es and other outstandng abtes,
ncudng the ega reserves as provded n sectons 43-3-12 . Secton 12:
or the purpose of makng vauatons of fe nsurance poces and of determnng
the reserves requred to be mantaned therefor under the provsons of ths tte the
rate of nterest assumed sha be 3 per cent per annum, and the rate of mortaty
sha be estabshed by the tabe known as the mercan perence Tabe of Mortaty
or poces ssued after anuary 1, 1910, .
Standard Lfe Insurance Co. of merca (13 . T. .. 13) Itcsene Loan Lfe
Insurance Co. (IS . T .. 359) armers Lfe Insurance Co. (27 . T. ., 423)
Mssour Stae Lfe Insurance Co. (29 . T. ., 401) tas Lfe Insurance Co. (29
. T. ., 750).
Commssoner v. Standard Lfe Insurance Co. of merca (C. C. . 3) (47 . (2d),
218) Commssoner . Western Unon Lfe Insurance Co. (C. C. . 9) (01 . (2d),
207) Commssoner v. Great mercan Lfe Insuranct Co. (C. C. . 10) (70 . (2d). 133).
5 Contnenta ssurance Co. v. Unted States (8 . Supp.. 474). Cf. Mnnesota Mutua
Lfe Insurance Co. v. Unted States (00 O. Cs.. 481) Massachusetts Mutua Lfe In-
surance Co. . Unted States (50 . (2d), SU7 Ct. D. 502, C. . I-1. 29 ).
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341
270, rt. 120 .
appy. Deductons are aowed ony when pany authorzed. (Ifcd Co. v.
ernandez, 292 U. S., 2, Ot D. 819, C. . III-1, 139 New Coona Co.
v. everng, 292 U. S., 435, 440 Ct. D. 841, C. . III-1, 194 .)
The word reserve has many meanngs. ccounts creatng reserves are
set up In amost every ne of busness and funds evdenced by te book entres
are hed for many and wdey dfferent purposes. s the ct does not permt
corporatons other than nsurance companes to make deductons of the knd
here under consderaton, reserve funds may not reasonaby be deemed to
ncude vaues that do not drecty pertan to nsurance. In fe nsurance
the reserve means the amount, accumuated by the company out of premum
payments, whch s attrbutabe to and represents the vaue of the fe Insurance
eements of the pocy contracts. The premums ncude enough, over and above
what s needed to mantan proper nsurance reserves, to provde for the ds-
charge of coupon abty accordng to the terms of the pocy. The coupon
vaues are the equvaent of cash and may be used to pay premums on the face
amount of the pocy, to procure addtona nsurance, to essen the number of
annua premums or otherwse to obtan nsurance protecton. The amounts so
apped cease to e st as coupon abtes and automatcay become a part of
the fe nsurance reserves. These dffer essentay from coupon abty. Lfe
nsurance matures ony upon the death of the nsured and the fe reserve s
based upon that contngency, whereas abty on the matured coupons depends
upon no contngency. It foows that the nsurance reserves aone consttute
the base on whch the deducton s to be computed. Reserves aganst matured
coupons are e cuded. (McCoach v. Insurance Co. of North merca, 244 . 8.,
585, 589 Unted States v. oston Insurance Co., 2 9 U. S., 197, 202 T. D. 3792,
C. . -, 300 New York Insurance Co. v. dwards, 271 U. S. 109 T. D.
3872, C. . -, 305 Duffy v. Mutua eneft Co., 272 U. S., 13, 18- 19
T. D. 3959, C. . I-1, 278 Contnenta ssurance Co. v. Unted States,
8 P. Supp., 474.)
Reversed.
P RT . P YM NT, COLL CTION, ND R UND O T
ND P N LTI S.
S CTION 270. D T ON W IC T
S LL P ID.
rtce 1202: tenson of tme for payment of the ta or
nstament thereof.
R NU CTS OP 1921, 1924, ND 192G.
Rues governng consderaton of appcaton for e tenson of tme
to pay nstament of ncome ta . (See Mn. 4303, page 133.)
rtce 120 : Compromse of ta cases. I -1 -7444
Ct. D. 951
INCOM ND C SS PRO ITS T R NU CTS O 1918, 1921, ND 1924
D CISION O COURT.
1. ssessment and Coecton Offer n Compromse Statute
of Lmtaton Duress raud urden of Proof.
Where addtona ta es for 1918 were assessed under the Revenue
ct of 1921 and partay coected wthn s years from the date of:
assessment (n the erroneous beef that secton 278(d) of the Reve-
nue ct of 1924 was appcabe), and where, after demand for pay.
meat of the baance and threat of dstrant, the baance waa pad
and an offer n compromse of nterest and penates was e ecuted
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270. rt. 120 .
342
and accepted, the compromse agreement bars recovery even though
the ta was pad and the agreement was made after the e praton
of the statute of mtaton, the ta payer not havng sustaned the
burden of provng that tu offer was submtted under duress or as
the resut of msrepresentaton and fraud on the part of the
Government.
2. Sut Cam fob Refund Duress raud Laches.
Sut based upon duress and fraud, brought more than two and
one-haf years after an offer n compromse had been made and
accepted, was barred by aches even though n the meantme a
refund cam had been fed, where the cam aeged ony errors n
assessment and coecton and made no reference to duress or fraud.
Unted Statcs Dstrct Court, astern Dstrct of New York.
Statcn Inand ygea ee Cod Storage Co., pantff, v. Unted States of
merca, defendant.
ugust 17, 1934.
OPINION.
Campbe, D. .: Ths case was brought on the aw sde of ths court, under
the provsons of secton 24, paragraph 20, of the udca Code, as amended by
the ct of ebruary 24,1925 (eh. 309, 43 Stat., 972), to recover ncome and e cess
profts ta es aeged to have been overpad by the pantff for the year 1918.
Such ta es were the resut of an addtona assessment eved by the Comms-
soner of Interna Revenue, and coected n 192 , 1928, and 1929.
On November 1 , 1933, an order was made by another |udge of ths court
transferrng the case to the equty caendar.
The case was heard before me on pr 30, 1934, and the .ast bref submtted
on une 21, 1934.
Ths case was tred on a stpuaton of facts and ora and documentary evdence
offered on the tra.
The facts are as foows:
t a the tmes herenafter mentoned and at the tme of the tra, the pantff
was a domestc corporaton, organzed and e stng under the aws of the State
of New York, wth ts prncpa pace of busness at No. 23 Gordon Street, Stape-
ton, Staten Isand, orough of Rchmond, Cty and State of New York, and
astern |udca Dstrct of New York, and at such tme was engaged n the
manufacture, sae and dstrbuton of ce.
On une 1 , 1919, pantff fed wth the coector of nterna revenue, for
the frst coecton dstrct of New York, ts corporaton ncome and profts
ta return for the caendar year 1918, whch return showed an Income of
S,27S.84, and an ncome and profts ta of 705.45.
The sum of 480 was pad on account of sad ta on March 20, 1919, and the
baance of 285.45 was pad on une 1 , 1919.
Durng the year 1919, pantff pursuant to Chapter I of the Laws of 1918,
as amended by Chapter S4 of the Laws of 1918, of the State of New York, pad
to en|amn 15. Ode, ce comptroer of the State of New York, the sum of
4,33 .75. Pantff contended that ths sum was ordnary and necessary n
the operaton of ts busness of manufacture of artfca ce, and deducted t
from the ncome reported n the return fed by pantff on une 1 , 1919.
Pantff durng the year 1918 e pended the sum of 4, 22.27, whch t eon-
tends was for certan repars and repacements to ts pant. It contends that
no part of that sum was taken as a deducton when reportng ncome for the
year 1918, n the return fed une 1 , 1919.
Pantff durng the year 1918 pad 3,720 dvdends on ts capta stock.
It contends that no part of the sum pad as dvdend was taken as a deduc-
ton by pantff n ts return fed une 10. 1919.
In 1924. a revew and audt of pantff s sad return for 101S was had, and
the Commssoner of Interna Revenue determned that the pantff was abe
for addtona ncome and profts ta es for that year n the sum of 5,303.83,
and notce of ths determnaton by the Commssoner was sent to pantff
under date of anuary 3, 1924.
Pantff contends that the addtona ta was arrved at by dsaowng as
a deducton the sum of 4,3 0.75 pad to the ce comptroer, and by further
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343
270, rt. 120 .
Increasng ncome by 4,022.27 repacement costs, and 3,720 dvdends, on the
ground that such repacement costs and dvdends hud been deducted from
ncome when they were not proper deductons.
The tota addtons to ncome were 10,214.08.
On May 13, 1924, the Commssoner of Interna Revenue assessed aganst
pantff an addtona ta for the year 1918, n the sum of 5,303.83, as detaed
n hs etter of anuary 3, 1924.
Under date of une 4, 1924, pantff communcated wth the Commssoner
of Interna Revenue, protestng aganst the assessment, pontng out that the
charges ncurred for repacements and dvdends had never been deducted, or
the resut woud have been a oss, and that the payment to the ce comptroer
represented a proper deducton.
t the tme of the 1918 assessment, vz, May 13, 1924, the Revenue ct of
1921 was n force.
On anuary 25, 1924, pantff fed an ncome and profts ta waver for the
years 1917 and 1918.
No part o the addtona ta so assessed was pad on or before anuary
25, 1925.
Durng the year 192 , fve payments, totang 1,000, were made by pantff
on account of ths ta assessment, such payments beng based on an arrange-
ment entered nto between pantff and two Government representatves, be
Dotchen and Mr. ohnson, deputy coectors of nterna revenue, who had
demanded payment of that ta under threat that f such payment were not
made, the pant woud be cosed up.
Under date of May 27, 192G, pantff communcated wth the Commssoner
of Interna Revenue requestng a ree amnaton of the books, and ndcatng
that the addtona ta was erroneous, snce pantff had not been aowed
a t was supposed to be aowed.
In uy, 1927, an offcer of the pantff read n the newspapers about the
statute of mtatons, and under date of uy 28, 1927, nqured from the,
coector of nterna revenue whether the ta coecton n queston was barred.
Under date of ebruary 4, 1928, pantff communcated wth the Commssoner
of Interna Revenue, to the effect that t had been requested to sgn wavers
for the years 1918 and 1919 that t had refused to sgn such wavers, on the
ground that the Government cam was un|ust, and that t had requested a
correct audt by the Government offce and had been unabe to get t, and re-
quested that the Commssoner do everythng he coud to hep pantff out.
Under date of ebruary 18, 1928, the coector of nterna revenue wrote
the pantff statng: The ta queston had been gone nto very carefuy and
that pantff s advsed that a of the ta es are egay due that ths state-
ment s made est pantff has a msapprehenson as to one or two oder tems.
Under date of ebruary 28, 1928, pantff wrote to the Treasury Department
cang attenton to the 1918 and 1919 ta assessment, and to payments pre-
vousy made, and nsstng that ony the e penses for conductng the busness
were deducted, and requestng hep by havng an audtor sent to pantff s
pant to go over the matter thoroughy and to make a correct return. There-
after, the Government representatve, be Doschen, a deputy coector of n-
terna revenue, came to the offce of pantff and stated, that they woud not
accept any more nstaments but that the payment had to be made n fu
that uness such payment s made, the pant woud be cosed.
Throughout the entre perod under revew, pantff empoyed no one, ether
attorney or accountant, who was famar wth tu aws, and the presdent of
the pantff had no e perence or speca knowedge, or anythng smar, n
connecton wth the ta aw, other than the reguar routne of busness man s
knowedge of the ta aws.
Pantff reed upon the statements made n the sad etter of ebruary 18,
1928, as we as on the e panatons furnshed by the Government representa-
tve, be Doschen.
fter September. 1920, and unt March 28, 1928, no payme ts were made by
pantff on account of the aeged 1918 ta abty, and on March 28, 1928,
some 4,000 wth nterest thereon was unpad.
On March 28, 1928, the pantff pad the Government .1,000, whch was ao-
cated 4,303.83 to the baance of the ta unpad, and (90.17 toward nterest,
at the rate of 12 per cent per annum from date of assessment
urther payments of nterest were made on ugust 14, 1928, and anuary
18, 1929, so that the tota nterest pad by pantff was 1, 79.M), representng
083 35 12
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270. rt. 1208.
344
Interest at the rate of 12 per cent per annum on the addtona ta of
5,303.83.
Durng 3929, the Government representatve, a deputy coector of Interna
revenue, came to pantff for addtona payments. The presdent of the pan-
tff had heeved that payments had been made n fu, but was nformed that
pantff st owed some nterest or penaty.
The Government representatve and the presdent of the pantff had qute
an argument, the presdent of the pantff contendng that t dd not owe the
money, and the Government representatve contendng that It dd, and the Gov-
ernment representatve stated, If you gve me 25, that w straghten out
the whoe busness. e aso stated, Sgn that paper and that w cear
you. The presdent of the pantff sgned the paper but dd not read t.
The presdent of the pantff was tod that they owed 00 or s hundred
nnd odd doars, and f he woud pay 25, they woud compromse. e then
pad the 25 and sgned the paper, wth the dea that dong that, they were
gettng rd of the whoe thng.
The presdent of the pantff consuted no awyer, accountant, or ta e -
pert, but reed on the contents of the coector s etter of ebruary 18, 1928.
The paper whch was caed an offer of compromse was sgned by Chas.
Remert, as presdent of pantff, on September 11, 1929.
The sad offer was accepted October 18, 1929.
The Revenue ct of 1928 beenme a aw on May 29, 1928, and had been n
force for over a year and one-haf at the tme.
Under date of pr 28, 1930, a cam for refund was fed by pantff, aeg-
ng, among other thngs, that the ta was barred when coected, and that arb-
trary ad|ustments and addtons to ncome were made.
Ths cam for refund was re|ected on ugust 12, 1931.
Ths acton was commenced on une 7, 1932.
The pantff attempts n ths ease to rase an ssue on the merts of the
addtona assessment.
Ths t seems to me requres no e tended consderaton, for the reason that
If the agreement of compromse s sustaned, there can be no recovery, and f
the agreement of compromse be vacated the decree must be for pantff.
The questons presented therefore are:
1. Does the evdence n ths acton estabsh that the pantff submtted the
offer n compromse under duress, or as a resut of msrepresentaton and
fraud on the part of the defendant
2. Is ths acton barred by aches
Ths court has |ursdcton of ths acton under the provsons of secton 24
of the udca Code as amended by the ct of ebruary 24, 1925 (ch. 309,
43 Stat., 972).
The aeged compromse agreement was made under the provsons of secton
3229 of the Revsed Statutes (Tte 20, secton 158, U. S. C), whch provdes as
foows: (Statute omtted.)
The Revenue ct of 1921, secton 250(d), provdes as foows: (Statute
omtted.)
The Revenue ct of 1924, secton 277(a)2, provdes as foows: (Statute
omtted.)
The Revenue ct of 1924, secton 278(d), provdes as foows: (Statute
omtted.)
The Revenue ct of 1924, secton 27S(e), provdes as foows: (Statute
omtted.)
The Revenue ct of 1928, sectons 50 (a), (b), 0 (a), 00 (b), and 07. pro-
vdes as foows: (Statute omtted.)
Secton 278(b) of the Revenue ct of 1920 s further amended by addng, at
the end thereof, a new subdvson to read as foows: (f) (Statute omtted.)
Reguatons 5, promugated under the Revenue ct of 1924, reads as foows:
ut. 1272. Perod, of mtaton upon coecton of ta . ( rtce omtted.)
The cts referred to n such reguatons as the cts enumerated were the
Revenue ct of 1924, and a pror cts, and reference shoud aso be had to
artce 1271 of sad reguatons.
Under the facts as found and the statutes cted, supra, t seems to me that
but for the fact that offer n compromse has been accepted, n eu of the
unpad nterest and penaty, they woud be refundabe.
t the tmes the payments were made the coectors of Interna revenue
were workng, under the provsons of the reguatons of the Treasury Depart-
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345
270, rt. 120 .
ment, nterpretng secton 278(d) of the Revenue ct of 1924, as gvng the
Government the rght to coect the ta wthn s years from the date of the
assessment, and t was not unt the decson of the Supreme Court n Russe
v. Unted States (278 U. S., 181 T. I). 42 0, C. . III-1, 20 ), on anuary 2,
1929, that t was fnay determned that such constructon was erroneous.
In Russe v. Unted States, supra, t was hed that the provsons of secton
278(d) were not retroactve and therefore coud not appy to assessments made
pror to une 2, 1924, on whch date the Revenue ct of 1924 was enacted.
The assessments here n queston were made pror to that date, accordngy
the provsons of secton 250(d) of the Revenue ct of 1921 were appcabe.
Under the provsons of that secton, the perods both for assessment and coec-
ton e pred fve years from the date of fng of the return, or such perod as
e tended by wavers, therefore the perod wthn whch the ta shoud have
been coected n ths case e pred anuary 25, 1925.
Ths brngs us to a consderaton of the effect of the offer n compromse.
There can be no queston but that a coectons of the ta , nterest, or
penaty, made pror to the payment of the 25 on the offer n compromse, were
made under the constructon then paced by the Government on the Revenue
ct of 1924, and the most that can be sad as to that constructon s that t was
an error of aw.
There s no evdence whatever to show that the representatves of the Gov-
ernment, wth whom the presdent of the pantff dscussed the queston oray,
and to whom he gave the offer n compromse, knew that the Government had
no rght to coect or retan the amounts pad by the pantff or ts ta es for
1918, therefore on ther part t was smpy an error of aw.
There s no evdence to show that the coector of nterna revenue, when he
wrote the etter to pantff, under date of ebruary 18, 1928, knew that the
ta aganst pantff for the year 1918 was not coectbe but shoud be re-
funded. On the contrary, t s evdent that the statements contaned n that
etter were based on Reguatons 5, and the decson of the Crcut Court of
ppeas of the fth Crcut, In Unted States v. Russe (22 ed. (2d), 249
T. D. 4107, O. . I-2, 133 ), and that he was actng under the honest beef,
though erroneous n aw, that the Government had s years from the date of
assessment to coect the ta . There s no evdence that the offcer approvng
the offer n compromse made any representatons or dd anythng other than
to approve what on ts face appeared to be a vountary offer n compromse,
and I can see no fraud In that.
I am unabe to foow pantff s argument, that t s entted to be reeved
from the effects of the compromse agreement by reason of the defendant s
msrepresentaton of a matera fact, whch nduced the makng of such con-
promse agreement. ( oomqust v. ar son, 222 N. Y., 375, 380 uht v.
tchn, 237 pp. Dv., 50 , 510 Wood v. Dudey, 188 pp. Dv., 13 ramer v.
|errum, 19 pp. Dv., 332 Wston on Contracts, secton 1490, page 2 51,
secton 1494, page 2 57, secton 1495, pages 2059 and 2 0, secton 1500, page
2 8 Cooke v. Nathan, 1 arbour, 342 erry v. mercan Centra Insurance
Co., 132 N. Y., 49 avand v. Wets, 141 N. Y., 35 Green v. Smth, 1 0 N. Y.,
533 udson v. Gens as Insurance Co., 218 N. Y., 133 2 Pomeroy s . urs.
(2d ed.), secton 847), cted by pantff are not n pont.
No msrepresentaton of fact was made, nor dd any representatve of the
Government, the defendant, knowngy msrepresent the aw. t most they are
statements of opnons on matters of aw whch were erroneous, and they dd
not consttute fraud, nor are they grounds for estoppe. (Mutua Lfe Insurance
Co. v. Phnney. 178 U. S., 327, 342-343 Coddngton v. Raroad Co., 103 U. S.,
409, 410 Ceveand v. Rchardson, 132 U. S., 318, 319.)
The fact that the ta payer pad the prncpa amount of the ta , and part of
the penates and nterest and then submtted an offer n compromse of the
remander of the penates and nterest camed by the Government, whch was
duy accepted by the Commssoner of Interna Revenue, even though such
payments had been made after the e praton of the statute of mtatons, does
not gve the ta payer the rght to recover. (Russe v. Unted States, 278 U. S.,
181 Trumbu Stee Co. v. Unted States, 1 ed. Supp., 7 2 Ct. D. 5 , C. .
II-1, 152 ord v. Unted States, 59 ed. (2d), 125 Ct. D. 582, C. .
I-2, 144 .)
The fact that the ta payer dd not agree wth the Commssoner s determna-
ton, and made repeated protests aganst the assessment, furnshes no ground for
aettng asde the compromse n ths case.
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270, rt. 120 .
34
The determnaton of the Commssoner was made after e amnaton of the
books and returns of the pantff and s bndng. The pantff under the stat-
utes had ts remedes t coud have fed a cam n abatement, supported by
a bond, and had the assessment revewed by the Unted States oard of Ta
ppeas, or t coud have pad the ta and obtaned |udca revew.
It dd not, however, ava tsef of ether of these remedes, but pad the
prncpa amount of the assessment and part of the penates and nterest, and
compromsed the baance of the penates and nterest, concudng the entre
matter.
The offer n compromse specfcay stated that t was vountary made, and
waved any and a cams to refunds or overpayments, and the beneft of any
statute of mtaton.
The presdent of the pantff who sgned the offer n compromse testfed
that he dd not read t at the tme he sgned t, but that does not change the
stuaton, as e was afforded fu opportunty to read the paper f he desred so
to do, and f he faed to read t, equty shoud furnsh no reef for hs ack
of dgence.
Undoubtedy he was not deceved as to the contents of the paper, nor was he
Induced by any fase representaton as to ts contents to sgn the same, on the
contrary hs testmony as to hs understandng of the contents of the paper was
(hat the acceptance of the offer woud fnay concude the matter of pantff s
ta abty for the year 1918, and that s e acty what was accompshed by the
same, and the compromse settement s not revewabe. (Luchs v. Unted
States, ed. Supp., 222.)
There was no reaton of trust or confdence between the partes, and pan-
tff had the same opportunty to acqure knowedge as to the proper construc-
ton of the aw as the representatves of the defendant, and the compromse
shoud not be overthrown or vacated. (Waker v. amo oods Co., 1 ed.
(2d), 04 T. D. 3984, C. . I-1, 274 , cert, dened 274 U. S., 741 ackus v.
Unted States, 59 ed. (2d), 242, cert, dened 288 U. S., 10 Ct. D. 504, C. .
I-1, 2 )9 .)
The burden of proof rested upon the pantff to show that the pantff was
nduced to make the offer n compromse by reason of msrepresentaton on the
part of the defendant, and pantff has faed to bear that burden.
The evdence upon whch pantff rees to show duress s that of the presdent
and two of the empoyees of pantff, who testfed that two representatves
of the defendant, who t appears were deputy coectors of nterna revenue,
had caed at the offce of the pantff and had stated that uness the baance
of the 1918 account was pad, or an offer n compromse submtted, they woud
cose up the pant. Whereupon the offer n queston was submtted.
Ths coud mean nothng more than that t woud be. necessary for them
to dstran upon the pantff s property to effect the coecton, whch woud
be e acty what the aw woud requre, If ther constructon of t was correct.
The fact s, however, that the pantff had been treated wth the utmost
consderaton, payments havng been made n nstaments over a perod of
years.
The amount of the baance camed was ascertaned, and payment of the
amount nvoved woud certany not have runed the pantff, therefore
Snyder v. Rosenbaum (215 U. S., 2 1), n whch a statute of the Terrtory of
Okahoma was n queston, s not n pont, nor s Radeh v. utchns (95 U. S.,
210, 213).
The foowng cases cted by the pantff, Pctora Prntng Co. v. Comms-
soner of Interna Revenue (38 ed. (2d), 5 3) Panther Rubber Mfg. Co. v.
Commssoner of Interna Revenue (45 ed. (2d), 314) and Cne v. Coector
(unreported n edera Reporter, but reported by Commerce Cearng ouse,
1931, oume III, page 8540), reate to waver of the statutory perod for co-
ecton, not to an offer n compromse stated to be vountary, and are not n
pont.
The threat of the deputy coectors to do that whch under the aw they be-
eved to be ther duty, dstran, and whch f ther constructon of the aw had
been the correct one, woud have been ther duty, dd not consttute turess.
(Shaw d Truesde v. Unted States, 1 ed. Supp.. 834 Ct. D. 25, C. . II-1,
289 .)
Pantff n the offer In compromse stated that the offer was tendered vo-
untary, n the foowng anguage: The sum 25 Is hereby tendered voun-
tary wth the request that It be accepted as a compromse offer, and that the
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347
274, rt. 1234.
reease be granted the undersgned from the foowng abty from the
voaton of faure specfed.
The grounds stated by pantff n the offer n compromse, for acceptance of
the offer, nanca embarrassment, do not consttute duress. Shaw
Truesde v. Unted States, supra.)
Pantff has faed to bear ts burden and show duress.
The offer n compromse s not a waver as contempated by secton 278 of
te Interna Revenue ct of 1920, as amended by secton 500(b) of the Interna
Revenue ct of 1928.
rst, because a waver s not a contract. ( orshem ros. Co. v. Unted
States (2S0 U. S., 453 Ct. D. 107, C. . I -1, 200 .)
Second, because an offer n compromse s a contract.
Thrd, because secton 50 (b), supra, by ts terms refers to statutory wavers
and not to compromses, when t says: ny agreement whch woud be wthn
the provsons of subdvson (c) or (d), whch subdvsons provde for
statutory wavers.
The offer n compromse havng been accepted, there s no necessty of con-
sderng what woud have been the effect, n case of re|ecton of the waver
by pantff, of any statute of mtaton.
Whether the offer n compromse has the effect of a cosng agreement need
not be consdered, but It s we estabshed that a compromse of nterest s
a compromse of the entre ta abty. g Damond Ms Co. v. Unted
States, 51 ed. (2d), 721.)
ven f ths court s n error and the offer n compromse was e ecuted under
duress, the pantff, n order to obtan a recesson on the ground of duress,
must have acted wth due dgence and not stood by for a ong perod of tme
before attemptng such acton. (Strong v. Strong, 102 N. Y., 09 Schffer v.
Detz, 83 N. Y., 300 ahn v. atz, 88 rk., 3 3 Wood v. Teephone Co., 223
Mo., 537.)
The addtona ta n ths case was assessed aganst the pantff on May 13,
1924. y arrangement wth the coector, pantff pad the ta and the better
part of the nterest, n a seres of nstaments between May 20, 192 , and
anuary 18, 1929, at whch tme there was camed to be unpad a baance of
nterest n tte amount of 2 0.98, and a penaty for denquency of 259.19.
On September 11, 1929, pantff submtted an offer n compromse of the
baance of ts ta abty. On October 18, 1929, the Commssoner of Interna
Revenue accepted the offer and so notfed the pantff, by etter of November
5, 1929.
Ths sut was nsttuted une 7, 1932, over two and one-haf yenrs after the
offer n compromse had been accepted.
Whe t s true that pantff had endeavored durng that tme to have the
ta refunded, the pantff, on May 1, 1930, about seven months after the ac-
ceptance of the offer n compromse, havng fed a cam for refund whch t
bassd upon aeged errors n assessment and coecton of the ta , but dd not
make any reference to the aeged duress or fraud under whch the offer n
compromse s now camed to have been procured.
No cam of fraud or duress was made by pantff unt the petton was
fed n ths case, and the attempt to set asde the offer n compromse seems
to me to be an afterthought.
The pantff has been guty of aches.
decree may be entered n favor of the defendant aganst the pantff
dsmssng the petton on the merts, wt costs.
Sette decree on notce.
Submt proposed fndngs of fact and concusons of aw n accordance wth
ths opnon, for the assstance of the court, as provded by rue 70 4 of the
equty rues and rue 11 of the equty rues of ths court.
S CTION 274. D ICI NCY IN T .
rtce 1234: tenson of tme for payment of a defcency.
R NU CTS O 1921, 1924, ND 192 .
Rues governng consderaton of appcaton for e tenson of tme
to pay defcency n ncome ta . (See Mm. 4303, page 133.)
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277 and 278, rt. 1271.
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
rtce 1271: Perod of mtaton upon assess- I -11-7373
ment of ta . Ct. D. 935
INCOM ND C SS PRO ITS T R NU CTS O 1918 ND 192
decson of court.
ssessment Lmtaton Commencement of Statutory Perod
Indvdua and Consodated Returns.
Where a eorporaton fed Its ndvdua ncome .and e cess
profts ta return on May 15, 1920, for the caendar year 1919,
and, pursuant to a rung by the Commssoner that t and another
company were affated wthn the purvew of secton 240 of the
Revenue ct of 1918, the affates fed a consodated return on
October 14, 1921, for the fsca years ended une 30, 1919, and
une O, 1920, the 5-year perod of mtaton prescrbed by sec-
ton 277(a)3 of the Revenue ct of 1928 dd not begn to run
unt the (ate of the fng of the consodated return, and a de-
fcency assessment coverng the fsca year ended une 30, 1920,
notce of whch was maed on pr 22, 192 , was not barred.
The ndvdua return dd not start the runnng of the statutory
perod, snce t wns not the return requred by the statute and
reguatons, and dd not cover the entre perod for whch the
defcency was asserted.
Unted States Crcut Court of ppeas, S th Crcut.
Commssoner of Interna Revenue, pettoner, v. ren Chan Co. and The
Ceveand Chan Manufacturng Co., respondents.
Petton to revew an order of tbe Unted States oard of Ta ppeas.
efore Moorman, cks, and en, Crcut udges.
une 29, 1934.
opnon.
en, Crcut udge: The queston presented heren s whether or not the
statute of mtatons bars the assessment of the defcency determned by the
Commssoner aganst the respondents for the fsca year ended une 30, 1920.
Upon that pont the foowng facts were agreed:
On May 15, 1920, n accordance wth prevousy e stng practce, the Ceve-
and Chan Manufacturng Co. fed ts ndvdua ncome and e cess profts
ta return for the caendar year 1919. The tota ta upon the net ncome
theren shown was pad n due course.
Subsequenty the Commssoner rued that the Ceveand Chan Manufac-
turng Co. and the ren Chan Co. were affated wthn the purvew of
secton 210 of the Revenue ct of 1918. The respondents accordngy, on
October 14, 1921, fed a consodated return for the fsca years ended une 30,
1919, and une 30, 1920, as the ren Chan Co., the parent company, kept
ts books and fed ts return on the bass of a fsca year ended une 30.
Treasury Reguatons 45, artce 38.
On pr 22, 192(5, the Commssoner maed to the respondents respectvey
notces of defcency n ncome and e cess profts ta for the fsca year ended
une 30, 1920, amountng to 7,537.59, whch defcency was aocated to the
Ceveand Chan Manufacturng Co. It was conceded by the Commssoner
before the oard of Ta ppeas that ths defcency shoud be reduced by the
sum of 4,557.34, beng one-haf of the ta prevousy pad by the Ceveand
Chan Manufacturng Co. for the caendar year 1919.
The oard of Ta ppeas decded that the return fed by the Ceveand
Chan Manufacturng Co. on May 15, 1920, for the caendar year 1919, started
the runnng of the statute of mtatons as to the defcency assessment for the
fsca year ended une 30, 1920, and that the 5-year statutory perod e pred on
May 1 , 1925. (25 . T. ., 1450.) The Commssoner contends that the
statute dd not. commence to run unt the date of the fng of the consodated
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349
277 and 278, rt. 1271.
return, namey, October 14, 1921, and that the defcency notces sent to the
respondents on pr 22, 192 , suspended the runnng of the statute. (Revenue
ct of 192 , secton 277(a)3 and (b), ch. 27, 44 Stat, 9.)
We agree wth the Commssoner upon the ground (1) that the Indvdua
return fed May 15, 1920, was not the return requred by aw, and (2) that
such return dd not cover the entre perod for whch ths defcency s as-
serted. The assessment s barred wthn fve years after the return was
fed. (Revenue ct of 192 , secton 277(a)3, ch. 27, 44 Stat., 9.) The e press
provsons of the statute and the reguatons promugated thereunder and ther
underyng purpose demonstrate that the ndvdua return was not the return
requred bv aw.
Secton 240 of the Revenue ct of 1918 (ch. IS, 40 Stat, 1057), n ts pert-
nent porton provdes as foows:
(a) That corporatons whch are affated wthn the meanng of ths
secton sha, under reguatons to be prescrbed by the Commssoner wth
the approva of the Secretary, make a consodated return of net In-
come .
The statute n mandatory terms requred affated corporatons to make
a consodated return of net ncome. No acton of the Commssoner e cept
the promugaton of the reguatons wth the approva of the Secretary was
necessary to pace the ta payer under the duty of fng a consodated return.
The respondents do not queston the fact that they were affates at that
tme.
Pursuant to ths statute Treasury Reguatons 45 were promugated by the
Commssoner of Interna Revenue and approved by the Secretary of the
Treasury on pr 1 , 1919, over a year pror to the fng of the ndvdua
return. (21 Treasury Decsons Interna Revenue, anuary to December, 1919.)
They outned n fu the steps to be taken by affates.1 eng n fu force,
e pressy authorzed by statute, and not n confct therewth, the reguatons
had the force and effect of aw. Unted States v. Smu, 23 U. S., 405
Unted States v. Ormaud, 220 U. S., 50 Unted States v. rdsa, 233 U. S.,
223, 235 Maryand Casuaty Co. v. Unted States, 251 U. S., 342, 349.)
Under these reguatons a affates were requred to gve nformaton not
dscosed by ndvdua returns. In addton to ndvdua ncome, the combned
net ncome of the affated corporatons had to be shown after ntercompany
transactons had been emnated. (Treasury Reguatons 45, artce 37.)
Whe orm 1120 was used both for returns of ordnary corporatons (Treasury
Reguatons, artce 21), and for returns of affated corporatons (Treasury
Reguatons, artce 32), f the answers to orm 1120 dscosed affaton, a
affates were then requred to answer a so-caed affated corporatons
questonnare, orm 819, whch was fed as a part of the return. n add-
tona form, namey, 1122, was aso requred to be fed out by a other
affates than the parent corporaton.
Under the e cess profts credt provson (Treasury Reguatons 45, artce
791), ony one specfc e empton was aowed to affated corporatons makng
a consodated return.
The purpose of secton 240 of the Revenue ct of 1918 was by means of
consodated returns to requre ta es to be eved accordng to the true net
ncome and nvested capta resutng from and empoyed n a snge busness
enterprse even though t was conducted by means of more than one corporaton.
(andy Iarman v. urnet, Commssoner, 284 U. S., 13 , at 140 Ct. D. 425,
C. . -2, 370 .) To effect ths purpose t was necessary not that an affate
shoud make an ndvdua return of ndvdua ncome, but that together wth
ts affates t shoud make a consodated return of consodated net ncome,
that the affaton shoud be accuratey and defntey stated, and that the entre
Interockng reatonshp shoud be reveaed. consodated return was
requred for so much of the perod as the companes were affated. ( mercan
Paper ports, Inc., v. owers, 54 ed. (2d), 508 (C. C. . 2) dety
Natona ank v. Commssoner, 39 ed. (2d), 58 (C. C. . 8) Trustees for
1 et. C32. ffated corporatons, as defned In the statute and In artce 033. are
requred to fe consodated returns on orm 1120. The consodated return sha be
fed y the parent or prncpa reportng corporaton In the offce of the coector of the
dstrct n whch It has ts prncpa offce. ach of the other affated corporatons
sha fe n the offce of the coector of ts dstrct orm 1122, aong wth the severa
schedues Indcated thereon. (21 Treasury Decsons Interna Revenue, 30 .)
It was not unt the enactment of the Revenue ct of 21 that the affate coud
eect to fe consodated or Indvdua returns. (Revenue ct of 1921, secton 240(a),
ch. 13 , 42 Stat., 227.)
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277 and 278. rt. 1272.
350
Oho g Sandy Coa Co. v. Commssoner, 43 ed. (2d), 782 (C. O. . 4).)
The utmate purpose was to emnate evason of ta aton. (Treasury Regu-
atons 45, artces 31 and 32, 1919 ed.)
The respondents, beng affates, coud not revea ther reatonshp and
compy wth secton 240, supra, e cept by fng a consodated return and gvng
the other nformaton requred by the reguatons. ence the decsons cted
by the respondents to the effect that where severa corporatons n good fath
fe a consodated return n whch the separate gross ncome and deductons
of each corporaton are reported, the fng of such return w start the statute
of mtatons runnng wth respect to each corporaton ncuded theren, have
no appcaton here.
The ndvdua return made by the Ceveand Chan Manufacturng Co. on
May 15, 1920, was not the return requred by aw. (Compare Commssoner v.
Natona Land t Constructon Co., 70 ed. (2d), 349 (C. C. . ), and Lucas,
Commssoner, v. The Pod Lumber Co., 281 U. S., 245 Ct. D. 2 , C. . I -2,
39 .) The frst return n compance wth the statute was made on October
14, 1921. ence the defcency assessment set forth n the notces of pr 22,
192 , was not barred by the statute of mtatons.
The ndvdua return was aso neffectve to start the runnng of the statute
because It dd not cover the entre ta abe perod n controversy here. It
covered the caendar year 1919, and no part of the year 1920. The defcency
asserted s for the fsca year from une 30, 1919, to une 30, 1920.
The respondents urge that Cnchfed Navgaton Co. v. Unted States ( Ct.
CI., 089) requres an affrmance of the order of the oard of Ta ppeas.
owever, that case nvoved the Revenue ct of 1917 as to returns by affates.
so there the ndvdua return was fed for the caendar year 1917, whe
the consodated return was fed for the s months perod endng une 30 of
the same year. ence ths decson s not persuasve.
The rue appcabe here s that decared n Natona Shrt Shops, Inc., v.
Unted States (57 ed. (2d), 925 (Ct. CI.) Ct. D. 518, C. . I-2, 332 ), namey,
that a return suffcent to start the runnng of the statute of mtatons must
be one that covers the entre ta abe perod. In accord wth ths hodng are
Paso Robcs Mercante Co. v. Commssoner (33 ed. (2d), 53 (C. C. . 9))
Unted States v. Natona Tank port Co. (45 ed. (2d), 1005 (C. C. . 5)
Ct. D. 319, C. . -. 420 ) Mycs Sat Co., Ltd., v. Commssoner (49 ed.
(2d), 232 (C. C. . 5)).
The order of the oard of Ta ppeas s reversed and the cause s remanded
wth nstructons to sustan the Commssoner s assessment.
rtce 1272: Perod of mtaton upon co- I -18-74 9
ecton of ta . Ct. D. 955
( so Secton 1113, rtce 1351.)
INCOM ND C SS PRO ITS T R NU CTS O 1917, 1918, ND 192
D CISION O COURT.
1. Credt of Overassessment ganst ddtona Ta es
Wavers. adty Dssoved Corporaton stoppe c-
ceptance of eneft.
n overassessment of 1918 ta es aganst a dssoved corporaton
havng been credted upon addtona ta es for 1917 and 1919
after the dssouton had occurred, wavers of the statute of m-
taton upon assessment and coecton havng been e ecuted on
behaf of the corporaton, and a check n settement of the ta
account havng been accepted by the treasurer of the dssoved
corporaton and the proceeds turned over to ts successor, the stat-
utory trustees of the dssoved corporaton are estopped to deny
the vadty of the transactons.
2. Sut Cam for Refund Statute of Lmtaton.
certfcate of overassessment credtng an overpayment of
1918 ta es aganst addtona ta es due for 1917 and 1919 does
not gve rse to a new cause of acton, and under the crcumstances
stated, sut for recovery of the overpayment s barred by the
statute of mtaton.
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351
277 and 278, rt. 1272.
Court of Cams of the Unted States.
dntond C. rccne, Samue S. ryant, rthur . Seep, and George N. essner
as Statutory Trustees of the Wnona O Co., a Corporaton Dssoved, .
The Unted States.
November 5, 1934.
OPINION.
Green, udge, devered the opnon of the court.
Ths sut s brought by the pantffs as statutory trustees of the Wnona
O Co., a dssoved corporaton, to recover 14, 12.05 wth nterest, beng
a part of an overassessment pad on the ta es of the year 1918 whch was
credted on addtona assessments for the years 1917 and 1919 made pr
27, 192 .
The Wnona O Co., of whch the pantffs are statutory trustees, was
dssoved December 27, 1922, and an affdavt of dssouton fed ebruary
20, 1923. The pantffs heren were at the tme ths sut was commenced the
soe survvng members of the board of drectors as t e sted at the date of
dssouton. t the tme ths company was dssoved the Wnona O Co. of
Deaware became the owner of a of the assets and assumed a of the
abtes of the Wnona O Co., becomng thereby abe for a of the edera
ta es One from the Wnona O Co. for the years 1917 to 1919, ncusve,
and aso entted to receve the proceeds from any refund thereof whch mght
be pad to the Wnona O Co. or ts awfu trustees. The drectors of the
two companes were the same persons e cept that on the board of the
Deaware corporaton was one ro R. om, who was secretary of the
Mssour company, but not a member of the board of drectors. e contnued
as secretary of the Deaware company and rthur . Seep was treasurer of
both companes. The same partes were evdenty n contro of both corpo-
ratons.
Pantffs contend that the assessments of addtona ta es upon whch the
credts were apped, as above stated, were not made unt after the perod of
mtaton upon assessment for 1917 and 1919 had e pred, and aso that the
coecton of ta es for these years was barred at the tme when the Comms-
soner made the credts. On behaf of the defendant t s conceded that the
statutory perod for the assessment and coecton of these ta es had e pred
when the credts were made, but t s urged that by vrtue of a number of
wavers fed the perod for assessment and coecton thereof was e tended,
and that n any event pantffs acton was not begun n tme and s barred by
the statute of mtatons.
Under the facts shown by the evdence and set out n the fndngs, we thnk
It s so cear that pantffs are not entted to recover that t s unnecessary
to enter nto an e tended dscusson of the aw appcabe thereto. The fct
that the company was dssoved and the pantffs became trustees for the
purpose of settng ts affars dd not prevent the Government from proceedng
wth the assessment of ta es. (Wonder akeres Co. v. Unted States, decded
by ths court une 4, 1934 Ct. D. 8 1, C. . I-2, 34S .) nd f the
dssouton dd not prevent the pantffs from brngng ths sut, t aso dd
not prevent proceedngs for the settement of debts and cams aganst the
Wnona O Co. The pantffs must have known of the fng of the wavers,
the ast of whch was e ecuted n behaf of the Wnona O Co. by ts vce
presdent and, under the rues ad down n Icvcrng, Commssoner, v. The
ewport Co. (291 U. 8., 480 Ct. D. 804, C. . III-, 318 ), was vad. Upon
the same prncpe we thnk the consent whch was fed on behaf of the
Wnonn O Co. to the assessments In controversy was aso vad. ut t s
not necessary to rest the decson on these matters.
The Commssoner havng receved the assent of the Wnona O Co. to the
assessments n controversy proceeded to make them accordngy. Thereafter
he sent the Wnona O Co. a certfcate of overassessment for the year 1918
whch stated that part of ths overassessment had been apped n satsfacton
of the defcency assessments for 1917 and 1919 and transmtted therewth a
check payabe to the Wnona O Co. for the baance of the overassessment.
Ths check was ndorsed Wnona O Co., by rthur . Seep, treasurer, and
the proceeds turned over to the Wnona O Co. of Deaware. It s m-
matera that the evdence does not show that a the pantffs partcpated
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280, rt, 1291.
352
drecty n ths transacton. If they dd not have knowedge of It they are
chargeabe wth knowedge and must be hed to have ratfed the dsposton
of the check and the proceedngs whch ed up to ts ssuance. The company
whch pantffs represented havng receved the benefts of these transactons,
they are now estopped to deny ther vadty, and as a resut thereof the ta
account between the defendant and the Wnona O Co. was setted. (Cf. R. .
Stearns Co. v. Unted States, 291 U. S., 54 Ot D. 780, C. . III-1, 321 .)
Ths s not a. Severa cams for refund were made but pantffs base ther
sut upon two whch were fed May 28, 1930. One of these cams was for the
refund of 11,47 . 4 whch was apped on the ta es of 1917, as stated above,
and the other for the refund of 3,13 .31 whch had been apped on the ta es
of 1919. oth were based on the ground that the statutory perod for the
assessment and coecton of the ta es for the respectve years had e pred.
If we are correct n what has been stated above, the statutory perod had
been e tended by the wavers but even f the wavers were nvad and there
was no estoppe, there Is another fata ob|ecton to pantffs case. The petton
was not fed unt more than four years after the payment of the ta es for
1917 and 1919 upon whch a refund Is now camed. Pantffs contend that
when the Commssoner credted part of the overassessment for 1918 upou the
ta es of 1917 and 1919 he thereby created a new cause of acton for the recov-
ery of the overpayment on the ta es of 1918, that ts refund cams are based
upon ths cause of acton, and the sut havng been brought wthn two years
from the tme the refund cams were re|ected Is In tme. Ts theory n
somewhat dfferent form was consdered n Rosemtadt Waer, Inc., v. Unted
States, decded by ths court une 4, 1934, and the ma|orty of the court hed
that It had no support n the statutes.
Pantffs petton must be dsmssed, and t Is so ordered.
INCOM T R NU CT O 192 D CISION O CODRT.
1. ssessment Transferee Labty Ta es as Debts.
corporaton whch acqured a the property and assets of
another and agreed to pay a the awfu debts of the vendor s a
transferee wthn the meanng of secton 280 of the Revenue ct
of 192 , and the edera ncome ta may be assessed aganst t
wthout an attempt frst to coect from the transferor or ts stock-
hoders, even though the ta had not accrued at the tme the
agreement was made. The agreement to pay the awfu debts of
the vendor was broad enough to ncude the payment of ta es.
2. Decson Reversed.
Decson of the oard of Ta ppeas (27 . T. ., 927) reversed.
3. Certorar Dened.
Petton for certorar dened October 15, 1934.
Unted States Crcut Court of ppeas, ourth Crcut.
Guy T. everng, Commssoner of Interna Revenue, pettoner, v. Wheeng
Mod oundry Co., respondent.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Northcott and Soper, Crcut udges, and Pau, Dstrct udge.
S CTION 280. CL IMS G INST TR NS-
RR D SS TS.
rtce 1291: Cams n cases of transferred
assets.
I -9-7344
Ct. D. 928
une 11, 1934.
OPINION.
Sopeb, Crcut udge: Ths case reates to the abty of Wheeng Mod
oundry Co., a Deaware corporaton, to pay the sum of 48,077.8 for Income
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353
280, rt. 1291.
and e cess profts ta es for the year 1919 assessed aganst a West rgna cor-
poraton of the same name. The Deaware corporaton was organzed on Sep-
tember 30, 1919, for the purpose of takng over the assets and busness of the
West rgna corporaton, and the atter was dssoved on May 22, 1920. The
transfer was made as of October 1, 1919, n accordance wth a wrtten contract
of October 7, 1919, under whch a sae of the assets was made by the West
rgna corporaton, as vendor, to the Deaware corporaton, as vendee. The
contract rected that the vendor had, for some tme past, been carryng on the
busness of manufacture of stee and ron products at Wheeng, W. a.,
and that th e Deaware corporaton, as vendee, had been organzed wth a cap-
ta of 1 00,000 preferred stock, dvded nto 12.000 shares, of the par vaue
of 100 each, and 50,000 shares of common stock wthout par vaue. Under
tbe agreement, a of the property and assets of the vendor, as a gong con-
cern, were sod to the vendee n consderaton of (1) a the preferred stock
and 10,000 shares of the common stock of the vendee (2) the sum of 1, 00,000,
consstng of 1,300,000 n cash and a note of the vendee for 300,000, payabe
on demand wth nterest at per cent per annum and (3) as the baance of
tbe consderaton, the vendee agreed to carry out a the pendng contracts of
the vendor and to undertake to pay, satsfy and dscharge a the awfu
debts of the vendor, ncudng the reasonabe e pense of the vendor ncurred
and to be ncurred n connecton wth the pendng reorganzaton. The as-
sets transferred were carred on the books of the West rgna corporaton
and set up n the books of the Deaware corporaton at the gross vaue of
3,859, 93.91. The abtes shown by the books of the West rgna cor-
poraton were n the sum of 1,009, 93.91, and ths sum dd not ncude any
abty for the edera ncome ta for the year 1919 whch had not then
accrued. The vaue of the 12,000 shares of preferred stock of the Deaware
corporaton was 1,021,308, and the vaue of the 10,000 shares of common stock
transferred was 10,000. These assets, together wth the cash and the proms-
sory note of the vendee, were mmedatey dstrbuted to the stockhoders of
the vendor n qudaton of ther shares of stock theren.
On October 7, 1919, wrhen the contract was sgned and the transfer was
made, the same ndvduas w-ere presdent and secretary-treasurer respectvey
of both corporatons, and 3 of the 11 drectors of the od corporaton became
members of a board of 9 drectors of the new.
Upon ths state of facts, the oard of Ta ppeas hed that the Deaware
corporaton was not abe as a transferee under secton 280(a) 1 of the Revenue
ct of 192 1 (44 Stat., 9), for the ncome ta es mposed for the year 1919 upon
the West rgna corporaton. Ths secton contempates the coecton from
the transferee of a ta payer s property of the ta mposed upon the ta payer
by any pror Income, e cess profts or war profts ta ct when the abty of
the transferee to pay the same arses, ether at aw or n equty. The oard
hed that the vendee n ths case was not abe at aw for the ta es under the
contract to pay the awfu debts of the transferor, because a ta s not a debt
In the ordnary sense and the oard aso hed that the vendee was not abe
n equty because there was no ntent to defraud the credtors and the vendor
receved n the transacton, amongst other tngs, 1,300,000 n cash, a sum
e ceedng a of ts abtes, and wTas therefore not nsovent and hence ts
assets dd not become a trust fund for the beneft of the credtors, under such
cases as McDonad v. Wams (174 U. S., 397), ogg v. ar (133 U. S., 534).
The Commssoner of Interna Revenue brngs the case here by a petton to
revew the concusons of the oard.
It w have been notced that the od corporaton receved for dstrbuton
amongst ts stockhoders a of the preferred stock of the new, vaued at the
sum of 1,021,308, and aso 10,000 out of 50,000 shares of common stock vaued
at 1 per share. The record does not show whether or not the preferred stock
had votng power but even f the stockhoders of the od corporaton ost
otng contro of the enterprse, they owned a very arge ma|orty of the bene-
Rec. 280. (a) The amounts of the foowng abtes sha, e cept as herenafter
In ths secton provded, be assessed, coected, nnd pad n the same manner and sub|ect
to the same provsons nnd mtatons as n the case of a defcency n a ta Imposed
by ths tte (Incudng the provsons n case of denquency n payment after notce
and demand, the provsons authorzng dstrant and proceedngs n court for coecton,
and the provsons prohbtng cams and suts for refunds) :
(1) The abty, at aw or n equty, of a transferee of property of a ta payer. In
respect of the tu (Incudng Interest, addtona amounts, and addtons to the ta
provded by aw) mposed upon the ta payer by ths tte or by any pror Income,
cess-profts, or war-profts ta ct.
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5280, rt. 1291.
354
fca Interest theren. Moreover, a of the assets receved n consderaton of
the transfer, ncudng . 1,300,000 n cash, and the shares of stock, were mme-
datey dstrbuted amongst them, and t s a far nference that ths acton
was known to and contempated by both of the partes to the contract of sae,
n vew of the substanta smarty of the stock nterest n the two companes,
and the further fact that the e ecutve offcers of both corporatons were the
sumo. The resut was that the od company was knowngy strpped of a of
ts assets and eft wthout any means of payng the ncome ta es to the Unted
States whch were bound to accrue. If t was the ntenton of the partes to
dstrbute the assets of the od corporaton amongst ts stockhoders and to
make no provson for the dscharge of ts obgatons to the Government ether
by the vendee or any other person, t woud be dffcut to concude that the
transacton was free from fraud, or that the Government was wthout power to
enforce aganst the transferee and the property n ts hands the ta abty of
the transferor. The case woud dffer from those n whch, the transfer beng
free from frauduent ntent and the transferor recevng means to respond to
ts obgatons, t s hed that no abty upon the transferee to dscharge those
obgatons can arse. (See West Te as Refnng t D. Co. v. Commssoner,
OS . (2d), 77.)
owever, we do not so nterpret the contract between the partes, for we thnk
that the agreement of the vendee to pay the awfu debts of the ta payer was
broad enough to ncude the assessment aganst t for ncome ta es. It s
true that a ta s not a debt n the ordnary sense of the word restng upon
a contract, e press or mped, but a burden mposed by the Government n the
e ercse of ts power to rase money for pubc purposes. (Lane County v.
Oregon, 7 Wa., 71: Mertccther v. Garrett, 102 U. S., 472, 513.) Nevertheess,
a ta may be consdered a debt wthn the meanng of a statute, f the egsa-
tve ntent can be pany nferred. Thus t was hed n Prce v. Unted States
(200 U. S., 402 T. D. 3820, C. . -, 318 ) that the word debts ncudes
ta es n Revsed Statutes secton 34 , whch provdes that whenever any
person ndebted to the Unted States s Insovent, or the estate of a deceased
debtor s nsuffcent to pay a the debts due by the deceased, the debts due
the Unted States sha be frst satsfed and t was ponted out that n the
absence of another remedy made e cusve, an acton of debt es to recover
ta es where the amount due s certan or may be made certan. It was
thought that the purpose of the statute shoud not be defeated by unnecessary
restrctng the appcaton of the word wthn a narrow or technca meanng,
as was done under dfferent crcumstances n the cases cted.
Smary, n construng the contract of sae n ths case, the word debts
shoud be gven such a meanng as w carry out the purpose of the partes
to transfer to the new corporaton a of the assets and a of the abtes
of the od, and to make a dstrbuton to the stockhoders that woud be free
from attack. Ths coud not be done uness provson was made not ony for
ordnary credtors but for the obgatons of the Government ater to accrue,
and hence t s far more reasonabe to suppose that the partes ntended to use
the word debts In the broad, rather than n the narrow and technca sense.
We fnd that a ke concuson was reached n Trevander v. Ruysdae (299 .,
74 , 753), where the court construed a decree and order of |udca sae whch
provded that at the sae the purchaser shoud assume a e stng debts aganst
the busness. It was concuded that the word debts was ntended to ncude
ncome ta es. The court sad:
The word debt In ts technca meanng as apped to common-aw actons,
s not synonymous wth the word ta . (Lane County v. Oregon, 74 U. S.
(7 Wa.), 71, 19 L. d., 101.) ut the word debt s not aways used wth
ths mted technca meanng. ta may or may not be a debt under a
partcuar statute, accordng to the sense n whch the word s found to be used.
(Unted States v. Chambern, 219 U. S., 254, 31 Sup. Ct., 155, 55 L. d., 204.)
The word debt s frequenty used n Its we-recognzed sense as that whch
s due from one person to another that whch one person s bound to pay
another a thng owng an obgaton a abty. The character of a ta
s we known. It s a charge or burden ad upon persons or property for
pubc purposes a forced contrbuton authortatvey mposed. When t s
mposed annuay that Is, when the aw provdes for ts mposton t s,
before ts due date, a abty n futuro, mposed by aw, and when fnay
mposed t becomes a f ed abty, a thng owng, a matured obgaton.
It s apparent from the anguage used that the partes ntended that the
purchaser shoud assume a obgatons or abtes of the busness. The
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355
280, rt. 1291.
partes knew that the aw mposes ncome ta es. partes knew that at the
tme of the sae the ncome ta es were abtes n futuro that they woud
become, when mposed, a f ed abty, a thng owng to the Government. The
purchaser, therefore, by assumng the debts of the busness, ncuded ncome
ta es of the busness.
The provson n the contract n the pendng case was made for the beneft
of the Government as we as a other credtors, and the Government has the
rght to enforce t aganst the Deaware corporaton as a transferee wthn
the meanng of secton 280 of the Revenue ct of 102 wthout frst attemptng
to coect the ta from the transferor or Its stockhoders. ( mercan quta-
be ssocaton v. evcrng, 8 . (2d), 4 Ct. D. 822, C. . III-1, 33 .)
We have not overooked the suggeston n the opnon of the oard that n
the stpuaton of facts, the sum of 1,009, 03.91 s stated to be the amount
of abtes of the West rgna corporaton whch the Deaware corpora-
ton assumed but t s obvous that ths statement refers to the amount of
abty shown by the books of the West rgna corporaton at the tme the
transfer of October 7, 1919, took pace, and before the ncome ta had accrued.
Reference s aso made n the opnon of the oard to a resouton of the West
rgna corporaton, passed n pr, 1920, wheren ts board of drectors
was drected to convert ts property nto cash and pay off a debts and ob-
gatons, and dvde the remander among the stockhoders pro rata after
pubcaton of the resouton n a newspaper of genera crcuaton. Ths reso-
uton was doubtess passed as part of the forma proceedngs of dssouton.
It dd not correcty recte the facts, for at that tme, the corporaton havng
aready made the dstrbuton to ts stockhoders, had no assets out of whch
ts obgatons coud be pad.
The fndng and concusons of the oard of Ta ppeas are reversed.
ktce 1291: Cams n cases of transferred I -12-738
assets. Ct. D. 93
( so Secton 01.)
INCOM T R NU CTS O 192 ND 1928 D CISION O COURT.
1. ssessment Lmtaton Transferee- adty of Wavers
stoppe.
n assessment made aganst a transferee corporaton wthn one
year from the e praton of the perod of mtaton aganst the
orgna company, as e tended by wavers e ecuted by the trans-
feree n the name of the orgna company, s tmey, under the
provsons of secton 280 of the Revenue ct of 192 , despte a
decson by the oard of Ta ppeas that coecton from the
orgna company was barred and that the wavers had not been
authorzed by t. The transferee, havng represented that t had
authorty to e ecute the wavers n behaf of the orgna company,
s estopped to deny that proper authorty e sted.
2. Decson of oard of Ta ppeas Res udcata Idkntty
of Issues.
decson of the oard of Ta ppeas that wavers e ecuted
by a transferee corporaton were not authorzed by the orgna
corporaton, and that consequenty coecton of ta from the atter
corporaton was barred by the statute of mtatons, s not a bnd-
ng determnaton as to the coectbty of the nta and add-
tona ta es from the transferee n equty recevershp proceedngs,
there beng no dentty of ssues n the two cases.
Unted States Dstrct Court, Southern Dstrct of New York.
mercan Steamshp Co., pantff, v. Wckwre Spencer Stee Co., defendant.
ugust 17, 1934.
opnon.
Patterson, D. .: The defendant s n equty recevershp on credtor s b.
The Unted States fed a cam for 303,752.19 as addtona Income ta for
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280, rt. 1291.
35
the year 1918, camed as due from Morgan Sprng Co. orgnay and from the
defendant as transferee. The recevers re|ected the cam. The matter was
referred to a speca master to take testmony and report. The speca master
had made fndngs of fact and has reported n favor of the Unted States.
The Morgan Sprng Co., a Massachusetts corporaton and the orgna ta -
payer, transferred a ts assets n une, 1919, to Wekwre Spencer Stee
Corporaton (then known as Cnton Wrght Wre Co.), whch agreed to as-
sume and pay a obgatons of the Morgan company then outstandng. The
Wckwre Spencer Stee Corporaton had aready acqured the entre capta
stock of the Morgan company, and after the transfer of assets the atter was
an empty she, wthout assets or busness. It was not formay dssoved,
however, unt March 31, 1924. In ebruary, 1925, the defendant, pursuant
to a pan of reorganzaton, took over a the assets and assumed a the a-
btes of Wckwre Spencer Stee Corporaton, such assets ncudng part of
the orgna Morgan company assets. The Morgan assets thus acqured n
successon by the Wckwre Spencer Stee Corporaton and by the defendant
had a vaue n e cess of the aeged ta defcency of the Morgan company.
The Morgan company had fed ts 1918 ta return on May 20, 1919. The
mt of tme for addtona assessment of ta for 1918, fve years, woud
normay e pre on May 20, 1924. On March 18, 1924, the Commssoner
made an addtona assessment of 44, 95.99 aga nst the Morgan company.
The Wckwre Spencer Stee Corporaton then fed a cam for abatement
n behaf of the Morgan company and requested that coecton be deferred
unt the merts of the aeged defcency shoud be decded. Coecton was
deferred. Thereafter three statutory wavers were sgned, purportng to e tend
the Government s tme for assessng and coectng the 1918 ta . of these
wavers named the Morgan company as the ta payer. The frst was on May
8, 1924, and was for one | ear t was sgned Morgan Sprng Company,
Wckwre Spencer Corporaton, successor, G. . Pach, ssstant Treasurer.
Ths waver was not sgned by the Commssoner t was referred to, how-
ever, n a etter sgned by the Commssoner on December 3, 1924, and sent
to the Morgan company. The second waver was on anuary 31, 1925, and
was an e tenson to December 31, 1925 t was sgned Morgan Sprng Com-
pany, Ta payer, G. . Pach, Treasurer of Sue. Co. The thrd was on No-
vember 17, 1925, and was an e tenson to December 31, 192 t was sgned
Wckwre Spencer Stee Company, Successor, G. . Pach, Treasurer. The
second and thrd wavers were sgned by the Commssoner n due course.
Durng ths entre perod of 1924-192 , the Wckwre Spencer Stee Corpora-
ton and ater the defendant were negotatng wth the Commssoner and
protestng aganst the addtona assessment of 44, 95.99 and a proposed
further defcency of 228,752.15 for the same year aso sad to have been
due from the Morgan company. forma defcency etter on the 228,752.15
was sent by the Commssoner to the Morgan company on ebruary 12, 192 .
It appears that on December 31, 1927, the Commssoner turned hs attenton
to the defendant and made an assessment aganst t as transferee of the Morgan
company. It s ths assessment aganst the defendant that s sought to be en-
forced n the present cam. The assessment was for 303,752.99, made up of
the earer assessment of 44,095.99 aganst the Morgan company, the aeged
addtona defcency of 228,752.15, and Interest on both amounts to December
31, 1927.
Meanwhe there had been nsttuted a proceedng n the name of the Morgan
company before the oard of Ta ppeas, the determnaton of whch s reed
on by the recevers as a bndng ad|udcaton aganst the present cam of the
Unted States. The proceedng, though nomnay brought by the Morgan com-
pany, was drected and controed by the defendant and ater on by ts recever.
petton was fed by the Morgan company on pr 2 , 192 , to revew the
aeged defcency of 228,752.15. The petton set forth, among other grounds
of aeged egaty, that the perod for assessment and coecton of ta for
191S had e pred pror to the defcency notce, and that no wavers had been
sgned by the ta payer. hearng was hed on une 19, 1928, before a member
of the oard sttng as a dvson. The pettoner wthdrew a matters as-
sgned as errors e cept those based on the statute of mtatons. t the con-
cuson the dvson hed oray that the ta payer had sustaned the defense of
mtatons that the Commssoner had not estabshed that the three wavers
had been e ecuted by authorty of the Morgan company that the wavers were
therefore not bndng on t that accordngy there was no defcency due from
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357
280, rt. 1291.
the Morgan company. These fndngs and concusons were recorded n the
stenographc mnutes. The ne t day the member who heard the case entered
n the records a decson whereby t was ad|udged that there s no defcency
for 1918. The Unted States took no proceedngs to have the decson revewed
on appea.
Pror to the hearng on ths petton the 1928 ct had become effectve. y
that ct certan changes n procedure reatve to cases before the oard were
adopted. It was provded that the report of a dvson on a case sha become
the report of the oard wthn 30 days after such rewrt by the dvson, uness
wthn such perod the charman has drected that such report sha be revewed
by the oard (secton 90 (b) 2 U. S. C. ., secton 1217(b)) and that the
decson of a case sha be made by a member n accordance wth the report
of the oard, and such decson so made sha, when entered, be the decson of
the oard (secton 907(a) 2 U. S. C. ., secton 1219(a)).
Other facts are set forth n the fndngs of the speca master. Nether the
Unted States nor the recevers offered any proof as to the correct amount of
the 1918 ta of the Morgan company.
1. The assessment of the ta s prma face correct, castng on the party
resstng the cam the burden of showng that the Commssoner s computaton
was erroneous. (Unted States v. Rndskopf, 105 U. S., 418 Wckcre v. Ren-
ecke, 275 U. S., 101 T. D. 412 , C. . II-1, 31 runton v. Commssoner,
42 ed. (2d), 81 (C. C. . 9), certorar dened, 282 U. S., 889 urnet v.
Petroeum poraton, 1 ed. (2d), 273 (C. C. . 4) Ct. D. 12, C. . I-2,
2 2 , affrmed 288 U. S., 4 7.) There beng no evdence ether way as to the
actua ta abty of the Morgan company, t must be concuded that the
Morgan company faed to pay ts proper ta for the year 1918 by the amount
here n dspute. The queston s whether the defcency may be coected from
the defendant as transferee.
2. The defendant as transferee of the ta payer s property ncurred abty
for payment of the defcency n ta . or one thng, the defendant s prede-
cessor made an e press agreement to assume and pay the abtes of the
Morgan company, and the defendant n turn assumed the abtes of ts
predecessor. ( Yarner Coeres Co. v. Unted States, 3 ed. (2d), 34 (C. C. .
) Ct. D. 703, C. . II-2, 227 .) Independenty of e press assumpton, the
defendant succeeded to the entre assets of the Morgan company, and those
assets had a vaue substantay n e cess of the ta abty. (Phps v.
Commssoner, 2S3 U. S., 589 Ct. D. 350, C. . -, 2 4 atch v. Morosco
odng Co., 50 ed. (2d), 138 (C. C. . 2), certorar dened 284 U. S., 8
Unted States v. Garfunke, 52 ed. (2d), 727 (D. C. N. Y.) Ct. D. 405, C. .
-2, 384 .) The Unted States therefore had a cause of acton aganst the
defendant enforceabe by sut n equty or acton at aw, or t mght proceed
by summary admnstratve measures under secton 280 of the 192 ct (2
U. S. C. ., secton 10 9). (Phps v. Commssoner, supra.) The Comms-
soner adopted the atter course when he made the assessment of December
31, 1927, aganst the defendant as transferee.
3. The assessment of December 31, 1927, must be deemed a tmey one.
Under the ct of 1920 (secton 280) as we as under subsequent cts, the
perod of assessment aganst a transferee does not e pre unt one year after
e praton of the perod of mtaton for assessment aganst the orgna ta -
payer. The return havng been fed on May 20, 1919, the tme for assessment
aganst the Morgan company woud ordnary have e pred May 20, 1924.
ut a seres of wavers of tme for assessment of ta was sgned by Wckwre
Spencer Stee Corporaton and by the defendant, both of them actng ostensby
for the Morgan company, and these successve wavers purported to brng
the tme for assessment aganst the Morgan company down to December 31,
192 . It s unnecessary here to determne whether these wavers were author-
zed by the Morgan company or were n any way bndng on t. The defendant
represented that t had authorty to sgn them n behaf of that company and
s equtaby estopped now to mantan the contrary. On ths feature Lvcas v.
unt (45 ed. (2d), 781) (C. C. . 5) Is drecty n pont. There the Com-
mssoner made an assessment aganst unt as transferee of the assets of a
dssoved corporaton whch owed the ta . unt was one of the qudators
and sgned a waver n the name of the corporaton after e praton of hs
authorty to act for the corporaton. The court sad (page 7S2) :
If the waver was vad, then t Is rghty conceded by counse for unt
that the assessment was not barred but t s contended on hs behaf that,
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280, rt. 1291.
358
the tme wthn whch he was authorzed to act as qudator havng e pred,
the waver had no bndng force or effect. We are of opnon that unt by
sgnng the waver estopped hmsef to queston Its vadty, wth the resut
that e was bound to respond to the assessment to the e tent of funds n
hs hand whch beonged to the dssoved corporaton ta payer. The crcum-
stmces a show that the Commssoner reed on the waver and Is there-
fore entted to cam the equtabe estoppe asserted by counse In hs behaf.
s between the partes now before the court, therefore, the assessment must
be deemed to have been made before the tme when assessment and coecton
from the transferee woud have been barred.
The effcacy of the wavers In other respects s pan. It Is true that the
frst one was not sgned by the Commssoner. It was, however, referred to
n a ater wrtng sgned bv hm, and ths s a good equvaent. (R. . Stearnt
Co. v. Unted States, 291 U. S., 54, 02 Ct. D. 780, C. . III-1, 321 .) In
any event, the two subsequent wavers were une ceptona as to sgnature of
the Commssoner and were of themseves suffcent e tensons of the tme.
(See Stange v. Unted State , 282 U. S., 270 Ct D. 274, C. . -, 414
McDonne v. Unted States, 288 U. S., 420 Ct. D. 54, C. . II-1, 294 .)
4. The recevers say that the decson of the oard of Tar ppeas n the
proceedng nsttuted by the Morgan company s a bndng determnaton
aganst the coectbty of the cam now beng tred. Ths argument must
be re|ected.
The rue of res |udcata s that a fna |udgment or decree on the merts by
a court of competent |ursdcton s concusve of the rghts of the partes or
ther prves n a ater suts on the ponts and matters determned n the
former sut. (Russe v. Pace, 94 U. S., 00 ohnson Co. v. Wharton, 152
U. S., 252 Lander v. Mercante ank,, 18 U. S., 458.)
The oard of Tu ppeas, whe not a court (Od Coony Trust Co. v.
Commssoner, 279 U. S., 71 , 725 Ct D. 80, C. . III-2, 222 ), has by
statute been endowed wth capacty to render decsons fna and bndng
on both Commssoner and ta payer uness reversed on appea. ( ct of
1920, secton 1005 2 U. S. C. ., secton 1228.) Its decsons n matters over
whch t has |ursdcton are therefore not open to coatera attack, and t
can not be dotbted that n ths sense a decson of the oard Is comparabe
to the |udgment of a court (See Donad v. . . Whte Lumber Co., 8 ed.
(2d), 441, 442 (C. C. . 5).)
It may be assumed, wthout decdng the pont, that the decson n the
Morgan company case was a fna decson of the oard, despte the fact that
t was entered ony one day after the report of the dvson that heard the case.
The statutory provsons n effect snce the 1928 ct doubtess contempate
that between the report of a dvson and the fna decson of the oard there
sha be an nterva of 30 days, durng whch the report of the dvson sha
rpen nto the report of the oard uness upset by the oard as a whoe but
t may we be that the premature entry of the decson was no more than
an rreguarty and does not open up the proceedng to coatera attack.
( ournquet v. Perkns, 7 ow., 100 Cooper v. Reynods, 10 Wa., 308 Ounn
v. Pant, 94 U. S., 04 Throckmorton v. ckman, 279 ed., 19 , 200 (C. C. .
3).) The further assumpton may be made that the partes to the present
proceedng are prves to those n the proceedng before the oard. The partes
there were the Commssoner and the Morgan company. The Unted States
s certany n prvty wth the Commssoner. (Tat v. Western Maryand
Raway Co., 289 U. S., 020 Ct. D. 83, C. . II-1, 351 .) nd It s qute
possbe that the defendant, transferee and soe stockhoder of the Morgan
company and abe ony by dervaton from that company, s n prvty wth
t. (See geow v. Od Domnon Copper Co., 225 U. S., I, 127 Portand Coa
Mnng Co. v. Stratton s Independence, 158 ed., 3 (C. C. . 8) Cty of eo
York v. New York Cty Raway Co., 193 N. Y., 543.)
ut the recevers argument fas because there s no dentty of ssues n
the two cases. The pont decded n the case before the oard was that the
wavers had not been authorzed by the Morgan company, and that conse-
quenty the coecton of the ta from that company was barred by mtatons.
The decson of no defcency means nothng more. There was no decson
as to the nta ta abty that ssue was wthdrawn from the case by the
Morgan company and faded out of the pcture atogether. The Supreme
Court sad of a smar decson by the oard: The effectve scope of the
decson rendered s no broader than the ssue, opnon and fndngs.
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359
280, rt. 1291.
(Gf I/ States Stee Co. Unted States, 287 U. 8., 82, 44 Ct. D. 08, O. . I-2,
814 .) In the present case the Unted States contends as to the wavers, frst,
that the Morgan company dd n fact authorze the defendant to e ecute them
a Its behaf, and second, that In any event the defendant hed out to the
Unted States that It had authorty to e ecute them for the Morgan company
and therefore s estopped by ts own representaton to deny that proper
authorty e sted. On the frst contenton the decson of the oard n the
former case woud seem to be a bndng ad|udcaton aganst the Unted
States. ut that decson manfesty does not touch the second contenton and
can not be deemed an ad|udcaton of t. nd the second contenton, as a
ground of hodng that coecton from the defendant s not barred, s fuy as
effectve as the frst. Lucas v. unt, supra.)
It may be granted that the oard s decson s a concusve determnaton
that coecton of the 228,752.15 defcency from the transferor was barred.
It does not foow that coecton from the transferee s barred. (Cty Natona
ankv. Commssoner, 55 ed. (2d), 1073 (C. C. . 5) Ct. D. 548, C. . I-2,
85 , certorar dened 28 U. S., 5 1.) There nothng was done by the Govern-
ment to coect the ta from the transferor unt after e praton of the 5-year
statute of mtatons. defcency notce was sent to the transferee, how-
ever, wthn the e tra year permtted by secton 280 as to transferees. It
was hed that the ta coud be coected from the transferee.
5. The recevers ca attenton to secton 90 (e) of the 192 ct (2 U. S
C. ., secton 1217(e)) and urge that by force of that statute a abty for the
ta on the part of anyone became e tngushed when the oard hed that
coecton aganst the orgna ta payer was barred. Secton 90 (e), as amended
by the 1928 ct, reads:
If the assessment or coecton of any ta s barred by any statute of mta-
tons, the decson of the oard to that effect sha be consdered as ts decson
that there s no defcency n respect of such ta .
smar argument was hed untenabe n utf States Stee Co. v. Unted
States, supra. There the Unted States sued on a bond by the ta payer and a
surety to pay so much of the ta as shoud not be abated. Thereafter the
ta payer, on re|ecton of the cam for abatement, had taken the case to the
oard of Ta ppeas and had obtaned a decson that coecton of the
ta was barred by mtatons and that consequenty there was no defcency.
It was argued that ths decson was transformed, by force of secton 900(e),
nto a decson that there never had been a defcency n ta . The Supreme
Court affrmed a |udgment n favor of the Unted States on the bond. It was
hed that such a tera constructon of the statute woud ead to consequences
manfesty un|ust, f not absurd (page 45) that no such ntenton woud
be mputed to Congress that the statute woud be gven ony ts norma app-
caton n preventng dstrant by te Commssoner on a ta the coecton of
whch by sut was barred by mtatons.
It may further be noted that secton 1100 of the 192 ct (2 U. S. C. .,
secton 1249) to the effect that the bar of mtatons shoud not ony bar the
remedy but aso e tngush the ta abty, was repeaed n the 1928 ct,
to take effect retroactvey. In vew of that repea, t s scarcey concevabe
that Congress woud have aowed the secton under dscusson to reman n
force f t had the effect now attrbuted to t by the recevers, of convertng a
decson that coecton of ta was barred by apse of tme nto a decson
that there never had been any abty for the ta .
It foows that the cam of the Unted States aganst the defendant s a
vad one. The fndngs of fact of the speca master w be confrmed, e cept
those reatve to the actua authorty of the Wckwre Spencer Stee Corpora-
ton and the defendant to act as agents of the Morgan Sprng Co. n sgnng the
wavers as to the atter no fndngs w be made. The report of the speca
master w stand, e cept as to the concuson that the decson entered as
that of the oard of Ta ppeas s not a fna ad|udcaton by the oard,
and as to the concuson that the Wckwre Spencer Stee Corporaton and the
defendant had actua authorty from Morgan Sprng Co. to e ecute wavers
n ts behaf. Wth these two concusons omtted, the report w be confrmed.
The prorty of the cam s not now n ssue and w not be determned.
Sette order on two days notce.
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11003 and 1004. 3 0
S CTION 284. CR DITS ND R UNDS.
rtce 1305: Lmtatons upon the credtng and refundng
of ta es pad.
R NU CT O 1018.
state ta pad where partnershp profts treated as part of the
estate and defcency n ncome ta es pad on same profts. (See
Ct. D. 9 9, page 310.)
TITL . O RD O T PP LS.
S CTIONS 1003 ND 1004WURISDICTION.
Sectons 1003 and 1004.
revenue act of 192 .
Request for rehearng n order to permt ta payer to make charges
and payments for ntercompany transactons so as to reduce ta aton
of the affaton. (See Ct. D. 921, page 257.)
Sectons 1003 and 1004. I -19-7482
Ct, D. 9 1
INCOM ND PRO ITS T R NU CT O 1918 D CISION O COU T.
1. oakd or Ta ppeas ndngs of act vdence.
Where the oard of Ta ppeas had hed that the ta payer cor-
poraton reazed a ta abe proft from the transfer of ts assets to
a newy organzed corporaton n e change for the atter corpora-
ton s stock, but dd not support ts opnon by fndngs as to two
facts prerequste to the determnaton of proft under secton 202
(a) and (b) of the Revenue ct of 1918, namey, the cost to the ta -
payer of the property transferred and the vaue of the stock t re-
ceved n e change, and upon appea to the Crcut Court of ppeas
ony a porton of the evdence was contaned n the transcrpt and
there was no certfcate by the oard as to the competeness of the
transcrpt, the opnon of the oard was propery reversed as not
sustaned by the fndngs. It s not the duty of the court to resort
to the oard s opnon to eke out the fndngs of fact, nor to e amne
the evdence and make fndngs addtona to those of the oard.
2. Decson Reversed.
Decson of the oard of Ta ppeas ( . T. ., 1092) reversed.
Unted States Crcut Court of ppeas, ghth Crcut.
endrck Coa Dock Co., appeant, v. Conmsnwcr of Interna Revenue,
appeee.
On petton to revew decson of Unted States oard of Ta ppeas.
efore ooth, Crcut udge, and Poock and Dewey, Dstrct udges.
November 7, 1928.
OPINION.
ooth, Crcut udge, devered the opnon of the court.
Ths Is a proceedng seekng n revew of an order of the oard of Ta
ppeas whch redetermned a defcency In the Income ta of the endrck
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3 1
1003 and 1004.
Coa Dock Co. for the year 1920. The proceedng In Its Inta stages was
caed a petton for revew, ater on appea. The order of the oard of Ta
ppeas f ed the defcency of the ta at 18,804.01, the same amount as found
by the Commssoner of Interna Revenue.
The record dscoses that the matter was heard by the oard of Ta ppeas
upon the peadngs of the respectve partes and evdence ntroduced. ssgn-
ments of error and a porton of the evdence are contaned In the transcrpt.
There s, however, no certfcate by the oard of Ta ppeas as to the com-
peteness of the transcrpt, as provded by Rue II of ths court reatng to
revew of decsons of the oard of Ta ppeas.
The fndngs of fact of the oard of Ta ppeas are as foows:
ndngs op act.
The pettoner Is a Mnnesota corporaton engaged n the whoesae coa
busness. It was organzed une 24, 191 , wth a capta stock of 50,000,
dvded nto 500 shares of a par vaue of 100 each. Its entre capta stock
was ssued, wth the e cepton of quafyng shares of drectors, to dward S.
endrck, r. endrck had been engaged n the coa busness for a number
of years pror to the organzaton of the pettoner, frst n Phadepha, then n
Cncnnat, and then n Mnneapos. e came to Mnneapos n 1911 and
became assocated wth the erwnd ue Co. as Its saes manager of the North-
western terrtory ad|acent to Mnneapos. or about fve years subsequent and
unt May, 191 , endrck remaned n ths poston. Durng ths perod he
became acquanted wth ndustres In the Northwest whch were arge pur-
chasers of coa, and aso wth varous coa companes whch sod coa n that
terrtory. In May, 191 , he severed hs connecton wth the erwnd ue Co.,
and went Into the coa |obbng busness ndvduay under the name of the
endrck Coa Dock Co.
endrck contnued hs ndvdua busness for a perod of about two months
when the pettoner was ncorporated. Durng ths perod he secured numerous
orders for the sae of coa ncudng both orders for snge shpments and
orders for shpments e tendng over a perod of severa months. None of the
orders whch were on hand and unfed n une, 191 , provded for shpments
e tendng beyond one year. On the organzaton of the pettoner, endrck
turned over hs ndvdua coa busness, Incudng a of the unfed orders on
hand, for the entre capta stock of the pettoner.
The books of account as of December 31, 1917, show assets and abtes
as foows:
SS TS. LI ILITI S.
Cash
ccounts recevabe
Lberty bonds
Corporate stocks
22, 504. 45
77, 582. 75
12, 000. 00
2, 025. 75
ccounts payabe.
ccrued e penses-
Surpus
._ 48,1 3. S2
... 5, 083. 78
00, 8 5. 35
Tota 114,112. 95
Tota 114,112.95
In 1918 endrck was mustered nto the mtary servce of the Unted
States and was not mustered out unt pr, 1919. e returned to Mnneapos
and contnued the conduct of hs coa busness.
Owng to keen competton, endrck saw that f hs busness was to become
a arge busness, t woud be necessary for the corporaton to acqure a dock at
Duuth and for t to make arrangements whereby t coud get coa by water
transportaton from the astern coa feds. Pror to une, 1920, endrck had
been negotatng wth certan astern coa nterests for the enargement of hs
busness. These negotatons were carred on wth . W. Thompson of the
Wson Transt Co. and . . Tapn of the Ceveand Western Coa Co.
In May, 1920, at a speca meetng of the stockhoders of the pettoner, ts
offcers were authorzed to enter nto an agreement wth the above-named
ndvduas under the terms of whch the pettoner was to agree n consdera-
ton of 50,000 of the stock of the Inand Coa Dock Co. (corporaton to 1)9
formed) to convey to Thompson and Tapn actng for and on behaf of such
corporaton a the offce furnture and f tures, offce suppes and equpment,
aso the good w and a of the benefts to be derved n the way of profts from
the contracts whch ths corporaton has for the purchase or sae of coa, and
the contracts themseves, profts In whch are estmated at 40,000 by the offcers
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1003 and 1004.
3 2
of the company, and It beng understood that the purchaser s to assume a
abtes or osses whch may arse n connecton wth sad coa contracts.
Pursuant to such authorzaton, endrck proceeded to Ceveand, Oho, for
the purpose of enterng Into the agreement referred to. Ob|ecton was rased
by the attorney for the Inand Coa Dock Co. to the ssuance of any of ts
capta stock n payment for the above referred to assets of the pettoner.
It was then agreed that the transfer shoud be made for 50,000 n cash, and
that the pettoner shoud thereupon subscrbe for 500 shares wthout nomna
or par vaue of the common stock of the Inand Coa Dock Co. to be pad for
n cash. Ths change n the pan of the transacton was agreed to by kendrck
and the pettoner and a resouton n accordance therewth was duy passed by
the drectors of the pettoner.
The foowng s the agreement entered nto between Tapn and Thompson
and the pettoner by . S. endrck as presdent under date of une 1, 1920:
Memorandum of agreement made and entered nto ths 1st day of une,
1920, by and between . W. Thompson and . . Tapn, actng for and on
behaf of a corporaton to be formed to take over and operate the Isand Creek
Coa Co. s dock at Duuth, Mnn., partes of the frst part, and endrck Coa
Dock Co., a corporaton of Mnneapos, Mnn., party of the second part.
Wtnesseth:
Whereas, a corporaton s to be formed under the aws of the State of Oho
to take over and operate the Isand Creek Coa Co. s dock at Duuth, Mnn.
and
Whereas, t s desrabe that sad dock company so to be formed sha
have the benefts to be derved from the gong organzaton of second party
and the good w connected therewth, and aso from certan contracts now
hed by the second party, and sha further secure the beneft of the servces
of . S. endrck, now presdent of the second party.
Now, therefore, t s agreed as foows:
(1) Partes of the frst part agree to purchase, and party of the second
part agrees to se, a of second party s offce furnture and f tures, suppes
and equpment, aso the good w of sad company, and a of the benefts to
be derved n the way of profts from the contracts whch second party has
for the purchase or sae of coa, t beng understood that sad corporaton so
to be formed sha assume a abtes or osses to arse n connecton wth
sad coa contracts.
(2) In fu payment for sad property, party of the second part agrees
to accept, and partes of the frst part agree to pay, the sum of ffty thousand
doars ( 50,00(1) n cash.
(3) It s understood between the partes that whe sad coa contracts
are not to be assgned or transferred to the new dock company, nevertheess,
from and after the date hereof, a operatons of second party n connecton
wth sad contracts are for the soe use and benefts or oss, as the case may
be of sad new dock company.
(4) Party of the second part agrees upon request to e ecute any and a
papers necessary or proper to effect the transfer of the property hereby pur-
chased by partes of the frst part, t beng understood that sad transfer sha
be made to the corporaton before mentoned when duy organzed. phys-
ca assets covered by ths agreement of purchase and sae sha be transferred
free of ens or encumbrances of any s. rt.
(5) It s understood that t s part of ths agreement, supported by the
consderaton heren named, that the corporaton to be formed sha empoy
the sad . S. endrck us vce presdent n charge of saes and management
of the Duuth Coa Dock and of the Northwestern busness of te corporaton,
at a saary of ffteen thousand doars ( 15,000) a year and e penses, sad
empoyment to contnue so ong as sad . S. endrck sha retan hs stock
ownershp n sad corporaton.

b of sae or assgnment was then e ecuted by the pettoner, n whch
t transferred to the Inand Coa Dock Co. ts offce furnture and f tures,
good w and a the profts to be derved from certan descrbed contracts
of the pettoner for the sae of coa. The contracts were 35 n number, had
a been acqured by the pettoner subsequent to anuary 1, 1920, and were
for the sae of 174,850 tons of coa. None of the orders or contract on hand
at that tme were ncuded n the orders or contracts transferred by endrck
to the pettoner upon ts organzaton n 1910. None of the accounts recevabe
or cash n the treasury of the pettoner were transferred to the Inand Coa
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5 1003 and 1004.
Dock Co. The surpus of the pettoner at the date of transfer was between
0,000 and 70,000.
check of the Inand Coa Dock Co. for 50,000 was on une 12, 1920,
devered to the pettoner as the consderaton for the transfer. On the
same date the pettoner ssued ts check for 50,000 to the Ceveand
Western Coa Co. whch had advanced the orgna subscrpton to the stock
of the Inand Coa Dock Co. n payment for GOO shares of the common
stock of the ast-mentoned company. The checks wore passed smutaneousy.
The Inand Coa Dock Co. was organzed on une 1, 19 0, wth an
authorzed capta stock of 4,000 shares of preferred stock of a par vaue of
100 per share, and ,000 shares of common stock of no par vaue. of
the common stock was subscrbed for at 100 per share. The pettoner ac-
qured 500 shares n the manner above descrbed. It aso purchased 700
shares gvng ts note for 70,000 n payment therefor, 00,000 of the prncpa
beng pad as ts accounts recevabe were coected. . S. endrck, r.,
Indvduay subscrbed for GOO shares of the stock at 100 per share. The
baance of the common stock was subscrbed for by the Ceveand Western
Coa Co. and the Wson Transt Co. The company mmedatey acqured
the dock of the Isand Creek Coa Co. at Duuth. The certfcates of the
common stock ssued provded that the transfer of them was sub|ect to the
provsons of the code of reguatons of the company and that the shares
of stock were accepted and hed sub|ect to a provsons of the code of regu-
atons and to the desgnatons, preferences and votng powers, or restrctons
or quafcatons thereof, of the preferred stock, whch are set forth on the
reverse sde of each certfcate. None of the common stock of the Inand
Coa Dock Co. has ever been sod and no dvdend has ever been pad by
the company.
The certfcate for 500 shares of common stock acqured by the pettoner
wth ts check for 50,000 bears date of une 12, 1020, and was made out and
Is n the name of . S. endrck. Ths was retaned by the pettoner up to
December 31, 1920. t some tme pror thereto a speca meetng of the stock-
hoders of the pettoner was caed, a 100 per cent stock dvdend was decared
(the authorzed capta stock havng been ncreased to 200,000) an 3 shares
of stock were ssued to . S. endrck for 300 n cash. The stockhoders then
voted to accept the offer of . S. endrck to e change 500 shares of the capta
stock of the pettoner owned by hm for the 500 shares of common capta stock
of the Inand Coa Dock Co. owned by t. The e change was made accord-
ngy. The pettoner returned no ncome for 1920 from the transacton above
descrbed. The Commssoner added 50,000 to the gross and net ncomes for
1920, as the proft therefrom. The defcences arse from such ad|ustments of
the pettoner s return.
In revewng the decsons of the oard of Ta ppeas, ths court consders
questons of aw ony. It does not revew questons of fact. ( very v. Comms-
soner. 22 . (2d), T. D. 411 , C. . II-1, 155 Roya Packng Co. v. Com-
mssoner, 22 . (2d), 53 Iastn v. Commssoner (C. C. . 8), opnon fed
September 29, 1928.)
Whether a partcuar fndng of fact s supported by any substanta evdence
Is a queston of aw, and ths queston of aw can not be revewed uness a
of the evdence bearng upon t s returned. (Unted States v. Copper ueen
Mnng Co., 185 U. S., 495 Nat. Masonc co. ssocaton v. Shryock, 73 .,
774 (C. C. . 8) C. O. W. Ry. Co. v. Prce, 97 ., 423, 434 (C. C. . 8) Lesser
Cotton Co. v. St. L. I. M. S. Ry. Co., 114 ., 133, 143 (C. C. . 8) oen-
Darna Co. v. cks, 100 ., 717 (C. C. . 8).)
These rues are we estabshed, and are recognzed by the partes In the case
at bar. Counse for appeant say, The prncpa, underyng queston n the
case s whether under the provsons of Revenue ct of 1918, sectons 202(a)
and 202(b), appeant reazed a proft of 50,000 from the transacton of une,
1920. Counse for respondent say, the soe queston s the amount
of the proft reazed upon the transfer of the pettoner s assets to the Inand
company.
The concuson of aw reached by the oard of Ta ppeas n the case was
that the endrck Coa Dock Co. reazed a proft of 50,000 on the transacton
of une, 1920, whch s set out n ther fndngs.
The statute whch has a drect appcaton reads ns foows:
Seo. 202, (a) That for the purpose of ascertanng the gan derved or oss
sustaned from the sae or other dsposton of property, rea, persoua, or m ed,
the bass sha be
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1003 and 1004.
3 4
(1) In the case of property acqured before March 1, 1913, the far market
prce or vaue of such property as of that date and
(2) In the case of property acqured on or after that date, the cost thereof
or the nventory vaue, f the nventory s made n accordance wth secton 203.
(b) When property s e changed for other property, the property receved n
e change sha for the purpose of determnng gan or oss be treated as the
equvaent of cash to the amount of ts far market vaue, f any but when n
connecton wth the reorganzaton, merger, or consodaton of a corporaton
a person receves n pace of stock or securtes owned by hm new stock or
securtes of no greater aggregate par or face vaue, no gan or oss sha be
deemed to occur from the e change, and the new stock or securtes receved
sha be treated as takng the pace of the stock, securtes, or property e -
changed. (Secton 202 of the Revenue ct of 1918 (40 St., 1057,
10 0).)
rtce 150 of Reguaton 45 (1920 edton) promugated by the Treasury
Department under the Revenue ct of 1918 s aso pertnent:
kt. 150(5. change of property and stock. Where property s transferred
to a corporaton n e change for ts stock, the e change consttutes a cosed
transacton and the former owner of the property reazes a gan or oss f
the stock has a market vaue, and such market vaue s greater or ess than
the cost or the ar market vaue as of March 1, 1913 (f acqured pror thereto),
of the property gven n e change. or the rue appcabe where a corporaton,
n connecton wth the reorganzaton, merger or consodaton, e changes prop-
erty for stock, see artce 1507.
s the fndngs of fact show that the property sod or e changed n une,
1920, was acqured after March 1, 1913, ts cost s one of the facts whch must
be determned as a bass for the ega concuson. The other fact necessary
s I ho far market vaue of the property receved n the transacton as a con-
sderaton for the property sod or e changed. That these two facts are neces-
sary s conceded. Counse for respondent, n dscussng the method of deter-
mnng the queston of proft n the transacton, soy, ths n turn n-
voves a determnaton of the cost to the pettoner of the assets transferred
by t and the vaue of the consderaton receved n e change therefor.
The fndngs of fact dscose that the property sod or e changed by the
endck company n une, 1920, conssted of (1) offce furnture and f tures
(2) good w of the busness and (3) profts to be derved from 35 contracts
for the sae of coa. What was the cost of these three separate tems of prop-
erty, or of a three together carefu e amnaton of the fndngs of fact
reveas that there s no fndng whatever as to the cost of ths property.
The property receved n e change was 500 shares of the capta stock of the
Inand Coa Dock Co. What was the market vaue of ths stock at the tme
of the transacton gan, a carefu e amnaton of the fndngs of fact re-
veas that there s no fndng of the market vaue of ths stock.
It thus appears that there s no rndng of ether of the two facts whch are
ndspensabe prerequstes to the concuson of aw that there was a proft
reazed n the transacton. It s true that n the opnon of the oard of
Ta ppeas whch accompanes the fndngs, there s a dscusson as to the
cost of the tems of property sod or e changed by the endrck company
and aso a dscusson as to the vaue of the stock receved n e change by that
company and from ths dscusson t woud appear probabe that the oard
of Ta ppeas was of the opnon that the cost of the tems of property sod
was nothng, and that the market vaue of the stock receved was 0,000.
Whether such opnon was we grounded we are not caed upon to nqure.
Resort may not be had to the opnon to eke out the fndngs of fact. (Crocker
v. Unted States. 240 U. S., 74, 78 Cty of GoUfcU, Coo., v. Roger, 249 ., 39
(C. C. . 8) ghway Traer Co. v. Cty of Dcs Mones, 298 ., 71 (C. C. .
8) Lahman v. urn.es Natona ank, 20 . (2d), 897 (C. C. . 8).)
It s argued by counse for respondent that the oard of Ta ppeas occu-
pes a pecuar ega poston, and that the rue that an appeate court w
not ook to the opnon of a fact fndng court or body to eke out fndngs of
fact, does not appy to the oard of Ta ppeas. We are not persuaded to
that vew.
Respondent s counse aso argues that the ntenton of Congress as ndcated
by the amendment (contaned n secton 01 of the Revenue ct of 1928) to
secton 907(b) of the Revenue ct of 1920 s that t s to be optona wth the
oard of Ta ppeas whether t sha fe fndngs or an opnon or a memoran-
dum. suffcent answer to ths contenton s that the amendment of 1928 can
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1003 and 1004.
not rue the present appea. We may add, moreover, that we do not agree
wth counse s constructon of that amendment when apped to enses such as
the one at bar.
It woud seem but ust that the ta payer n cases of ths knd shoud be
entted to have fndngs made as such, so that f he deems advsabe, he may
ceary and dstncty chaenge them ndvduay. Ths he can not fary do f
the fndngs must be nferred or pcked out from a dscusson emboded n an
opnon or memorandum.
nay, we do not consder t our duty to e amne the evdence and make
fndngs addtona to those made by the oard of Ta ppeas. That oard
s prmary a fact fndng body, and we consder t good practce that the
appeate court shoud not, uness under very e ceptona crcumstances, n|ect
tsef nto the fed whch propery beongs to that fact fndng body. Such s
the rue n respect to aw cases tred to the court, a |ury havng been duy
waved. (.Insurance Company v. osom, 18 Wa., 237, 248 St. Lous v. Rutz,
138 U. S., 22 , 241 Lehmen v. Dckson, 148 U. S., 71, 77 Packer v. Whtter,
91 ., 511 Unted States v. Penn. d Dock Co., 272 ., 839 order Oas Co. v.
Wndroc, 3 . (2d), 974 Wesse v. Semnoe Phos. Co., 13 . (2d), 999.)
The same rue hods true as to aw cases taken to the Supreme Court for re-
vew of decsons of the Court of Cams. (Unted States v. New York Indans,
173 D. S., 4 4, 470-471 Stone v. Unted States, 1 4 U. S., 380 Crocker v. Unted
States, supra.)
It s aso true of cases comng up for revew under the Interstate Commerce
ct. (Te as, etc., Raway v. I. C. C, 1 2 U. S., 197, 238 L. d N. R. Co. v. ehmer,
175 U. S., 48, 75 /. C. O. v. Chc, d R. Co., 1 U. S., 320, 341-342 /. C. C. v.
L. d N. R. Co., 190 U. S., 273, 284-285 see /. C. C. v. L. d N. R. Co., 73 ., 409.)
The same rue s apped n other aed casses of cases. ( nt v. Cty of
don, 183 N. W., 344 (Iowa).)
urthermore, In the present appea the evdence as a whoe s not returned.
Our concuson s that the order of the oard of Ta ppeas shoud be
reversed as not sustaned by the fndngs, and that the case shoud be re-
manded wth nstructons for such further proceedngs as may be deemed ad-
vsabe not nconsstent wth the vews heren e pressed.
It s so ordered.
Sectons 1003 and 1004. I -19-7483
Ct. D. 9 2
INCOM ND PRO ITS T R NU CT O 1918 D CISION O COURT.
1. oard of Ta ppeas Remand of Case ndngs of act-
vdence.
Where the ta payer corporaton appeaed from a decson of the
oard of Ta ppeas hodng that a proft was reazed upon an
e change of ts assets for stock of a newy organzed corporaton,
and the Crcut Court of ppeas remanded the case to the oard
on the ground that ts decson was not sustaned by the fndngs
of fact (there beng no fndngs as to the cost to the ta payer of
the property transferred or as to the far market vaue of the
stock receved n e change therefor), the acton of the oard n
makng new fndngs and a dfferent decson on the orgna record
of evdence was not contrary to the mandate of the court, n vew
of the fact that on rehearng both partes waved the rght to
Introduce further evdence.
2. Gan ob Loss change of Property ar Market aue
vdence,
Where the evdence showed that the ta payer corporaton had
had a successfu hstory and had transferred ts proftabe con-
tracts and ts good w to a newy organzed corporaton, a of
whose stock had been subscrbed for at 100 a share, a fndng
by the oard of Ta ppeas that the stock of the new corporaton
had no far market vaue at the tme of ts e change for the assets
of the od corporaton was not supported by the evdence, whch
concusvey estabshed to the contrary.
3. Certorar Dened.
Petton for certorar dened ebruary 18, 1935.
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1003 and 1004.
3
Unted States Crcut Coubt of ppeas, ghth Crcut.
Ouy T. everng, Commssoner of Interna Revenue, pettoner, v. endrcb
Coa t Dock Co., respondent. -
On petton to revew decson of Unted States oard ot Ta ppeas.
efore Gardner, Woodrough, and an akenburgh, Crcut udges.
une 18, 1934.
OPINION.
Woodrouoh, Crcut udge, devered the opnon of the court.
Ths s a petton to revew a decson of the Unted States oard of Ta
ppeas, whch found the respondent ta payer not abe for an asserted
ncome and profts ta for the year 1920.
The opnon of ths court on the frst revew s reported n 29 ed. (2d),
559. The frst opnon of the oard of Ta ppeas appears n . T. .,
1092.
Respondent s a Mnnesota corporaton organzed n uy, 191 , wth a capta
stock of 50,000 dvded nto 50O shares of a par vaue of 100 each. Its entre
capta stock was ssued to dward S. endrck, r., wth the e cepton of
quafyng shares to drectors. Mr. endrck operated and managed the bus-
ness of the corporaton, the sae of coa at whoesae, at Mnneapos, Mnn.
Pror to une, 1920, Mr. endrck consdered e panson, partcuary through
obtanng water transportaton as necessary to the successfu operaton of the
corporaton, and began negotatons wth that end n vew. In May, 1920, at
a speca stockhoders meetng, the offcers of respondent were authorzed to
enter nto an agreement wth certan other persons nterested n the organza-
ton of a new corporaton to he known as the Inand Coa Dock Co., under
the terms of whch the respondent woud transfer a of ts furnture, f tures,
good w, contracts and profts to be derved from e stng contracts for the
sae of coa wth estmated profts of 40,000 n e change for 50,000 worth of
stock n the new company, the atter to assume a abtes or osses whch
mght arse n connecton wth the coa contracts. The agreement for the
e change of stock for assets was ater changed so that respondent shoud se
ts assets to the new company for 50,000 cash and respondent woud buy for
cash 50,000 of the capta stock of the new company, and as so modfed t was
carred out a b of sae was e ecuted by respondent transferrng to the other
corporaton ts offce furnture and f tures, good w, and a profts to be
derved from certan descrbed contracts of respondent for the sae of coa.
None of the accounts recevabe or cash n the treasury were transferred the
surpus of the ta payer at the date of the transfer was between 00,000 and
70,000 n cash and accounts recevabe. s consderaton for the transfer the
Inand Coa Dock Co. devered to respondent on une 32, 1920, a check for
50,000 and on the same date respondent ssued ts check for 50,000 n payment
for 500 shares of common stock of the Inand Coa Dock Co.
The Inand Coa Dock Co. was ncorporated n Oho wth an authorzed
capta stock of 4,000 shares of preferred stock of 100 a share and ,000 shares
of common stock of no par vaue. of the common stock was subscrbed for
at 100 a share. Respondent tsef purchased 700 shares for 70,000 n add-
ton to the 500 shares acqured as above ndcated. endrck ndvduay
purchased 000 shares of the common stock for 0,000.
Certfcates of common stock provded that ther transfer was sub|ect to
the provsons of the code of reguatons of the company and that the shares
were accepted and hed sub|ect to a the provsons of the code of reguatons
and to the desgnatons, preferences and votng powers, or restrctons or qua-
fcatons thereof, of the preferred stock, whch are set forth on the reverse
hereof. There Is nothng n the record to dscose the nature of the code
of reguatons.
None of the common stock has ever been sod by the orgna purchasers and
no dvdend has been pad by the Inand Coa Dock Co.
Immedatey after ts ncorporaton the Inand Coa Dock Co. acqured
a dock at Duuth, Mnn., whch endrck testfed was, at the tme, essenta
to a arge seer of coa as was aso an assocaton wth a steamboat company.
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1003 and 1004.
The consderaton formed through Incorporaton of the Inand Coa Dock Co.,
he testfed, rounded out the chan, coa mnes, steamshp, dock and seng
organzaton.
The endrck Coa Dock Co. had been operated successfuy and had made
money.
The respondent returned no ncome from ths transacton for 1920. The
Commssoner determned a defcency based on a proft of 50,000 from the
transacton and respondent appeaed to the oard of Ta ppeas. The oard
sustaned the Commssoner. On the pror appea n ths case the decson of
the oard of Ta ppeas was reversed, because there was no fndng of fact
as to the cost to respondent of the property whch t transferred, nor of the
market vaue of the stock whch t had receved n the e change. These matters
were dscussed n the opnon of the oard, but ths court hed that resort coud
not be had to the opnon to eke out the fndngs of fact. The concuson of
the opnon of the court s as foows:
Our concuson s that the order of the oard of Ta ppeas shoud be re-
versed as not sustaned by the fndngs, and that the case shoud be remanded
wth nstructons for such further proceedngs as may be deemed advsabe not
nconsstent wth the vews heren e pressed.
The mandate of the court contaned substantay smar anguage.
The oard after the mandate went down to t, heard no new evdence. Upon
a rehearng the partes agreed that the case mght be resubmtted to the oard
upon the reporter s mnutes taken before the oard at the orgna hearng,
together wth the e hbts then offered and receved on behaf of ether party.
The oard thereupon made addtona fndngs of fact, n whch t found that
the 500 shares of stock transferred to respondent had no far market vaue at the
tme of transfer. It aso found n substance that the property transferred to
the Inand Coa Dock Co. by respondent, asde from the offce furnture and
f tures, had not cost respondent anythng and that the vaue of the furnture
and f tures had been ad|usted through aowance for deprecaton. The oard
concuded that respondent had not receved any ncome from the transacton,
and that there was no ta abty. Ths petton for revew has foowed.
The Commssoner contends: (1) That the acton of the oard n makng new
fndngs and a dfferent decson on the orgna record of evdence was not n
conformty wth the mandate of ths court. (2) That there was no suffcent
evdence to sustan the fndng of the oard that the stock receved by respondent
on the e change was of no vaue.
1. Obedence to the mandate of an appeate court s undoubtedy requred.
(2 U. S. C. ., secton 122 (a) (b) In re Sanford ork Too Co., 1 0 U. S.,
247 . P. Coffee Co. v. Red, Murdoch d Co. (C. C. . 8), 0 ed. (2d), 387
Great Northern Raway Co. v. Genera Raway Sgna Co. (C. C. . 8), 57 ed.
(2d), 457 Guaranty Trust Co. v. M. t St. L. R. Co. (C. C. . 8), 52 ed. (2d),
418.)
ut no dsobedence of the mandate s here refected. The opnon and man-
date ceary eft to the oard of Ta ppeas to perform competey the duty
whch, the opnon hed, had been Imperfecty performed. Ths court e pressy
hed that It was not ts functon but that of the ower trbuna to make the
omtted fndngs. The record shows a waver by both partes of (he rght to
ntroduce further evdence on the ssues, and so pettoner s contenton that
further evdence shoud have been taken s wthout mert.
2. The partes on the pror appea and on ths appea propery treat the trans-
acton n une, 1920, as an e change of property. though the respondent
purchased 500 shares of stock n the Inand Coa Dock Co. and the atter
purchased the assets of respondent, the substance of the transacton (whch
aone s to be regarded) (Commssoner v. Moore (C. C. . 10), 48 ed. (2d),
52 ) was an e change of propertes.
The reevant porton of the Revenue ct of 1918 (ch. 18, 40 Stat., 1057, secton
202(b)) Is:
When property s e changed for other property, the property receved n
e change sha for the purpose of determnng gan or oss be treated as the
equvaent of cash to the amount of ts far market vaue, f any .
rtce 15 of Treasury Reguatons 45 under the Revenue ct of 1918 pro-
vdes In part:
Where property s transferred to a corporaton n e change for ts stock,
the e change consttutes a cosed transacton and the former owner of the
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3 8
property reazes a gan or oss If the stock has a market vaue, and such market
vaue s greater or ess than the cost of the property gven n
e change.
rtce 1504 as amended by Treasury Decson 320 (C. . 5, 57) provdes
n part:
The amount of ncome derved from an e change of property, as of stock
for a bond, s the e cess of the far market vaue at the tme of e change of
the property receved n e change, over the orgna cost of the property
e changed for t.
rtce 15 3, as amended by Treasury Decson 2971 (C. . 2, 38), provdes
n part as foows:
Property receved n e change for other property has no far market
vaue for the purpose of determnng gan or oss resutng from such e -
change when, owng to the condton of the market, there can be no reasonabe
e pectaton that the owner of the property, though wshng to se and any
person wshng to buy w agree upon a prce at whch to trade uness one or
the other s under some pecuar compuson. It does not foow that property
has no far market vaue merey because there s no prce therefor estabshed
by pubc saes or saes In the way of ordnary busness.
The queston s whether the stock receved by respondent had a market vaue
at the tme respondent receved t
It does not necessary appear that the reference to the code of reguatons
Infuenced the oard n arrvng at ts decson. Ths reference to a seng
compact of some nature does not prevent the stock from havng a far market
vaue. (Newman v. Commssoner (C. C. . 10), 40 ed. (2d), 225, and 41 ed.
(2d), 743 Rodrqnes v. dwards (C. C. . 2), 40 ed. (2d), 408 Wrght v.
Commssoner, 50 ed. (2d), 727 Ct. D. 428, C. . -2, 324 .)
To ascertan the far market vaue of property, as the Treasury reguatons
above quoted mport, t s not necessary that the property actuay sha have
been sod n a market. Where persona property s sod n a defnte and estab-
shed market, or changes hands for money so reguary that a market prce for
t s created or mantaned, t s obvous that t must have a far market vaue.
When the queston arses as to ts far market vaue n tgaton, the queston
merey s as to the prce t commanded n the market at the partcuar tme.
Where, however, there s no such market, but the property has an ntrnsc
vaue, then, the evdence must show what prce that ntrnsc vaue woud com-
mand on a market where wng buyer and wng seer met. (Wgmore,
vdence, secton 717 (2d ed.) Chamberayne, vdence, sectons 2099h, 2099
North mercan Teegraph Co. v. N. P. Raway Co. (C. C. . 8), 254 ed., 417
Od Coony Co. v. Commssoner (C. C. 1), 59 ed (2d), 1 8 Cromwe v.
Commssoner (C. C. . ), 2 ed. (2d), 51 Commssoner v. Swenson
(C. C. . 5), 5 ed. (2d), 544 Ct. D. 555, C. . I-2, 184 Chcago Raway
qupment Co. v. ar (C. C. . 7), 20 ed. (2d), 10 McCory v. Dodge (Ca.
pp.), 4 Pac. (2d), 223.)
In To -r/ mercan Teegraph Co. v. N. P. Raway Co., supra, t s sad:
The term market vaue, as the words fary mport, ndcates prce
estabshed n a market where the artce s deat n by such a muttude
of persons, and such a arge number of transactons, as to standardze the
prce. Proof of such a market vaue can ony be made by one of the recognzed
methods of provng the prce current n a market. Indvdua deangs are not
competent to prove t. The term s, however, frequenty used n a fguratve
sense, as n,eanng the far or reasonabe vaue of the property that s, such
a vaue as the property woud have f t were deat n accordng to the prac-
tces of a market overt. Ths s the meanng whch the term usuay has when
apped to rea property. To prove market vaue when t s used n ths sec-
ondary or fguratve sense, t s proper to receve evdence of ndvdua
transactons, even offers made n good fath for property of ke character,
the nature of the property, ts ocaton, ts renta vaue, the uses to whch t
can be put, and a the manfod eements whch are admssbe to show the
far and reasonabe vaue of property whch s not so traded n as to gve
a market vaue n the prmary sense of the term. Prvate deangs n prop-
erty can never be used to show market vaue In the prmary sense, and when
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1003 and 1004.
used to show market vaue n the sense of far and reasonabe vaue, ndvdua
transactons can never be made the soe bass for ascertanng such vaue.
In Od Coony Co. v. Commssoner, supra, t s sad:
It s not essenta that there be a sae to determne the far market vaue of
the stock of a corporaton. The nature of ts busness, and the other eements
that go to make up the vaue of the stock to a purchaser who s wng and
desrous of buyng may be consdered. It s a queston of the sound |udgment
of the oard of Ta ppeas.
In fromwe v. Commssoner, supra, t s sad:
Intrnsc vaue may be resorted to for the purpose of estabshng market
vaue where from proven facts and crcumstances there coud be no doubt of the
e stence of a market f the same were offered for sae.
In McCory v. Dodge, supra, t s sad:
There s no mert n the contenton that there s no evdence showng that
the respondent s stock was not worth 13,000. The oo note was for 13,000.
The stock cost respondent 13,000, and a of the partes especay oo, oyd,
and respondent treated the stock as beng worth 13,000 and there s absoutey
no testmony n the record to the contrary.
In Chcago Rahcay qupment Co. v. ar, supra, t s sad:
Market vaue, speakng very generay, may be sad to be the prce whch
one, under no compuson, s wng to take for property whch he has for sae,
and whch another, under no compuson, s wng to pay for the artce.
The most persuasve authorty, because of the smarty of fact stuaton, s
Commssoner v. Swenson, supra. corporaton was organzed for the purpose
of drng for o. Nne men owned the stock. The corporaton had fnanca
dffcutes, and an ncrease of stock was decded on. even thousand add-
tona shares were to be ssued. Swenson, an orgna sharehoder, transferred
an o ease to the corporaton for 2,400 shares of stock. The baance of the
stock sod for par. The queston was whether the 2,400 shares had a market
vaue. It was hed they dd despte the specuatve character of the venture,
the somewhat troubed fnanca hstory of the corporaton precedng and that
the sae of the baance of the new ssue of stock was not made on the
genera market, but was sod to acquantances of one or more of the od stock-
hoders. fndng of the oard to the contrary was hed to be contrary to the
evdence.
In ths case, the endrck Coa Dock Co. had had a successfu hstory.
It transferred contracts to the new corporaton wth an estmated proft n them
of 40,000 t transferred ts good w. panson of the busness through
acquston of dock and transportaton factes was reasonaby to be e pected.
of the stock was subscrbed for at 100 per share by e perenced busness
men, and respondent purchased 700 shares at that prce n addton to the 500
shares transferred to t n the e change. There s the contemporary record
e hbtng a confdence n the future prosperty and success of the company and
of the vaue n the stock whch shoud not be dsregarded. (Sou Cty Stock
Yards Co. v. Commssoner (C. C. . 8), 50 ed. (2d), 994 Panters Operatng
Co. v. Commssoner (C. C. . 8), 55 ed. (2d), 583.)
The oard s determnaton that the 500 shares of stock of the Inand Coa
Dock Co. whch the ta payer receved n e change for ts assets n 1920 had
no far market vaue n 3920 s a determnaton of an ssue of fact, and f
supported by any substanta evdence can not be reversed by ths court.
(Phps v. Commssoner, 283 U. S., 580 Ct. D. 350, C. . -, 2 4 Povers
Mfg. Co. v. Commssoner, 34 ed. (2d), 255 (C. C. . 8) rancscus Reaty Co.
v. Commssoner (C. C. . 8), 3 ) ed. (2d), 583 Goyd v. Commssoner
(C. C. . 8), 3 ed. (2d), 49, certorar dened, October 9, 1933.)
ut we are persuaded that the oard s fndng that the shares of the capta
stock of the Inand Coa Dock Co. had no far market vaue at the date of
the recept s unsupported by. any substanta evdence, and the evdence con-
cusvey estabshes to the contrary, and the determnaton of the oard on
that ssue of fact shoud be reversed. (Ooyd v. Commssoner, 3 ed. (2d),
49 Russe v. Commssoner, 45 ed. (2d), 100 Toedo Gran Mng Co. v.
Commssoner, 2 ed. (2d), 171.)
The decson of the oard of Ta ppeas shoud be and s reversed.
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1113, rt. 1351. 370
TITL I. G N R L DMINISTR TI PRO ISIONS.
S CTION 111. . LIMIT TIONS UPON SUITS ND
PROC DINGS Y T T P Y R.
ncome ta revenue acts of 1024 and 1020 decson of court.
Sut Certfcate of Ovkrassessment ccount Stated c-
count Setted.
ta payer who through hs duy authorzed representatve
agreed to the Commssoner s determnaton of a defcency for
1924 and an overassessment for 1925, and accepted payment of the
baance shown on the certfcate of overassessment wthout ob|ec-
ton to the settement for over four years, can not recover the
amount of the overpayment for 1925 n a sut based upon an
aeged mped contract as evdenced by the certfcate of overas-
sessment. There was not ony an account stated, but aso an
account setted.
Unted States Crcut Court of ppeas, ghth Crcut.
arod . tknson, appeant, v. Unted States of merca, appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of Mnnesota.
an Yakknburgh, Crcut udge, devered the opnon of the court.
The facts essenta to the determnaton of ths controversy may be brefy
stated. ppeant fed ncome ta returns wth the coector of nterna reve-
nue for the years 1924 and 1925, payng ta thereon of 300.90 for the year
1924, and 13,591. 2 for the year 1925. The report of an e amnng nterna
revenue agent ndcated a defcency n ta of 10,352.88 for the year 1924. and
an overassessment of 12,123.10 for the year 1925. March 2 , 1927, the Com-
mssoner of Interna Revenue maed to appeant a regstered etter n ac-
cordance wth secton 274(a) of the Revenue ct of 192 . advsng hm of
the defcency and overassessment above stated. In response to ths notce
appeant, through authorzed representatves, fed protest, and, on May 24.
1927, a bref n support of ts protest of the defcency determned, and the
addtona ta proposed for 1924. Ths bref was fed by W. . bourne.
May 10 and une 27, 1927, conferences were hed n the offce of the Com-
mssoner wth appeant s representatves, bourne and Love. s a resut
of these negotatons, and a consderaton of evdence presented, the over-
assessment for 1925 was aowed to stand and the defcency for 1924 was re-
duced to 3, 47.35. The agreement form, consentng to the determnaton of the
ta . and the mmedate assessment of the defcency n ths amount, was sgned
by bourne as appeant s representatve. t the tra appeant stated that
Love and mrue had authorty to act for hm the same as f he were actng
for hmsef wth regard to matters pertanng to hs ta abty for the years
1924 and 1925, and that they had authorty to e ecute any agreements sgned
n connecton wth ths matter.
Thereafter, September 8, 1927. the Commssoner advsed appeant that the
revsed defcency of 3, 47.35 w be assessed on the ne t assessment st for
your dstrct on the bass of the consent agreement sgned by your representa-
tve Mr. W. . bourne. In November, 1927, ths defcency was accordngy
assessed, and, November 1 , 1927, a certfcate of overassessment n the sum
of 12,123.10 was ssued and maed to the ta payer. n account was stated
credtng ths defcency, amountng, wth nterest, to 4,120.78, aganst sad
overassessment of 12,123.10, and showng a baance of S,002.32. On the same
rtce 1351: Suts for recover - of ta es
erroneousy coected.
I -14-741
Ct. D. 945
October 11, 1934.
OPINION.
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371
1113, rt. 1351
date ths baance was refunded to appeant by check, wth Interest n the sum
of 8 0.14. ppeant accepted ths refund check, cashed It, and retaned the
proceeds.
Neary four years ater, t appears, appeant fed a cam for refund of
ths sum of 4,120.78. The date of fng does not appear, and the nature
of the cam, whch was not produced, s gathered ony from correspondence.
The Commssoner dened the cam, and on une , 1932, appeant fed ths
sut. The dstrct court hed that he was not entted to recover, and ths
appea foowed.
The character of the sut fed s thus stated by appeant In hs bref:
Ths acton was nsttuted for the recovery of an overpayment of ncome
ta es for the year 15)25, of 4,120.78. as evdenced by un mped contract
based on the Issuance and devery by appeee to appeant of a certfcate of
the Commssoner of Interna Revenue.
amnaton of the compant convnces that such s the gst of the acton.
It s true that aeged errors n determnng the defcency or the year 1924
are argued, but, nasmuch as the sut s based upon the aeged mped contract
evdenced by the ssuance of the Commssoner s certfcate as heretofore
stated, the vadty or nvadty of the tems orgnay consdered by the
Commssoner n computng the defcency s mmatera and need not be ds-
cussed here. That certfcate does not stand aone, but forms a part of an
account stated and setted, after consderaton of the evdence, and repeated
conferences between the Commssoner and authorzed representatves of
appeant. fter havng accepted ths settement and the benefts thereof,
wthout ob|ecton for the perod, at east, from November 1 . 1927, to some
tme n the sprng of 1931, appeant seeks to recover ths baance of the
overassessment for the year 1925, the agreement of settement to the con-
trary notwthstandng.
Ths contenton of appeant seems to be based many, f not entrey, upon
the decson of the Supreme Court n onet Teer Co. v. Unted States
(283 U. S., 258 Ct. D. 334, C. . -, 328 ). In that case the Commssoner
had fnay determned that the ta payer had overpad ts ta n a stated
amount, and had wthhed a refund for aeged faure of the ta payer to
compy wth the terms of the statutes reatng to waver. The Government
further urged that the cam was barred by mtaton under the provsons of
secton 322 , R. S., as amended. The court hed:
The acton s not for the overpayment of the ta n 1919, but s grounded
apon the determnaton evdenced by the certfcate ssued by the Commssoner
May 12, 1927. Upon devery of the certfcate to pantff, there arose the
cause of acton on whch ths sut was brought. (L. c, page 2 5.)
ere, as there, the sut was not brought for the recovery of an nterna
revenue ta aeged to have been erroneousy coected, but upon the sub-
sequent determnaton of the Commssoner. The cruca dfference between
the onwt Teer Co. case and that here under consderaton s that, n
the former, there was an account stated, whe n the nstant case, there s
an account setted. In our opnon, ths wde dstncton s decsve of ths
controversy.
In Stearns Co. v. Unted States (291 U. S., 54 Ct. D. 780, C. . 1II-1,
321 ), the Supreme Court hed:
To consttute an account stated, a baance must have been struck n such
crcumstances as to Import a promse of payment on the one sde, and accept-
ance on the other.
Mere rendton to the ta payer of a certfcate of overassessment dd not
evnce a promse to refund, when by hs request the overpayment was to be
apped aganst another ta , and ths was subsequenty and n due course
accompshed, and the resuts accepted by hm. onct Teer t Co. v.
Unted Sates (283 U. S., 258) dstngushed.
In the body of the opnon Mr. ustce Cardozo says:
Upon a computaton of the credts the fna baance was ascertaned to
be In favor of the Government. The baance thereby f ed was reported to
the ta payer. fter the schedue of refunds and credts had been sgned by
the Commssoner, the coector transmtted to the ta payer a new statement
of account by whch t was ceary made to appear that the overassessment
had been credted upon the ta for 1917, and that after such credt there was
st owng from the ta payer a baance of 5,829.07, whch, together wth
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372
the accrued nterest, was thereupon coected. Then for the frst tme was there
a fna ascertanment of the baance upon consderaton of both sdes of the
account, the debts and the credts. The ta payer dd not ob|ect to the ac-
count as submtted n ts fna form. ar from ob|ectng, It pad the resutng
baance, and by ths act as we as by sence conceded the ndebtedness. In-
deed there was more than an account stated by force of vountary payment
there was aso an account setted. (Lovkcood v. Thorne, 18 N. Y., 285,
292.)
Whe there the ta payer pad, nstead of acceptng payment, n sence,
and wthout ob|ecton, the prncpe controng the two cases s dentca.
In Dauoe v. Unted States (289 U. S., 3 7, 370 Ct. D. 77, C. . II-1,
34 ), we fnd the foowng sgnfcant anguage:
The Commssoner dd not nform the ta payer that the ta had been
overpad n a determnate amount. The ta payer dd not gve assent ether
e pressy or by sence to the outcome of the audt. The essentas of an
account stated n any strct or proper sense ure ackng atogether.
In the case before us, a the essentas are present, not ony of an account
stated, but of an account setted. The Commssoner dd nform the ta payer,
and the ta payer dd e pressy gve assent to the outcome of the audts as
we as by acceptng the cas settement wthout ob|ecton and by sence
for years thereafter. That, to set asde such an account setted, t s ncumbent
upon a party to act prompty n carryng the burden of provng substanta
and suffcent facts n support of hs contenton s estabshed by abundant
authorty. The Court of Cams has recenty so hed.
The pantff receved the check for the baance shown to be due by the
account, and cashed t wthout makng any ob|ecton thereto unt amost
s years ater when ths sut was commenced. Instead of beng an ac-
count stated In favor of the pantff, t was reay an account setted. (Cf.
Steams Co. v. Unted States, supra.) ( omes Mfg. Co., Inc., v. Unted
States, ed. Supp., 438.)
In ths partcuar case, the account showed a baance of a certan amount
n favor of pantff for whch t receved a chock ssued n settement. No
compant havng been made wth reference thereto for over fve years, t
must be consdered an account setted. (Pratt Whtney Co. v. Unted States,
ed. Supp., 574.)
The apse of tme s thus stressed as estabshng assent and, thereby, the
consummaton of a contract of settement. ere, n addton thereto, we have
the agreement sgned by appeant s duy authorzed agent. We perceve no
reason why such prncpes shoud not appy wth equa force to deangs wth
government n the fed of ta aton, as to transactons between prvate partes
In the ordnary course of trade. ppeant suggests that the tra court faed
to meet the requrements of secton 704, tte 28, U. S. C. ., In fng opnon,
fndngs, and concusons n ths sut aganst the Unted States. That secton
reads as foows:
Opnon, fndngs, and concusons n sut aganst Unted States. It sha
be the duty of the court to cause a wrtten opnon to be fed n the cause,
settng forth the specfc fndngs by the court of the facts theren and the con-
cusons of the court upon a questons of aw nvoved n the case, and to
render |udgment thereon. If the sut be n equty or admraty, the court sha
proceed wth the same accordng to the rues of such courts.
Whe the arrangement and tte of the court s fndngs are somewhat
nforma, an e amnaton of the contents dscoses that the facts are set out
qute fuy, coverng neary four pages of the prnted record. Thereafter foows
an e haustve dscusson of facts and ssues, wth ctaton of authortes n
opnon form, n the course of whch the court found that the smpe recta of
the undsputed facts rresstby eads one to the concuson that pantff s now
estopped to contend that the ad|ustment and compromse of the 1924 and 1925
ta years was not fna. Ths recta and dscusson concudes thus:
The court adopts the foregong as ts fndngs of fact and concusons of aw,
the court fnds: (1) That pantff take nothng by ts cause of acton heren
and that the same be dsmssed. (2) Let |udgment be entered accordngy.
orma compance wth ths secton has not been rgdy e acted where the
fng e pressy or mpedy fnds the necessary facts, enabes the pubc and
the appeate court to fnd on the record the reasons for such fndngs, and gves
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1113, rt. 1351.
|udgment accordngy. (Unted States v. Swft, 139 ., 225 Unted States v.
yams, 14 ., 15 Unted States v. Tntey, 8 ., 433.)
Whe we do not approve, as n genera practce, te nformaty of the opnon,
fndngs and concusons fed n ths case, we do not consder t so serous as to
requre reversa. It foows from what has been sad that the |udgment appeaed
from shoud be affrmed, and t s so ordered.
rtce 1351: Suts for recovery of ta es erroneousy
coected.
R NU CTS O 1017, 1918, ND 192 .
Credt of overassessment aganst addtona ta es camed to have
created a new cause of acton. (See Ct. D. 955, page 350.)
rtce 1351: Suts for recovery of ta es I -19-7484
erroneousy coected. Ct. D. 9 0
ncome ta revenue act of 1921 decson of court.
ssessment ffated Corporatons ocaton of Ta .
Where a parent company, whch owned 80 per cent of the stock
of a subsdary (and whose offcers and drectors were practcay
the same as those of the subsdary), fed consodated returns
for 1921 and 1923 and pad the ta out of ts own funds wthout
contrbuton by the subsdary, and where the Commssoner ater
rued that the two corporatons were not affated and aocated
to the subsdary, wthout assessment, a porton of the ta re-
ported on the consodated return, the parent may not recover the
amount aocated to the subsdary on the ground that no assess-
ment had been made aganst the subsdary. Under the crcum-
stances, t was not necessary to assess the subsdary, and the
parent, havng vountary agreed to assume and pay a ta whch
Ue aw dd not compe t to pay, can not nvoke the ad of the
courts to get ts money back.
Dstbct Court of tub Unted States n and for the Mdde Dstrct or
Pennsyvana.
Chares Dorrancc and Reynods edford, Recevers of the Tempe Coa Co., v.
Davd W. Phps, Coector of Interna Revenue, Twefth Dstrct of
Pennsyvana.
December 29, 1934.
opnon.
Ths s an acton by the recevers of the Tempe Coa Co. aganst the coector
of Interna revenue seekng the recovery of ta es for the years 1921 and 1923
aeged to have been erroneousy retaned by the coector n satsfacton of
the ta abty of the Lackawanna Coa Co. for sad years.
On March 14, 1922, and March 15, 1924, the Tempe Coa Co. fed consodated
Income ta returns on orms 1120 on behaf of tsef, the Mount Lookout
Coa Co. and the Lackawanna Coa Co. for the years 1921 and 1923, respectvey.
Nether return dscosed nformaton on the separate ncome of the severa
companes. The consodated return for the year 1921 dscosed a tota ta due
In the amount of 95,928.84, whch was pad n 1922 by the Tempe Coa Co.
out of ts own funds. The consodated return for the year 1923 dscosed a
tota ta due n the amount of 149, 27.21, whch was pad n 1924 by the
Tempe Coa Co. out of ts own funds.
The Commssoner of Interna Revenue ater rued that the Tempe Coa Co,
and the Mount Lookout Coa Co. were affated for the years nvoved but
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1113, rt. 1351.
374
that the Lackawanna Coa Co. was not affated wth the group and that the
ta of the Lackawanna Coa Co. shoud be determned separatey.
In anuary, 1920, wavers were fed on behaf of the Tempe Coa Co.
and the Lackawanna Coa Co. and the tme for assessment and coecton of
ther respectve ta es was fnay e tended to December 21, 1927.
On March 13, 192 , the Tempe Coa Co. fed a cam for a refund n the
amount of 95,928.34 for 1921 ta es for the reason that a redetermnaton of
the abty for the years 1917 to 1920 has been made resutng n a changed
bass for nvested capta, depeton, deprecaton and nventores whch w
operate to reduce the abty for the year 1921. .
On March 10, 1927, the Tempe Coa Co. fed wth the coector a cam
for refund n the amount of 149, 27.21 for 1923 ta es and assgned the fo-
owng reasons therefor:
1. or the reasons set forth n the revenue agent s report of e amnaton
dated ebruary 24, 1927, showng an overassessment for ths perod of 21,-
980.42.
2. or the reason that ad|ustments n pror years for depeton, depreca-
ton, capta accounts, etc., requre a revson of the orgna return fed.
3. or the reason that the necessary ad|ustment for the years 1921 and
1922 may produce net osses appcabe to the year 1923.
4. or the reason that ths cam s requred for the protecton of the
Interests of the ta payer as provded n secton 284 of the Revenue ct of
1920.
The fna determnatons of the ta es were shown n a certfcate of overassess-
ment for each of the sad years, whch were aowed on a schedue sgned by the
Commssoner on anuary 4, 192S. The certfcate of overassessment for 1921
aowed a refund of 34,255.1 wth nterest of 10,8 1.55, and the certfcate of
overassessment of 1923 aowed a refund of 3,945.90 wth nterest of 723.23,
whch amounts were pad to the Tempe Coa Co. The sad certfcates ev-
denced acton on the cams for refund and a parta dsaowance thereof. The
sad certfcates showed 5,4 0.58 am 24,877.04 as the ta of the Lackawanna
Coa Co. for the years 1921 and 1923, respectvey, whch amounts were ess than
the ta of the Lackawanna Coa Co. orgnay reported and pad. These
amounts were aocated to the Lackawanna Coa Co. s ta out of the ta re-
ported, assessed and pad on the bass of the consodated return. No assessment
was made aganst the Lackawanna Coa Co. for ths ta .
In November, 1929, ths sut was brought by the Tempe Coa Co., now n re-
cevershp, to recover the sum of 5,400.58 and 24,877.04 wth nterest, for the
reason that snce the Lackawanna Coa Co. was emnated from the aforesad
affaton and a separate determnaton of ta abty was made aganst t, t
became the duty of the defendant and the coector of nterna revenue to make
a separate assessment aganst the Lackawanna Coa Co. for the years 1921 and
1923, and coect the ta drecty from t, and that the deducton of the amount
aocated to the Lackawanna Coa Co. from the refunds to the Tempe Coa Co.
was mproper.
Secton 240 of the Revenue ct under whch the consodated returns n ques-
ton were fed provdes as foows:
In any case n whch a ta s assessed upon the bass of a consodated re-
turn, the tota ta sha be computed n the frst nstance as a unt and sha then
be assessed upon the respectve affated corporatons In such proportons as may
be agreed upon among them, or, In the absence of any such agreement, then on
the bass of the net ncome propery assgnabe to each .
The reguatons of the Treasury Department provde that a consodated re-
turn sha among other thngs show the name and address of each subsdary
and a schedue showng the proportonate amount of the tota whch t s agreed
among them s to be assessed upon each affated corporaton. The reguatons
further provde that each subsdary sha fe orm 1122, whch states n part :
8. The Department prefers that the entre ta shown on a consodated return
be pad by the parent or prncpa reportng corporaton, nstead of beng appor-
toned among the corporatons composng the affated group.
If apportonment s made, state the amount of the ncome ta for the ta abe
perod to be assessed aganst the subsdary or affated corporaton makng the
return .
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375
1113, rt. 1351.
0
The consodated returns fed by the Tempe Coa Co. dd not contan any of
the above nformaton nor was there suffcent nformaton theren to determne
the proper amount of the consodated ncome propery assgnabe to the sub-
sdares nether was orm 1122 fed by the subsdares.
The evdence dscoses that 80 per cent of the stock of the Lackawanna Coa
Co. was owned by the Tempe Coa Co. durng the years n queston and that
durng the same perod the offcers and drectors of the sad companes were
practcay the same and the offcers were at the same address. The ony
ncome ta returns for the two companes were ted by the Tempe Coa Co.
and the ta es of the sad two companes were pad by the Tempe Coa Co.
out of ts own funds wthout contrbuton by the Lackawanna Coa Co. These
payments were ntended to cover the ta on the Lackawanna Coa Co. s n-
come. The offcers who made the returns and pad the ta were offcers of
both companes. On ugust 1, 1028, Norman . rown, who was treasurer
of the Tempe Coa Co. at that tme wrote a etter to the Commssoner of
Interna Revenue, concernng the 1921 and 1023 ta es n queston, whch
etter, n part, s as foows:
In accordance wth the arrangements between ths company and ts sub-
sdares the tota ta for each of the sad years was assessed aganst and
pad by the Tempe Coa Co. wthout apportonment to the severa companes,
the entre abty havng been assumed by the Tempe Coa Co. as the parent
company.
In a ater etter of anuary 7, 1029, addressed to the deputy commssoner by
the sad Norman R. rown, t was dened that there was any sort of an agree-
ment between the Tempe Coa Co. and ts subsdares. owever, a consdera-
ton of the entre evdence n the ght of the surroundng crcumstances eads
ths court to the concuson that the Tempe Coa Co. assumed and pad the 1921
and 1923 ta es of the Lackawanna Coa Co. and the Commssoner was so ad-
vsed by the sad etter dated ugust 1, 1029. ( recport Te as Co. v. owers,
. Supp., 423. In re Tempt or Corn t rut Products Co., 299 ., 328, 329.)
ccordngy the Commssoner propery assessed the ta es aganst the cor-
poraton whch assumed the payment of the ta es. It was not necessary,
under such crcumstances, to assess the Lackawanna Coa Co.
The Tempe Coa Co. havng vountary agreed to assume and pay a ta
whch the aw dd not compe t to pay, can not nvoke the ad of the courts
to get ts money back. (Wourdack v. ecker, Coector of Interna Revenue,
55 ed. (2d), 840 Cft Goodrch, Inc., v. Unted States, 5 . (2d), 751
Ct. I). 538, C. . I-2, 400 .)
The pantffs contend that the Commssoner shoud have made an assess-
ment aganst the Lackawanna Coa Co. In Mather Paper Co. (3 . T. ., 1),
a case whose facts are smar n many respects to the case at bar, t was
hed that the faure to assess the subsdary, whch was rued to be non-
affated, was a mnstera error sub|ect to correcton at any tme. In the
Mather case, contrbuton of ts share of ta es to the parent was made by
the subsdary, whe n ths case the ta es of the subsdary were assumed
and pad by the parent. Ta es may be and often are coected wthout assess-
ment Meyersdae ue Co. . Unted States, 44 . (2d), 437), and can not be
recovered soey because t was not assessed (ur v. Unted States, 3 ed.
Supp., C19 Ct. D. 737, C. . II-2, 229 ).
nd now, December 29, 1934, upon duo consderaton, |udgment s drected
to be entered for the defendant.
rtce 1351: Suts for recovery of ta es erroneousy coected.
R NU CTS O 191S ND 1021.
Sut brought wthn fve years of payment of ta but more than
two years after dena of cam. (See Ct. D. 971, page 305.)
083 38 13
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111 , rt. 1371.
37
S CTION 111 . INT R ST ON R UNDS
ND CR DITS.
rtce 1371: Interest on refunds and credts. I -20-7498
a. D. 9 4
INCOM ND C SS PRO ITS T R NU CTS O 1918 ND 192
D CISION O COURT.
Cam fob Refund Interest upon Overpayment Computaton.
The ta payer on September 20, 192 , pad an addtona ta for
1920, wth nterest from ebruary 2 , 192 , at the rate prescrbed
by secton 283(h) of the Revenue ct of 192 , and: on September
24, 192 , pad the ast two nstaments of the orgna ta for 1920,
wth nterest from September 15, 1921 (payment havng been
stayed by an abatement cam). On consderaton of a cam
for refund based upon sectons 327 and 328 of the Revenue ct of
1918, an overassessment was aowed, together wth a refund of
nterest on a porton of the orgna ta . The Commssoner
correcty determned that the amount to be refunded as an over-
payment of nterest shoud be computed upon that porton of the
overassessment n e cess of the addtona ta and nterest (pad
September 20, 1920), from September 15, 1921, to September 24,
192 , whch atter dates correspond to those used n computng
the nterest pad upon the baance of the orgna ta .
Dstrct Court of the Unted States for the Northern Dstrct of Oho,
Western Dvson.
Lbbey-Owens- ord Gass Co., pantff, v. The Unted States of merca,
defendant.
October 15, 1934.
M MOR NDUM OPINION.
ahn, .: Ths Is an acton by Lbbey-Owens- ord Gass Co., herenafter
referred to as the ta payer, for a refund camed to be due the ta payer
as nterest upon overpayments resutng from The payment by t under pro-
test of ncome and e cess proft ta es for the year 1920.
The ta payer fed a corporaton ncome and profts ta return for the year
1920, whch return showed a ta due n the amount of 1, 72,382.9 . Two
quartery nstaments of ths ta were pad when due, a part of the thrd
and the entre fourth nstament payabe September n, 1921, were not pad.
The unpad baance amounted to 400,719.83, for whch sum the ta payer fed
a cam for abatement prayng speca reef under sectons 327 and 328 of
the Revenue ct of 1918, and seekng a recomputaton of ts ta .
On March 23, 192 , the Commssoner of Interna Revenue dened ths cam,
and on March 28, 192 , assessed an addtona ta aeged to be due by reason
of deductons mpropery taken by the ta payer n the amount of 129,50 .02,
together wth nterest of . 3,927.7 . Ths nterest was computed from ebruary
2 , 192 , the date specfed n the Revenue ct of 192 , secton 283(h) of
whch provdes as foows (U. S. C. .. Tte 2 , chapter 19, secton 1004(b)):
In cases wthn the scope of subdvson (e), (f), or (g) n computng the
amount whch shoud e coected, nterest upon the amount determned by
the Commssoner, or by the decson of the oard whch has become fna,
to be the amount of the defcency, sha be ncuded at the rate of per
centum per annum from ebruary 20, 192 , up to the date of notce and
demand from the coector, or, n the case of a waver under secton 1048(b)
of ths tte, to the thrteth day after the fng of such waver or to the date
of notce and demand whchever s the earer. The nterest provded u
ths subdvson sha be ncuded ony n cases where no other nterest for the
ame perod s provded by aw.
Demands havng been made by the coector for the defcency so assessed
and for the unpad orgna baance of the ta on September 10, 192 , and
September 15, 192 , respectvey, the ta payer pad the sum of 133,433.7S
on September 20, 192 , beng the amount of the addtona assessment wth
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377
111 , rt. 1371.
Interest and on September 24, 1920, t pad the sum of 525,443.88, beng
the orgna unpad baance of 400,719.S3 wth nterest at 4 of 1 per cent
per month from September 15, 1921, aggregatng 124,1)24.05. oth payments
were made under protest. The Commssoner havng found that the cam
for abatement had been made n good fath, the nterest upon the unpad
orgna baance was computed under the provsons of secton 250(e) of
the Revenue ct of 1918 (40 Stat., 1082), whch provdes:
If any ta remans unpad after the date when t Is due, and for 10
days after notce and demand by the coector, then, e cept n the ease of
estates of nsane, deceased, or Insovent persons, t.ere sha be added as part
of the ta the sum of 5 per centum on the amount due but unpad, pus
Interest at the rate of 1 per centum per month upon such amount from the
tme t became due: Provded, That as to any such amount whch s the sub-
|ect of a bona fde cam for abatement such sum of 5 per centum sha not
be added and the nterest from the tme the amount was due unt the cam
s decded sha be at the rate of of 1 per centum per month.
On September 9, 1927, the ta payer fed a cam for refund n the sum of
GS8,S77.0 , based upon sectons 327 and 32S of the Revenue ct of 1918.
The Commssoner determned upon ths cam that the ta payer had been
overasscssed n the sum of 1 7, 99.77, and on November 2, 192S, a schedue
contanng ths overassessment was approved by the Commssoner. n add-
tona refund was aowed In the sum of 10,32 .94 on account of the payment
by the ta payer of nterest amountng to 124,724.05 on the orgna unpad
baance. The nterest aowed to the ta payer on the overassessment and refund
was as foows:
mount
refunded.
Interest aowed.
Interest.
rom
To-
1 7, 9.77
10,32 .94
Sept. 25.192
Sept. 25,192
Dec. 1,1928
Dee. 1.1 2S
21,9 2.44
1,352. 9
23,315.13
Thus nterest was pad upon the fu amount of the refund from the date
of the payment of the ta n fu to the date of the refund. The Government,
n arrvng at the fgure representng the nterest refund, deducted from the
overassessment of 1 7, 9.77 the sum of 133,433.78 (the amount of the add-
tona assessment pus nterest), eavng a baance of 34,235.99, and com-
puted nterest thereon from September 10, 1921, to September 24, 192 , whch
dates correspond to those used n computng the nterest pad by the ta payer
upon ts 400,719.82 payment.
On September 23, 1929, the ta payer fed n cam for refund n the amount
of 29,520.27, ts contenton beng that addtona nterest upon the refund
n the above amount was due to t upon the refund of 1 7, 9.77. In the
very abe and e haustve bref fed on behaf of the ta payer ths amount of
addtona nterest s camed to be 24,114.S9.
Defensvey the Unted States of merca asserts two defenses: rst that
the ta payer camed to be entted to speca assessment under sectons 327
and 328 of the Revenue ct of 1918, that t nvoked the dscretonary power
vested n the Commssoner by sad sectons, and that ths court s wthout
ursdcton to revew the acton of the Commssoner n the e ercse of such
dscretonary power. I thnk I need not determne the vadty of ths
defense for I thnk the second defense of the Government s we taken. (See
)Yan sport Wre Rope Co. v. Unted States, 277 I . S., 551 T. D. 4172, C. .
II-2, 323 : Unted States v. efferson ectrc Mfg. Co., 291 U. S., 3S , 78
L. d., 541 Ct. D. 803, C. . III-1, 393 Ceveand utomobe Co. v. Unted
States (C. C. . 5), 70 (2d), 3 5 and oseph oseph d ros. Co. v. Unted
States (C. C. . ), 71 . (2d), 3S9.)
The second defense of the Government Is that nterest for the fu amount
to whch the ta payer was entted has aready been pad to t and there s no
further amount due to the ta payer ether as nterest or otherwse.
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111 , rt. 1371.
378
Ceary no Interest s due the ta payer upon an overpayment of ta uness
such overpayment when made n an nstament, resuts n the payment of
the ta actuay due n fu. ( ar v. rkenstock, 271 U. S., 348 T. D. 388 ,
0. . -, 142 .) The payment of 133,433.78 on September 20, 192 , dd
not accompsh ths resut. It was not unt September 24, 192 , when the
525,443.88 payment was made, that an overpayment of the 1920 ta occurred.
ence, nterest upon such overpayment must be computed from that date.
It s aso cear that Interest s propery computabe upon the unpad In-
stament of the ta utmatey pad under protest on September 24, 192 , from
September 15, 1921, the due date of ths nstament. y vrtue of secton
250(e) of the Revenue ct of 1918 ths s an overdue nstament, whch bears
nterest at of 1 per cent per month, the Commssoner havng found the
cam for abatement to have been made n good fath, thus emnatng the
penay provded n that secton. Secton 250(e) s not modfed or rendered
Inoperatve by secton 283(h) of the Revenue ct of 192 , whch provdes
tt nterest on a defcency fnay determned sha bear nterest ony from
ebruary 2 , 192 . 1 nder secton 273 of the Revenue ct of 192 (U. S. C. .,
Tte 2 , chapter 19, secton 1047) a defcency s defned as foows:
s used n ths chapter, n respect of u ta mposed by ths chapter the
eru defcency means
(1) The amount by whch the ta mposed by ths chapter e ceeds the
amount shown as the ta by the ta payer upon hs return but the amount so
shown on the return sha frst be ncreased by the amounts prevousy assessed
(or coected wthout assessment) as a defcency, and decreased by the
amounts prevousy abated, credted, refunded, or otherwse repad n respect
of such ta or
(2) If no amount s shown as the ta by the ta payer upon hs return,
or f no return s made by the ta payer, then the amount by whch the ta
e ceeds the amounts prevousy assessed (or coected wthout assessment)
as a defcency but such amounts prevousy assessed, or coected wthout
assessment, sha frst be decreased by the amounts prevousy abated, credted,
refunded, or otherwse repad n respect of such ta .
Ts defnton embraces the addtona ta of 129,50(1.02 mposed by the
Commssoner, and upon whch nterest was assessed ony from ebruary 20,
192 , but can not be construed as embracng the 400,719.83 whch the ta payer
had faed to pay by retson of ts cam for abatement, snce that amount was
shown us the ta by the ta payer upon hs return. ence, as to ths sum
the amount of the ta mposed dd not e ceed the amount shown on the
return, and no defcency as defned above can be sad to e st.
It therefore remans ony to determne the amount whch shoud have been
refunded to the ta payer as an overpayment of nterest resutng from the
payment on September 24, 192 , of 124,924.05, nterest on 400,719.83. It s
the contenton of the ta payer that ths computaton shoud have been made
by appyng the speca rate utmatey f ed by the Commssoner under
sectons 327 and 328 of the Revenue ct of 1918 proportonatey to the orgna
ta as shown by the return and the defcency found by the Commssoner. It
s the contenton of the Government that the Interest payment made by the
ta payer e ceeded the nterest actuay due ony by an amount represented
by the nterest on the dfference between the overassessment and the addtona
assessment.
The ta payer pad nterest on 400,719.83 from the date due to the date of
payment. It was utmatey determned that an overpayment had been made
by the ta payer, n the amount of 1 7,0 9.77. No other facts appearng, the
ta payer woud be entted to nterest upon ths sum from the date the
100,719.83 ess 1 7, 09.77 was due.
ad t not been for the fact that an addtona assessment of 133,133.78
had been made and pad, the overpayment by the ta payer woud have amounted
ony to 34,235.99. The ta payer dd not pay Interest on the addtona ta
from the date the orgna ta was due (September 15, 1921), but ony from
ebruary 2 , 1020. To adopt the ta payer s contenton woud be to aow
nterest on the addtona assessment from September 15, 1921.
The computaton of the Government assumes that Interest s payabe under
secton 250(e) of the Revenue ct of 1918 ony upon the amount utmatey
determned to be due after the cam for abatement has been aowed. Ths
cam woud, In the absence of the addtona assessment of 133,433.78 have
been sustaned to the e tent of 34,235.99. The addtona assessment amounted

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379
1118, rt, 1391.
to 129,50 .02, whch had been separatey pad by the ta payer under protest,
wth nterest amountng to 3,927.7 . The computaton of the Government
ncudes the refund of these sums n fu, wth nterest thereon from the date
of payment. To aow nterest upon any part of the 1 7, 9.77 n e cess of the
dfference between ths amount and the 133,433.78 so refunded woud be to
pace the ta payer n a better poston by reason of the addtona assessment
than t woud have been had no such addtona assessment been made. There
appears to be no ogca reason why such a beneft shoud accrue to the ta -
payer, nor can any statute or decson be found whch woud appear to ndcate
that such beneft mght accrue. On the contrary, the ta payer s requred by
vrtue of secton 283(h) of the Revenue ct of 192 to pay nterest on a
defcency ony from ebruary 2 , 192 . It s requred by vrtue of secton
200(e) of the Revenue ct of 1918 to pay nterest on the unpad ta for whch
a cam for abatement had been made, from the date due (September 15, 1921)
to the date of payment, at of 1 per cent per month. dstncton thus
ceary appears between the overassessment and the cam for abatement
under sectons 327 and 328 of the Revenue ct of 1918. Ths dstncton was
apparenty recognzed by the ta payer when t made the two separate pay-
ments, the addtona assessment of 133,133.78 on September 20, 1 )2G, and
the unpad orgna ta wth nterest ( 525,443.8S) on September 24, 1920.
The abty for nterest beng thus dfferentated, the coroary benefts must
smary be dfferentated, and that so much of the utmatey determned over-
assessment as s attrbutabe to the addtona assessment made must frst be
deducted before a refund can be computed for the nterest pad upon the ta
orgnay determned overdue as of September 15, 1921. Ths method was
adopted by the Government n aowng nterest upon the fu overpayment
from September 24, 192 , and upon the sum of 34,235.99 from September
15, 19.1.
The Government s computaton gave to the ta payer, I thnk, the fu
reef to whch t was entted. n order may be entered dsmssng the
petton at the costs of the ta payer, wth such e ceptons to the ta payer
as t may desre to note.
S CTION 1118. P YM NT O ND R C IPTS OR
T S.
rtce 1391: Payment of ta by Treasury cer- I -23-753
tfcates of ndebtedness and Treasury notes. Mn. 4338
Instructons as to acceptance of Treasury notes of Seres -1935
for ncome and profts ta es.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 4, 1935.
Coectors of Interna Revenue and Others Concerned:
In connecton wth any tender of Treasury notes maturng une 15
n payment of ta es, the attenton of coectors s caed to paragraph
19 of the append to Reguatons 8 and partcuary to the ast
sentence thereof readng as foows: The amount, at par, of Treas-
ury certfcates of ndebtedness or Treasury notes presented by any
ta payer n payment of ncome and profts ta es must not e ceed the
amount of the ta es to be pad by hm, and coectors sha n no
case pay nterest on the certfcates or notes, or accept them for an
amount ess or greater than ther face vaue. Coectors must fo-
ow e acty the provsons of such paragraph 19 and the further rues
and reguatons hereby prescrbed by the Secretary of the Treasury
and the Commssoner of Interna Revenue: Treasury notes of
Seres -1935 were ssued n denomnatons of 100, 500, 1,000,
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1118, rt. 1391.
380
5,000, 10,000, and 100,000 and w be payabe n such amounts on
une 15, 1935. Coectors sha accept such notes duy tendered n
payment of ncome and profts ta es at such par or face amounts.
If any such notes are offered n payment of ncome or profts ta es
sub|ect to any condton or quafcaton whatsoever, or for any
greater amount, they w not be deemed to be duy tendered and
the coectors sha refuse any such offers, return the notes to the
ta payers mmedatey, advse the Commssoner that they have done
so, gvng fu partcuars and forwardng the ta payers returns
and a reated data, ncudng resuts of any nvestgatons, n order
that the same may be gone over carefuy and assessments and spe-
cfc nstructons ssued to coectors by the Commssoner. urther
acton by coectors w be deayed pendng recept of such nstruc-
tons.
Guy T. everng, Commssoner.
pproved une 4, 1935.
. MoRG NT T , r.,
Secretary of the Treasury.

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ST T ND GI T T RULINGS.
TITL III. GI T T . (1932)
S CTION 501. IMPOSITION O T .
Reguatons 79, rtce 2: Transfers reached. I -21-7517
T. D. 4550
Gft ta on trans-fore of bonds, notes, bs and certfcates of
Indebtedness of the Unted States or ts agences.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
rtce 2 of eguatons 79, reatng to the gft ta , s amended by
nsertng the foowng mmedatey after the second sentence:
arous statutory provsons, whch e empt bonds, notes, bs and certfcates
of ndebtedness of the edera Government or Its agences and the nterest
thereon from ta aton, are not appcabe to the gft ta snce ths ta s an
e cse ta on the transfer, and s not a ta on the sub|ect of the gft. gt
of a bond, note, or certfcate of ndebtedness ssued by the edera Govern-
ment, f made by a nonresdent aen, not engaged n busness n the Unted
States, s not sub|ect to the ta .
Guy T. everng,
Commssoner of Interna Revenue.
pproved May 21, 1935.
T. . Coodoe,
ctng Secretary of the Treasury.
Reguatons 79, rtce 3: Transfers n trust. I -2-7245
. T.
transfer of property under an rrevocabe trust agreement
provdng for the payment of certan annutes and the dstrbu-
ton of the corpus of the trust to a chartabe nsttuton upon
the death of the annutants, the trustor reservng the rght to
ncrease the payments to annutants out of trust ncome, or corpus
f necessary, s a transfer by gft sub|ect to the gft ta , wthout
any deducton for chartabe gft.
Inqury s made whether the transfer of property n trust under
the condtons herenafter set forth consttuted a transfer of prop-
erty by gft wthn the meanng of secton 501 of the Revenue ct
of 1932.
(381)
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Regs. 79, rt. 3.
382
On December 30, 1932, transferred securtes to a trustee wth-
out consderaton. The trust nstrument provdes that the trustee
sha pay from the net ncome of the trust and, f necessary, from the
corpus thereof, specfed annutes that the net ncome not requred
for the annutes sha be pad annuay to a chartabe nsttuton
named n the trust nstrument and that upon the death of a the
annutants the corpus sha be pad to the chartabe nsttuton.
It s further provded that any or a of the annua payments may
be ncreased by the trustor by wrtten notce to the trustee durng
hs fetme or n hs w. The trust s rrevocabe.
Secton 501 of the Revenue ct of 1932 provdes n part as foows:
(a) or the caendar year 1032 and each caendar year thereafter a ta ,
computed as provded n secton 502, sha be mposed upon the transfer
durng such caendar year by any ndvdua, resdent or nonresdent, of
property by gft.
(b) The ta sha appy whether the transfer s n trust or otherwse,
whether the gft s drect or ndrect, and whether the property s rea or
persona, tangbe or ntangbe .
rtce 3 of Reguatons 79 reads n part as foows:
Where property s transferred n trust wthout an adequate and
fu consderaton n money or money s worth and wthout the reservaton
of the power to revest n the donor tte to such property, the transfer s
a gft, .
The trust beng rrevocabe, t s cear that the trustor dd not
reserve the power to revest n hmsef tte to any nterest n the
trust property. owever, n vew of hs rght to ncrease the annua
payments, t was possbe for hm to ncrease such payments to the
e tent that they woud wpe out entrey the corpus whch otherwse
woud go to the chartabe nsttuton upon the death of a of the
annutants. Ths eement of uncertanty makes t mpossbe to de-
termne the vaue of the corpus, f any, to be pad to the chartabe
nsttuton upon the death of the annutants.
In vew of the fact that the trustor dd not reserve the power to
revest n hmsef tte to any nterest n the trust property, that the
chartabe nsttuton may never receve any part of the corpus, and
that t s mpossbe to determne the vaue of the corpus, f any,
whch mght under certan condtons be pad to the chartabe nst-
tuton, t s hed that the transfer n queston consttuted a gft of
a the property nvoved wthn the meanng of secton 501 of the
Revenue ct of 1932, and artce 3 of Reguatons 79, wthout any
deducton under secton 505(a)2 of such ct,
Reguatons 79, ktce 3: Transfers n trust. I -1 -7445
.T.7
Where a gft conssts of n transfer of property n trust, the
amount of the gft for the purpose of computng gft ta s the
vaue of the property at the date of transfer undmnshed by
trustees commssons.
The queston s presented whether trustees commssons pad or
to be pad for recevng and dsbursng the corpus of a trust shoud
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383
IRegs. 70(1929), rt. 17.
be deducted from the vaue of the property transferred n trust n
arrvng at the amount of the ta abe gft.
Secton 501 of the Revenue ct of 1932 provdes n part as foows:
(a) or the caendar year 1932 and each caendar year thereafter a ta ,
computed as provded n secton 502, sha be mposed upon the transfer durng
such caendar year by any ndvdua, resdent or nonresdent, of property by
gft.
(b) The ta sha appy whether the transfer s In trust or otherwse .
Secton ,0G of that ct reads as foows:
If the gft s made n property, the vaue thereof at the date of the gft sha
be consdered the amount of the gft.
The vaue of the property transferred as of the date of transfer
consttutes the amount of the gft. The ta , beng mposed upon the
transfer by the donor, must be computed upon the vaue of the prop-
erty passng from the donor. The fact that the vaue receved by
the donee may be ess than that passng from the donor does not ater
the bass of computaton. Where the gft conssts of a transfer of
property n trust, e penses ncdent to the admnstraton of the trust
do not dmnsh the vaue of the property transferred or the amount
of the gft for gft ta purposes. It s accordngy hed that where
a gft conssts of a transfer of property n trust, the amount of the
grt, for gft ta purposes, s the vaue of the property at the date of
transfer undmnshed by trustees commssons for recevng and
dsbursng the trust property-
TITL III. ST T T . (192 )
S CTION 302.
Reguatons 70(1929), rtce 17: Genera I -2-4-7550
(transfers ntended to take effect n pos- Ct. D. 977
sesson or en|oyment at or after death).
ST T T R NU CT O 192G D CISION O COU T.
Gboss state Transfer n Trust Intended to Take ffect n
Possesson or n|oyment at or fter Death.
The decedent n 1922 transferred certan securtes n trust, the
trust deed provdng that a f ed amount of the ncome shoud be
pad annuay to the decedent s sster durng her fe (any baance
of ncome at the end of each year to be pad ether to hmsef or to
others), and reservng to the donor the rght to add to or wthdraw
from the trust corpus, to amend the deed of trust, or to revoke t,
at any tme before pr 1, 1927, and aso provdng that, after
termnaton of the fe esate, the prncpa of the trust shoud be
transferred to the donor, f then vng, or, f not vng, then to
others. The fe benefcary survved the decedent, who ded on
anuary 1, 1931. Under these facts, the transfer of the decedent s
remander nterest was ntended to take effect n possesson or en-
|oyment at or after hs death, wthn the meanng of secton 302(e)
of the Revenue ct of 192 , and the vaue of such nterest, com-
puted by subtractng from the whoe vaue of the trust property
the present vaue of the fe estate of the benefcary, was propery
ncuded n the decedent s gross estate.
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Regs. 70(1929), rt. 17. 384
Unted States Crcut Court of ppeas fob the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. erbert . Sehcar and
rederck . O. Schcarz, as ecutors of the Last W and Testament of
George rederck Schcarz, Deceased, respondents.
Petton to revew a decson of the oard of Ta ppeas. Determnaton reversed.
efore Manton, ugustus N. and, an Chase, Crcut udges.
anuary 7, 1935.
opnon.
Manton, Crcut udge: Ths appea nvoves the edera estate ta under
the Revenue ct of 192 , secton 302(c) (44 Stat., 9). The oard of Ta
ppeas hed that the trust, here consdered, shoud not be ta ed as part of
the corpus of the estate of the decedent. The Commssoner pettons for a
revew pursuant to sectons 1001-1003 of the Revenue ct of 192 (ch. 27,
44 Stat., 9, 109, 110), as amended by secton 1101 of the Revenue ct of 1932
(ch. 209, 47 Stat., 1 9).
On une 7, 1922, decedent, George . Schwarz, e ecuted a deed of trust trans-
ferrng certan securtes to a trustee and gvng authorty to nvest and renvest
the trust funds, coect the ncome, and after deductng a proper charges and
e penses, to pay an ncome of . 2,5. 0 annuay at stated perods from the 1st
of pr, 1922, and endng wth the death of the settor donor s sster1 , to hs
sster, nna C. . Schwartz, and the baance of the net ncome for each such
caendar year, prompty after the end of such year, to the donor, f he be vng
on the ast day of such year, to wt, the 31st day of December, or, If he he not
vng, n equa shares, to such of hs named ssters and brothers as
sha be then vng. and f nether the donor nor any of hs sad
ssters or brothers be then vng, to the sad nna C. . Schwarz. The trust
further provded that at the death of hs sster, nna C. . Schwarz, the trustee
sha pay, transfer, and dever the prncpa of the sad trust fund
to the donor, f then vng, and f not then vng, In equa shares, per strpes,
to hs descendants then vng, and f nether he nor any descendant of hs he
then vng, n equa shares to such of hs brothers and ssters as sha be then
vng, and he named hs brothers and ssters. e reserved the rght to trans-
fer addtona property to the trust at any tme, and aso the rght to wthdraw
any of the trust property at any tme, or from tme to tme, before the 1st of
pr, 1927. and to receve the property so wthdrawn as hs absoute property,
free and dscharged from the aforesad trust. e reserved aso the rght to
amend hs deed of trust at any tme or from tme to tme before the 1st of
pr, 1927, and the rght to revoke and termnate the trust before that day
provded that such amendments of revocaton and termnaton be made n
wrtng, sgned by the donor or hs nomnees duy authorzed.
George . Schwarz ded anuary 1, 1931, eavng hs sster, nna C. .
Schwarz, survvng. The respondents, as e ecutors, n fng the ta return,
faed to ncude ts part of the decedent s gross estate, the vaue of the decedent s
nterest n the property hed n trust. The pettoner determned a defcency
n the edera estate ta resutng from ncudng n the gross estate of the
decedent, the vaue of the decedent s remander nterest n the property thus
hed n trust. The vaue of decedent s nterest was computed by subtractng
from the whoe vaue of the trust property, the present vaue of the fe nterest
of the benefcary, nna C. . Schwarz. The Commssoner found a retenton
by the donor of an nterest n the property by vrtue of whch ts possesson and
en|oyment were wthhed from any oer unt hs death. The trust fund
amounted to 49,290.77. The ta s sought to be mposed pursuant to secton
302(c) of the Revenue ct of 192 (44 Stat., 9).
Ths ease s to be dstngushed from the cass of cases where property s
transferred n trust wth remanders over to persons other than the grantor
and where no remander s reserved n the grantor. In such cases, the death of
the grantor s not the event whch effects the transfer of the remander nterest
n the property hed n trust. ere the decedent transferred property n trust,
a f ed amount of the ncome from whch was to be pad annuay to hs sster
dnng her fe. Cp to pr 1, 1927, the trust coud have been revoked, but
was not revoked nor amended by hm at any tme before hs death. y the
1 Words n brackets Inserted to correct error.
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385
Regs. 70, rt. 22.
terms of the trust nstrument, he reserved to hmsef a remander over after
termnaton of the fe estate, and If hs death occurred pror to the termnaton
of the fe estate, the decedent s remander Interest went to hs descendants.
Snce he ded pror to the termnaton of the fe estate, t was proper to ncude
n hs gross estate, sub|ect to the edera estate ta , the vaue of the remander
nterest whch passed at hs death to hs descendants. ( en v. Unted States,
283 U. S., 231 Ct. D. 333, C. . -, 402 Commssoner v. Cty ank armers
Trust Co., decded December 17, 1034 (C. C. . 2) Unon Trust Co. v. Unted
States, 54 ed. (2d), 152 Sargent v. Whte, 50 ed. (2d), 410 (C. C. . 1).)
The death of ths grantor was the ndspensabe and ntended event whch
effected a transmsson of a remander nterest from, the dead to the vng
( en v. Unted Sates, supra), and the grant of the remander nterest n the
trust fund was necessary ntended to take effect n possesson or en|oyment
at or after decedent s death wthn the meanng of the statute (302(c)). Thus
the vaue of the remander nterest n the trust fund shoud be ncuded n the
gross estate. The fe estate shoud be vaued and deducted from the fu
amount of the trust corpus and the remander ta ed. (Lt v. Commssoner,
72 ed. (2d), 55 .)
Cases such as Rencckc v. Northern Trust Co. (27S U. S., 339 T. D. 42 1, C. .
III-1, 305 ), ay v. ener (2S1 . S., 238 Ct. D. ISO, C. . I -1, 382 ),
cCormck v. urnet (283 U. S., 784), and Waace v. Commssoner (71 ed.
(2d), 1002), are dstngushabe. There the remanders were n form or sub-
btance vested to persons other than the grantors and not as here contngent on
the tme of hs death. In Ueverng v. Duke (280 U. S., 501), the trust nstru-
ment provded for the creaton of a trust for the beneft of the grantor s
daughter, her chdren and ther descendants durng her fe, and for a further
perod of 21 years, at whch tme the corpus was to be dstrbuted to the
chden and ther descendants. In the event that the benefcary ded pror to
the death of the grantor, or n the event that she ded subsequent to hs death
and eft no chdren or descendants of chdren survvng, the corpus woud revert
to the grantor or her estate. It was hed that ths mere possbty of reverter
dd not have the effect of reservng to the grantor any rghts or benefts whch
passed at or after hs death. In ttc nstant case, the trust was created for the
purpose of provdng a f ed annua ncome to a benefcary for fe. The grantor
ceary parted wth no arger nterest n the trust corpus. s death effected
the transmsson of hs remander nterest to hs hers. Under authortatve
decsons, that remander consttuted a part of hs ta abe gross estate.
Order reversed.
Reguatons 70, rtce 22: Property hed I -15-742
|onty or as tenants by the entrety. Ct. D. 947
ST T T R NU CT O 192 D .CISION O COURT.
Geoss state Psor TY kd as ont Tenants and Tenants by
ntrety,
The vaue of propertes owned by the decedent and hs wfe as
|ont tenants and as tenants by the entrety was propery ncuded
n the decedent s gross estate under the provsons of secton
302(e) of the Revenue ct of 102 , n the absence of any evdence
to show that the wfe contrbuted any part of the purchase prce
of the propertes and that the servces rendered by her n managng
the property and assstng n the decedent s busness were ever
consdered or vaued n money or money s worth.
Court of Cams of the Unted States.
. rank ushman, dmnstrator, state of ames . Pound, Deceased, .
The Unted States.
November 5, 1034.
opnon.
Whaey, udge, devered the opnon of the court.
Ths s a sut for the recovery of addtona estate ta es whch were assessed
under the Revenue ct of 1920 and pad by pantff, as admnstrator of the
estate of ames . ound, deceased, who was a resdent of Detrot, Mch.
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Regs. 70, rt. 22.
38
Upon an audt of the return made by the admnstrator or the estate, the
Commssoner of Interna Revenue ncreased the gross estate from 400,3 1.7
to 871,821.30 and assessed a defcency ta of 21,132.3 after certan ad|ust-
ments whch are not n queston. The addtona ta was pad, a refund
cam fed and duy re|ected. In arrvng at the vaue of the estate the Com-
mssoner Incuded at fu vaue certan rea estate owned by the decedent
and hs wfe, as tenants by the entrety and certan persona property owned
|onty wth the rght of survvorshp, as he was requred to do under secton
302(e) of the Revenue ct of 192 (44 Stat., 9, 70, 71), whch reads as foows:
Sec. 302. The vaue of the gross estate of the decedent sha be determned
by ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated

(e) To the e tent of the nterest theren hed as |ont tenants by the
decedent and any other person, or as tenants by the entrety by the decedeut
and spouse, or deposted, wth any person carryng on the bankng busness,
n ther |ont names and payabe to ether or the survvor, e cept such part
thereof as may be shown to have orgnay beonged to such other person and
never to have been receved or acqured by the atter from the decedent for
ess than an adequate and fu consderaton In money or money s worth:
Provded, That where such property or any part thereof, or part of the con-
sderaton wth whch such property was acqured, s shown to have been at
any tme acqured by such other person from the decedent for ess than an
adequate and fu consderaton n money or money s worth, there sha be
e cepted ony such part of the vaue of such property as s proportonate to
the consderaton furnshed by such other person : .
The pantff contends that the survvng spouse owned one-haf of the
propery, that the property was acqured by ther equa and |ont efforts and
that the vauabe servces rendered by the wfe consttute money s worth
whch entered nto the purchase consderaton.
We do not fnd t necessary or enghtenng to enter nto a engthy dscusson
of these questons. The aw s we setted snce the case of Tyer v. Unted
Mates (281 U. S., 497 Ct. D. 190, C. . I -1, 383 ), n whch t was sad:
efore the death of the husband (to take the Tyer case. No. 42S), the
wfe had the rght to possess and use the whoe property, but so, aso, had her
husband she coud not dspose of the property e cept wth her husband s
concurrence her rghts were hedged about at a ponts by the equa rghts
of her husband. t hs death, however, and because of t, she, for the frst
tme, became entted to e cusve possesson, use and en|oyment she ceased
to hod the property sub|ect to quafcatons mposed by the aw reatng to
tenancy by the entrety, and became entted to hod and en|oy t absoutey
as her own and then, and then ony, she acqured the power, not theretofore
possessed, of dsposng of the property by an e ercse of her soe w. Thus
the death of one of the partes to the tenancy became the generatng source
of mportant and defnte accessons to the property rghts of the other. These
crcumstances, together wth the fact, the e stence of whch the statute re-
qures, that no part of the property orgnay had beonged to the wfe, are
suffcent, u our opnon, to make vad the ncuson of the property n the
gross estate whch forms the prmary base for the measurement of the ta .
nd n that vew the resutng ta attrbutabe to such property s pany
ndrect.
Ths case was foowed by Gwnn v. Commssoner (287 U. S., 224 Ct. D. 17,
C. . II-1, 3 0 ), n whch t was hed:
The cear anguage of the 1924 statute repes the noton that It has no
appcaton to |ont tenances created pror to September 8, 191 . Nchos v.
Coodge, 274 U. S., 531 T. D. 4072, C. . I-2, 351 .)
nd at page 228:
though the property here nvoved was hed under a ont tenancy wth
the rght of survvorshp created by the 1915 transfer, the rghts of the poss-
be survvor were not then rrevocaby f ed, snce under the State aws the
|ont estate mght have been termnated through vountary conveyance by
cther party, through proceedngs for partton, by an nvountary aenaton
under an e ecuton. The rght to effect these changes n the estate
was not termnated unt the cotcnant s death. Cessaton of ths power after
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387
Regs. 70(192 ), rt. 24.
enactment of the Revenue ct of 192-1 presented proper occason for mpos-
ton of the ta . The death became the generatng source of defnte acces-
sons to the survvor s property rghts.
(See aso Thrd Ratona ank rf Trttt Co. v. Whte, Coector, 45 ed. (2d),
911 Ct. D. 312, C. . -, 457 Robnson v. Commssoner, 03 ed. (2d),
52.)
The pantff contends, under the provso of secton 302(e) of the 192
ct, whch reads:
Provded, That where such property or any part thereof, or part
of the consderaton wth whch such property was acqured, s shown to
have been nt any tme acqured by such other person from the decedent for
ess than an adequate and fu consderaton n money or money s worth,
there sha be e cepted ony such part of the vaue of such property as s
proportonate to the consderaton furnshed by such other person :
that t s permssbe to show the vaue of servces rendered to the decedent by
the survvng spouse and that t s to be consdered as enterng nto the pur-
chase prce of the property. ut, even admttng ths contenton, whch we
do not. the pantff s poston s not mproved. It s too eementary for the
necessty of ctaton of authorty that, where the Commssoner of Interna
Revenue has made a decson, the burden of proof s on the pantff to
overcome the presumpton of the correctness of hs decson. The aw re-
qured the Commssoner to ncude a the property at ts fu vaue for the.
purposes of ta aton of the estate and the burden was on the survvng tenant
by the entrety, or |ont tenant, to prove what part of the consderaton of
the purchase prce was pad by the survvor.
We have studousy e amned the evdence n ths case and athough ts
sentmenta features appea strongy to our sympathes, we nevertheess can
fnd nothng n the testmony to show that the survvng spouse contrbuted any
part of the consderaton whch entered nto the purchase of the property
whch was hed n |ont tenancy or by the entrety. Nor does the evdence
dscose that servces rendered by the survvng spouse were ever consdered,
vaued, or estmated by ether the decedent or the wfe, durng the more than
four decades of ther marred fe, whch formed part of the consderaton of
purchase, n money or money s worth. The wfe s servces to her husband,
durng ther ong marred fe, n managng the property and assstng hm
n hs aw practce, may have been, and doubtess were, of nestmabe vaue
to hm, but from the record t s cear that the ony compensaton n her mnd
was the ove and affecton of her husband. The testmony of the survvng
spouse fas to show that she contrbuted to the purchase prce of the prop-
ertes, and, f her servces durng a these years are to be compensated, her
redress s from the estate for servces rendered.
The pantff has faed to sustan the burden of proof, and therefore the
decson of the Commssoner s sustaned.
The petton s dsmssed. It s so ordered.
Reguatons 70(192G), rtce 24: Genera Rues. I -8-7332
Ct. D. 923
ST T T R NU CT O 192G D CISION O SUPR M COURT.
L Gross state Genera Power op ppontment.
Where the decedent, the donee of a genera power of appontment,
provded by her w that the property sub|ect to the power shoud
go to her two ssters (who woud have been entted to t under the
w of the donor of the power n defaut of appontment by the
decedent), and the appontees renounced ther rght to receve
under the decedent s w and eected to take under the w of the
donor, the property dd not pass under the genera power of ap-
pontment and was not a part of the decedent s gross estate wthn
the meanng of secton 302(f) of the Revenue ct of 19I2G.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas (70 ed. (2d), 705)
affrmed.
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Regs. 70(192 ), rt. 24.
388
Supreme Cot|rt of the Unted States.
uy T. evcrng, Commssoner of Interna Revenue, pettoner, v. . Morgan
Ornnc, as ecutor of the state of nne tone.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
ebruary 4, 1935.
OPINION.
Mr. ustce Sutekand devered the opnon of the Court.
In 1870, ohn O. Stone ded a resdent of New York. e eft a w by whch
he created for the beneft of hs daughter, the decedent, nne Stone, a trust
fund, the ncome from whch was to be pad to her durng her fe. The w
provded that upon her death her share of the estate shoud go and be apped
to such persons and such uses as she mght appont by ast w and testament
but In defaut of such appontment, her share of the estate shoud go and
beong to her chdren or ssue, respectvey, by rght of representaton or, n
defaut of such ssue, to her ne t of kn. Survvng ohn O. Stone, were hs
wdow and three daughters nnmey, ths decedent, and en . Stone and
Sarah . Grnue. These consttuted hs ony hers at aw and ne t of kn.
The wdow ded many years before the death of nne Stone. nne Stone,
the decedent, ded September 24, 1927, unmarred, wthout ssue, and eavng as
her soe ne t of kn her two ssters |ust named. er w provded that
what property or money I am aowed to dspose of by w under the w
of my dear father, the ate Dr. ohn O. Stone, of the cty of New York, I
gve, devse, and bequeath n equa shares to my dear ssters en . Stone
and Sarah . Grnne, . fter the death of nne Stone, the two
ssters n wrtng renounced ther rght to receve the property under ths para-
graph of her w and eected to take the property under the provsons of the
w of ther father, ohn O. Stone.
The Commssoner of Interna Revenue decared a ta defcency of severa
thousand doars n the edera estate ta on the estate of nne Stone, upon
the theory that the property derved from the estate of her father was requred
to be Incuded n her gross estate n vrtue of the fact that she had e ercsed a
power of appontment n respect thereof. The oard of Ta ppeas, on revew,
sustaned the Commssoner. The order of the oard of Ta ppeas based on
ths hodng was reversed by the court of appeas (70 . (2d), 705), upon the
ground that the property dd not pass under the e ercse of the power and con-
sequenty, an essenta condton of secton 302 of the ct of 192 was not
present.
Secton 302 (ch. 27, 44 Stat., 9, 70, 71) provdes:
Sec. 302. The vaue of the gross estate of the decedent sha be determned
by ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated

(f) To the e tent of any property passng under a genera power of appont-
ment e ercsed by the decedent (1) by w, or (2) by deed e ecuted n con-
tempaton of, or ntended to take effect n possesson or en|oyment at or after,
hs death, e cept n case of a bona fde sae for an adequate and fu consd-
eraton n money or money s worth .
The cruca words are property passng under a genera power of appont-
ment e ercsed by the decedent by w. nayss of ths cause dscoses three
dstnct requstes (1) the e stence of a genera power of appontment (2)
an e ercse of that power by the decedent by w and (3) the passng of the
property n vrtue of such e ercse. Ceary, the genera power e sted and was
e ercsed and ths s not dsputed. ut t s equay cear that no property
passed under the power or as a resut of ts e ercse snce that resut was
defntey re|ected by the benefcares. If they had whoy refused to take the
property, t coud not we be sad that the property had passed under the
power, for n that event t woud not have passed at a. Can t propery be
sad that because the benefcares eected to take the property under a dstnct
and separate tte, the property nevertheess passed under the power Pany
enough, we thnk, the answer must be n the negatve.
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389 Regs. 70(192 ), rt. 24.
The contenton of the Government s that the ta s mposed upon the
power to transmt or the transmsson of property by death the shftng of
the economc benefts n property s the rea sub|ect of the ta . the
property n queston passed to the ssters under the genera power of appont-
ment e ercsed by the decedent by w wthn the meanng of the statute.
ut tns nvoves the obvousy sef-destructve concuson that an unsuccess-
fu attempt to effectuate a thng requred by the statute s the same as ts
consummaton. The ta here does not fa upon the mere shftng of the eco-
nomc benefts n property, but upon the shftng of those benefts by a par-
tcuar method namey, by ther passng under a genera power of appont-
ment, and not otherwse. cceptance of the Government s contenton woud
strp the taczed word of a meanng.
The Government rees upon Chase Natona ank v. Unted States (278
U. S., 327 Ct. D. 40, C. . I-1, 308 ), and Tyer v. Unted States (281 U. S.,
497 Ct. D. 100, C. . I -1, 383 ). In nether of these cases was the court
concerned wth the meanng of the ct. In the frst case (page 334) the court
sad the ta was pany mposed by the e pct anguage of the statute, and
that there was no queston as to ts constructon. The soe queston for de-
termnaton was as to the consttutona vadty of the ct. The same s true
n respect of the second case. Nether case sheds any ght upon the queston
here nvoved, namey, the meanng and appcaton of the statutory provson.
The court beow eaned confdenty upon the decson of the New York Court
of ppeas n the .Matter of Lamng (182 N. Y., 23S). That we-consdered
case and ths n prncpe can not be dstngushed. We thnk the reasonng
of the New York court as to the meanng and appcaton of the State aw
equay appes to the edera statute here n queston. Thee, as here, the
contenton of the ta ng authortes (there under the State act, here under the
edera act) was that the appontee named n the w of the donee of the
power took her property thereunder and not under the w of the creator of
the power, notwthstandng the property ad been gven to her by the w
of the former sub|ect to the power of appontment. ut the State court an-
swered that the power gave the appontee nothng and took nothng away
from her that she had the rght of eecton and coud refuse to take under
the appontment and st hod the property, snce her tte wthout was as good
as t was wth the power that she treated the e ercse of the power as a
mere attempt and not as an effectve e ecuton of t and that t suffcenty ap-
peared that she eected to re|ect tte from that source.
er rghts were f ed by the w of her grandfather, and uness changed
pursuant to ts provsons her estate n e pectancy woud become an estate n
possesson upon the death of her mother. though the power was
e ercsed n form, her tte was perfect wthout t and she derved no beneft
from t. The power was to dspose of the remander and the remander was
not dsposed of but contnued where t was. The attempt to e ecute the power
was not effectve, because t dd nothng. The e ercse of a power whch eaves
everythng as t was before s a mere form, wth no substance.
The opnon, page 244, ponts out that the power mght have been e ercsed
so ns to have eft the appontee wth no tte at a but that n fact t was
e ercsed so as to eave her the same tte that she woud have had f the
power had not been e ercsed. The same s true here.
n appontee under a power, the court contnued, has the rght of eec-
ton, the same as a grantee under a deed. e can accept the tte
tendered or re|ect t n hs dscreton. It can not be forced upon hm aganst
hs w. e can not be compeed to receve addtona evdence of tte when
he does not want t, and does not need t because hs tte s perfect wthout t.
s consent s necessary before the attempt to e ercse the power becomes
bndng upon hm the same us consent s necessary n makng a contract or
agreement. Decnng or refusng to take has the same effect as ncapacty to
take, as n the case of a devse to a corporaton whch has no power to hod
any more property because the statutory mt has been e ceeded. The tte
s not affected, but remans where t was before.
We granted the wrt of certorar n ths case because of an aeged confct
wth Wear v. Commssoner (05 . (2d), GG5) and Lee v. Commssoner (57 .
(2d), 399). The reasonng and concusons of those courts and of the court
beow can not be reconced. We are of opnon that, to the e tent of the con-
fct, the vew of the former s wrong and that of the court beow s rght, and
we hod accordngy.
udgment affrmed.
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Rega. 70(192 ), rt. 24.
390
egcatons 70(192 ), rtce 24: Genera rue. I -18-7470
a. D. 957
ST T T R NU CT OP 192G D CISION OP COU T.
1. Gross state Powers of ppontment Presumpton of In-
tent to ercse: Compromse greement.
Where the decedent, the donee of powers of appontment over
certan trust funds under a deed of trust and the w of hs father,
made no specfc reference n hs w to the powers of appontment
but devsed a my property, of whatever knd and wherever stu-
ated, owned by me at the tme of my death, that anguage was
suffcent to create a presumpton, under the oca aw, that he
ntended to e ercse the powers of appontment, and the absence
of any suggeston n the w that the decedent had n mnd the
powers of appontment over the trust funds s not suffcent to
rebut that presumpton. The powers were e ercsed and the prop-
erty passng thereunder was ncudbe n the decedent s gross
estate. compromse agreement resutng from a contest of the
w does not affect the rghts of the Government under the ed-
era ta ng statute.
2. Decson fffrmed.
Decson of the oard of Ta ppeas (20 . T. ., 77) affrmed.
Unted States Crcut Court of ppeas for the rst Crcut.
Od Coony Trust Co. of oston, ecutor, pettoner for revew, v. Comms-
soner of Interna Revenue.
ppea from oard of Ta ppeas.
efore rqham, Wson, and Morton, .
December 1, 1934.
opnon.
Morton, .: Ths s a petton by the Massachusetts e ecutor of redenburgh
Mnot to revew a decson by the oard of Ta ppeas whch affrmed the
Commssoner s acton n hodng certan trust funds ta abe as part of the
decedent s estate.
The queston s whether a resduary bequest n common form n Mnot s
w operated as an e ecuton of powers of appontment whch he hed over
two trust funds. The e ecutor s frst contenton s that the powers were not
e ercsed and the corpus of the funds dd not pass as part of the estate. In the
settement of the estate ths same controversy, whether the powers had been
e ercsed, arose and was setted by an agreement between the nterested
partes. The e ecutor s second contenton s that In any event ony so much
of the trust fund shoud be ta ed as was recognzed by ths settement agree-
ment as beng part of the estate. On both ponts the Commssoner decded
aganst the e ecutor.
The decedent was a resdent of Caforna at the tme of hs death and hs
estate was probated there. Whether the powers were e ercsed by hm s
however to be determned by the aw of Massachusetts where the donor was
domced, where the trusts were estabshed by deed and by w, and where
the trustees were and are resdent. (Russe v. oys, 227 Mass., 2 3 at 2 7
oyarth-Swann v. Weed, 274 Mass., 125.) or many years t has been the
setted aw n Massachusetts that a genera resduary devse w operate
as an e ecuton of a power to dspose of property by w, uness there s
somethng to show that such was not the testator s ntenton. (C. en, .,
Cumston v. artett, 149 Mass., 243 at 248.) See, too, Russe v. oys, supra,
where the rue s restated. The rue that a genera devse may consttute
an e ercse of a power of appontment s mted to cases where there s
nothng n the w to show a contrary ntenton. (Carro, ., mes v. mes,
244 Mass., 381 at 390.) the queston s n every case a queston of
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391 Regs. 70(192 ), rt. 24.
the ntenton of the donee of the power, takng nto consderaton not ony
the terms of the w, but the crcumstances surroundng hm at the tme of
Its e ecuton. (Gray, ., Seca v. WUmer, 132 Mass., 131, 134.)
So the precse queston s whether t appears from the w when read n the
ght of ts surroundng crcumstances that the decedent dd not ntend to
e ercse the powers. redeuburgh Mnot ded n 1928 domced as has been
sad n Caforna. In 1900 hs father Wam Mnot, whose domce was n
Massachusetts, conveyed certan property to trustees there on trust to pny the
ncome to hs chdren for fe, wth the rght to each chd to appont by
w hs or her share of the trust fund. Later n the same year the father
ded and by hs w eft the resdue of hs estate n trust upon substantay
the same terms e cept that as to ths testamentary trust the trustees were
authorzed n ther dscreton to wthhod the ncome of any chd and add t
to hs share of the prncpa. oth trusts were duy set up and are those
here n queston. Ths was the stuaton n 1918 when the decedent made the
w n queston. e was then 30 years od and does not appear to have
had any substanta amount of property e cept hs nterest n the trust funds.
The pertnent provsons of the w are as foows:
Secondy, I gve, bequeath, and devse one-haf ( ) of a my property
of whatever knd, and wherever stuated, owned by me at the tme of my
death, to my wfe. aze Shedon Mnot e cept that I gve and bequeath
to my wfe aze Shedon Mnot a persona property n the way of cothng,
househod furnshngs, books, musca nstruments, prnted musc sheets and
voumes, pctures, photographs, and the ke, stuated at Lomaand, Pont
Loua, Caf., and whch may be owned by me at the tme of my death.
Thrdy, If the tota vaue of a persona property and rea estate, of
whatever knd and wherever stuated, owned by me at the tme of my death,
eha equa the monetary vaue of not ess than one hundred thousand doars
( 100,000), I gve and bequeath to my unt Gertrude Wyckoff an Pet of
Pont Loma, San Dego County, Caf., the sum of fve thousand doars
( 5,000) to my sster, atherne Mnot Channng of Wareham, Mass., 1,000
to my brother Wam Mnot, of Wareham, Mass., 1,000 to my brother
Sedgwck Mnot, of Wareham, Mass.. 1,000.
ourthy, I gve, bequeath, and devse, af.er a my |ust debts and e -
penses of admnstraton have been pad, a the rest, resdue and remander
of my property, of whatever knd and wherever stuated, owned by me at
the tme of my death, and whch has not aready been gven, bequeathed, and
devsed by and under ths w, to atherne Tngey, of Pont Loma, San
Dego County, Caf. Itacs supped.
It w be notced that the testator twce refers to a my property of
whatever knd and wherever stuated owned by me at the tme of my death.
Ths anguage s obvousy suffcent to create a presumpton under Massachu-
setts aw that he ntended to e ercse the powers of appontment. Cases supra.
It strongy suggests that he ntended the w to operate on a property whch
he had power to dspose of. The condton wth whch the thrd cause begns
may ndcate that he had not the trust funds n mnd, as the e ecutor con-
tends or t may have been nserted to safeguard the egatees named n the
second and fourth causes aganst shrnkage of the estate. Its bearng on
the queston before us s too equvoca for t to have much weght. The
entre absence of any suggeston n the w that the testator had n mnd
hs power to dspose of the very substanta sums In the trust funds s not
suffcent to rebut the presumpton. Where the power s e pressy referred
to there s, of course, no occason to nvoke the rue. The case Is perhaps
not wthout an eement of doubt but we do not thnk that suffcent appears
to warrant us n hodng that the presumpton has been rebutted and a
ack of Intent shown. It foows that the w was an e ercse of the powers
of appontment.
Ths beng so, the property passng under the powers was ta abe under the
statute. (Revenue ct 192 , ch. 27 44 Stat., 9 20 . S. C. ., secton
1094.) The agreement whch the partes made In settement of the con-
troversy does not affect the rghts of the Government under the ta ng
statute. (Wear v. Commssoner, 5 ed. (2d), 5 (C. C. . 3).)
The decson of the oard of Ta ppeas s affrmed.
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Regs. 8, rt. 1 .
392
TITL III. P RT I. ST T T . (1924)
Reguatons 8, rtce 1 : Nature of trans- I -22-7524
fer (n contempaton of death). Ct. D. 972
ST T T GI T T R NU CT O 1024 D CISION O COURT.
1. state Ta Gboss state Transfer Made n Contempaton
of Death.
In September, 1924, the decedent, 7 years of age and retred
from actve busness, conveyed bs rea estate, whch consttuted
a matera part of hs property, to hs wfe and chdren. though
affcted wth hardenng of the arteres, he was n good heath unt
an attack of nfuenza, foowed by apope y whch caused hs
death on ugust 2 , 1925. Under the crcumstances the transfer
was made n contempaton of death, n the absence of an affrma-
tve showng to the contrary, and the vaue of the property con-
veyed was propery ncuded n the gross estate for edera estate
ta purposes.
2. Gft Ta Transfer of Rea state: Consderaton.
Decedent, a resdent of Caforna, n September, 1924, conveyed
one-haf of hs rea estate to hs wfe and one-haf to hs chdren
n equa shares, the wfe |onng n the deeds, whch were not re-
corded unt the day before the decedent s death on ugust 2 ,
1925. The wfe s communty estate s a statutory substtute for
dower and fas wthn the provsons of the ta ng ct, and where
the evdence ndcates that both husband and wfe regarded the
conveyances as gfts when they were made and there s no evdence
that the wfe e acted a consderaton for her sgnatures, or that
ether she or her husband ntended that her sgnature to the deeds
to the chdren shoud serve as a vauabe consderaton for the
deed to hersef, the conveyance to the wfe consttuted a ta abe
gft under the provsons of the Revenue ct of 1924.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 1002) affrmed.
Unted States Court of peas for the Dstrct of Coumba.
Wende W. sh and Ne . Marsh, ecutors of the state of . . sh,
Deceased, pettoners, v. uy T. everng, Commssoner of Interna
Revenue.
Wende W. sh et a., enefcares, state of . . sh, pettoners, v. Guy T.
Ucverng, Commssoner of Interna Revenue.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Orsde, IItz, and Groner,
ssocate ustces.
December 31, 1034.
OrNION.
tz, ssocate ustce: These two appeas, consodated for tra both here
and beow, come from the oard of Ta ppeas, where defcences n estate and
gft ta es were found aganst the ta payer. Pettoners are the son and son-n-
aw of . II. sh, ate a resdent of ameda County, Caf., of whose w they
are e ecutors.
Mr. sh, senor, ded on ugust 2 . 1925, eavng a wdow and s chdren, a
aduts. The evdence shows that 18 years before hs death Mr. sh retred from
actve busness, and though n 1920 hs physcan advsed hm that hs arteres
were hardenng, he en|oyed good heath at 70 years of age unt an attack of
nfuenza foowed by three strokes of apope y caused hs death.
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393
Regs. 8, rt. 1 .
avng ndcated to hs wfe and chdren hs wsh that they shoud share hs
rea estate among themseves, n September, 1924, Mr. and Mrs. sh |oned n
conveyng 0/12 thereof to hersef and 1/12 to each of the chdren, the vaue
beng 300,000.
Wthout recordng these deeds Mr. sh paced them In hs safe-depost bo ,
to whch hs wfe and daughter had access as we as hmsef, and where they
remaned unt the day before hs death, when he was n e trems, und when hs
wfe ha them recorded.
rom the e ecuton of these deeds unt prevented by hs ness, Mr. sh
coected the ncome of the property, whch he deposted n bank and drew upon.
rom tme to tme he gave certan moneys to hs wfe and chdren, but
the evdence s too ndefnte as to amounts and recpents to ndcate a dvson
of that ncome.
rom a decson by the oard that the property was sub|ect to both estate
and gft ta es, we have these appeas, where t s contended that the convey-
ances were not made n contempaton of death wthn the purvew of .the
statute, and that the deed to the wfe was for a vauabe consderaton and not
a gft sub|ect to ta . The controng statute s the Revenue ct of 1924, whch
provdes that
The vaue of the gross estate of the decedent sha be determned by ncud-
ng the vaue at the tme of hs death of a property, rea or persona, tangbe
or ntangbe, wherever stuated
(a) To the e tent of the nterest theren of the decedent at the tme of hs
death
(b) To the e tent of any nterest theren of the survvng spouse, e stng
at the tme of the decedent s death as dower, curtesy, or by vrtue of a statute
creatng an estate n eu of dower or curtesy
(c) To the e tent of any nterest theren of whch the decedent has at
any tme made a transfer, by trust or otherwse, n contempaton of or n-
tended to take effect n possesson or en|oyment at or after hs death, e cept
n case of a bona fde sae for an adequate and fu consderaton n money
or money s worth. ny transfer of a matera part of hs property
n the nature of a fna dsposton or dstrbuton thereof, made by the
decedent wthn two years pror to hs death but pror to ebruary 2 , 192 ,
wthout such consderaton, sha, uness shown to the contrary, be deemed
to have been made In contempaton of death wthn the meanng of ths
chapter . (U. S. Code nnotated, Tte 20, paragraph 1094.)
Ths decedent dd transfer a matera part of hs property wthn two years
of hs death, and, consequenty, wthn the ct uness the contrary be affrma-
tvey shown.
nd the pettoners undertook to show both that the conveyances were not
made n contempaton of death n the sense of the statute, and that the
conveyance to the wfe was made for a far consderaton n money s worth,
on the theory that she renqushed her communty nterest n the haf of
the property conveyed to the chdren n return for the conveyance made to
hersef.
Whether the conveyance was made n contempaton of death s an ssue of
fact presented on evdence and decded by the oard aganst the pettoners.
Such decsons are rarey reversed by the courts, even where the opnon of
the |udges may dffer from the oard as to the weght of the evdence. (1003,
ct ebruary, 192 , ch. 27, 44 Stat., 110, evdence. ( enderson Iron Works v.
ar, 58 pp. D. 0., 114 Rosenberg v. Lucas, 3T . (2d), SOS, 59 pp. D. C,
178 very v. Commssoner Interna Revenue (O. C. .), 22 . (2d), T. I .
411 , C. . II-1, 155 Roya Packng Co. v. Commssoner Interna Revenue
(C. C. .), 22 . (2d), 53 Caman Marcus Co. v. Lucas, 41 . (2d), 300, 59
pp. D. C, 328.)
ut ths record contans an approved statement of evdence whch we have
e amned to determne whether the aw when npped to the facts sustans
the petton. ( rek Co. v. ar, 2 . (2d), 540.) nd we fnd ths matter
adds tte to the case as we have stated t, and that our opnon as to the
weght of the evdence does not dffer from that of the oard.
It s nrgued that the pettoners presented fve wtnesses, whe the respondent
presented none, but t makes no dfference from whch sde the persuadng
evdence comes, f the oard consders a evdence ntroduced on a sdes.
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Regs. 8, rt. 1 .
394
In respect of te gft ta ad upon the nterest conveyed to Mrs. sh, t s
to be observed that whe the deed to her was recorded on the day before her
husband ded, t was e ecuted neary a year before, and she contends that
snce she gave n return her communty nterest In the property then passng
to her chdren, the conveyance to her was not a gft but a sae for vauabe
consderaton.
The Caforna Code provdes that a property acqured after marrage
by ether husband or wfe, or both, ncudng rea property stuated n the
State s communty property . (Secton 104.)
The husband has the management and contro of the communty rea property,
but the wfe must |on wth hm n e ecutng any nstrument by whch such
communty rea property or any nterest theren s sod, conveyed, or
encumbered: . (Secton 172a.)
Upon the death of ether husband or wfe, one haf of the communty prop-
erty beongs to the survvng spouse the other haf s sub|ect to the testa-
mentary dsposton of the decedent, . (Secton 1401.)
acty what nterest a wfe has n rea estate durng her husband s fe
under that and smar statutes n Caforna has been much tgated n that
State, and we nd t df L-ut to ascertan from the cases to whch we have
been referred.
rom the ater cases t appears to be an e pectancy pus, but to what e tent
pus s not cear.
nd we do not stand aone n ths dffcuty, for n a recent decson of the
Supreme Court t s sad. aborate argument was devoted to the queston
whether the nterest of a wfe n communty property has the reatvey sub-
stanta character n Caforna that t has n some other States. That she
has vested rght has been determned by ths Court wth reference to some
|ursdctons, and the Treasury Department as carred those rghts to the
pont of aowng a dvson n the return of communty ncome n other States
where the communty system prevas. Its adopton of a dfferent rue for
Caforna was based, we presume, upon the noton that n that State a wfe
had a mere e pectancy whe the husband was ave.
If on the whoe ths noton seems to us to be adopted by the Caforna
courts t s our duty to foow t, so far as matera, even f contrary e pressons
shoud he found here or there In the books and t s no concern of ours whether
the prevang decson s a egtmate descendant from ts parent the Spansh
aw or otherwse. We can see no suffcent reason to doubt that the setted
opnon of the Supreme Court of Caforna, at east wth reference to the tme
before the ater statutes, s that the wfe had a mere e pectancy whe vng
wth her husband. The atest decson that we have seen deang drecty
wth the matter e pcty takes that vew, says that t s a rue of property
that has been setted for more than GO years, and shows that rnett v. Reade
(220 U. S., 311) woud not be foowed n that State.
Snce that decson, and n 192G, the stuaton has been eaboratey revewed
by the Supreme Court of Caforna n Stewart v. Stewart (199 Ca., 318),
where t was decded that the wfe was not the owner of an undvded one-
haf present vested nterest, as had been hed beow yet that her estate was
much more defnte and present than that of an her and that Caforna was
as much entted as New Me co or Te as or Washngton to adopt ts own
nterpretaton of the meanng of Spansh and Me can aws reatng to a wfe s
nterest n communty property.
Whe the Crcut Court of ppeas for the Nnth Crcut, sttng n.Caforna,
soon announced that the ground of decson gven n the Stewart case does not
materay dstngush a wfe s communty nterest n Caforna from her
nchoate rght of dower esewhere. (Tacott v. Unted States, 23 . (2d), 900
T. D. 4137, C. . II-1, 319 .)
ut whatever ese t may be, her communty estate s certany a statutory
substtute for dower, and, consequenty, fas wthn the e pressed provsons of
the ta ng ct controng ths matter.
Our statute has done away wth the common aw rght of dower, and sub-
sttuted n pace a haf nterest n the communty property. ( eard v. no ,
5 Ca., 252-250.)
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395
Regs. 8, rt. 1 .
Though the Caforna substtute s, perhaps, more bera to the wfe, than
the usua dower estate, by the conveyances here n queston Mrs. sh receved
the very nterest she cams to have gven. nd n a State where the aw ot
dower prevas a husband may make a gft of rea property to hs wfe, or, f
she |ons n the deed, to another.
or her sgnature to such a deed, a wfe may and she frequenty does
e act a consderaton, but there s no evdence n ths record that Mrs. sh
dd so, or that ether she or her husband ntended that her sgnature to the
deed to ther chdren shoud serve as a vauabe consderaton for the deed to
hersef.
On the contrary, the evdence ndcates that both husband and wfe regarded
the conveyances as gfts when they were made, and we are of opnon that the
decson of the oard of Ta ppeas was rght n respect of both ta es, and
t s therefore affrmed.
ffrmed.
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S L S T RULINGS.
TITL I . CIS T S. (1934)
S CTION 02 /. PROC SSING T ON C RT IN OILS.
Reguatons 48, rtce 1: Defntons. I -12-7387
S. T. 800
Ta abty under secton 02 of the Revenue ct of 1034 of the
ftraton and carfcaton of crude cocoanut o. S. T. 75S (C. .
III-2, 390) s modfed.
The queston s presented whether the use of bone char, bone coa,
nuchar, fuer s earth, or other smar agent by the orgna crusher
of copra for the purpose of fterng and carfyng crude cocoanut
o e pressed by such crusher n the Unted States s sub|ect to the
a mposed by secton 02 of the Revenue ct of 1934 upon the
frst domestc processng of cocoanut o and certan other os.
Such fterng or carfyng treatment does not consttute the frst
domestc processng of cocoanut o wthn the scope of secton
02 /2 of the Revenue ct of 1934 where bone char, bone coa, nuchar,
fuer s earth, or other smar substance s used as a fterng or car-
fyng agent by the orgna crusher of copra as a step n the con-
tnuous course of e pressng crude cocoanut o from copra n the
Unted States, and such fterng or carfyng does not remove more
than 1 per cent of the free fatty acds or otherwse change the gen-
era character of the crude cocoanut o.
Such fterng or carfyng treatment does consttute the frst
domestc processng of crude cocoanut o wthn the scope of sec-
ton 021/0 of the Revenue ct of 1934 where (a) crude cocoanut o
(whether mported nto the Unted States, or prepared here from
copra) s sub|ected n the Unted States to the fterng and carfyng
treatment as a dstnct and separate process rather than as part or
the contnuous process of e pressng cocoanut o from copra or, (b)
such treatment (whether or not a part of a contnuous process of
e pressng cocoanut o from copra) removes more than 1 per cent
of the free fatty acds or otherwse changes the genera character of
the crude cocoanut o.
S. T. 758 (C. . III-2, 390) s modfed to accord wth the con-
cusons reached heren.
Reguatons 48. rtce 1: Defntons. I -20-7499
S. T. 808
traton and carfcaton of crude cocoanut o by use of bone
char, bone coa, nuchar, fuer s earth, or smar agent does not
consttute the frst domestc processng under secton 02 of
the Revenue ct of 1934.
S. T. 758 (C. . III-2, 300) and S. T. 800 are revoked.
Reconsderaton s requested of S. T. 758 (C. . III-2,
390), as modfed by S. T. 800 (above), nvovng the queston
(300)
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397
Regs. 49, rt. 10.
whether the fterng and carfyng of crude cocoanut o by the
use of bone char , bone coa, nucar, fuer s earth, or smar agent
s the frst domestc processng of such o wthn the scope of
secton 02 of the Revenue ct of 1934.
In S. T. 758 t was hed that the emnaton of drt from crude
cocoanut o by a ceanng process nvovng the use of any of the
above-mentoned agents, whch resuts n the remova of a part of
the coor and produces an artce marketabe under a recognzed
trade name, consttutes the frst domestc processng of the crude
cocoanut o wthn the meanng of secton 02 4. In S. T. 800 t
was hed that the fterng or carfyng treatment does not consttute
the frst domestc processng of crude cocoanut o under secton
CO 1/ where such treatment s part of a contnuous course of e press-
ng crude cocoanut o from copra n the Unted States and does not
remove more than 1 per cent of the free fatty acds or otherwse
change the genera character of the crude cocoanut o. S. T. 800
provdes, however, that such treatment does consttute the frst
domestc processng of crude cocoanut o ether where t s a ds-
tnct and separate process rather than a part of the contnuous course
of e pressng cocoanut o from copra or where (whether or not a
part of a contnuous process of e pressng cocoanut o from copra)
t removes more than 1 per cent of the free fatty acds or otherwse
changes the genera character of the crude cocoanut o.
Upon reconsderaton t s now hed that the fterng or carfyng
of crude cocoanut o by the use of the above-mentoned agents does
not consttute the frst domestc processng of crude cocoanut o
wthn the meanng of secton 021/2 of the Revenue ct of 1934,
regardess of whether such fterng or carfyng s part of a con-
tnuous process of e pressng cocoanut o from copra wthn the
Unted States or s a dstnct and separate process of treatng crude
cocoanut o whch was ether mported nto the Unted States or was
prevousy e pressed from copra n the Unted States.
S. T. 758 and S. T. 800 are revoked.
S CTION 04. PRODUC RS T ON CRUD P TROL UM.
Reguatons 49, rtce 10: Defntons. I -13-7403
( so rtce 17.) G. C. M. 14582
ppcabty of the ta mposed by secton 04 of the Revenue
ct of 1934 on crude petroeum sod by the producer thereof to
crude petroeum produced from ands of members of the ve
Cvzed Trbes and from State schoo ands.
n opnon s requested whether the ta mposed by secton 04 of
the Revenue ct of 1934 on the sae of crude petroeum by the
roducer thereof appes to crude petroeum produced from ands
eongng to the members of the ve Cvzed Trbes and from
State schoos ands.
Secton 04 of the Revenue ct of 1934 reads n part as foows:
(f) or the purposes of ths secton

(2) the term producer means the person ownng crude petroeum or
havng any nterest In or tte to crude petroeum at the tme of ts producton.
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Regs. 49, rt. 10.
398
I.
Wth respect to the ands of the ve Cvzed Trbes, the essees
thereof are ta abe on the producton therefrom to the e tent that
they are the producers of the crude petroeum, wthn the meanng
of secton G04(f)2 of the Revenue ct of 1934, rrespectve of the
nature of any ta e emptons attached to the ands n favor of the
Indan aottees. ( ener v. Coona Trust Co., 275 U. S., 232.)
The eases coverng the ands of the ve Cvzed Trbes, whch
have been made through the Department of the Interor on the de-
partmenta form of o and gas ease prescrbed therefor, unformy
provde that the Indan essor sha be pad as hs royaty a specfed
percentage of the gross proceeds from the sae of the o e tracted.
Where the essor s royaty nterest conssts soey of the rght to a
percentage of the cash proceeds from the sae of the o produced by
the essee, the essor s not a producer of crude petroeum wthn
the meanng of the ct. Under such a ease, the essee s the soe
owner at the tme of ts producton of the entre producton of crude
petroeum and s abe for the ta mposed by secton 04.
Where eases coverng the ands of the ve Cvzed Trbes pro-
vde that the royaty sha be pad by the devery n knd to the
essor, or to a ppe ne to hs credt, of a porton of the o pro-
duced, the essor s a producer, wthn the meanng of the aw, to
the e tent of hs proportonate share of the o produced. In that
case, such e emptons from ta aton of the aotments of Indans as
are now n effect e tend to the ro| aty o. (Compare Carpenter v.
Shaw, 280 U. S., 3 3.) The e emptons specfed by the aotment
cts may be summarzed as foows:
The homestead aotments of the Creek Trbe were made non-
ta abe for 21 years from the dates of the patents ssued therefor
(secton 7, ct of March 1, 1901, 31 Stat., 8 1, 8G3, and secton 1 ,
ct of une 30, 1902, 32 Stat,, 500, 503) the homestead and sur-
pus aotments of the Choctaws and Chckasaws were made non-
ta abe whe the tte remaned n the orgna aottee, but not to
e ceed 21 years from the dates of the patents therefor (secton 29,
ct of une 28, 1898, 30 Stat., 495, 507, as modfed by the ct of
uy 1, 1902, 32 Stat., 41) the homesteads of the Cherokees were
made nonta abe durng the tme hed by the orgna aottee ( ct
of uy 1, 1902, 32 Stat., 71 ) and the homestead aotments of the
Semnoe Indans were made nonta abe as a homestead n per-
petuty ( ct of uy 1, 1898, 30 Stat., 5 7, 5 8). Ths Semnoe
e empton has been construed strcty and s treated as beng ter-
mnated upon the sae of the and bv the Indan aottee or hs
hers. (Unted States v. ean (C. C. . 8), 253 ed., 1, 5.) Of the
foregong e emptons, those appcabe to the Creeks, Choctaws, and
Chckasaws e pred before the enactment of the evenue ct of
1934. Ony a sma porton of the Cherokee homestead ands are
wthn the o-producng area, and of such aotments ony a neg-
gbe number (whch may or may not be o producng) are st
hed by the orgna aottees. s to the Semnoe homesteads (other
than the restrcted aotments under the supervson of the Interor
Department, the essors of whch are not producers ), many of
them are no onger hed as homesteads wthn the meanng of the
Indan and aws. In genera, the ta abty as a producer of a
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399
Regs. 49, rt. 10.
essor of ands of the ve Cvzed Trbes under secton 04 of the
Revenue ct of 1934 depends upon whether the essor has such an
nterest n the crude petroeum at the tme of ts producton as to
requre hs cassfcaton as a producer. The e empton from the
ta of such a essor who s a producer must be determned n
accordance wth the facts of the partcuar case.
II.
Wth respect to the ta abty of crude petroeum produced from
State schoo ands, o and gas eases coverng such ands must be
dvded nto two groups, one of whch s governed by the decson of
the Supreme Court of the Unted States n Group No. 1 O Corpora-
ton v. ass (283 U. S., 279) and the other by the decson of that
Court n urnet v. Coronado O Gas Co. (285 U. S., 393). Under
the frst group, the o and gas ease s to be treated as a conveyance of
the tte to some porton or to a of the o n pace before ts pro-
ducton. (See Thesen v. Robson, 117 Te .. 489,8 S. W. (2d). 4 , and
Te as Co. v. Dougherty, 107 Te ., 22 , 17 S. W., 717.) Where the
ease s to be gven such effect, the tte to some porton or a of the
o n pace s treated as havng been transferred to the essee by sae
before producton. fter such sae, the o n the hands of the essee
s no onger to be consdered property whch s protected from ed-
era ta aton as a Government nstrumentaty. Group No. 1 O
Corporaton v. ass, supra.) The essee under such a ease s not
mmune from the ta mposed by secton 04 of the Revenue ct of
1934. If under the terms of the ease, the ownershp of royaty o
s at the tme of ts producton vested n the State, then to that e tent
the State s the producer and that porton of the crude petroeum
produced under the ease s e empt from the ta mposed by secton
04.
It has been hed n Te as (where an o and gas ease may be treated
as a conveyance of o n pace before producton) that, f under the
royaty provsons of the ease the essee at hs opton may pay the
stpuated royaty n o or n cash, the ease confers on the essee the
essentas of compete ownershp of a the crude petroeum produced
under the ease and that the essee may be ta ed accordngy for the
purpose of oca property ta es Stephens County v. Md- ansas O
Gas Co., 113 Te ., 1 0, 254 S. W., 290) but that where, under the
ease, t s stpuated that the essee sha dever to the essor, free
of charge, n the ppe ne to whch sad ease may be connected, the
equa one-eghth ) part of a the o and gas produced on sad
premses, the essor retans the ownershp of the royaty o (to-
gether wth the power of dsposton and the rght to receve posses-
son thereof) and the essor may be ta ed accordngy for oca
property ta purposes. Waggoner tate v. Wchta Count//. 273
U. S., 113.)
In vew of the foregong, t s the opnon of ths offce that ta
abty under secton 04 of the Revenue ct of 1934, n the case of
o and gas eases governed by Group No. 1 O Corporaton v. ass,
supra, shoud be determned n accordance wth the foowng rues:
(1) If, under the ease, the State s entted ody to a cash royaty
. e., a percentage of the gross proceeds from the sae of o pro-
uced from the eased premses), or f the essee at hs opton may
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Regs. 49, rt. 10.
400
pay to the State the stpuated royaty n o or n cash, the essee
shoud be treated as the owner, at the tme of ts producton, of a
the crude petroeum produced from the eased premses. The essee
n such a case s the producer and s abe for the ta on the sae
of the entre producton.
(2) If, under the ease, t s stpuated that the essee must dever
to the essor, ether actuay or by devery to hs credt nto a ppe
ne, an equa fractona part of a the o produced, the essee s
not the producer of the royaty o wthn the meanng of the aw.
The essee s abe for the ta on the remander of the producton.
The royaty o, beng property of the State at the tme of ts produc-
ton, s e empt from the ta mposed by secton 04.
In the case of o and gas eases coverng State schoo ands gov-
erned by urnet v. Coronado O Gas Co., supra (appcabe n
States whch do not recognze the rue that there may be a conveyance
of tte to o and gas n pace), the essee of such State schoo ands,
n producng o and gas from such ands, s deemed to be an nstru-
mentaty of the State engaged n the e ercse of an essenta govern-
menta functon, namey, the mantenance of schoos, and, therefore,
may not be sub|ected to a edera ta on benefts derved from such
operatons. In such a case, the entre producton of o and gas
s e empt from the ta mposed by secton 04 of the Revenue ct
of 1934.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
Reguatons 49, rtce 10: Defntons. I -13-7404
( so rtce 17.) G. C. M. 14585
Labty of essor and essee for the ta mposed by secton
004 of the Revenue ct of 1034 on crude petroeum sod by the
producer thereof.
ppcabty of the ta wth respect to royates pad by the
essee on crude petroeum produced from restrcted homestead
aotments of Osage and Semnoe Indans.
n opnon s requested whether the ta mposed by secton 04
of the Revenue ct of 1934 on the sae of crude petroeum by the
producer thereof appes to royates pad by the essee on crude
petroeum produced from the restrcted homestead aotments of
the Osage and Semnoe Indans.
The pertnent portons of secton 04 are as foows:
(a) There s hereby mposed on crude petroeum sod by the producer thereof,
a ta of one-tenth of 1 cent per barre of 42 gaons, to be pad by the
producer.
(b) very person purchasng crude petroeum from the producer thereof,
and takng devery thereof at the premses where produced, sha coect the
ta mposed by subsecton (a) from the producer. very such purchaser,
and every producer abe for any ta under ths secton not so coected from
hm, sha make monthy returns under oath and pay such ta es to the coector
for the dstrct In whch are ocated the premses where such crude petroeum
was produced.
(c) very purchaser requred to coect any ta under ths secton sha
make such coecton by deductng and wthhodng the amount of such ta
from any payments made by such purchaser to the producer.
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401
(Regs. 49, rt. 10.
(f) or the purposes of ths secton

(2) The term producer means the person ownng crude petroeum or
havng any nterest n or tte to crude petroeum at the tme of ts producton.
The term producer as used n secton 04 s defned n artce
10 of Reguatons 49 as foows:
The term producer Incudes any person who, at the tme of producton,
(1) owns the crude petroeum, (2) has any nterest n t, or (3) has any tte
to t and ncudes a property owners, ease hoders, or royaty owners, where
ont ownershp e sts n the tte to or nterest n the crude petroeum
produced. Itacs supped.
I.
It s deemed advsabe to consder the appcaton of the ta m-
posed by secton 004 of the Revenue ct of 1934 to the royaty n-
terests of essors under o and gas eases generay before consderng
the appcaton of the ta to eases coverng restrcted homestead
aotments of Osage and Semnoe Indans.
The words, tme of producton, as used n the aw and regu-
atons, undoubtedy have reference to the tme when the crude
011 s brought to the surface, snce produced o s generay under-
stood to refer to o when brought to the surface. (Tedrow v.
Schafer (Oho), 155 N. ., 510.)
s to the ownershp of o and gas, the genera rde recognzed
n Okahoma (and certan other States), based upon Oho O Go. v.
Indana (177 U. S., 190), was summarzed by the Supreme Court
of Okahoma n Rch v. Doneghcy (177 Pac, 8 ) as foows: The
owner of the and has a quafed ownershp of o and gas n pace,
whch nterest may be stated more accuratey to consst of the e -
cusve rght wthn the mts of hs surface boundares to e pore
for, to take therefrom and reduce to possesson the o and gas found,
and thus to acqure absoute tte as persona property to the o and
fas produced that ths rght s the proper sub|ect of sae and may
e granted or reserved and that the owner by hs o and gas
ease grants to hs essee a vested nterest n the and whch con-
ssts of the rght to e pore, mne and operate, and e tract from
the and and reduce to hs possesson, as hs persona property such
o as may be found. Ths resut under the genera rue recognzed
n Okahoma and certan other States as to the ownershp of crude
o when brought to the surface s smar to the resut whch obtans
under the genera rue recognzed n Te as and other States where
an o and gas ease may be consdered to convev tte to o and gas
n pace (Te as Co. v. Dougherty (Te .), 17 S. W., 717) that s,
that crude o at the tme of ts producton s the persona property
of the essee.
Whe the foregong sets forth the genera rde, the ownershp of
produced o may, nevertheess, be sub|ect to the terms of the ease,
as was ndcated n arbanks v. Warrum (Ind.), (104 N. ., 983).
If the provsons of the ease requre the payment to the essor of
a royaty consstng of a specfed part of the gross amount of moneys
or gross proceeds from the sae of the crude o produced and saved,
such o at the tme of ts producton s the property of the essee
and s sod as sch. (Coanga Pac. O Gas Co. v. ssocated
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Regs. 49, rt. 10.
402
O Co. (Ca.), 11 Pac, 1107.) The case |ust cted was reed upon
n ureka Deveopment Co. v. Cements (Idaho) (258 Pac, 371)
as authorty for the proposton that the mnera product beonged
to the essee at the tme of ts producton where the agreement pro-
vded that the rent or royaty was not to be pad n knd, but the
essee was to operate the mne, recover the ore, se t, and pay
a certan percentage of the proceeds to the essor as such rent or
royaty. The court n that case hed that tte to the ore mned
vested n the essee as soon as removed from ts orgna pace and
n the course of ts dscusson sad:
Ths s a cear agreement to pay an acknowedged ndebtedness out
of certan proceeds. promse to pay out of certan proceeds, however soemn
the promse may be, s a persona obgaton and does not bnd the property
from whch the proceeds are to fow. It takes somethng more than that to
gve rse to an equtabe en. (In re Cark Reaty Co. (C. C. .), 234 ., 570
Sent frend n. Co. v. bbott, 7 Coo. pp., 73, 42 P.. 31S Coanr|a Pac. O
Oas Co. v. ssocated O Co., 1 Ca. pp., 301, 11 P., 1107 Smth v. Rancy,
0 rz., 3 2, 83 P., 403.)
Where the ease provdes that the essee may, at hs opton, pay
to the essor the stpuated royaty n o or n cash, the Supreme
Court of the Unted States n Waggoner state v. Wchta County
( 273 U. S., 113) hed that there s conferred on the essee the essen-
tas of ownershp to a of the o that s, possesson wth unre-
strcted power of appropraton and dsposton of the o, and under
such crcumstances the essee s propery ta abe upon the entre
producton, ncudng the royaty o. (Compare dams v. Petro-
eum Mdway Co., 20o Ca., 221, 270 Pac, G 8.)
It appears, however, that the courts have hed that there s a |ont
ownershp or cotenancy n crude o at the tme of ts producton
where the ease provdes that the essee sha dever to the credt
of the essor, free of cost, nto a ppe ne to whch he sha connect
hs wes, the equa one-eghth (or som other specfed fractona
part) of a the o produced and saved from the eased premses.
In ths connecton, the court n Coanga Poc. O Gas Co. v.
ssocated O Co., supra (decded n une, 1911), suggested by way
of dctum that where the reatonshp between the partes s that
of andord and tenant
there must be some approprate words n the ease to ndcate that
the product of the and Is to be hed n cotenancy or such concuson w
not be reached. If there s nothng to ndcate that ntenton, then the products
to be devered to the andord after the harvest by the tenant w be deemed
to be the property of the tenant unt that tme, and treated as rent to be
then pad. (Carke v. Cobb, 121 Ca., 597, 54 Pac, 75 whch case had to do
wth an agrcutura ease .) If the tte to the o s In the tenant unt
It s produced and devered, the rght to se It woud foow as a necessary
Incdent .
owever, the court dd not fnd t necessary to turn the case on
that pont.
ut n Smth v. Lnden O Co. (W. a.) (71 S. ., 1 7, decded
n March, 1911), the court took the vew that royaty o under such
a royaty provson can not be kened to a share of a gran crop to
bo pad to the andord and that there s |ont ownershp unt the
devery of the crude o to the ppe ne. Subsequent decsons pro-
ceed upon the atter bass. (Waggoner state v. Wchta County
(U. S. Sup. Ct,), supra vans ct d. v. Ms et u ., 7 ed. (2d), 840
Shreveport- Dorado Ppe Lne Co. v. ennett ( rk.), 290 S. W.,
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403
Regs. 49, rt. 10.
929 Russe v. Producers O Co. (La.), 83 So., 773 Cark v. Sck
O Co. (Oka.), 211 Pac, 49 ott, ones d Co. v. Waurka O
ssocaton (Te .), 253 S. W.. 01 omestake poraton Corpora-
ton v. Schoregge (Mont.), 2 4 Pac, 388.)
In vew of the foregong, t s the opnon of ths offce that
1. (a) Where an o and gas ease provdes for the payment to the
essor as a royaty of a percentage of the gross amount of moneys
receved (or gross proceeds) from the sae of crude petroeum pro-
duced and saved, the essor s not a producer of crude petroeum
wthn the meanng of secton 04(f) of the Revenue ct of 1934
and artce 10 of Reguatons 49. In such a case, the essee (or hs
assgns) s the producer of the entre amount of the crude petroeum
produced under such a ease and s abe for the fu amount of the
ta mposed upon the sae thereof by secton 04(a) of the Revenue
ct of 1934.
( ) Where the ease provdes that the essee may, at hs opton,
pay to the essor the stpuated royaty n crude petroeum or n cash,
the essee s the producer of the entre producton of crude petro-
eum and s abe for the ta thereon.
2. (a) Where the ease provdes that the essee sha dever to the
essor (or dever to the credt of the essor nto a ppe ne) as a
royaty a specfed percentage of the crude petroeum produced, the
crude petroeum, at the tme of ts producton, must be treated as beng
|onty owned by the essor and essee wthn the meanng of the
aw and reguatons. In such cases, both the essor and essee are
producers and are abe for the ta mposed by secton 04(a)
of the Revenue ct of 1934 accordng to ther respectve proportons
of the crude petroeum produced.
(b) If the ease provdes for the payment as a royaty to the essor
of a specfed percentage of the gross proceeds of the crude petroeum
produced, or, at the essor s opton, for the devery of a desgnated
amount of crude petroeum n knd as a rovaty, the essor s a pro-
ducer of crude petroeum ony durng tne effectve perod of hs
eecton to take hs royaty n knd.
n.
The decson as to the appcaton of the ta mposed by secton
04 of the Revenue ct of 1934 n the case of the essor s royaty
nterest under o and gas eases whch cover restrcted homestead
aotments of Osage and Semnoe Indans must be approached from
the standpont of the foregong concusons.
The makng of o and gas eases coverng the restrcted homestead
aotments of the Semnoe Indans s under the supervson and
contro of the Secretary of the Interor. The form of o and gas
ease prescrbed by hm for use n the easng of ands of the ve
Cvzed Trbes provdes that the essee sha pay to the essor as
royaty for the ease a certan percentage of the gross proceeds from
the sae of a crude o e tracted from the and and does not pro-
vde an opton to the essor to take o as royaty n knd. sums
due as royaty are made a en on a mpements, toos, machnery,
etc., and upon unsod o hed by the essee. ccordngy, t s the
opnon of ths offce that, under the terms of the o and gas eases
coverng the homestead aotments of restrcted Semnoe Indans,
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Regs. 49, rt. 10.
404
the essors are not producers of crude petroeum for the reason
that they have no ownershp of, tte to, or nterest n specfc crude
petroeum at the tme of ts producton. The ownershp of the crude
petroeum produced from such aotments under such eases s vested
entrey n the essee at the tme of ts producton. The essee s,
therefore, abe for the ta mposed upon the sae of such crude
petroeum by secton 04 of the Revenue ct of 1934.
The easng for o and gas purposes of a the ands of the Osage
Indans s under the supervson and contro of the Secretary of the
Interor. The form of o and gas ease prescrbed by hm for use
n the easng of Osage ands provdes for the payment by the essee
to the Osage Trbe, as essor, of a percentage of the gross proceeds
reazed from the sae of the o produced, wth smar en prov-
sons to secure payments as n the case of the eases of aotments
of the ve Cvzed Trbes. Such eases provde n addton that,
at the opton of the Osage Trba Counc, the royaty may be taken
n o, n whch case the essee s to furnsh free storage for the
royaty o for a perod not e ceedng 30 days.
Ths offce s of the opnon that where the Osage Trbe takes as
ts royaty a percentage of the gross proceeds from the sae of the
crude petroeum produced, t s not a producer of crude petroeum
wthn the meanng of secton 04 of the Revenue ct of 1934 that
under such crcumstances the essee s the soe owner of the crude
petroeum at the tme of ts producton and that the ta on the sae
thereof mposed by secton 04 fas entrey upon the essee. If,
however, the Osage Trbe eects to take ts royaty n knd, the trbe
s a producer of crude petroeum wthn the meanng of the aw.
The eecton to take royaty n knd shoud be deemed to appy and
take effect at the tme of producton of the o nvoved that s,
when the o s brought to the surface. The essee s abe for the
ta on hs proportonate share determned accordngy.
The queston remans whether the royaty o n such case, beng
the property of an Indan trbe, may be sub|ected to the ta mposed
by secton 04.
The Osage trba ands were aotted n severaty to the
members of the trbe under the ct of une 28, 190 (34 Stat.,
539). The homestead and surpus aotments so made to the members
were made nonta abe for stated perods of tme. owever, by sec-
ton 2, paragraph 7, of that ct the mneras underyng the trba
ands were reserved to the use of the trbe for 25 years and the
royaty was made payabe to the trbe for dstrbuton to ts mem-
bers accordng to the offca ros of the trbe. Ths reservaton of
the mnera nterest has twce been e tended and under e stng aw
w termnate on pr 8. 195S, uness further e tended by Congress.
( ct of March 2, 1929, 45 Stat., 1478.) There has never been any
e press e empton from ta aton n any ct of Congress of the
mnera nterest thus reserved to the Osage Trbe. (See I. T. 1834,
C. . II-2, 2 ppea of Leah runt, 5 . T. ., 134 and Mary
ackbrd v. Commssoner, 14 . T. ., 1247.) None of the e press
provsons for e empton from ta aton of aotted nterests n the
aotment deeds to the members, whether homestead or otherwse,
can be deemed to appy to the reserved mnera nterest of the trbe
as a whoe.
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405
Regs. 44(1934), rt. 40
The ta abty of the Osage Trbe n respect of mnera produc-
ton depends upon the w of the Congress, whch has penary
authorty over Indan affars and Indan trba property. (Lone
Wof v. tchcock, 187 U. S., 553, 5 5.) Whe t was hed n Ges-
pe v. Okahoma (257 U. S. 501) that the State of Okahoma coud
not sub|ect the o producton owned by ether the Osage. Indans
or ther essees to ts gross producton ta wthout the sancton of
Congress, t was ndcated n encr v. Coona Trust Co. (275
U. S., 232) that ths dd not mean that the Indans property may
not be sub|ected to a edera ta . In ackbrd v. Commssoner (38
ed. (2d), 97 ) (C. C. . 10), the court adopted the vew that the
mnera nterests reserved to the Osage Trbe are not wthn the
mrvew of a genera edera ta ng ct uness there s specfc
anguage n the ct whch e presses the ntenton to sub|ect Indan
trba property to the ta but n Choteau v. urnet (283 U. S., 91),
n referrng to the ta abty as a fund of the undstrbuted Osage
royates n the possesson of the Government n trust for the trbe,
the Supreme Court stated:
It does not foow, however, that they can not be sub|ected to a
edera ta . The ntent to e cude must be defntey e pressed, where, as here
ncome ta , Revenue ct of 1918 , the genera anguage of the ct ayng the
ta s broad enough to ncude the sub|ect matter . Itacs supped.
The term producer (as defned n secton 04(f)2 of the Rev-
enue ct of 1934) means the person ownng crude petroeum or
havng any nterest n or tte to crude petroeum at the tme of ts
producton and s broad enough to ncude the share of o taken
by the Osage Trbe as a royaty n knd. ccordngy, t s hed
that the ta mposed on saes of crude petroeum by the producer
appes to the saes of such royaty o by or on behaf of the Osage
Trbe. The purchaser of such o shoud, therefore, deduct and
wthhod, as provded n secton 04(c) of the Revenue ct of 1934,
the amount of the ta from the payments made by such purchaser
to the Osage Trbe.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
TITL I . M NU CTUR RS CIS T S. (1932)
S CTION 01(c) O T R NU CT O 1932, S M ND D Y
T CT O UN 1 , 1933 (PU LIC, NO. 73, S NTY-T IRD
CONGR SS), ND Y S CTION 03(a) O T R NU CT O
1934.
Reguatons 44(1934), rtce 40: Use of terms. I -1 -744
( so rtce 43.) S. T. 803
Petroatum s not ta abe as ubrcatng o,
Inqury s made whether the product known as petroatum, whch
s an amorphous wa obtaned as a by-product from the dewa ng
of resdua petroeum o n the manufacture or producton of ubr-
catng os, s sub|ect to ta as ubrcatng o.
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Regs. , rt. 19.
40
Petroatum s not a ubrcatng o. It s sod prncpay for use
n the manufacture of cosmetcs or pharmaceutca preparatons, or
as a softenng, pastcsng, swabbng, or rust preventng agent, or
for other nonubrcatng purposes.
It s, therefore, hed that the product known as petroatum s not
ta abe as ubrcatng o under secton 01 (c) of the Revenue ct
of 1932, as amended, and that the manufacturer of such product w
not be requred to obtan from the purchasers thereof the e empton
certfcates prescrbed by artce 43 of Reguatons 44 (1934).
S CTION 02. TIR S ND INN R TU S.
Reguatons 4 , rtce 19: Scope of ta . P7-24-7551
S. T. 812
Ta abty of retreaded and rebut tres.
Inqury s made wth respect to the effect, f any, of the decson
of the Dstrct Court for the Southern Dstrct of Oho, Western
Dvson, n Sknner v. Unted States (8 ed. Supp., 999). upon S. T.
C48 (C. . II-1, 384), reatng to the ta abty of retreaded and
rebut tres under secton 02 of the Revenue ct of 1932.
Secton 02 mposes a ta upon the sae by the manufacturer, pro-
ducer, or mporter of tres made whoy or n part of rubber at the
rate of 21/t cents a pound on tota weght (e cusve of meta rms or
rm bases). rtce 4 of Reguatons 4 reads n part as foows:
s used n the ct, the term producer ncudes a person who
produces a ta abe artce by processng, manpuatng, or changng the form of
an artce, or produces a ta abe artce by combnng or assembng two or
more artces.
S. T. 48, supra, reads n part as foows:
The test of ta abty where od matera or matera party od and party
new s used n producng a tre sutabe for use s whether the work done con-
sttutes the manufacture of a tre or s merey a repar |ob. If the former,
the ta s egay due. If the atter, no ta s nvoved. It s hed that chcre
the dentty of the od tre s ost n the process the manufacture of a ta abe
tre resuts. Itacs supped.
The ssue n the Sknner case was whether saes of retreaded tres
were ta abe, as saes of tres whoy or n part of rubber wthn
the meanng of secton 02 of the Revenue ct of 1932. The record
n that case shows that the retreadng process used by the ta payer
dd not obterate the name of the orgna manufacturer of the tre.
In the fndngs of fact the court stated that the Tre retreadng as
the pantff performs the process does not materay change the
product so that t oses ts dentty. The court hed that secton 02
of the Revenue ct of 1932 dd not appy to such retreaded tres,
and that the ta payer was not a manufacturer or producer of tres
wthn the meanng of that secton. Snce n the Sknner case the
retreadng process dd not destroy the dentty of the tres, t s hed
that the decson n that case does not requre a modfcaton of S. T.
48, supra.
The queston has been rased whether the retreadng or rebudng
of used tres by the foowng processes resuts n the oss of the
dentty of the tres so processed:
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407
Regs. 4 , rt. 22.
(1) The rubber remanng on the tread (the porton of the tre
that comes n contact wth the road) s removed down to the fabrc
and s repaced wth new rubber. The sde wa of the tre s not
rebut and the name of the orgna manufacturer and the other
orgna markngs reman thereon. ddtona markngs such as re-
treaded, rebut, etc., may or may not be used.
(2) In addton to repacng the tread, as n (1) above, the sde
wa of the tre s roughened by buffng or otherwse and a thn ayer
of new rubber s vucanzed thereon wthout obteratng the name
of the orgna manufacturer or other orgna markngs. ddtona
markngs may or may not be used.
(3) of the rubber on the outsde of the tre s removed down
to the fabrc and s repaced wth new rubber. The name of the
orgna manufacturer and other orgna markngs are destroyed.
In the processes outned n (1) and (2), above, the dentty of the
tre s not ost. ccordngy, t s hed that such processes are not
manufacturng processes and that the processor n ether of such
stuatons s not a producer or manufacturer of tres wthn the mean-
ng of secton 02 of the Revenue ct of 1932 and artce 4 of Regu-
atons 4 . In the process set forth n (3), above, the dentty of the
tre s ost. Consequenty, the person who makes such changes n
the tre s a producer or manufacturer of tres wthn the meanng
of secton 02 of the Revenue ct of 1932 and artce 4 of Regua-
tons 4 .
S CTION 03. T ON TOIL T PR P R TIONS, TC.
Reguatons 4 , rtce 22: Scope of ta . I -22-7525
Ct. D. 973
M NU CTUR RS CIS T R NU CT O 1932 D CISION O COURT.
Toet Preparaton Mouth Wash e ybesorcno Souton.
e yresorcno Souton, commony known as S. T. 37, whch
s wdey advertsed and sod as a mouth w sh, athough aso used
as an antseptc for wounds, etc., s sub|ect to manufacturer s
e cse ta as a toet preparaton, under the provsons of secton
03 of the Revenue ct of 1932.
Dstrct Court of the Unted States for the astern Dstrct of
Pennsyvana.
Sharp d Dohmc, Inc., v. bert . Ladncr, r., Coector of Interna Revenue.
March 5, 1935.
OPINION.
Wesh, .: There are many questons rased by the peadngs n ths case
but t s not necessary to dscuss them at ength or even to refer to them n
ths opnon. The frst and prncpa queston rased s as to whether or not
the artce s a mouth wash for toet purposes. Shoud ths be decded n
negatve the other numerous questons referred to n the argument woud be-
come reevant. Shoud that queston be decded n the affrmatve, that t s
a mouth wash, nothng ese woud reman for our decson.
t the argument t was brought out that the artce n queston was wdey
advertsed and wdey sod as a mouth wash. There was e hbted a carton,
0083 35 14
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Regs. 4 , rt. 30.
408
or bo n whch the ndvdua bottes were sod to the trade. The abe
contans the foowng anguage, whch s sef-e panatory:
powerfu nonposonous antseptc for open wounds, burns, scads and the
hygenc care of mouth and throat. s bactera amost nstanty on
contact.
Mouth Wash, Garge or Throat Spbay : Use fu strength or dute wth
one to three parts of warm water. Odoress, peasant to taste. Use twce
day.
Denta Uses : The use of e yresorcno Souton S. T. 37 after each
brushng of the teeth s recommended.
The ta payer can not bow both hot and cod at the same tme. We fee n
vew of the anguage used above, and the facts geaned from the ora argu-
ment that the ta ed artce was a mouth wash and that t was used for toet
purposes and that t, therefore, does not come wthn one of the e ceptons or
e emptons contaned n the ct. We, therefore, make no further reference
to the other questons so aby dwet upon by counse on both sdes of the case.
udgment may therefore be entered for the defendant n accordance wth
ths opnon.
S CTION 05 O T R NU CT O 1932 ND S CTION 09 O
T R NU CT O 1934. W LRY, TC.
Reguatons 4C, rtce 30: Pears, precous I -5-7293
and semprecous stones, and mtatons S. T. 797
thereof.
Ta abty of saes of damonds n ots.
Secton G05 of the Revenue ct of 1932, as amended by secton 09
of the Revenue ct of 1934, mposes a ta equvaent to 10 per cent
of the prce for whch pears, precous and semprecous stones, and
mtatons thereof are sod by the manufacturer, producer, or m-
porter on or after May 11, 1934, f the seng prce s 25 or more.
In the case of damonds sod n ots, where the average seng
prce per damond s ess than 25 but the seng prce of one or
more of the damonds, f sod separatey, woud be 25 or more, t
was hed n S. T. 745 C. . III-2, 404 that the ta attaches to
the prce for whch the ot s sod, f sod for 25 or more that
the average prce per damond may not be used as the bass for
determnng whether the sae s ta abe and that, under the pro-
vsons of the aw, the separate sae of any damond or damonds for
oss than 25 s not sub|ect to the ta .
Where a number of stones are sod n buk for a ump sum of
25 or more, and one or more of the stones, f sod separatey, woud
h 11 for 25 or more, and one or more of the stones, f sod separatey,
woud se for ess than 25, the ta w attach to the ump sum sae
prce uness the vendor shows on the nvoce as separate and dstnct
tems those stones whch woud se for 25 or more and those whch
woud se for ess than 25, f sod separatey. Where the stones
are nvoced as separate and dstnct tems as ndcated, the ta w
attach ony to the sae of those stones n the ot whch woud se
for 25 or more, f sod separatey. In order to avod the nvocng
of each stone separatey where each stone n the ot woud se for
ess than 25, f sod separatey, a sgned statement n the foowng
form may be aff ed to the nvoce:
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409
Regs. 4 , rt. 53.
I (We) hereby certfy that no one of the stones covered by ths nvoce
woud se for 25 or more f sod separatey.
Where the foregong statement appears on the nvoce, the ta
mposed by secton 05 of the Revenue ct of 1932, as amended by
secton 09 of the Revenue ct of 1934, w not attach.
S CTION 09. SPORTING GOODS.
Reguatons 4 , rtce 53: Scope of ta . I -22-752
S. T.811
Ta abty of certan types of shoes under secton 009 of the
Revenue ct of 1932.
The queston s presented whether certan types of shoes havng
ether rubber soes, one soe of eather and one soe of rubber, comb-
naton of rubber and eather soes, or crepe soes are sub|ect to the
ta on sportng goods mposed by secton 09 of the Revenue ct
of 1932.
That secton mposes a ta upon the sae by the manufacturer, pro-
ducer, or mporter of specfed artces, ncudng certan types of
hoes, and a smar artces commony or commercay known as
sportng goods, equvaent to 10 per centum of the prce for whch
so sod.
rtce 53 of Reguatons 4 reads n part as foows:
The term sportng goods ncudes a artces of the same genera char-
acter as those specfcay named, the purpose of whch s prmary for use
ether ndoors or outdoors n connecton wth a game or sport.
The shoes n queston are manufactured n hgh and o ford styes,
wth ace-to-toe or cosed-toe constructon. Some of them are so
desgned that they can be used for ordnary wear.
It s hed that the foowng types of shoes are artces commony or
commercay known as sportng goods, wthn the meanng of the
aw and reguatons, and are, therefore, ta abe under secton 09:
(1) Rubber soed shoes wth ceats made of rubber or eather, or
otherwse so desgned or constructed as to mt ther use to a specfc
sport.
(2) Shoes constructed wth a ceated or cauked hee and/or soe,
regardess of the matera wth whch soed, normay used as gof
shoes.
(3) Shoes constructed wth one soe of eather and one soe of
rubber, or wth a soe made of a combnaton of rubber and eather,
ordnary used as bowng shoes.
The foowng types of shoes are not consdered artces commony
or commercay known as sportng goods, and are not, therefore,
sub|ect to ta under secton 09:
(1) Rubber soed shoes wth eather or canvas uppers, n ether
hgh or o ford styes, wth ace-to-toe or cosed-toe constructon,
uness they are desgned or constructed wth some feature whch ds-
tngushes them as adapted to a specfc sport.
(2) Ordnary shoes wth rubber or crepe soes but wthout a
ceated or cauked hee and/or soe.
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Regs. 4 , Chap. .
410
S CTION 10. IR RMS, S LLS, ND C RTRIDG S.
Reguatons 4 , Chapter : rearms, shes, I - -729
and cartrdges. T. D. 4521
Chapter of Reguatons 4 , amended.
Treasury Department,
Otce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Chapter of Reguatons 4 , approved une 18, 1932, s hereby
amended to read as foows:
Chapter .
I RMS, S I S, ND C T TDO 8.
Secton 10 of the Revenue ct of 1932.
There s hereby mposed upon frearms, shes, and cartrdges, sod
by the manufacturer, producer, or mporter, a ta equvaent to 10 per
centum of the prce for whch so sod.
nT. 58. Scope of ta . Secton 10 of the Revenue ct of 1932 mposes a ta
on saes by the manufacturer of (1) frearms and (2) shes and cartrdges.
The term frearms as used n the ct ncudes a portabe weapons, such
as rfes, carbnes, machne guns, shotguns, and fowng peces, from whch a
shot, buet, or pro|ecte may be dscharged by an e posve.
The terms shes and cartrdges Incude a combnatons of pro|ecte,
e posve, and contaner whch are desgned, assembed, and ready for use wth-
out further manufacture In portabe frearms, ncudng pstos and revovers.
MPTIONS.
Secton 10 of the ReveDue ct of 1932.
The ta mposed by ths secton sha not appy (1) to
artces sod for the use of the Unted States, any State, Terrtory, or
possesson of the Unted States, any potca subdvson thereof, or the
Dstrct of Coumba, or (2) to pstos and revovers.
Secton 15 of the Natona rearms ct, approved une 2 , 1934.
The ta es Imposed by paragraph (a) of secton 00 of the Revenue
ct of 192 (U. S. C, Supp. II, tte 2 , secton 1120) and by secton
10 of the Revenue ct of 1932 (47 Stat., 1 9, 2 4), sha not appy to
any frearm on whch the ta provded by secton 3 of ths ct has been
pad.
rt. 59. empt saes. The ta does not appy n the case of saes of fre-
arms and cartrdges where such artces are sod for the use of the Unted
States, any State, Terrtory, or possesson of the Unted States, any potca
subdvson thereof, or the Dstrct of Coumba. In order to be e empt from
the ta the artces specfed must be sod for the use of a Government or
governmenta agency. rearms, shes, and cartrdges sod to offcers of a
State or muncpaty n ther prvate capacty or for ther prvate use are not
e empt from the ta .
Saes of pstos and revovers are specfcay e empt from the ta mposed
under secton 10 of the Revenue ct of 1932. but are sub|ect to the ta mposed
under secton 00 of the Revenue ct of 192 , whch remans n effect. (See
Reguatons 47, revsed October, 1928, reatve to e cse ta es on saes by the
manufacturer of pstos and revovers.)
The ta mposed under secton 10 of the Revenue ct of 1932 aso does
not appy n the case of the sae by the manufacturer, producer, or mporter
of any frearm of the type ncuded n the Natona rearms ct f the ta
mposed under the Natona rearms ct as been pad by such manufacturer,
producer, or mporter on such sae.
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411 Regs. 44(1934), rt. 24.
The term possesson of the Unted States ncudes the Phppne Isands,
the Panama Cana Zone, the rgn Isands, Guam, Puerto Rco, Tutua, Wake,
and Pamyra.
ny manufacturer camng e empton from the ta mposed under secton
10 of the Revenue ct of 1932 on saes of frearms, shes, and cartrdges,
(1) for the use of the Unted States, etc., or (2) on saes of frearms on whch
he has pad ta under the Natona rearms ct, must mantan such records
(see artce 9), and be prepared to produce such evdence as w ceary
estabsh the rght to e empton.
rt. 0. Rate of ta . The ta mposed under secton 10 of the Revenue ct
of 1932 s payabe by the manufacturer at the rate of 10 per cent of the sae
prce as outned n artces 8 to 15, ncusve.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ebruary 4, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
S CTION 17, S M ND D Y S CTION 211(b) O T N TION L
INDUSTRI L R CO RY CT ND Y S CTION 03 O T
R NU CT O 1934. G SOLIN .
Reguatons 44(1934) rtce 24: Saes to I -4-7278
States or potca subdvsons thereof and S. T. 79
to the Unted States.
Saes of gasone by the producer or mporter to cooperatve
and sef-hep assocatons recevng edera funds are sub|ect
to ta .
dvce s requested whether saes of gasone by the producer or
mporter to cooperatve and sef-hep assocatons whch receve ad
from the edera mergency Reef dmnstraton are e empt from
the ta mposed by secton 17 of the Revenue ct of 1932, as
amended by secton 211(b) of the Natona Industra Recovery ct
and by secton 03 of the Revenue ct of 1934, on the ground that the
saes are made to governmenta agences of States or potca sub-
dvsons.
rtce 24 of Reguatons 44 (1934) reads n part as foows:
Durng the perod une 21, 1932, to une 30, 1933, both dates
ncusve, a saes of ta abe artces by the manufacturer to States or pot-
ca subdvsons thereof, other than drect saes by the manufacturer for use
n the e erc.se of essenta governmenta functons, are ta abe. On and after
uy 1, 1933, no ta attaches to artces sod by the manufacturer drect, or
for resae by the vendee drect, to a State of the Unted States, or potca
subdvson of such State, for use n the e ercse of an essenta governmenta
functon, f the e empt character of the sae s estabshed as requred by these
reguatons.
Under subdvson (c) of secton 4 of the edera mergency
Reef ct of 1933, the edera dmnstrator s empowered to
ad n assstng cooperatve and sef-hep assocatons for the barter
of goods and servces. The manua of rues and poces con-
cernng sef-hep and nonproft nonstock cooperatves egbe to
edera ad,7 promugated by the edera mergency Reef d-
mnstraton, provdes for edera grants to these organzatons.
Such grants are made on condton that tte to a the property
bought wth edera funds sha be taken n the name of the coop-
eratve and/or sef-hep assocaton and hed to the use and beneft
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Regs. 44(1934), rt. 30. 412
of the edera mergency Reef dmnstraton. Upon approva
by the edera mergency Reef dmnstraton of a request by a
State reef admnstraton for edera funds to estabsh a coop-
eratve or sef-hep assocaton, the funds are forwarded to the State
reef admnstraton to be hed for the specfc purpose of adng the
cooperatve or sef-hep assocaton. The assocatons are prvatey
organzed for the beneft of and are controed by ther members.
It s hed that the cooperatve and/or sef-hep assocatons n
queston are not agences of the States or potca subdvsons but
are organzatons of ndvduas banded together for the purpose
of mutua ad and assstance. ccordngy, saes of gasone by the
producer or mporter to such assocatons are not e empt from the
ta mposed by secton G17 of the Revenue ct of 1932, as amended.
Reguatons 44(1934), rtce 30: Use of terms. I -21-7511
S. T.810
person who bends acoho wth gasone s a producer of
gasone wthn the meanng of secton ( 17 of the Revenue ct of
1932, as amended.
Inqury s made whether a person who bends acoho wth gaso-
ne s a producer of gasone wthn the meanng of secton 17 of
the Revenue ct of 1932, as amended.
The ta mposed by that ct, as amended, attaches to the sae or
use of gasone by the producer or mporter thereof, or by any pro-
ducer of gasone, regardess of when or whether such gasone was
produced by hm. Subdvson (c)(1) of secton G17 provdes that
as used n that secton the term producer ncudes a bender.
Subdvson (c) (2) of that secton, as amended, defnes the term
gasone as meanng certan artces specfed theren, ncudng
any qud used as a fue for the propuson of motor vehces, etc.
rtce 30 of Reguatons 44(1934) reads n part as foows:
The term producer ncudes n refner, compounder, or bender,
md a dener seng gasone e cusvey to producers of gasone, as we as
an actua producer. The term producer aso ncudes any person (not n-
cuded n the precedng sentence) to whom sasone s sod ta free for any
purpose on or after une 21, 1931 , hut such person s consdered a producer
ony wth respect to the gasone purchased ta free.
It s hed that a person who bends acoho wth gasone s a pro-
ducer of gasone wthn the meanng of secton 17 of the Revenue
ct of 1932, as amended, and artce 30 of Reguatons 44(1934), and
s requred to regster and gve bond as provded n artces 8 and 9
of Reguatons 44(1934). s a producer of gasone, he s abe for
the ta on the sae or use of the product, regardess of whether the
gasone content s purchased ta -free or ta -pad from the producer
thereof. Where the gasone content s purchased ta -pad, the ta
pad by the pror producer or producers of the gasone may be
credted aganst the ta due on the sae or use of the bended prod-
uct, provded the evdence outned n artce 84 of Reguatons
44(1934) s submtted.
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413
Regs. 44(1934), rt. 24
Reguatons 44 (1934), rtce 31: Scope of I -19-748
ta . S. T. 807
Where gasone s ost n transt by a ppe ne carrer and the
shpper s ndemnfed by the carrer for the oss, a ta abe sae
does not resut.
The queston s presented whether the ta mposed upon the sae of
gasone by the producer or mporter thereof by secton 17 of the
Revenue ct of 1932, as amended, attaches to gasone ost through
evaporaton eakage, etc., whe n the possesson of a ppe ne car-
rer for devery to the shpper (producer or mporter) at a desg-
nated ppe ne termna, where the shpper s ndemnfed by the
carrer for such oss.
When the gasone s tendered by the producer or mporter thereof
to the ppe ne carrer for transportaton and devery to the pro-
ducer or mporter at a desgnated ppe ne termna, the gasone s
gauged and tested by the ppe ne carrer n ts tanks pror to
acceptance for transportaton. The ppe ne carrer undertakes to
dever to the shpper the entre amount of gasone so accepted. Due
to osses through evaporaton, eakage, etc., whe n ts possesson,
the ppe ne carrer s unabe to dever the entre quantty of gaso-
ne accepted for transportaton. t the end of each month the
ppe ne carrer determnes the amount of gasone so ost and
ndemnfes the shpper for the oss.
It s hed that the transacton between the producer or mporter
(shpper) and the ppe ne carrer whereby the shpper s ndemn-
fed for the oss does not consttute a sae of gasone wthn the
meanng of secton 17 of the Revenue ct of 1932, as amended.
S CTION 20 O T R NU CT O 1932, S M ND D Y
T CT O UN 1 , 1933 (PU LIC, NO. 73, S NTY-T IRD
CONGR SS). T - R S L S.
Reguatons 44(1934), rtce 24: Saes to I -2-724
States or potca subdvsons thereof and S. T. 795
to the Unted States.
Ta abty of saes of artces to a State for the use of the
Natona Guard.
dvce s requested whether saes of artces to a State for the use
of the Natona Guard are sub|ect to the ta es mposed by Tte I
of the Revenue ct of 1932.
Secton 20 of the Revenue ct of 1932, effectve une 21, 1932,
as amended by the ct of une 1 , 1933 (Pubc, No. 73, Seventy-
thrd Congress), effectve uy 1,1933, provdes n part as foows:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tte sha be mposed wth respect to the sae of
any artce

(3) or resae by the vendee to a State or potca subdvson thereof for
use In the e ercse of an essenta governmenta functon, f such artce Is n
due course so resod.
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Regs. 44(1934), rt. 24. 414
rtce 24 of Reguatons 44 (1934) reads n part as foows:
Durng the perod une 21, 1932, to une 30, 1033, both dates
Incusve, a saes of ta abe artces by the manufacturer to States or potca
subdvsons thereof, other than drect saes by the manufacturer for use n
the e ercse of essenta governmenta functons, are ta abe. On and after
uy 1, 1933, no ta attaches to artces sod by the manufacturer drect, or for
resae by the vendee drect, to a State of the Unted Sates, or potca subd-
vson of such State, for use n the e ercse of an essenta governmenta func-
ton, f the e empt character of the sae s estabshed as requred by these
reguatons. rtces sod by the manufacturer, whether drect to or for resae
to a State or potca subdvson thereof, for use n the e ercse of any func-
ton other than one essentay governmenta, are ta abe. The manufacturer
camng the e empton must estabsh by competent evdence that the artces
are actuay purchased for use n the e ercse of an essenta governmenta
functon.
The mantenance of the Natona Guard consttutes the e ercse
by the State of an essenta governmenta functon. ccordngy,
upon compance wth the above-quoted provsons of the aw and reg-
uatons, saes of artces to a State for the use of the Natona Guard
are e empt from the ta es mposed by Tte I of the Revenue ct
of 1932.
Reguatons 44(1934), rtce 24: Saes to I -8-7333
States or potca subdvsons thereof and S. T. 798
to the Unted States.
( so rtce 17, Reguatons 4 .)
Ta abty of saes of artces to a State or potca subdvson
thereof for use by the State emergency reef admnstraton.
dvce s requested whether saes of artces to a State or potca
subdvson thereof for use n connecton wth the actvtes of the
State emergency reef admnstraton are sub|ect to the ta es m-
posed by Tte I of the Revenue ct of 1932, as amended.
Wth the e cepton of the States of North Dakota and Massachu-
setts, and the State of Okahoma pror to ebruary 15, 1935 (on
whch date that State assumed the admnstraton of emergency reef
work), State emergency reef admnstratons are agences of the
severa States or potca subdvsons. unds are furnshed to
these agences by the edera mergency Reef dmnstraton,
whch are used n connecton wth actvtes whch consttute essenta
governmenta functons.
Wth respect to saes of artces covered by Tte I of the Rev-
enue ct of 1932, secton 20 of that ct, as amended by the ct
of une 1 , 1933 (Pubc, No. 73, Seventy-thrd Congress), provdes
n part as foows:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tte sha be mposed wth respect to the sae of
any artce

(3) or resae by the vendee to a State or potca subdvson thereof for
use n the e ercse of an essenta governmenta functon, f such artce Is n
due course so resod.
rtce 24 of Reguatons 44, revsed September, 1934, reads n
part as foows:
Durng the perod une 21, 1932, to une 30, 1933, both dates
Incusve, a saes of ta abe artces by the manufacturer to States or potca
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415
Regs. 44(1934), rt. 24.
subdvsons thereof, other than drect saes by the manufacturer for use n the
e ercse of essenta governmenta functons, are ta abe. On and after uy
1, 1933, no ta attaches to artces sod by the manufacturer drect, or for
resae by the vendee drect, to a State of the Unted States, or potca subdv-
son of such State, for use n the e ercse of an essenta governmenta func-
ton, f the e empt character of the sae s estabshed as requred by these
reguatons. rtces sod by the manufacturer, whether drect to or for resae
to a State or potca subdvson thereof, for use n the e ercse of any functon
other than one essentay governmenta, are ta abe. The manufacturer cam-
ng the e empton must estabsh by competent evdence that the artces are
actuay purchased for use n the e ercse of an essenta governmenta functon.
Under the provsons of the aw and reguatons, saes (by the
manufacturer drect, or on or after uy 1, 1933, by the manufacturer
through not more than one ntervenng vendee) of artces enumerated
n Tte I of the Revenue ct of 1932, as amended, to a State or a
potca subdvson thereof (e cept the States of North Dakota and
Massachusetts, and the State of Okahoma pror to ebruary 15,
1935) for use n connecton wth the e ercse of essenta govern-
menta functons by the State emergency reef admnstraton are
e empt from the ta es mposed by Tte I . Saes by the manu-
facturer of artces covered by Tte I to the edera mergency
Reef dmnstraton for use n the States of North Dakota and
Massachusetts, and n the State of Okahoma pror to ebruary 15,
1935, are ta abe as saes to a edera agency, regardess of the
purposes for whch the artces are used.
Reguatons 44(1934), rtce 24: Saes to I -15-7428
States or potca subdvsons thereof and S. T. 801
to the Unted States.
Ta abty of sa es of ubrcatng o and gasone to a State or
potca subdvson thereof for use n the constructon and/or
mantenance of a commerca arport.
Inqury s made whether saes of ubrcatng o and gasone to a
State or potca subdvson thereof for use n the constructon
and/or mantenance of a commerca arport are ta abe.
Under the provsons of secton 20 of the Revenue ct of 1932,
as amended by the ct of une 1 , 1933 (Pubc, No. 73, Seventy-
thrd Congress), and under artce 24 of Reguatons 44 (1934),
saes made by the manufacturer drect at any tme, or saes made
on or after uy 1, 1933, by the manufacturer through not more
than one ntervenng vendee, of artces enumerated n Tte I of
the Revenue ct of 1932, as amended, to a State or a potca sub-
dvson thereof for use n the e ercse of an essenta governmenta
functon are e empt from the ta es mposed by Tte I .
It s hed that the constructon and/or mantenance of a commer-
ca arport by a State or potca subdvson thereof does not con-
sttute the e ercse of an essenta governmenta functon wthn the
meanng of secton 20, as amended. ccordngy, saes of ubrcat-
ng o and gasone to a State or potca subdvson thereof for
such use are not e empt from the ta es mposed by sectons 01 (c)
and 17 of the Revenue ct of 1932, as amended.
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Regs. 44(1934), rt. 24.
41
Reguatons 44 (1934) rtce 24: Saes to I -20-7500
States or potca subdvsons thereof and S. T. 809
to the Unted States.
( so rtce 17, Reguatons 4 .)
Saes of artces enumerated In Tte I of the Revenue ct of
1932, as amended, to the edera mergency Reef dmnstraton
for use n reef work n a State are ta abe.
Where the edera mergency Reef dmnstraton assumes
compete contro of the admnstraton of reef n a State, saes
made to t on and after the effectve date of such contro by the
manufacturer, producer, or mporter of artces enumerated n Tte
I of the Revenue ct of 1932, as amended, are ta abe, regardess
of the purpose for whch the artces are to be used.
Reguatons 44(1934), rtce 24: Saes to I -19-7485
States or potca subdvsons thereof and S. T. 80
to the Unted States.
( so rtce 17, Reguatons 4 .)
Saes of artces to a State or potca subdvson for use n the
constructon by t of sewers or other nstrumentates empoyed
n the e ercse of an essenta governmenta functon are not sub-
|ect to the ta es mposed by Tte I of the Revenue ct of 1932,
as amended.
dvce s requested whether saes of artces enumerated n Tte
I of the Revenue ct of 1932 to a State or potca subdvson
thereof for use n the constructon by t of sewers or other nstru-
mentates empoyed n the e ercse of an essenta governmenta
functon are e empt from ta .
Under the provsons of artce 24 of Reguatons 44(1934), saes
(by the manufacturer drect, or on or after uy 1, 1933, by the
manufacturer through not more than one ntervenng vendee) of
artces enumerated n Tte I of the Revenue ct of 1932, as
amended, to a State or potca subdvson thereof for use n the
e ercse of an essenta governmenta functon are e empt from the
ta es mposed by Tte I .
Certan operatons carred on by a State or potca subdvson
consttute the e ercse of essenta governmenta functons. (See
generay Mm. 3838, C. . I -2, 137.) So far as the e ercse of
an essenta governmenta functon s concerned, there s no matera
dfference between the operaton of a governmenta nstrumentaty
and the constructon thereof by a State or potca subdvson.
oth transactons are essentay governmenta n ther scope.
Where the State or potca subdvson does the constructon work,
t s merey e ercsng ts rght to provde the means by whch t w
carry out ts essenta governmenta powers. ccordngy, t s hed
that saes of artces enumerated n Tte I of the Revenue ct of
1932 to a State or potca subdvson thereof for use n the con-
structon by t of sewers or other nstrumentates empoyed n the
e ercse of an essenta governmenta functon, when made by the
manufacturer drect, or on or after uy 1, 1933, by the manufac-
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417
Regs. 44 and 4 .
turer through not more than one ntervenng vendee, are not sub|ect
to the ta es mposed by Tte I of the Revenue ct of 1932, f the
e empt character of the sae s estabshed as requred by artce 24
of Reguatons 44 (1934).
Reguatons 44 and 4 . I -15-7427
G. C. M. 1452(5
Saes by a subsdary on or after une 21, 1932, of artces sub|ect
to ta under Tte I of the Revenue ct of 1932 whch were ac-
qured from the manufacturer (parent corporaton) shorty before
that date by a coorabe sae are ta abe as saes by the manu-
facturer.
n opnon s requested whether saes by a subsdary on or after
une 21, 1932, of artces enumerated n Tte I of the Revenue ct
of 1932, whch were acqured shorty before that date from the
parent corporaton, the manufacturer, under the crcumstances here-
nafter stated, shoud be ta ed as saes by the manufacturer.
The ta es under Tte I of the Revenue ct of 1932 are mposed
upon the sae of certan artces by the manufacturer, producer, or
mporter on or after une 21, 1932.
The M Company, the parent corporaton, for a number of years
pror to une, 1932, was engaged n the manufacture of certan art-
ces enumerated n Tte I of the Revenue ct of 1932. of ts
capta stock was owned by and , presdent and secretary, respec-
tvey. Shorty before une 21, 1932, and caused to be ncor-
porated the N Company, a the capta stock of whch was ssued
to and , presdent and treasurer, respectvey. On the same day
the N Company was ncorporated, the M Company transferred to t
practcay ts entre stock of goods whch had been manufactured
by the M Company. The sae was made on open account for a sum
greaty n e cess of the assets of the N Company, whch conssted
soey of a sma amount of cash pad n by and for ts capta
stock. The N Company on and after une 21, 1932, sod the goods
so acqured. The M Company s offce space and saes force were
used n part by the N Company. The N Company mantaned ts
own books of account and bank account and made coectons n ts
own name. t a tmes both corporatons were under the absoute
contro of and .
It s obvous from the record n the case that the foregong pan
was e ecuted for the soe purpose of escapng ta abty on the
sae of the goods n queston by the N Company, after the effectve
date of the ct, to the customers of the M Company and that t was
not ntended that the N Company shoud make a bona fde purchase
of the stock of merchandse from the M Company.
The sae was entrey artfca. If there had been no queston of
ta abty nvoved, the transacton undoubtedy woud not have
been consummated. The entre scheme was a coorabe sham and
not a bona fde transacton effected n the norma and usua conduct
of the busness of the companes nvoved.
The statute mposes a ta on the sae of certan artces by the
manufacturer, producer, or mporter. The statute shoud not be
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Regs. 44 and 4 .
418
construed wth superfca regard for ts anguage and wthout
proper consderaton for ts true ntent and purpose. In other
words, the saes ta abe under the aw are bona fde saes. Where a
transacton s not n the norma and ordnary course of busness, but
s adopted as an arrangement to avod ta es, as n the nstant case,
the character and substance of the rea transacton (not the mere
form) must be ascertaned and the ta must be eved on the rea and
not a fcttous bass. so, where such a transacton s entered nto
wth a subsdary corporaton (whose entre capta stock s owned
by the same persons or nterests that own a the stock of the parent
corporaton) for no other purpose than to crcumvent the statute and
avod ta aton, the subsdary, even though a separate ega entty,
w be deemed to be a mere agency or nstrumentaty of the parent
corporaton.
It s evdent n the nstant case that the N Company was used by
the M Company as an agent to assst n crcumventng the ta ng
statutes and that nothng ese was contempated. Snce n the ad-
mnstraton of the ta ng statutes regard must be had for the sub-
stance rather than the form, t s the opnon of ths offce that saes
of the goods n queston by the N Company on or after une 21,1932,
were n effect saes made by that company as the agent of the M
Company, the manufacturer, and, therefore, are ta abe under Tte
I of the evenue ct of 1932.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
Reguatons 44 and 4 . I -17-7458
S. T. 804
Saes by a subsdary on or after une 21, 1932, of artces
sub|ect to ta under Tte I of the Revenue ct of 1932 whch
were acqured from the manufacturer (parent corporaton) shorty
before that date by coorabe saes are ta abe as saes by the
manufacturer.
dvce s requested whether saes by a subsdary on or after
une 21, 1932, of artces enumerated n Tte I of the Revenue
ct of 1932, whch were acqured shorty before that date from
the parent corporaton, the manufacturer, under the crcumstances
herenafter stated, shoud be ta ed as saes by the manufacturer.
The ta es under Tte I of the Revenue ct of 1932 are mposed
upon the sae of certan artces by the manufacturer, producer, or
mporter on or after une 21,1932.
The M Company, the parent corporaton, for a number of years
pror to une, 1932, was engaged n the manufacture of certan
artces enumerated n Tte I of the Revenue ct of 1932. Shorty
before une 21, 1932, the M Company entered nto two contracts
wth the N Company, a subsdary. Under the frst contract, the
M Company sod and transferred to the N Company for a nomna
consderaton a property and equpment used n certan stores
operated by the M Company. The M Company aso assgned to the
N Company a eases, saes, and other contracts pertanng to the
operaton and mantenance of the stores, and the N Company assumed
G
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419 Regs. 44(1934), rt. 28.
a of the obgatons connected therewth. The second contract
was n the form of a b of sae by whch the M Company sod to
the N Company, at cost pus per cent, a of the manufactured
artces owned by the M Company. The contract aso provded for
the sae and transfer by the M Company to the N Company of a
ke artces manufactured and/or acqured by the M Company on or
after the date of the contracts. On the effectve date of the Revenue
ct of 1932, an addtona contract was e ecuted whereby the fore-
gong contracts were rescnded. Ths contract provded for the con-
sgnment by the M Company to the N Company for sae by the atter
company of certan ta abe artces, tte to reman n the M Company
unt sae by the N Company. Ths contract covered the consgnment
by the M Company to the N Company of ony such artces as were
manufactured on or after une 21, 1932. of the foregong
contracts were sgned by , the vce presdent of the M Company,
and by , the vce presdent of the N Company, and were performed
substantay n accordance wth ther terms. bookkeepng
nvoved n these ntercompany transactons was done by an offcer of
the M Company who aone had knowedge of the e act reatve status
of the respectve companes. The affars of the N Company were
controed by the M Company through one of ts prncpa offcers.
The underyng facts n ths case are substantay the same as those
consdered n G. C. M. 1452 (page 417, ths uetn). In that case
the subsdary to whch the ta abe artces were transferred was
formed as the seng agency of the manufacturer |ust before the
Revenue ct of 1932 became effectve, whereas n the nstant case
the subsdary whch acted as the seng agency had been n e stence
for severa years pror to the passage of that ct. owever, the
prncpe formng the bass of that rung s aso appcabe to the
facts here nvoved. In both cases the crcumstances warrant tho
concuson that the subsdary was not actng ndependenty n mak-
ng saes but operated as the seng agent of the parent organza-
ton, the manufacturer. ccordngy, t s hed that, for reasons sub-
stantay the same as those emboded n G. C. M. 1452 , supra, the
saes of the artces n queston made by the subsdary on and after
the effectve date of the Revenue ct of 1932 are ta abe under the
provsons of Tte I of that ct as saes made by the manufacturer.
TITL I O T R NU CT O 1932, S M ND D
Y S CTION 5 O T CT O UN 1 , 1933 (PU LIC,
NO. 73, S NTY-T IRD CONGR SS). M NU CTUR-
RS CIS T S.
S CTION 30. MPTION ROM T O C RT IN
SUPPLI S OR SS LS.
Reguatons 44 (1934), rtce 28: empton I -15-7429
of certan suppes for certan vesses. S. T. 802
Ta abty of saes of ubrcatng o and gasone by the manu-
facturer for use n arpanes whch are a part of the egtmate
equpment of vesses of war of the Unted States.
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Regs. 43, rt. 10.
420
Inqury s made whether saes of ubrcatng o and gasone for
use n arpanes whch consttute a part of the egtmate equpment
of vesses of war of the Unted States are sub|ect to ta under secton
01 (c of the Revenue ct of 1932, as amended, and secton 17 of
that ct, as amended, respectvey.
Secton 30 of the Revenue ct of 1932, as added to Tte I of
that ct by secton 5 of the ct of une 1 , 1933 (Pubc, No. 73,
Seventy-thrd Congress), provdes n part as foows:
Under reguatons prescrbed by the Commssoner, wth the approva of the
Secretary, no ta under ths tte sha be mposed upon any artce sod for
use as fue suppes, shps stores, sea stores or egtmate equpment on vesses
of war of the Unted States .
Where the arpanes consttute a part of the egtmate equpment
of vesses of war of the Unted States, saes of ubrcatng o and
gasone by the manufacturer thereof for use n such arpanes are
hed to be saes for use as shps stores on vesses of war of the Unted
States, wthn the meanng of secton 30 of the Revenue ct of
1932, as added by secton 5 of the ct of une 1 , 1933, supra. Such
saes are, therefore, e empt from the ta es mposed by secton
01(c) 1 of the Revenue ct of 1932, as amended, and secton 17 of
that ct, as amended, when made n accordance wth the provsons
of artce 28 of Reguatons 44 (revsed September, 1934).
Saes of ubrcatng o and gasone for use n Navy arpanes
assgned to shore duty or statons are not wthn the specfc e emp-
ton and are, therefore, ta abe.
TITL . DMISSIONS ND DU S. (192 )
S CTION 500(a) O T R NU CT O 192 , S M ND D Y
S CTION 411(a) O T R NU CT O 1928 ND Y S CTION
711(a) O T R NU CT O 1932 ND S CTION 500(a)5 O
T R NU CT O 192 . DMISSIONS.
Reguatons 43, rtce 10: ass, rate, and I -11-7374
computaton of ta . S. T. 799
( so rtce 1.)
Computaton of ta on admssons to cabarets, etc. S. T. T2
s modfed.
Where a mnmum charge for entertanment, and/or refreshment,
servce, or merchandse s made for each person admtted to a
cabaret, etc., and each person s entted to order refreshment, serv-
ce, or merchandse totang the mnmum charge, such charge s
not ta abe under secton 500(a) 1 of the Revenue ct of 192 , as
amended, as an amount pad for admsson, but shoud be ncuded
n the tota b n computng the cabaret ta under secton
500(a)5 of the Revenue ct of 192 .
S. T. 72 (C. . III-1, 431) s modfed accordngy.
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421
Regs. 43, rt. 37.
S CTION 501 O T R NU CT O 192 , S M ND D Y
S CTION 413 O T R NU CT O 1928.
Reguatons 43, rtce 37: thetc or I -13-7405
sportng cubs. Ct. D. 942
T ON DU S R NU CTS O 102 ND 1928 D CISION O COURT.
Soca, thetc, ob Sportng Cub Character of Organzaton.
Where a corporaton was organzed to construct, own, and oper-
ate a gof cub for the use and beneft of the genera pubc and
to operate a restaurant, ocker rooms, garage, and amusements In
connecton therewth, and where the payng members, mted
n number, formed a dstnct cass by themseves to en|oy the
speca prveges and factes of the gof course (whch were not
avaabe to the genera pubc) and aso stood n a dstnct reaton
to each other und sub|ected themseves to rues and reguatons
affectng the use of the course, the sportng features were not
merey ncdenta, but absoutey essenta, to the e stence of the
cub, and under the facts shown the organzaton s a soca,
athetc, or sportng cub whose ntaton fees and dues are
ta abe.
Coukt of Cams of the Unted States.
unker Country Cub, a Corporaton, v. The Unted States.
December 3, 1034.
opnon.
Green, udge, devered the opnon of the court.
Ths s an acton to recover the sum of 22,944 wth nterest, the prncpa
sum beng the amount pad by pantff from May 31, 1927, to December 31,
1930, as a ta on ntaton fees and dues, and for whch a cam of refund
was fed and re|ected.
The facts estabshed by the evdence are dfferent from those n any other
ease that we have had before us, and, so far as we know, from those con-
sdered by any other court. The ssue to be determned s new, athough
t s qute key that smar facts e st n many nstances where no ega
controversy has arsen.
The pantff s a corporaton organzed under the statute of Inos n
reaton to corporatons for pecunary proft. The decared purpose of ths
organzaton was to construct, own, and operate a gof cub for the use and
beneft of the pubc generay, aso to operate a cubhouse restaurant, ocker
rooms, and garage n connecton therewth, and to conduct amusement enter-
prses n a of the branches pertanng thereto. The provsons of ts numerous
by-aws so far as matera to a decson of the case are set out n fndng 2
and w be summarzed further on n ths opnon.
It s contended on behaf of pantff that athough t bore the name of a
cub, the corporaton was not n fact a cub, but merey a proft-seekng
concern. Ths Is true f we consder the corporaton n the abstract and
the corporate entty by tsef and aone, but ths fact does not sette the
case. The ta s not upon the corporaton, but, as we sad n effect n Congres-
sona Country Cub v. Unted States (71 C. Cs., 1 1, 44 ed. (2d), 2 (5), upon
a prvege, and t appes to dues or membershp fees requred of the members
of a cub or organzaton. We need not determne whether there was a cub
n the strct sense of the term as t s suffcent f there was an organzaton
and upon that pont we thnk the evdence eaves no doubt. It s not easy
to make a comprehensve and e act defnton of the words organze and
organzaton. ven the dctonary gves us defntons ony n very genera
terms, and we sha not attempt to defne the words. Yet we have no doubt
that there was an organzaton as the term s generay understood and as
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Regs. 43, rt. 37.
422
Congress Intended to use It. The puyng members formed a dstnct cass by
themseves separate from te genera pubc who had no rght to use the gof
course or any of ts factes or any other rght pertanng thereto. They
aso stood n a dstnct reaton to each other and made themseves sub|ect to
rues and reguatons affectng the use of the gof course. They had the
speca prvege of usng the gof course whch was made the more vauabe
by mtng the membershp to 300 members wth the obvous purpose that
the gof course shoud not be overcrowded. The presdent, ndresen, ap-
ponted a membershp commttee from the payng members whch under
the by-aws as amended w s charged wth Ihe duty of passng on the appca-
tons for membershp, but ndresen seems to have argey controed the
matter. It was n fact an e cusve cub or organzaton, athough not so
e cusve as some. The fact that the payng members sedom or never e -
ercsed a of ther rghts and prveges s mmatera. They were assocated
together for the common purpose of engagng n a sport wth speca prv-
eges and factes whch made ts e ercse more agreeabe. The fact that
they had no property rghts n connecton wth the corporaton does not
affect the queston now before us.
It must aso be sad that the sportng features connected wth the cub
were not merey ncdenta but were absoutey essenta to the e stence of
the cub and the by-aws or reguatons to whch the payng members sub-
mtted themseves were necessary to make t attractve.
Under a of the crcumstances rected above, we are cear that the dues
and ntaton fees n queston were ta abe and that as pantff coected
them t was abe for the ta .
It mght aso be sad that whe there s no evdence of any purpose to evade
ta aton n (e pan and scheme under whch the cub was operated, f pan-
tff s contenton shoud be sustaned t woud seem that the pan adopted
afforded an easy method of escapng the ta .
It foows that pantff s petton must be dsmssed, and t s so ordered.
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C PIT L STOC T RULINGS.
TITL . C PIT L STOC ND C SS-PRO ITS T S.
(1934)
Reguatons G4, rtce 3: d|usted decared I -22-7527
vaue. T. D. 4552
d|usted decared vaue foregn corporatons. rtce 3 of
Reguatons 4, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 3 of Reguatons 4, approved ugust 27, 1934, s hereby
amended by emnatng paragraph (b) appearng under that artce
and substtutng therefor the foowng:
( ) Year subsequent to frst ta abe year. The ad|usted decared vaue for
the ta abe year foowng the frst ta abe year s the orgna decared vaue
ad|usted to refect the ncreases or decreases n the capta empoyed u the
transacton of busness n the Unted States. The ad|ustments whch are to
be made must reect the changes takng pace durng the ncome-ta ta abe year
endng at or pror to the cose of the ta abe year. or e ampe: foregn
corporaton, whch makes ts edera ncome ta returns on a caendar year
bass, fed a capta stock ta return for the ta abe year ended une 30, 1934,
and decared the vaue of ts capta empoyed n the transacton of ts busness
n the Unted States as of December 31, 1933. To ths vaue ad|ustments must
be made to refect the changes takng pace durng the year ended December 31,
1934. The net amount w consttute the ad|usted decared vaue on whch w
be computed the capta stock ta for the ta abe year endng une 30, 1935.
Ths ad|usted decared vaue, to the e tent that t s true and correct, w
consttute the base for computng the ad|usted decared vaue for the ta abe
year endng une 30, 193 .
Ordnary and uness the crcumstances of the case requre otherwse, the
ad|ustment sha be made on the bass of the vaues dscosed by the books of
account and records. In makng the ad|ustment, transtory capta sha be
consdered separatey from the nontranstory or a other capta. or ths
purpose, transtory capta means tangbe persona property, such as a shp,
tran, motor bus, or other means of conveyance, empoyed n the reguar operaton
of transportaton servces between ponts n the Unted States and ponts out-
sde the Unted States. The term does not ncude such assets wthn the Unted
States as workng capta (cash, nventores, etc.) or equpment used normay at
termna ponts, such as machnery for oadng and unoadng, or tugboats for
towng, etc.
d|ustment of the nontranstory or a other capta, sha be made wthout
any proraton, whether because of a tme factor or otherwse, on the bass of the
ncrease or decrease durng the appcabe ncome-ta ta abe year of the gross
assets n the Unted States. or e ampe, f at the end of the appcabe ncome-
ta ta abe year the amount of the gross assets n the Unted States e ceeds the
amount thereof at the begnnng of such year, the amount of the e cess sha be
adde as the ncrease of the nontranstory capta. If, nstead, the amount of
the gross assets n the Unted States at the end of the appcabe ncome-ta
(423)
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701.
424
ta abe year was ess than the amount at the begnnng of such year, the amount
of the reducton sha be deducted as the decrease of the nontranstory capta.
d|ustment of the transtory capta sha be made for the foowng ncreases
and decreases:
(1) n addton or a deducton, as the case may be, sha be made for the
proportonate vaue of each unt added to or defntey wthdrawn from the
transtory capta. or e ampe, f durng the appcabe ncome-ta ta abe
year a shp havng a vaue of 1,000,000 s entered n the servce of the busness
n the Unted States under a schedue whch w normay requre that one-ffth
of ts tme be spent wthn the terrtora mts of the Unted States, one-ffth of
the vaue of such shp ( 200,000) sha be added to refect the resutant ncrease
n the transtory capta. If, nstead, such a shp had been n the servce ot
the busness n the Unted States and was defntey wthdrawn therefrom durng
the appcabe ncome-ta ta abe year, a deducton of 200,000 shoud be made
to refect the resutant decrease n the transtory capta.
(2) n addton or a deducton, as the case may be, sha be made for the
ncrease or decrease n the proportonate vaue of each unt of transtory
capta whch by reason of a change durng the appcabe ncome-ta ta abe
year becomes empoyed n the transacton of busness n the Unted States
or a greater or esser perod than pror to such change. or e ampe, f on
the bass of a schedue requrng that one-ffth of ts tme be spent wthn the
terrtora mts of the Unted States 200,000 represents the proportonate
vaue of a shp worth 1,000,000 empoyed n the transacton of busness n the
Unted States, and f durng the appcabe ncome-ta ta abe year a change
n schedue s made so that the tme spent wthn Unted States terrtora mts
becomes ncreased to one-fourth, an addton of 50,000 sha be made to refect
the ncrease of the proportonate vaue of such shp from 200,000 to 250,000.
If, nstead, the schedue had been changed so that ony one-tenth of the tme
woud be spent wthn the terrtora mts of the Unted States, a deducton o
100,000 shoud be made to refect the decrease of the proportonate vaue of
the shp from 200,000 to 100,000.
The sum of the transtory capta and the nontranstory or a other capta,
both ad|usted as above outned, sha consttute the ad|usted decared vaue
for the ta abe year. Such vaue, to the e tent that It s true and correct, w
consttute the base for computng the ad|usted decared vaue for the succeedng
ta abe year.
(c) ppcaton for permsson to make the ad|ustment on the bass of some
other method w be consdered by the Commssoner n the case of any foregn
corporaton, where by reason of the facts and crcumstances n the partcuar
case the method prescrbed n paragraph ( ) w not fary refect the changes
In the capta empoyed n the transacton of ts busness n the Unted States,
and where, n good fath and unaffected by consderatons of ta abty, the
corporaton desres to make the ad|ustment on the bass of such other method.
In such case the appcaton shoud be made n the form of an affdavt settng
forth a the facts and contanng a fu e panaton of the method sought to
be used.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 23, 1935.
T. . COOLIDG ,
ctng Secretary of the Treasury.
S CTION 701. C PIT L STOC T .
Secton 701.
revenue act of 1934.
eguatons wth respect to the use of orgna returns and fur-
nshng copes of returns. (See T. D. 4504, page 8 .)
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MISC LL N OUS T RULINGS.
TITL . MISC LL N OUS T S. (1932)
SC DUL -3 O TITL III O T R NU CT O 192 , S
M ND D Y S CTION 723 O T R NU CT O 1932.
Reguatons 71, rtce 35: Saes or trans- I -17-7459
fers not sub|ect to ta . S. T. 805
Transfer of stock from the name of a guardan to the name of the
ward In Pennsyvana s not sub|ect to stamp ta .
dvce s requested whether the transfer of stock from the name
of a guardan for a mnor to the name of the ward upon the atter
becomng of age, both beng resdents of Pennsyvana, s sub|ect to
the stamp ta mposed by Schedue -3 of Tte III of the Revenue
ct of 192 , as amended by secton 723 of the Revenue ct of 1932,
upon the sae or transfer of ega tte to shares or certfcates of
stock.
The ta abty of the transfer of stock from the name of a guard-
an for a mnor to the name of the ward upon the atter becomng of
age depends upon whether, under the aws of the |ursdcton, ega
tte to the stock remaned n the ward or vested n the guardan at
the tme of hs appontment. (MS. 42, C. . I -1, 338.) If under
the aws of the |ursdcton ega tte to the stock remaned n the
ward, there s no transfer of ega tte when the stock s transferred
from the name of the guardan to the name of the ward upon the
atter reachng hs ma|orty.
There appears to be no Pennsyvana statute specfcay appcabe
to the queston. The supreme court of that State has hed, however,
that ega tte to personaty, such as stocks, etc., s n the ward and
not n the guardan. rsbane v. arrwbvrg ank, 4 Watts, 92.)
In vew of the foregong, t s hed that the transfer of stock from
the name of the guardan to the name of the ward n the nstant
case does not effect any transfer of ega tte and, consequenty, s
not sub|ect to stamp ta .
Reguatons 71, rtce 35: Saes or trans- I -25-755
fers not sub|ect to ta . S. T. 813
Transfers of stock from the name of a guardan to the name
of the ward n Oho, Mssour, North Carona, and the Dstrct
of Coumba are not sub|ect to stamp ta .
dvce s requested whether the transfer of stock from the name
of a guardan to the name of the ward under the crcumstances set
forth herenafter s sub|ect to the stamp ta mposed by Schedue
(425)
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Regs. 71, rt. 35.
42
-3 of Tte III of the evenue ct of 192 , as amended by sec-
ton 723 of the Revenue ct of 1932.
That ct mposes a stamp ta on a transfers of ega tte to
shares or certfcates of corporate stock. In a such cases the ta s
eved on the act of transfer. Goodyear Tre Rubber Go. v.
Unted States, 273 U. S., 100.)
The transactons under consderaton are as foows:
(1) Transfer of stock from the name of a guardan of a mnor
to the name of the mnor upon the atter becomng of age, both beng
resdents of Oho.
(2) Transfer of stock from the name of a guardan of the estate
of an nsane person to the name of the ward upon the atter ben
decared sane, and transfer of stock from the name of a curator or
a mnor s estate to the name of the mnor upon the atter becomng
of age, a of the partes beng resdents of Mssour.
(3) Transfer of stock from the name of a guardan for a mnor
to the name of the ward, the guardan and ward beng resdents of
North Carona or the Dstrct of Coumba.
The ta abty of the transfer of stock n such cases depends upon
whether, under the aws of the |ursdcton, ega tte to the stock
remaned n the ward or vested n the guardan at the tme of hs
appontment. (MS. 42, C. . I -1, 338.) If under the aws of the
|ursdcton ega tte to the stock remaned n the ward, there s no
transfer of ega tte when the stock s transferred from the name of
the guardan to the name of the ward. (S. T. 805, page 425, ths
uetn.)
The decsons of the Oho courts ndcate that the genera rue
that a guardan does not have tte to hs ward s (mnor s) estate pre-
vas n that State. (State v. Commssoner s, 39 Oho St., 58, 2
Mack v. rammer, 28 Oho St., 509.) Ths vew was uphed n
Toedo Tracton Co. v. Cameron (137 ed., 48, 52), wheren the court
sad:
The guardan s a mere protector of the pantff s a mnor s
nterest, dfferng n ths respect from an admnstrator or trustee n whom
the ega tte s vested.
The courts of Mssour have hed that the guardan of an nsane
person does not take tte to the property of hs ward. (Gbson v.
Sku, 251 Mo., 480, 158 S. W., 322 Redmond v. uncy, etc., R. Co.,
225 Mo., 721, 12 S. W., 159 Webb v. ayden, 1 Mo., 39, 5 S. W.,
7 0.) In Webb v. ayden, supra, the court sad n part :
curator can not, n hs own name as such, mantan a sut to re-
cover money or property due or beongng to hs ward. In ths respect a curator
dffers from an admnstrator. Tte to the persona property of an ntestate s
estate vests n the admnstrator . ut no tte vests n a curator.
e has ony the care and management of hs ward s property. The tte s n
the ward.
Tte to persona property of a mnor does not vest n hs guardan
or curator. (Seert v. Mc nay, 223 Mo., 505, 122 S. W., 10 4.)
In Cross v. Craven (120 N. O, 331, 2 S. ., 940), t was hed that
a guardan docs not hod ega tte to the rea estate of hs ward.
Whe ths decson does not reate specfcay to persona property,
t does not appear to be mted n ts appcaton to rea property.
The decson apparenty s based upon the court s concepton of the
common aw rue as to the ownershp of property generay n North
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427
Regs. 71, rt. 84.
Carona, and, therefore, may be regarded as statng the rue app-
cabe n that State to both rea and persona property.
In the Dstrct of Coumba, the guardan has nether the rght
nor the tte n the premses wth respect to ether persona or rea
property. The atmore c Potomac Raroad Co. v. Tayor,
pp. D. C.,259.)
Inasmuch as the transfers n queston were merey nomna and
wthout any transfer of ega tte, none of them s sub|ect to stamp
ta under the provsons of Schedue -3 of Tte III of the Reve-
nue ct of 192 , as amended bv secton 723 of the Revenue ct of
1932.
SC DUL -8 O TITL III O T R NU CT O 192 , S
DD D Y S CTION 725 O T R NU CT O 1932.
CON Y NC S.
Reguatons 71, rtce 84: What consttutes I -7-7318
rea property determnabe by aw of State G. C. M. 14348
where ocated.
Ta abty of a conveyance of o, gas, and coa eases, and
mnng equpment n West rgna.
The queston s presented whether a deed conveyng o, gas, and
coa eases coverng and n West rgna, and mnng equpment s
sub|ect to the stamp ta on conveyances mposed by Schedue -8
of Tte III of the Revenue ct of 192 , as added by secton 725
of the Revenue ct of 1932, on any Deed, nstrument, or wrtng
whereby any ands, tenements, or other reaty sod sha
be granted, assgned, transferred, or otherwse conveyed to, or vested
n, the purchaser or purchasers , when the consderaton
or vaue of the nterest or property conveyed, e cusve of the vaue
of any en or encumbrance remanng thereon at the tme of sae,
e ceeds 100.
or stamp ta purposes, the aw of the State n whch the property
s stuated determnes what consttutes ands, tenements, or other
reaty. ( rtce 84, Reguatons 71.)
The Supreme Court of West rgna n Steesmth v. Gartan et
a. (29 S. ., 978) hed that an o and gas ease, whch granted
to the essee the rght to e pore for o and gas for a perod of fve
years and for such onger perod as o and gas were found n
payng quanttes, amounted to nothng more than the prvege of
searchng for o and gas, and, f they were found n payng quant-
tes, then an o and gas tenancy vested n the essee for the perod
of fve years or unt e hauston. In Smth v. Root et a. (W. a.)
( S. ., 1005 , t was hed that an o and gas ease of ke terms
vested no tte n the essees to the o and gas n pace, but smpy
gave them the e cusve rght to make e poratons upon the eased
and for o and gas and that such rght was smpy an nchoate
rght and not a vested estate n and. The foowng more recent
West rgna cases are to the same effect: Pttsburg c West r-
gna Gas Co. v. nkrom et a. (W. a.) (97 S. ., 593) Musgrave
v. Musgrave et a. (103 S. ., 302) and sher v. Teter et a. (109
S. ., 89 ). In West rgna, therefore, as stated n Steesmth v.
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801.
428
Gartan, supra, an o and gas ease n the usua form amounts t(
nothng more than the prvege of searchng for o and gas, and,
they be found n payng quanttes, then vests an o and ga
tenancy n the essee .
The rue s dfferent where o and gas n pace are conveyed.
s stated n Chander v. rench et a. (W. a.) (81 S. ., 825)
There s a cear ega dstncton between an absoute
conveyance of the mnera n pace, and the grant of a mnng rght
to enter upon the and and convert the mnera nto personaty anc
dspose of t. In one case there s a severance of the tte to the
reaty n the other there s not, athough the mnng rght enttes
the essee to e tract every partce of the mnera.
Whe ths case nvoved coa, the rue s the same as to mnera
generay. O and gas are ncuded wthn the genera desgnaton:
of mneras. (Waugh et a. v. Thompson Land Coa Co. et a..
137 S. ., 895 Sut v. . ochstetter O Co. et a., 1 S. ., 307.)
O and coa n pace are a part of the and. (Wa nson et a. v
ones et a., 27 S. ., 411.) In ankers Pocahontas Coa Co. v,
Centra Pocahontas Coa Co. ct a. (W. a.) (1 S. ., 491), t
was hed (syabus) :
Where owner grunts e cusve rght to mne coa n specfed boundary anc
obgates grantee to mne or pay for a coa, actua sae of coa n pace resuts
In vew of the foregong, t s the opnon of ths offce that n so
far as the o and gas eases covered by the deed n queston merey
granted the rght to e tract o and gas, the deed dd not convey
reaty and s not sub|ect to stamp ta . Wth respect to the so-caed
eases covered by the deed whch actuay conveyed tte to the o, gas,
or coa n pace, or obgated the essee to e tract or pay for a
the o, gas, or coa obtanabe from the property, the deed to the e -
tent of such eases s a conveyance of reaty and s sub|ect to
stamp ta . Snce there s no segregaton of the tota consderaton
receved for the property, whch ncudes personaty, the ta shoud
be based upon such part of the tota consderaton as the vaue of the
reaty s of the whoe vaue of the property conveyed. The burden
of estabshng the porton of the tota consderaton whch s not
sub|ect to ta rests upon the partes to the deed.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
TITL III. ST MP T S. (192 )
S CTION 801 O T R NU CT O 192 , S M ND D Y
S CTION 441 O T R NU CT O 1928.
I -9-7345
G. C. M. 141129
onds ssued by the M Irrgaton Dstrct n Caforna are not
sub|ect to stamp ta .
n opnon s requested whether the e empton provded n secton
801 of the Revenue ct of 192 , as amended by secton 441 of the
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429
801.
Revenue ct of 1928, s appcabe to bonds ssued by the M Irrga-
ton Dstrct organzed pursuant to the aws of Caforna. ( ct
3854, Deerng s Genera Laws, 1931, voume 2, page 1948.)
Secton 801 of the Revenue ct of 192 , as amended by secton
441 of the evenue ct of 1928, reads n part as foows:
There sha not be ta ed under ths tte any bond, note, or other nstrument,
Issued by any muncpa or other corporaton e ercsng
the ta ng power .
The queston s twofod n scope frst, whether the M Irrgaton
Dstrct s a muncpa or other corporaton, and, second, whether
t s e ercsng the ta ng power.
The courts of Caforna have hed that rrgaton dstrcts and
recamaton dstrcts, as we as santary dstrcts, are corporatons
created for muncpa purposes, and those courts usuay refer to
rrgaton dstrcts and recamaton dstrcts as pubc corporatons.
In Centra Irrgaton Dstrct v. De Lappe et a. (79 Ca., 351
21 Pac, 825, 82 ) the Supreme Court of Caforna sad:
It Is setted that recamaton dstrcts are pubc corporatons
Dean v. Davs, 51 Ca., 410, 411 Peope v. Recamaton Dstrct, 53 Ca., 348
Peope v. Wams, 50 Ca., 47 oke v. Perdue, 2 Ca., 54 Peope v. La
Rue, 7 Ca., 528, 8 Pac. Itep., 84) and we thnk that rrgaton dstrcts must
be hed to be so to the same e tent.
more recent case (and probaby the most frequenty cted Ca-
forna authorty on the pont) s the decson rendered by the
Supreme Court of Caforna n In re onds of Madera Irrgaton
Dstrct (92 Ca., 29 28 Pac, 272, 27 ), from whch the foowng
e tracts are quoted:
Whenever a speca dstrct of the State requres speca egsaton
therefor, t s competent for the egsature by genera aw to authorze the
organzaton of such dstrct nto a pubc corporaton, wth such powers of
government as t may choose to confer upon t. It Is not necessary that such
pubc corporaton shoud be vested wth a governmenta powers, but the
egsature may cothe t wth such as n ts |udgment are proper to be e er-
csed wthn and for the beneft of such dstrct.

That an rrgaton dstrct, organzed under the act n queston, becomes a
pubc corporaton, s evdent from an e amnaton of the mode of ts organ-
zaton, the purpose for whch t s organzed, and the powers conferred upon
t. ere are found the essenta eements of a pubc corporaton, none of
whch pertan to a prvate corporaton. The property hed by the corporaton
s n trust for the pubc, and sub|ect to the contro of the State. Its offcers
are pubc offcers chosen by the eectors of the dstrct, and nvested wth
pubc dutes. Its ob|ect s for the good of the pubc, and to promote the pros-
perty and wefare of the pubc. Where a corporaton s composed e cusvey
of offcers of the Government, havng no persona nterest n t, or wth ts
concerns, and ony actng as organs of the State n effectng a great pubc
Improvement, It s a pubc corporaton. ( ng. . Corp., secton 32. )
See aso Peope v. Sema Irrgaton Dstrct (98 Ca., 20 32 Pac,
1047). unt v. offman et at. (103 Ca., 50 37 Pac, 777), and
In re Werner (129 Ca., 5 7 2 Pac, 97).
In vew of the foregong, ths offce s of the opnon that the M
Irrgaton Dstrct s a pubc corporaton and beongs to the genera
type of organzatons ncuded wthn the term muncpa or other
corporaton as used n secton 801.
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801.
430
There remans the queston whether the M Irrgaton Dstrct s
e ercsng the ta ng power. Don n hs work on Muncpa
Corporatons, oume I , page 2312, states:
The ta ng power of the State conssts n ts authorty to evy and coect
ta es and assessments. Ta es (ncudng, n the term, assessments)
are burdens or charges mposed by the egsature, or under ts authorty, upon
persons and property, to rase money for pubc, as dstngushed from prvate
purposes, or to accompsh some end or ob|ect pubc n ts nature.

That such speca assessments are an e ercse of the ta ng power s now
generay recognzed and estabshed. Whatever doubt may at one tme have
e sted has ong snce been removed.
Mc un n hs work on Muncpa Corporatons, oume , page
5 8, states that oca assessments or speca ta es com.
nony preva and are generay sustaned under the e ercse of the
power of ta aton.5 The Supreme Court of Caforna recognzed
that the evy of speca assessments consttutes an e ercse of the
ta ng power n the case of In re onds of Madera Irrgaton Ds-
trct, supra, wheren, n speakng of the Madera Irrgaton Dstrct,
whch was organzed under the same act as the M Irrgaton Dstrct,
t sad:
or the purpose of meetng the cost of acqurng ths property,
the dstrct s authorzed, upon the vote of a ma|orty of ts eectors, to ssue
ts bonds and these bonds, and the nterest thereon, are to be pad by revenues
derved under the power of ta aton, and fur whch a the rea property n te
dstrct s to be assessed. Under ths power of ta aton, one of the hghest
attrbutes of soveregnty, the tte of the denquent owner to the rea estate
assessed, may be dvested by sae, and power s conferred upon the board of
drectors to estabsh equtabe by-aws, rues, and reguatons for the dstrbu-
ton and use of water among the owners of sad ands, and generay to per-
form a such acts as sha be necessary to fuy carry out the purpose of the
acf.
or other decsons by the Supreme Court of Caforna to the
same effect, see ngebretsen v. Gay et a. (158 Ca., 30 109 Pac,
880) Los ngees Ove Growers 1 ss n v. Pozz (1 7 Ca., 454
140 Pac, 581) and Los ngees County ood Contro Dstrct v.
amton (177 Ca., 119 1 9 Pac, 1028).
The Supreme Court of the Unted States n avman v. Ross (1 7
U. S., 548), n dscussng secton 15 of the ct of March 2, 1893
(chapter 197), entted n ct to provde for a permanent system
of hghways n that part of the Dstrct of Coumba yng outsde of
ctes (27 Stat., 532), whch secton deas wth the assessment of
benefts havng a pubc mprovement purpose and made wth the
ob|ect of rasng funds to pay for ands taken or damaged by con-
demnaton proceedngs, sad:
The provsons of ths secton are to be referred, not to the rght of emnent
doman, but to the rght of ta aton and the genera prncpes appcabe to
ths branch of the case have been affrmed by a seres of decsons of tns
court.

The egsature, n the e ercse of the rght of ta aton, has the authorty to
drect the whoe, or such part as t may prescrbe, of the e pense of a pubc
mprovement, such as the estabshng, the wdenng, the gradng or the repar
of a street, to be assessed upon the owners of ands benefted thereby. Davd-
son v. New Oreans, 9(5 U. S., 97 agar v. Recamaton Dstrct, 111 U. S., 701
Spencer v. Merchant, 125 U. S., 345, 355, 35 Waston v. evn, 128 . 8., 578.
582 Lent v. Taon, 140 D. S., 31 , 328 Inos Centra Raroad v. Decatur,
147 U. S., 190, 198, 199 Pausen v. Portand, 149 U. S., 30.) Ths authorty
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431
Regs. 71(192 ), rt. 34.
bas been repeatedy e ercsed n the Dstrct of Coumba by Congress, wth the
sancton of ths court. (Ward v. Presbury, 14 Wa., 7 attngy v. Dn-
trct of Coumba, 97 U. S., 87 Shoemaker v. Unted States, 147 U. S., 282,
2S , 302.)
In abrook Irrgaton Dstrct v. radey (1 4 U. S., 112, 17 ),
the Supreme Court of the Unted States, n dscussng a stuaton
substantay the same as the one under consderaton, sad:
though there s a marked dstncton between an assessment for a oca
mprovement and the evy of a genera ta , yet the former s st the e ercse
of the same power as the atter, both havng ther source In the soveregn
power of ta aton.
To the same effect, see rench v. arber sphat Pavng Co.
(181 U. S., 324) and Wagner v. atmore (239 U. S., 207, 218).
ased upon the decsons cted, t s the opnon of ths offce that
the M Irrgaton Dstrct n makng assessments s e ercsng the
ta ng power. Inasmuch as the M Irrgaton Dstrct s a munc-
pa or other corporaton e ercsng the ta ng power and as the
nstruments nvoved n ths case are bonds (secton 801), t s the
opnon of ths offce that such bonds are wthn the specfc e emp-
ton accorded such nstruments by secton 801 of the aw and are
not, therefore, sub|ect to the stamp ta .
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
Reguatons 71(192 ), rtce 34: Saes and I -25-7557
transfers sub|ect to ta . Ct. D. 980
ST MP T R NU CT O 192 D CISION O COURT.
Transfer of Rght to Receve Stock.
Where a corporaton agreed to ssue and dever to two other
corporatons, or upon ther order, a certan amount of ts capta
stock n consderaton for the busness and assets of the atter,
and, pursuant to the drectons of the seng corporatons, the
certfcates of stock were ssued drecty to ther common stock-
hoders, there was, n substance, a transfer by the seng cor-
poratons of ther rght to receve the shares whch was sub|ect
to the stamp ta mposed by secton 800, Schedue -3, of the
Revenue ct of 192 .
Court of Cams of thd Unted States.
Raybestos-anhattan, Inc., v. Unted State .
March 4, 1935.
opnon.
Ltteton, udge, devered the opnon of the court.
The queston n ths case arses as a resut of the ssuance by pantff of a
certan number of shares of Its capta stock as a consderaton for the busness
and assets of the Raybestos company and the Unted States sbestos Co.
the abtes of each company were assumed by the pantff.
In connecton wth these transactons a merger was effected under the aws
of New ersey between pantff and the Manhattan Rubber Manufacturng Co..
both beng New ersey corporatons, by whch pantff acqured a the assets of
the Manhattan company. No ta queston growng out of the stock ssued by
pantff from that transacton s nvoved n ths case.
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Regs. 71(192 ), rt. 34.
432
Secton 800, Schedue -3, of the Revenue ct of 192 provdes as foows:
Sec. 800. On and after the e praton of 30 days after the enactment of ths
ct there sha be eved, coected, and pad, for and n respect of the severa
bonds, debentures, or certfcates of stock and of ndebtedness, and other docu-
ments, nstruments, matters, and thngs mentoned and descrbed n Schedue
of ths tte, or for or n respect of the veum, parchment, or paper upon whch
such Instruments, matters, or thngs, or any of them, are wrtten or prnted, by
any person who makes, sgns, ssues, ses, removes, consgns or shps the same,
or for whose use or beneft the same are made, sgned, ssued, sod, removed,
consgned, or shpped, the severa ta es specfed n such schedue. The ta es
mposed by ths secton sha, In the case of any artce upon whch a corre-
spondng stamp ta s now mposed by aw, be n eu of such ta .

Schedue Stamp Ta es.

3. Capta stock, saes or transfer: On a saes, or agreements to se, or
memoranda of saes or deveres of, or transfers of ega tte to shares or
certfcates of stock or of profts or of Interest n property or accumuatons
In any corporaton, or to rghts to subscrbe for or to receve such shares or
certfcates, whether made upon or shown by the books of the corporaton,
or by any assgnment n bank, or by any devery, or by any paper or agree-
ment or memorandum or other evdence of transfer or sae, whether enttng
the hoder n any manner to the beneft of such stock, Interest, or rghts, or
not, on each . 100 of face vaue or fracton thereof, 2 cents, and where such
hares are wthout par or face vaue, the ta sha be 2 cents on the transfer
or sae or agreement to se on each share: Provded, That t s not ntended
by ths tte to mpose a ta upon an agreement evdencng a depost of
certfcates as coatera securty for money oaned thereon, whch certf-
cates are not actuay sod, nor upon the devery or transfer for such pur-
pose of certfcates so deposted, nor upon mere oans of stock nor upon the
return of stock so oaned: Provded further, That the ta sha not be m-
posed upon deveres or transfers to a broker for sae, nor upon deveres
or transfers by a broker to a customer for whom and upon whose order
he has purchased same, but such deveres or transfers sha be accompaned
by a certfcate settng forth the facts: .
The mportant facts are not n dspute. The transactons n queston
nvove a consodaton of the propertes and busnesses of the two corpora-
tons mentoned n the fndngs wth the property and busness of the pantff,
a New ersey corporaton. Whe the ta n queston does not depend upon
the queston whether a reorganzaton took pace, the facts show that nether
transacton was a reorganzaton of ether of the corporatons wthn tsef.
y separate etters of September 9, 1929, each corporaton proposed to the
pantff that t woud transfer, dever, and assgn a (ts) assets, busness,
and good w, sub|ect to ts abtes to pantff n consderaton of the
ssuance and devery to the company or upon ts order of certfcates for
a specfed number of shares of stock of the pantff, whch certfcates t
was further proposed shoud be ssued drecty to the hoders of the common
stock of the company makng the offer upon the bass theren specfed. ach
offer, as made, was accepted by pantff and the transactons were carred out
as agreed.
Schedue -3 of secton 800 provdes, n addton to the ta of 5 cents
a share on an orgna ssue, for a ta of 2 cents a share on a transfers
of ega tte to shares of certfcates of stock. It s not questoned that had
the Raybestos company and the Unted States sbestos Co. receved the
stock n queston and carred out ther ceary avowed purpose to dstrbute
such stock by transfers to ther stockhoders, the payment of a ta of 2
cents a share here mposed woud have been requred. We thnk the a-
bty for such a ta can not be avoded by an arrangement for the ssuance
of such stock drecty to the stockhoders of the seng corporatons. The
statute mposes a ta upon not ony transfers of ega tte to shares of
stock but aso upon other documents, nstruments, matters, and thngs
mentoned and descrbed n Schedue , and Schedue requres that the
ta be e acted where there has been a transfer of rghts to receve such
shares or certfcates.
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433
Regs. 71(192 ), rt. 34.
The soe purpose of the secton was to rase revenue and Its anguage Is
very broad. Labty for the payment of the ta s mposed upon the trans-
feror, the transferee, and the corporaton whose stock s the sub|ect of the
transfer. The anguage of the secton dscoses a recognton that f the ta
were confned to technca transfers of ega tte to shares much of the
revenue sought to be rased from ths source woud be ost through arrange-
ments to accompsh the same end by one transacton nstead of two. The ta
was therefore ad upon the substance of the transacton rather than the form
by makng transfers of rghts to receve such shares the equvaent of an
actua transfer thereof. The e emptons aowed are defnte and specfc, and
emphasze the broad purpose of the statute to mpose the ta upon trans-
actons such as are nvoved n ths case. Ths was not a transacton whereby
pantff acqured the stock of the stockhoders of the Raybestos company and
the Unted States sbestos Co. but t took over the assets of those companes n
e change for ts stock. The seng corporatons were the ones who had the
rght to receve the consderaton (stock) for ther assets and busness sod
to pantff and these corporatons, when they transferred ther assets to pan-
tff, drected that the stock of the pantff be devered to the company or
upon ts order. They drected that the stock of pantff to be ssued n e -
change for the assets and busness be ssued and devered to ther stockhoders.
Ths, we thnk, was ceary a transfer of ega tte to the shares and the trans-
fer of ther rghts to receve such shares wthn the meanng of the statute
n queston. Ths was the substance of the transacton athough t took the
form of a drect ssuance of the stock to the stockhoders of the seng
corporatons. Pantff has cted a number of decsons n support of ts
argument that the ta was egay e acted, whch we have consdered, but
we thnk they are not controng here and, therefore, we deem t unnecessary
to dscuss them n deta. It s aso contended that the proceedngs resutng
n the formaton and actvtes of pantff nvoved no sae or transfer of ega
tte to shares or certfcates of stock, that merey the evdences of ega tte
to capta nterests, or to shares not actuay sod but retaned by ther
owners, entered nto the transacton, and they requred e changng of cer-
tfcates to dscose propery the capta nterest of each share owner after the
merger of separate busnesses nto a snge enterprse that the rght to
receve the certfcates of pantff s no par vaue shares evdencng the n-
dvdua capta nterests when merged, gven n repacement of certfcates
evdencng the same capta nterests before the merger, beonged to the owners
of such capta nterests, the ndvdua stockhoders, and to assume otherwse
s to recognze shadow or sembance for substance or reaty. We thnk, how-
ever, that there was an outrght purchase by pantff of the busness and assets
of the two corporatons mentoned and that such corporatons were the ones
egay entted to receve pantff s shares n the transacton, and that, n
substance, there was a transfer by them of ther rght to receve such shares
to ther stockhoders. (Unted Sates v. roun ence Wre Co., D. C. N.
D. Oho, anuary 31, 1935 C. C. . Ta Servce, voume 3, par. 9144 P.- .
Ta Servce, voume 1, par. 8 9.) Snce the statute ays the ta upon the
substance of the transacton, we are of opnon that the Commssoner cor-
recty e acted the payment of the documentary stamp ta of 2 cents a share
n queston.
The petton must be dsmssed, and t s so ordered.
ST MP T R NU CT O 192 D CISION O COURT.
TR N8 O RIG T TO R C I STOC .
Where, under a pan of reorganzaton, a Mnnesota corporaton
caused a new corporaton to be formed under the aws o Deaware
and e changed a of ts assets for a of the capta stock of the
new corporaton, and, n pursuance of the resoutons of the two
corporatons, the stock of the Deaware corporaton was ssued
drecty to the stockhoders of the Mnnesota corporaton, there was
a transfer by the atter corporaton of ts rght to receve the
shares whch was sub|ect to the stamp ta mposed by secton 800,
Schedue -3, of the Revenue ct of 192 .
Reguatons 71(192 ), rtce 34: Saes and
transfers sub|ect to ta .
I -25-7558
Ct. D. 981
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Regs. 71(192 ), rt. 34.
434
Unted States Dstrct Court, Dstrct of Mnnesota, Thrd Dvson.
George . orme d Co., a Corporaton, pantff, v. Unted States, defendant.
March 12, 1935.
M MOR NDUM OPINION.
The above-entted cause havng been reguary paced upon the November,
1834, genera term caendar, came on for hearng before the undersgned, one
of the |udges of the above-named court, on a stpuaton of facts, a |ury havng
been waved.
Nordbye. udge: Ths matter was submtted on a stpuaton of facts. There
s but one ssue to be determned, namey, the rght of the defendant to ta a
transacton whch t contends was a transfer of a rght to receve shares or
certfcates of stock as provded for n secton 800 of the Revenue ct of
192 (2 U. S. C. ., secton 901. Schedue -3). refy, the facts as ds-
cosed by the stpuaton may be stated as foows:
George . orme Co., a Mnnesota corporaton, on or about September 1,
1928, caused a notce to be sent to ts stockhoders of a corporate meetng on
September 18. 1928, for the purpose of consderng a pan of reorganzaton.
ttached to such notce was a resouton of the board of drectors of the com-
pany statng, among other thngs, that n order to mantan the present rghts
and vaues of the hoders of the stock n the company, t was deemed e pedent
to organze a new corporaton under the aws of another State, to whch a
the property rghts, prveges and franchses of the Mnnesota corporaton
coud be transferred pursuant to a pan of reorganzaton. On the 18th day
of September, 19- S, the stockhoders of the Mnnesota corporaton met and
duy consdered the pan of reorganzaton that was submtted. The stock-
hoders passed a resouton approvng and acceptng the pan. Inter aa, the
pan provded for the organzaton of a new corporaton under the aws of
Deaware to take over the assets of the Mnnesota corporaton transfer by
the Mnnesota corporaton of a ts assets to the Deaware corporaton n
e change for a the capta stock of the Deaware corporaton, and dstrbu-
ton of the common stock of the Deaware corporaton to hoders of the com-
mon stock of the Mnnesota corporaton, ether n e change or dstrbuton
wthout surrender of any stock.
It was further provded that the Mnnesota corporaton mght purchase
stock of the Deaware corporaton from the dstrbutees, or any one or more
of them, and that the preferred stock of the Deaware corporaton shoud be
dstrbuted to the hoders of the preferred stock of the Mnnesota corpora-
ton. pparenty the vaue of the stock was not to be reatvey changed.
The stockhoders n approvng the pan authorzed the offcers and drectors
to transfer a of the assets to the Deaware corporaton n consderaton
of the nsurance of a of the common and preferred capta stock of that com-
pany. Thereafter, the board of drectors of the Mnnesota corporaton adopted
a resouton whch provded:
Whereas, n such reorganzaton ths corporaton w receve a the capta
stock of sad Deaware corporaton mmedatey to be ssued,
Now, therefore, be t resoved that as part of such pan of reorganzaton
the offcers hereof requre such Deaware corporaton to ssue to t n e change
for ts net assets as of the cose of busness as of October 27, 1928, the foowng
shares of ts capta stuck, .
The resouton further provded:
e t resoved that the common stock of the Deaware corporaton to be
receved by ths corporaton pursuant to ts pan of reorganzaton, be ds-
trbuted to the hoders of cass common stock of ths corporaton as the same
appear of record at the cose of busness on October 27, 1928, .
Thereafter, on September 21. 1928, the Deaware corporaton passed a resou-
ton wheren t provded, among other thngs:
ths corporaton w acqure the net assets of Geo. . orme
Co. that n e change therefor there he ssued to the order of sad Mnnesota
corporaton the foowng shares of capta stock of ths corporaton .
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435
Regs. 71(192 ), rt. 34.
On October 27, 1928, the Deaware corporaton passed a resouton whch
provded n part as foows:
that subsequent to the transfer to ths corporaton of certan assets
of sad Mnnesota corporaton, n consderaton of ths corporaton agreeng to
assume and pay the abtes of sad Mnnesota corporaton, thereupon ths
corporaton acqure and receve a the remanng assets of sad Mnnesota
corporaton of every knd, nature and descrpton whatsoever and wheresoever
ocated, rea, persona and m ed, tangbe and ntangbe, and the ssuance of
fuy pad and nonassessabe stock of ths corporaton n consderaton therefor
of the casses and n the amounts heretofore agreed upon between the two
corporatons, s hereby authorzed, ratfed, approved, and confrmed.
In pursuance of the resouton of the two corporatons, the Deaware cor-
poraton ssued ts stock n consderaton for the transfer of the assets of the
Mnnesota corporaton drect to the stockhoders of the atter company. The
ssuance ta for the stock ssued by the Deaware corporaton was pad by the
Deaware corporaton, but, n addton, the Commssoner of Interna Revenue
determned that the Mnnesota corporaton, by the pan or proposa, had the
rght to receve the stock of the Deaware corporaton as a consderaton for
the transfer of ts assets, and that by the pan adopted, the Mnnesota corpora-
ton transferred ths rght to receve the stock to the Mnnesota stockhoders,
and as a transfer of such rght, t was abe for the ta of 2 cents a share on
the stock so ssued. The ta n the sum of 8,897.32 was so eved, assessed
and pad under protest. The ta was apparenty pad by the Deaware cor-
poraton for and on behaf of the Mnnesota corporaton, and evdenty t s
conceded that f the ta was erroneousy e acted, the pantff s entted to a
refund.
Defendant contends that abty e sts for the ta under the provsons of
the secton above cted, whch provdes n part as foows:
On a transfers of ega ttes to shares or certfcates of stock
or to rghts to receve such shares or certfcates
whether enttng the hoder n any manner to beneft of such stock or
rghts or not 2 cents on each share .
Pantff contends that the transacton was a mere reorganzaton of the
Mnnesota corporaton, and n effect an e change by Its stockhoders of ther
stock for the Deaware corporaton stock, whch represented substantay the
same nterest n the transferred assets whch they owned before the transfer.
It s aso urged that there was no change n the offcers or management, nor
any change of stockhoders, and that ther rghts were n a respects smar
and the same.
The statute n queston as apped to smar transactons has been con-
sdered by the courts n a number of cases, and there s an apparent confct
n the authortes. One senses a hestancy on the part of some courts to appy
what seems to be the pan ntendment of the statute. It s recognzed that the
statute s sweepng n ts character and appes to a vared type of transfers
and saes of stock and rghts to stock. It s eementary that one can not
read nto the statute any e ceptons or e emptons merey because the saes
or transfers may be termed technca or forma. pparenty Congress dd
recognze that certan types of saes and transfers shoud not bo sub|ect to the
ta , and It w be observed that certan e ceptons are specfcay noted,
namey:
That t s not ntended by ths chapter to mpose a ta upon an agreement
evdencng a depost of certfcates as coatera securty for money oaned
thereon, whch certfcates are not actuay sod, nor upon the devery or
transfer for such purpose of certfcates so deposted, nor upon mere oans of
stock, nor upon the return of stock so oaned provded, further, that the ta
sha not be mposed upon deveres or transfers to a broker for sae, nor
upon deveres or transfers by a broker to a customer for whom and upon
whose order he has purchased the same.
The nature of the e emptons above quoted tends to emphasze the ntenton
of Congress to e act a ta on a transfers and saes of stock or rghts to stock,
not ony n the ream of barter and sae, but aso a other transfers whether
forma or otherwse. It w not suffce to urge that the soe purpose of the
organzaton of the Deaware corporaton and the transfer of the property by
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Regs. 71(192 ). rt. 34.
43
the Mnnesota corporaton was merey to provde for a contnuaton of the
busness wthout any change n the stockhoders or ther reatve nterests.
reorganzaton of ths type and the transfer of stock from the new to the od
corporaton n consderaton of the transfer of the assets mght we have been
e empted, but the anguage of the statute s unambguous. The statute states
that the transfer of a rght to receve certfcates of shares of stock s ta abe.
There s nothng obscure or doubtfu about the anguage empoyed. Courts
must construe a statute teray and where there s a pan statement by the
aw-makng body, the courts are not at berty to depart from t, even though
t woud appear that the constructon adopted may resut n an apparent hard-
shp to the ta payer.
If the words and phrases of a statute are not obscure or ambguous, ts
meanng and the ntenton of the egsature must be determned from the
anguage empoyed, and where there s no ambguty n the words, there s no
room for constructon. ( ack on Interpretaton of Laws, Second dton,
page 141.)
In Crooks v. arreson. (282 U. S., 55 Ct. D. 271, C. . -, 4 9 ), the court
was consderng an estate ta queston, and stated (page 59) :
It s urged, however, that f the tera meanng of the statute be as
ndcated above, that meanng shoud be re|ected as eadng to absurd resuts,
and a constructon adopted n harmony wth what Is thought to be the sprt
and purpose of the ct n order to gve effect to the ntent of Congress. The
prncpe sought to be apped s that foowed by ths court n oy Trnty
Church v. Unted States (143 U. S., 457) but a consderaton of what s there
sad w dscose that the prncpe s to be apped to overrde the tera terms
of a statute ony under rare and e ceptona crcumstances. The ustratve
cases cted n the opnon demonstrate that to |ustfy a departure from the
etter of the aw upon that ground, the absurdty must be so gross as to shock
the genera mora or common sense. (Compare Pre v. Chcago Tte t Trust
Co., 182 U. S., 438, 451-452.) nd there must be somethng to make pan the
ntent of Congress that the etter of the statute s not to preva. (Treat v.
Whte, 1SI U. S., 2 4, 2 8.)
Courts have sometmes e ercsed a hgh degree of ngenuty n the effort
to fnd |ustfcaton for wrenchng from the words of a statute a meanng whch
teray they dd not bear n order to escape consequences thought to be absurd
or to enta great hardshp. ut an appcaton of the prncpes so neary
approaches the boundary between the e ercse of the |udca power and that of
the egsatve power as to ca rather for great cauton and crcumspecton n
order to avod usurpaton of the atter. (.Monson v. Chester, 22 Pck., 385,
387.) It s not enough merey that hard and ob|ectonabe or absurd conse-
quences, whch probaby were not wthn the contempaton of the framers,
are produced by an act of egsaton. Laws enacted wth good ntenton, when
put to the test, frequenty, and to the surprse of the awmaker hmsef, turn
out to be mschevous, absurd or otherwse ob|ectonabe. ut n such case
the remedy es wth the aw-makng authorty, and not wth the courts. (See
In re ma Spnnng Co., L. R., 1 Ch. Dv., 81, 8 ng v. Commssoner,
5 . ., 804, 81 bey v. Dae, L. . (1851), N. S., part 2, voume 20, 233,
235. nd see generay Chung ook v. Whte, 204 U. S., 443, 445 Comms-
soner of Immgraton v. Gotteb, 2 5 U. S., 310, 313.)
In support of the cam that a tera constructon s not admssbe, t s
sad that by other provsons of secton 402 certan nterests n rea property,
such as dower, etc., are made sub|ect to the ta wthout regard to the cond-
tons set forth n subdvson (a), and that ths resuts n an ncongruty
amountng to an absurdty. ut uness the Consttuton be voated, Congress
may seect the sub|ects of ta aton and quafy them dfferenty as t seos
ft and f t does so n pan terms, as t has done here, It s not wthn te
provnce of the court to modfy the aw by constructon. In any event, con-
cedng that the condtons assaed have produced the ncongruous resuts
companed of, they fa far short of that degree of absurdty contempated
by the oy Trnty Church case, or by any other decson of ths court.
It n generay recognzed that a corporaton and ts stockhoders are separate
and dstnct n ta matters. Concededy, a stockhoder can not convey or
wthdraw any part of the corporate assets. e has merey an ndvsbe nter-
est n the entre property beongng to the corporaton. The reorganzaton
pan of the Mnnesota corporaton, by reason of the fundamenta prncpes of
corporate powers, was necessary consummated by that company as dstn-
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437 Regs. 71(192 ), rt. 34.
gnshed from Its stockhoders. The atter coud authorze and approve the pan,
but the transfer of the assets and the recept of the consderaton was a corpo-
rate matter. Ths was ceary recognzed and foowed n the varous resou-
tons that were adopted n furtherance of the so-caed pan. The consdera-
ton of the transfer of the assets from the Mnnesota corporaton to the Dea-
ware corporaton was the ssuance of a the common and preferred stock. The
rght to receve ths consderaton rested n the Mnnesota corporaton, and no
one ese. True, the Mnnesota corporaton mght transfer ths rght to ts
stockhoders, as t dd, and avod a forma transfer of the stock from the Mn-
nesota corporaton to the stockhoders. ut one e ats the form over sub-
stance f the drect transfer of the stock from the Deaware corporaton to the
od stockhoders s hed to precude the Government from construng the entre
transacton as a transfer by the Mnnesota corporaton of ts rght to receve
the shares. The Deaware corporaton coud not transfer the stock drect to
the stockhoders wthout the acquescence and consent of the Mnnesota corpora-
ton, and when the pan of drect transfer was consented to by the Mnnesota
corporaton, t thereby transferred ts rght to receve the stock and became
amenabe to the ta under the statute.
The court n Shrevcport- Dorado Ppe Lne Co. v. McGrac ( 3 ed. (2d),
202) concuded that Congress dd not ntend to ta a transfer of stock, or
the transfer of rght to stock, whch may take pace n furtherance of a re-
organzaton pan where the transactons do not effect a change of ownershp.
ut there s no provson or mpcaton n the ct whereby the rght to ta
Is mted or restrcted to any desgnated type of transfer. It can not be urged
that Congress does not have the rght to ta a transfer of stock or rghts to
stock n a reorganzaton matter, as we as a transfer n a consodaton, for
nstance. In fact. Schedue -2 of the ct specfcay requres a ta on each
orgna ssue of shares of stock, whether on organzaton or reorganzaton.
There s no partcuar dfference or dstncton between the transfer of rghts
to stock whch may occur n a merger or consodaton and the transfer that
may take pace where a corporaton s organzed under the aws of another
State to take over the assets under a pan of reorganzaton. True, there
may be an eement of barter and sae, so to speak, n a consodaton, and the
recept by the stockhoder of a dfferent nterest than that possessed pror to
the consodaton nevertheess, there Is nothng n the ct whch |ustfes the
appcaton of the statute to one transacton and not to the other. The fact
that a dfferent nterest or hodng s nvoved does not affect the utmate ques-
ton of the rght of the Government to ta a transfer of stock. Uness Congress
has made or mped a dstncton, the courts can not do so. The statute as-
sumes to ta transfers of stock or rghts to stock and s entrey sent as to
any dstncton that shoud be made between transfers nvovng changes n
stock ownershp and transfers made as a part of a reorganzaton pan. It
may be that the ct s entrey too comprehensve and sweepng. The con-
structon of ts unambguous provsons may ead to mpostons of an onerous
and burdensome ta , whch, n ght of the ssue ta provded for n Schedue
-2, seems to nvoke a hardshp, but the court s poweress to avod the stua-
ton, and manfesty can not add to the te t certan e ceptons and e emptons
whch Congress dd not see ft to add. True, n a case of doubt, the con-
structon shoud be n favor of the ta payer, but n the nstant case, the
doubt arses on account of the apparent n|ustce n mposng addtona burdens
upon a reorganzed corporaton, and not from the words of the statute. It s
sgnfcant that a courts, save In the case of Shrereport- Dorado v. McOraw,
recognze that the ta must be pad f the od corporaton actuay transferred
the rghts to the shares. Marcon Wreess Teegraph Co. v. Duffy, 273 ed.,
197 T. D. 3219, ST. C. . 1921, 55 Mnnesota Mnng d Mfg. Co. v. Wcuts,
2 ed. Supp., 789 Westmoreand Coa Co. v. MacLaughn, 8 ed. Supp., 9 3
Unted States of merca v. rown ence d Wre Co., D. C. N. D. Oho, . D.,
decded anuary 18, 1935 Ct. D. 982, on page 438 .) ut the foowng cases
assume to fnd the statute nappcabe to the partcuar form whch was adopted
by the partcuar pan of reorganzaton under consderaton : Mnnesota Mnng
Mfg. Co. v. Wcuts, supra Westmoreand Coa Co. v. MacLaughn, supra.
Wthout attemptng to dscuss or dstngush the decsons, t must be evdent
that any short cut adopted by a corporaton n consummatng the pan can not
defeat the utmate rght of the Government to e act the ta . If t Is con-
ceded that the ta woud have to be pad n the event the Mnnesota corpora-
ton heren had formay transferred the rght to receve the stock to the
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Regs. 71(192 ), rt. 34.
438
Indvdua stockhoders. It necessary foows that the pan or scheme adopted
heren does not escape the ta . tera constructon of the statute w permt
no other concuson, and f the court s hound to adhere to the words of the
statute, the defendant must be sustaned n ts coecton of the ta .
Let ths memorandum be made a part of the foregong fndngs of fact and
concusons of aw.
ST MP T R NU CT O 102G D CISION O COURT.
1. Transfer of Rght to Receve Stock.
Where an Oho corporaton transferred a of ts assets to a
Deaware corporaton under an agreement whereby the atter was
to ssue ts capta stock n payment therefor drect to the stock-
hoders of the Oho corporaton, there was a transfer from the Oho
corporaton to ts stockhoders of the ega rght to receve the
stock of the Deaware corporaton whch was sub|ect to the stamp
ta mposed by secton 800, Schedue -3, of the Revenue ct of
192 .
2. Sut ganst Transferee.
Where a dssovng corporaton transferred ts assets to another
n consderaton of the assumpton of a ts abtes and n-
debtedness by the transferee, the Unted States has the rght to
sue the transferee for payment of the ta .
Dstrct Court of the Unted States for the Northern Dstrct of Oho,
astern Dvson.
Unted States of merca, pantff, v. rotcn ence d Wre Co., defendant.
ones. .: Ths s a case n whch the Unted States seeks to recover of the
defendant, stamp ta es, abty for whch s mposed by Schedue -3, sec-
ton 8 0 of the Revenue ct of 192 . |ury was waved by wrtten stpuaton
and the ssues of fact and aw heard and submtted to the court upon stpu-
ated facts. It s not thought necessary to restate here the stpuated facts,
wth whch the partes are famar. It w be suffcent to state brefy the
consderatons upon whch concuson has been reached.
y the agreement between the two corporatons, the Oho company ceary
transferred to Its sharehoders the rght to receve the shares and stock certf-
cates of the Deaware corporaton. The stamp ta , whch otherwse woud
have been e acted, may not thus be escaped. The mpcatons of such abty
are nherent n the agreement to ssue the new shares and certfcates drecty
to the sharehoders of the od corporaton. The Deaware corporaton dd
not agree to buy the stock of the Oho corporaton by an e change of ts
shares t agreed to buy the property of the Oho corporaton wth shares of
Its stock to be ssued to the sharehoders of the Oho corporaton. Ths con-
tempated a transfer of the rght to receve the consderaton for the sde
of the od corporaton s property from the od corporaton to ts sharehoders.
I do not nterpret the contract between the two corporatons as a reorganza-
ton, because so caed. In vew of the e press anguage of the contract tsef,
t consttuted a sae and transfer of assets, propertes, busness, franchses
and good w as a gong concern.
In the unreported case of Went more and v. MacLaur|hUn, reed upon by the
defendant, the court concedes that f the stock had been ssued by the new
corporaton to the od corporaton as consderaton for the transfer of assets,
the case woud have been controed bv Marcon Wreess Teegraph Co. v. Duffy
(273 ed., 197 LT. D. 3219, ST. C. . 1921, 55 .)
Reguatons 7(192G), rtce 34: Saes and
transfers sub|ect to ta .
I -25-7559
Ct. D. 982
anuary 31, 1935.
OPINION.
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439
Msc.
Provdng for the Issuances of stock drecty to the sharehoders of the od
corporaton s a shorter and more convenent method of deverng the stock
to ts utmate owner, but I see no dfference n respect of the appcaton of
the rue and of the ta .
The defendant rases the queston of the rght of the Unted States to sue
the Deaware corporaton for the payment of the ta . One of the consdera-
tons for the transfer of assets was the assumpton of a abtes and n-
debtedness of the Oho corporaton by the Deaware corporaton, and the Oho
corporaton has been dssoved. I see no obstace to the brngng of the sut
drecty aganst the Deaware corporaton for the coecton of the ta .
Upon the stpuatons of facts, orgna and suppementa, I fnd that there
was a transfer of the ega rght to receve shares of the Deaware corpora-
ton from the Oho corporaton to the sharehoders of the atter, and concude
that the defendant s abe for the stamp ta . Moton of pantff for |udg-
ment sustaned, wth e ceptons to the defendant.
Pantff s requests for speca fndngs of fact w be granted, and those sub-
mtted w be approved and adopted.
SC DUL -. ONDS O IND T DN SS.
Reguatons 71(192 ), rtce 34: Saes and I -15-7430
transfers sub|ect to ta . Ct. D. 948
ST MP T R NU CT O 192G D CISION O COURT.
Cob orate Securtes Certfcates of Partcpaton.
Certfcates of partcpaton ssued by a trust company to pur-
chasers of rea estate mortgages hed by t are ta abe as nstru-
ments known generay as corporate securtes wthn the meanng
of Schedue - of secton 800 of the Revenue ct of 1920.
Unted States Dstrct Court for the Mdde Dstrct of Pennsyvana.
Dauphn Depost Trust Co., pettoner, v. Unted States of merca, defendant.
anuary 5, 1935.
opnon.
ohnson, D. .: Ths s a sut by the Dauphn Depost Trust Co. to recover
2,251.03 and nterest, pad by t under protest for nterna revenue stamps
whch the coector requred t to attach to certfcates of partcpaton drawn
In a form set forth. The case was submtted to the court on a stpuaton of
facts.
The queston s whether the certfcates are ta abe as corporate securtes
under the provsons of the Revenue ct of 1920, secton 800, Schedue -,
or more narrowy stated, whether they are known generay as corporate
securtes.
Requests for fndngs of fact and concusons of aw are answered and fed
herewth. The matera facts, brefy are as foows. The bankng depart-
ment of the pettoner oaned money, mosty to ndvduas, on the securty
of a snge bond accompaned by a mortgage on rea estate, wth nterest
at 0 per cent per annum. Many of pettoner s customers who desred to
nvest money woud come to It and the atter woud e pan what mortgages
t hed. If satsfed wth a specfed mortgage, the customer woud pay a
specfed sum to the trust department of the pettoner for the whoe or a
part thereof. The trust department woud then buy the specfed amount
of the mortgage from the bankng department and ssue the certfcates of
partcpaton. The mortgages and certfcates were handed by the pettoner
In the same manner as ts fducary accounts. The certfcates are n the
foowng form:
083 35 15
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Msc 440
Certfcate op Partcpaton No.
Ths s to certfy, that the foowng descrbed mortgage:
Mortgagor
or
Dated Payabe
Interest payabe
Recorded
Property
though standng n the name of Dauphn Depost Trust Co., arrsburg,
Pa., s not entrey the property of the company, but that of the mortgage s
hed by the company n trust for
nd that as the nterest s pad to us, we w remt 5 per cent on ths amount
from
Dauphn Depost Trust Co. does not agree to repurchase ths certfcate
e cept upon payment of the mortgage.
Dauphn Depost Trust Co.,
y
(Trust Offcer.)
( ce Presdent)
( sst. Treasurer.)

The repurchase cause at the end of the certfcate was not contaned n the
certfcates ssued pror to December 7, 102 ), but was nserted as above n the
certfcates ssued thereafter. Prncpa and nterest were not guaranteed but
payment thereof was made when and as t was receved from the mortgagor.
The pettoner charged for ts servces per cent per annum on the prncpa,
payabe when and as nterest was coected.
The ct under whch the ta was coected s as foows: On a bonds,
debentures, or certfcates of ndebtedness ssued by any corporaton, and a
nstruments, however termed, ssued by any corporaton, wth nterest coupons
or n regstered form, known generay as corporate securtes, on each 100
of face vaue or fracton thereof, 5 cents . (2 U. S. O. ., secton
901(1).)
n anaogous stuaton to the case at bar was before the Unted States
Supreme Court n Ledercr v. dety Trust Co. (207 U. S., 17 T. D. 3 74,
C. . I -1, 339 ). There the dety Trust Co. agreed to furnsh and et to
the Interstate ttaroad Co. certan raroad equpment and the essee agreed
to make such renta payments as woud amortze the entre cost of the equp-
ment at the end of a desgnated perod, pus nterest on the unpad porton.
The trust company thereupon ssued certfcates provdng for the perodca
payment by the trust company out of rentas, under the ease of certan nterest
pus a porton of the prncpa. The essenta features of ths trust were that
the bearer or regstered hoder of a certfcate was entted to one share n an
equpment trust n accordance wth the agreement and that the trust company
hed the ease and tte to the raroad equpment n trust for the hoders of
these equpment trust certfcates. Mr. ustce omes hed that these certfcates
were generay known as corporate securtes, and n the opnon of the Court
sad: s a matter of common speech, to whch the statute refers, we have no
doubt that these nstruments woud be known as corporate securtes. They
woud be caed so more accuratey than some other documents whch we
beeve aso woud be known generay by that name. Ther purpose, as stated
n the agreement of the trustee wth the raroad, s to secure payment to the
hoder wth nterest. They do nothng ese. We do not regard the precse
mts of the Trust company s undertakng as mportant. If t were ony to
coect and pay money receved by the company under the secured contract of
the raroad t woud be a securty for money payment. ut the counse for
the company seemed not prepared to argue that the company coud not put
the money receved from the raroad nto ts genera account wthout a breach
of trust, and gve the certfcate hoder cash or a check for hs nterest or
prncpa. ut be the undertakng greater or ess, the securty better or
worse, we can not regard these certfcates as anythng but corporate securtes
by genera understandng and n fact
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It s a queston of fact whether a corporate nstrument comes wthn to
above quoted ct. In dety Investment ssocaton v. Unted States (5 .
Supp., 19), udge Whaey, n a we-consdered opnon sad: The ct pany
makes the nature and character of the corporate nstrument a queston of
fact. Ths fact can be estabshed n two ways. If the nstrument s pany
and patenty on ts face a secured corporate ndebtedness, ora evdence woud
be superfuous, but where the nstrument s doubtfu n ts characterstcs and
appearance, then ora evdence of ts true nature gven by those who are
famar wth such papers, and who buy and se corporate securtes, s
necessary to determne ts actua character. The certfcate n queston s
pany on ts face a secured corporate nstrument so ora evdence of ts
nature s unnecessary.
nd now, anuary 5, 1935, upon due consderaton, |udgment Is drected to
be entered n favor of defendant.
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MISC LL N OUS RULINGS.
I -10-7359
Op. . G. 8
There resdes n the Treasury Department no dscreton to re-
vew on the merts the acton of the ttorney Genera n acceptng
an offer n compromse n a case whch s under hs contro.
Department of ustce,
Washngton, D. C, November 5, 193 .
My Dear Mr. Secretary:
I beg to acknowedge your etter of October 30, 1934, concernng
the dutes and responsbtes of the Treasury Department wth re-
spect to cases whch have been referred to the Department of us-
tce snce ecutve Order No. 1G of une 10, 1933, became effectve.
In order to remove a doubt and confuson as to the dutes and
responsbtes of our respectve departments wth respect to a case
whch has been setted by the Department of ustce, you request
my opnon on the foowng queston:
What dscreton, f any, resdes n the Treasury to approve or dsapprove, accept
or re|ect, such settements, and what duty, f any, rests upon the Treasury to
nqure nto the merts of such settements hefore e ecutng the drecton of the
ttorney Genera
It s my understandng that your queston reates ony to cases
wheren your Department s caed upon to make ta refunds after
settements have been agreed upon by ths Department, and my
answer to your queston w be mted n ts appcaton to cases
of that character.
proper dscusson of your queston requres consderaton of
the authorty of the ttorney Genera to make the settements n
queston, and the effect thereof upon the Government and ts offcers.
Secton 5 of ecutve Order No. 1 provdes n part as foows:
The functons of prosecutng n the courts of the Unted States cams and
demands by, and offenses aganst, the Government of the Unted States, and
of defendng cams and demands aganst the Government, and of supervsng
the work of Unted States attorneys, marshas, and cerks n connecton there-
wth, now e ercsed by any agency or offcer, are transferred to the Department
of ustce.
s to any case referred to the Department of ustce for prosecuton or
defense n the courts, the functon of decson whether and In what manner
to prosecute, or to defend, or to compromse, or to appea, or to abandon
prosecuton or defense, now e ercsed by any agency or offcer, Is transferred
to the Department of ustce.
The effect of the above-quoted provson s to vest n the ttorney
Genera e cusve contro of any case after t has been referred to
hs department. It shoud be observed, however, that the provson
dd not n any way curta the ttorney Genera s pror and penary
power. It merey wthdrew from a other offcers such power and
(442)
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443
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authorty as they theretofore hed, eavng the ttorney Genera n
penary contro of any case once t has been referred to the Depart-
ment of ustce.
The prmary broad power of the ttorney Genera s n part n-
herent, appertanng to the offce, and n part derved from varous
statutes and decsons. Ths power s penary and carres wth t
the authorty to make t effectve, ncudng authorty to consder
a matter germane to any case over whch the ttorney Genera
has obtaned |ursdcton. See my suppementa opnon of October
2, 1934, and the authortes theren dscussed and cted. e may
dsmss a sut or abandon defense at any stage when n hs sound
professona dscreton t s meet and proper so to do. It foows
that he may compromse any case on such terms as he sees ft, n-
cudng cases of the character nvoved heren. (23 Op. . G., 507
29 d., 217, 223.)
n offer n compromse whch has been accepted n accordance
wth aw s bndng on the Unted States and ts offcers as we as
on the ta payer. (Waker v. amo oods Co., 1 . (2d), 94
y Waker Dry Goods Co. v. Unted States, 34 . (2d), 429
Du Puy v. Unted States, 7 C. Cs., 348.) Thus, where a ta payer
compromses hs sut aganst the Government to recover an over-
payment of ta es, the compromse s mutuay bndng and bars a
second sut to recover further amounts for the same perod. (Second
Natona ank of Sagnaw v. Woodworth, . (2d), 170 Reynods
v. Gnchte, 1 ed. Supp., 0 .)
It s we estabshed that the duty of one e ecutve offcer to carry
nto effect the dscretonary acts of another s mnstera. (Mgue
v. McCar, 291 U. S., 442, 451 McCar v. Unted States e rc. Soceta
Lgura D rmamento et a., 58 pp. D. C, 319.) It s kewse
n the case of a |udgment. (See ar v. Unon Pacfc R. R. Co.,
. (2d), 484 ( pp. D. C.).) In that case the ta payer had re-
covered a fna |udgment aganst the coector of nterna revenue
n a Unted States dstrct court and had fed a cam for credt of
the sad |udgment upon a current nstament of hs ncome ta es,
whch the Commssoner of Interna Revenue refused to aow. In
sustanng the ta payer s petton for a wrt of mandamus, the court,
at page 48 , sad:
The duty Imposed upon the respondent, accordng to the conceded
facts n the case, was mandatory, not dscretonary .
The acceptance of an offer n compromse by the ttorney Genera
n a case of ths character s somewhat anaogous to a decson of the
oard of Ta | peas, whch has been decared by Congress to be
an ndependent agency of the e ecutve branch of the Government
and so hed by the Supreme Court. (Od Coony Trust Co. v.
Commssoner, 279 U. S., 71 , 725.) Sectons 321 and 322 of the
Revenue ct of 1932 (ch. 209, 47 Stat., 1 9 U. S. C, Supp. II,
tte 2 , sectons 321 and 322) ceary show that the duty of makng
refunds due n those cases s mandatory.
It s, of course, eementary that there must be an appropraton
avaabe for the purpose of payng ta refunds. I understand,
however, that there s an appropraton avaabe for that purpose
when t has been awfuy estabshed that a ta payer s entted to
a refund and that the Treasury Department s charged wth the duty
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444
of makng dsbursements from that appropraton. See Treasury
ppropraton ct of March 15, 1934 (ch. 70, 48 Stat, 425, 430).
The above consderatons ead me to the concuson that the ttor-
ney Genera has ampe power to termnate suts of the character
nvoved by the acceptance of offers n compromse that when he
has so termnated such a sut hs acton s fna and bndng on a
other e ecutve offcers of the Government as to the merts thereof
and that such further dutes as are necessary n connecton wth
the cases are mnstera n character. I am constraned to advse
you, therefore, that, n my opnon, there resdes n the Treasury
Department no dscreton to revew on the merts the acton of the
ttorney Genera n acceptng an offer n compromse n a case
whch s under hs contro.
I desre to add n a sprt of cooperaton that whe responsbty
for the e ercse of dscreton n these cases rests wth ths depart-
ment I do not understand that t was ntended by ecutve Order
No. 1 that the combned efforts of both departments mght not
be avaed of where t woud be benefca to the Unted States from
the standpont of the work as a whoe. I aso fee, |ust as s the
case wth respect to our reatons wth other departments n con-
necton wth compromse matters, that t woud be not ony hghy
desrabe but most hepfu to contnue to receve the vews and recom-
mendatons of your department. fter a, both departments are
servng the same nterests and have a common end n vew.
Respectfuy,
omer Cummngs,
ttorney Genera.
The onorabe,
The Secretary of the Treasury,
Was kng ton, D. G.
I -19-7488
Op. . G. 9
The Treasury Department s authorzed by aw to accept offers
n compromse n cases (other than cases under the |ursdcton
of the Department of ustce) nvovng the forfeture of vehces
sezed for voaton of the nterna revenue aws.
Offce of te ttorney Genera,
Washngton, D. C., March 7, 1935.
My Dear Mr. Secretary :
I have the honor to acknowedge your etter of ebruary 19, 1935,
reatng to your authorty, under the provsons of secton 3229 of
the Revsed Statutes, to compromse cases nvovng the forfeture
of vehces whch have been sezed for voaton of the nterna
revenue aws.
You state that n cases of automobes whch have been sezed for
voaton of the nterna revenue aws, wheren there s usuay no
apparent uncertanty as to the abty of the automobes to for-
feture, nterested partes frequenty offer n compromse amounts
apparenty arger than the net amounts whch, after payment of
storage and other charges, coud be reazed by the Unted States f
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the automobes shoud be forfeted and sod at pubc aucton. You
further state that t has been the estabshed practce of the Treasury
Department for more than 50 years to compromse cases of ths
character on the bass above ndcated.
In vew of the concusons reached n my opnons addressed to
you on October 24, 1933 Op. . G. , C. . III-2, 442 , and
October 2, 1934 Op. . G. 7, C. . III-2, 445 , to the effect that
your power to compromse under the provsons of secton 3229 of the
Revsed Statutes of the Unted States e sts ony n cases n whch
there s uncertanty as to abty or coecton, you apparenty enter-
tan some doubt as to whether you may awfuy contnue the above
practce and request my opnon as to whether, n consderng these
offers n compromse, you may awfuy treat the nabty of the
Government to obtan more from a sae of the vehce than the
amount offered n compromse as an uncertanty as to coecton,
wthn the meanng of that term as used n my opnons above
mentoned.
Secton 3229 of the Revsed Statutes provdes as foows:
The Commssoner of Interna Revenue, wth the advce and consent of the
Secretary of the Treasury, may compromse any cv or crmna case arsng
under the Interna-revenue aws nstead of commencng sut thereon and,
wth the advce and consent of the sad Secretary and the recommendaton
of the ttorney-Genera, he may compromse any such case after a sut thereon
has been commenced. Whenever a compromse s made n any case there sha
be paced on fe n the offce of the Commssoner the opnon of the Soctor
of Interna Revenue, or of the offcer actng as such, wth hs reasons therefor,
wth a statement of the amount of ta assessed, the amount of addtona ta
or penaty Imposed by aw In consequence of the negect or denquency of the
person aganst whom the ta s assessed, and the amount actuay pad n
accordance wth the terms of the compromse.
The anguage of the above-quoted secton s broad and authorzes
the compromse of any cv or crmna case arsng under the n-
terna revenue aws. It ceary ncudes forfeture cases arsng
under those aws.
The queston whether uncertanty as to coecton e sts n the
cass o cases whch you have presented s dependent upon the
nature and e tent of the Government s nterest n a vehce whch
has been sezed and forfeted for voaton of ts aws. The prmary
ob|ect of the Government n forfetng a vehce s ceary to punsh
the voator by deprvng hm of hs property. It s true that a
forfeture proceedng s n rem and that by a ega fcton the prop-
erty s hed guty and condemned as though t were conscous nstead
of nanmate and nsentent. (See arous Items v. Unted States,
282 U. S., 577, 581.) ut that fcton, resorted to for the purpose
of uphodng the Government s rght to forfet the vehce as aganst
persons other than the voator, s not determnatve of the queston
as to whether the Government s soe nterest n forfetng the vehce
s that of removng t from the possesson of others or whether ts
nterest s aso of a fsca nature.
Under the aws and procedure governng the dsposa of prop-
erty forfeted under the aws of the Unted States, vehces and
other property, e cept that whch s prohbted, must be sod at
pubc sae, and after payment of the e penses of the forfeture
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44
and sae, the remander of the proceeds must be covered nto the
Treasury. These aws ceary demonstrate that the Unted States,
notwthstandng any other nterest, s nterested n the vaue of
forfeted vehces. That s, t s nterested n obtanng the greatest
amount possbe when t dsposes of the vehce.
There are varous other aws whch end support to the vew that
the Government has a fsca nterest n forfeted property, among
whch s secton 3459 of the Revsed Statutes, provdng that persh-
abe property sezed for ta evason may be sod before forfeture
f the camant fas to gve a bond and take devery. Ths statute
s desgned to preserve the vaue of the property and ceary ndcates
that the Unted States has a fnanca nterest theren. The tarff
aws are aso anaogous n that they provde for the reease of sezed
property upon payment of the apprased vaue thereof or the gv-
ng of a substtute bond. Secton 14, Tarff ct of 1930 secton
938, Revsed Statutes.
The Unted States havng a fsca nterest n the vehces sezed,
t necessary foows that t s nterested n the amount whch t w
be abe to obtan from a sae of such vehces. It s obvous, there-
fore, that t woud be n the fnanca nterest of the Unted States
to accept an offer n compromse n any case whch woud brng
nto tho Treasury more money than coud be obtaned from a sae
of the vehce after deductng the e penses attendng the forfeture
and sae thereof.
In vew of the concuson I have reached that t woud be ceary
n the nterest of the Unted States to accept offers n compromse n
cases of the character and on the bass stated by you and n vew of
the ong estabshed practce of the Treasury Department n accept-
ng offers n compromse on that bass I can not, at ths ate date,
advse you to dsregard the apparent nterests of the Unted States
n deference to the prncpe that the nterest of the Government n
the vehce tsef s paramount to ts nterest n the vaue thereof.
ccordngy, t s my opnon that n the consderaton of offers
n compromse submtted to you n cases nvovng the forfeture of
vehces sezed for voaton of the nterna revenue aws, the n-
abty of the Government n any case to obtan from a sae of the
vehce, after deductng the e penses of forfeture and sae, as much
as the amount offered, may be propery treated by you as uncertanty
as to coecton wthn the meanng of that term as used n my opn-
ons of October 24, 1933, and October 2, 1934, above mentoned. I
assume, of course, that your request for my opnon does not reate
to cases whch have been referred to ths Department for the nst-
tuton of forfeture proceedngs or otherwse. Perhaps I shoud
aso state that I dea heren ony wth the queston of power, the
e ercse of whch s dscretonary and may depend upon consdera-
tons other than monetary.
Respectfuy,
omer Cummngs,
ttorney Genera.
on. enry Mokgentau, r.,
Secretary of the Treasury,
Washngton, D. 0.
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447 Regs. 81, rt. 5.
N TION L INDUSTRI L R CO RY CT.
S CTION 215. C PIT L STOC T .
Secton 215.
Reguatons wth respect to the use of orgna returns and fur-
nshng copes of returns. (See T. D. 4504, page 8 .)
S CTION 21 . C SS-PRO ITS T .
Secton 21 .
Reguatons wth respect to the use of orgna returns and fur-
nshng copes of returns. (See T. D. 4504, page 8 .)
GRICULTUR L D USTM NT CT.
S CTION 9, S M ND D Y T CT O PRIL 7, 1934 (PU LIC,
NO. 142, S NTY-T IRD CONGR SS).
Reguatons 81, rtce 5: Measure of the ta . I -23-7538
P. T. 27
Proper method for determnng the farmers stock weght of
peanuts.
The processng ta of 1 cent per pound, farmers stock weght,
mposed upon the frst domestc processng of peanuts became effec-
tve on October 1, 1934. The reguatons wth respect to peanuts,
promugated on September 25, 1934, by the Secretary of grcuture,
wth the approva of the Presdent, defne the term farmers stock
weght as foows:
armers stock weght s the weght of peanuts n the she, not ncudng
unattached foregn materas, whch have been removed from the vne and are
n that condton whch s usua and customary when devered by the grower.
See Treasury Decson 4489 (C. . III-2, 493).
Processors of peanuts who are equpped to wegh the peanuts mme-
datey before processng, whether n buk or n bags, are permtted
to determne farmers stock weght by deductng an arbtrary
toerance aowance of 5 per cent to cover unattached foregn materas
from the actua accurate scae weght of the peanuts at the tme they
are put n process (not ncudng the weght of the bags).
Where peanuts are stored n buk by processors who are not
equpped to wegh the peanuts mmedatey before processng, the
weght at that tme may be determned by deductng from the weght
of the peanuts at the tme of purchase an arbtrary aowance, to cover
shrnkage, of /2 per cent for the frst fu month durng whch the
peanuts were stored, pus one-haf of 1 per cent for each subsequent
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Regs. 81, rt. .
448
fu month, provded, however, that n no event sha such shrnkage
aowance e ceed 3 per cent. armers stock weght may be ascer-
taned by deductng from the weght thus determned an arbtrary
toerance aowance of 5 per cent to cover unattached foregn
materas.
S CTION 9. PROC SSING T .
Reguatons 81, rtce : Rate of ta . I - -7303
( so rtce 31: Credt and refund.) P. T. 20
Converson factors wth respect to the product known as
sausage, but whch Is not composed whoy or n chef vaue
of pork.
Inqury s made as to the converson factors whch shoud be used
n determnng the amount of ta appcabe or the amount of credt
or refund aowabe wth respect to the product known n the pack-
ng ndustry as sausage, but whch s not composed whoy or n
chef vaue of pork.
The term sausage s defned by og Reguatons, Seres 1,
No. 1, page , approved October 29, 1934, effectve November 1, 1934,
as foows:
Sausage s chopped or ground meat composed whoy or n chef
vaue from pork and seasoned. It may be n buk, or stuffed n anma casngs,
or packed n other contaners.
Paragraph of the reguatons reads n part as foows:
In the event that any ta payer or person entted to a refund estab-
shes that any or a of the types of sausages, processed whoy or n chef
vaue from hogs, on whch a ta s mposed, or whch may be the sub|ect of
a cam for refund, whch are ncuded n the above st, contan more or ess
pork, green weght, than represented by the sted converson factor, then the
converson factor, for each pound of pork whch sad sausages are estabshed
to contan, sha be the foowng percentage of the per pound processng ta
on hogs:
(a) If fresh meat, SO per cent.
(b) If cured, dry sat meat, 80 per cent.
(c) If cured, sweet pcke meat, 7 per cent.
(d) If smoked meat, 85 per cent.
(f) If cooked, dred or canned meat, 112 per cent.
The foregong provsons of the reguatons reate ony to sausage
whch s processed whoy or n chef vaue from pork. The product
known n the packng ndustry as sausage, but whch s not com-
posed whoy or n chef vaue of pork, s not sausage as defned by
the reguatons. The converson factor to be used wth respect to
ths product s prescrbed by paragraph D of the reguatons, whch
reads as foows:
When any edbe product for whch no specfc converson (actor
s prescrbed n these reguatons (1) s whoy or party of pork and s sub-
|ect to the payment of a compensatng ta or wth respect to whch a refund
of ta s aowabe upon e portaton or wth respect to whch a credt or refund
of ta s aowabe by reason of the devery thereof for chartabe dstrbuton
or use, or (2) s whoy or n chef vaue of pork and s sub|ect to the payment
of a foor stocks ta or wth respect to whch a credt or refund of ta upon
foor stocks s aowabe, such ta sha be pad or such credt or refund sha
be aowed wth respect to the sad product on the amount of the pork content
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449
Regs. 83, Chap. III.
thereof, accordng to the converson factor prescrbed for each cut from whch
the pork contaned n such product teas derved.
The converson factor to be used wth respect to the product
known n the packng ndustry as sausage, but whch s not com-
posed whoy or n chef vaue of pork, s the prescrbed converson
factor for the cut from whch the product was derved. or e am-
pe, f the pork content of the product conssts whoy of chopped or
ground trmmngs, the converson factor prescrbed for pork trm-
mngs shoud be apped to the amount of the pork content (trm-
mngs) of the product.
S CTION 15. MPTIONS ND COMP NS TING T S.
Reguatons 81, rtce 9: emptons from I -3-72 0
processng ta . P. T. 19
The processng of peanuts by or for the producer for hs own
use as seed s not ta abe.
The queston s presented whether processng ta s payabe wth
respect to the processng of peanuts by or for the producer for hs
own use as seed.
Secton 15(b) of the grcutura d|ustment ct provdes n
part as foows:
No ta sha be requred to be pad on the processng of any commodty by
or for the producer thereof for consumpton by hs own famy, empoyees,
or househod
The processng of peanuts by or for the ndvdua producer there-
of for hs own use as seed w be consdered to be processng for con-
sumpton by the producer. The person who does such processng
w not be requred to pay ta wth respect to the peanuts processed
for such use, provded a producer s affdavt or certfcate on P. T.
orm 29 s secured from the producer and fed wth the monthy
return n accordance wth artce 9(a) of Reguatons 81.
Reguatons 81, rtce 32: Refund of, or credt I -2-7247
for, ta pad wth respect to products devered P. T. 18
for chartabe dstrbuton or use.
State or edera pena or correctona nsttuton s not a
State or edera wefare organzaton wthn the meanng of
the credt and refund provsons of secton 15(c) of the grcutura
d|ustment ct, as amended by the ct of une 1 , 1934 (48 Stat.,
973, Pubc, No. 3 7, Seventy-thrd Congress).
Reguatons 83, Chapter III. I -21-7512
T. D. 4547
Processng of tobacco nto products for use as sea stores wthout
payment of ta mposed by the grcutura d|ustment ct, as
amended.
Chapter III of Reguatons S3, amended.
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Msc.
450
Treasttky Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
Chapter III of Reguatons 83, approved September 11, 1934, s
hereby amended by addng the foowng new artce at the end
thereof:
bt. 24 . Ta -free processng of tobacco nto products for use as sea
stores. The processng of tobacco nto manufactured tobacco, snuff, cgars
or cgarettes for use as sea stores under secton 317 of the Tarff ct of 1930
wthout the payment of a processng ta sha be sub|ect to the provsons
n Reguatons 7 wth respect to the shpment or devery of manufactured
tobacco products wthout payment of a stamp ta and to the foowng sup-
pementa provsons:
1. Processors. The processor of tobacco nto products ntended for use
as sea stores wthout payment of a processng ta sha submt a rder on
orm 551 for attachment to the bond, orm 549- , requred by Reguatons
7(3. Such orm 551 must be e ecuted and submtted n the same manner as the
bond, orm 549- .
Upon the proposed wthdrawa of manufactured tobacco products for use as
sea stores wthout payment of a processng ta , whether the shpment or
devery s to be made drect to the vesse or to a bonded sea stores warehouse,
the processor sha fe P. T. orm 20- n addton to the appcaton on
orm 550- requred by Reguatons 7 . Suc . T. orm 2 - sha be
prepared n dupcate and sha be gven the same sera number as the
appcaton orm 550- . The orgna sha be attached to the orgna orm
550- coverng the same shpment. The dupcate sha be hed by the proc-
essor and transmtted by hm wth hs processng ta return made for the
month durng whch the shpment was wthdrawn from the factory.
2. Propretors of sea stores warehouses. The propretors of bonded sea
stores warehouses sha submt a rder on orm 552 for attachment to the
bond orm 549- , requred by Reguatons 7 . Such orm 552 must be
e ecuted and submtted n the same manner as the bond, orm 549- .
Guy T. everno,
Commssoner of Interna Revenue.
pproved May 1 , 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -5-7290
T. D.4518
Processng and other ta es wth respect to hogs under the
grcutura d|ustment ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft, pay-
ments are to be made wth respect to any basc agrcutura commodty, he
sha procam such determnaton, and a processng ta sha be n effect wth
respect to such commodty from the begnnng of the marketng year therefor
ne t foowng the date of such procamaton.
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451
Msc.
Par. . The procamaton of the Secretary of grcuture, dated
ugust 17, 1933, provdes:
I, enet . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1033, have determned and
hereby procam that beneft payments are to be made wth respect to hogs,
a basc agrcutura commodty.
Pas. C. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Presdent,
to make such reguatons wth the force and effect of aw as may be necessary
to carry out the powers vested n hm by ths tte, ncudng reguatons estab-
shng converson factors for any commodty and artce processed therefrom
to determne the amount of ta mposed or refunds to be made wth respect
thereto. ny voaton of any reguaton sha be sub|ect to such penaty, not
n e cess of 100, as may be provded theren.
Par. D. Secton 9(d)7, grcutura d|ustment ct, as amended,
provdes:
In the case of any other commodty, the term processng means any
manufacturng or other processng nvovng a change n the form of the
commodty or ts preparaton for dstrbuton or use, as defned by reguatons
of the Secretary of grcuture and n prescrbng such reguatons the Sec-
retary sha gve due weght to the customs of the ndustry.
Par. . The reguatons, wth respect to the processng ta on
hogs made by the Secretary of grcuture, wth the approva of the
Presdent, dated October 18,1933, as revsed, and, n part, superseded
by reguatons made by the Secretary of grcuture, wth the
approva of the Presdent, dated October 29, 1934, provde:
(1) I do hereby ascertan and prescrbe that for the purposes of sad ct the
frst marketng year for hogs sha begn November 5, 1033.
I do hereby fnd that the rate of ta as of November 5, 1033, whch equas
the dfference between the current average farm prce for hogs and the far
e change vaue of hogs, whch prce and vaue, both as defned n sad ct,
have been ascertaned by me from avaabe statstcs of the Department of
grcuure, w cause such reducton n the quantty of hogs, or products
thereof, domestcay consumed as to resut n the accumuaton of surpus
stocks of hogs, or products thereof, or n the depresson of the farm prce
of hogs. I do accordngy hereby determne: s of November 5, 1033, that
the rate of the processng ta on the frst domestc processng of hogs sha
be ffty (50) cents per hundred (100) weght, ve weght as of December 1,
1933, that the rate of the processng ta on the frst domestc processng of
hogs sha be one (1) doar per hundred (100) weght, ve weght as of
ebruary 1, 1034, that the rate of the processng ta on the frst domestc
processng of hogs sha be one (1) doar ffty (50) cents per hundred (100)
weght, ve weght as of March 1, 1934, that the rate of the processng ta
on the frst domestc processng of hogs sha be two (2) doars twenty-fve
(25) cents per hundred (100) weght, ve weght, whch sad rate, as of the
effectve date thereof, w prevent the accumuaton of surpus stocks and
depresson of the farm prce of hogs.
I. Defntons.
(2) The foowng terms, as used n those reguatons, sha have the mean-
ngs hereby assgned to them:
rst domestc processng. The term frst domestc processng moans the
saughter of hogs for market e cept that (a) n the case of a producer or
feeder who sha dstrbute the carcass or any edbe hog product drecty to
a consumer, the term frst domestc processng menus the preparaton of
the carcass or any edbe hog product for sae, transfer, or e change or for use
by the consumer, and ony the edbe product or products so sod, transferred,
e changed or dstrbuted by or for the producer or feeder sha be deemed to
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Msc.
452
have been processed, and ( ) In the case of a producer or feeder who sha
se, transfer, or e change any carcass or edbe hog product (1) to any person
engaged n reseng, rehandng, cuttng, trmmng, renderng, or otherwse
preparng such products for market (ncudng, but not mted to, retaers,
whoesaers, dstrbutors, butchers, packers, factors, or commsson merchants),
or (2) to any restaurant, hote, cub, hospta, nsttuton, or estabshment of
smar knd or character, the term frst domestc processng means the nta
act of such person, restaurant, hote, cub, hospta, nsttuton, or estabshment
whch nvoves the preparaton of the carcass or any edbe hog product for
further dstrbuton or use.
Saughterng. Saughterng s the actua kng of hogs. ogs condemned
by an authorzed edera, State, county, or muncpa nspector as beng totay
unft for human food sha not be consdered hogs saughtered for market
wthn the meanng of these reguatons.
Lve weght. Lve weght s the weght of the ve anma at the tme of
saughter. owever, the actua weght at the tme of purchase may be used
as the ve weght n the meanng of these reguatons, provded the hogs are
saughtered wthn three (3) days after the date of such weghng. When any
prma part or edbe porton of the vscera has been condemned as a resut
of the frst postmortem nspecton made pror to the cuttng of the carcass nto
parts, by any edera, State, county, or muncpa authorty, as beng unft
for human food, the equvaent ve weght of such condemned part sha not
be ncuded n the ve weght sub|ect to the processng ta provded, however,
that the processor of such condemned part sha show by hs affdavt the
actua weght thereof the actua weght so shown sha be restored to a ve-
weght bass by usng the converson factor prescrbed for such part n the
tabes of converson factors heren, e cept that the converson factor for the
edbe porton of condemned vscera sets sha be 50 per cent.
Carcass. Carcass s the anma body after the bood, har, toes, and vscera
have been removed.
Wtshre. Wtshre s haf of a hog carcass wth head, feet, and part of
ow removed consstng of the ham, sde, and shouder n one pece.
Cumberand. Cumberand s smar to a Wtshre e cept that the ham s
removed.
Cuts. Cuts are the varous parts nto whch the hog carcass s dvded n the
operaton of convertng the carcass nto products whch go nto commerca
trade.
am. ham s that part of the hog carcass whch conssts of the hnd eg
e tendng from the foot to the backbone (not ncusve). It may ncude part
or a of the hock and part or a of the pevc bone.
Reguar ham. reguar ham s a ham, ether ong-cut or short-ctt, from
whch skn has not been removed. Ths cassfcaton Incudes such styes as
mercan, ngsh, Itaan, and a other varetes of unsknned hams.
Sknned ham. sknned ham s a ham. ether ong-cut or short-cut, of any
descrpton from whch a or part of the skn has been removed.
oneess ham. boneess ham s a ham of any descrpton from whch a of
the bone has been removed.
Rough shouder. rough shouder s that part of the hog carcass e tendng
from near the thrd rb to but not ncudng the |ow, wth the foot removed.
Reguar shouder. reguar shouder s a rough shouder wth neck and rb
bones removed. Ths cassfcaton ncudes such styes as ngsh, New York,
New Oreans, and a other varetes of unsknncd shouders.
Sknned shouder. sknned shouder s a reguar shouder from whch part
or a of the skn has been removed.
Pcnc. pcnc s a cut comprsng about the ower two-thrds of the shou-
der. Ths cassfcaton ncudes reguar shank, short shank, ghankess, and
sknned or unsknned pcncs and aso shanks (sometmes caed hocks) whch
may have been prevousy separated.
oneess pcnc. boneess pcnc s a pcnc of any descrpton from whch
a of the bone has been removed.
Shouder butt. shouder butt s the top porton of the shouder whch s
removed from the shouder n makng a pcnc.
utt. The butt s the porton of the shouder butt after remova of pate.
Ths cassfcaton ncudes such styes as oston, Mwaukee, uffao, and a
other types of butts e cept boneess butts.
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453
Msc.
oneess butt. boneess butt s a oston or other stye butt wth bone
removed.
Pate. pnte s the fat porton of the shouder butt.
ough short rbs. Rough short rbs are the mdde porton of the hog carcass
after remova of the hams and shouders.
Short rbs. Short rbs are the rough short rbs wth the backbone and ten-
deron removed.
tra short rbs. tra short rbs are the rough short rbs wth the on
removed.
Short cears. Short cears are the rough short rbs wth the backbone, spare-
rbs, and tenderon removed.
tra short cears. tra short cears are the rough short rbs wth the
on and sparerbs removed.
b back. The rb back s the upper haf of the rough sde wth the tender-
on removed.
Pork on. Pork on s that porton of the sde of the carcass from whch
the bey and fat back have been removed t usuay contans the backbone,
back rbs, and tenderon and has but a sma amount of fat on the outsde.
Ths cassfcaton, however, ncudes badeess on, tenderon, and boneess
on, ether domestc tr|m or Canadan stye.
at back. at back s that porton of the sde whch remans after remova
of the pork on and bey. Ths cassfcaton ncudes sknned, uusknned, and
ong-cut and short-cut fat backs.
Sparerbs. Sparerbs are the meaty rbs taken from the sde n haf or whoe
Sheets.
e/ (when cured and smoked, commony known as bacon)
Dry sat trm (commony known as bey D. S. trm ) : Te roughy trmmed
porton of the rough sde remanng after remova of on and fat backs and
Incudng or e cudng sparerbs, whether or not put down n dry sat
Pcke trm (commony known as bey S. P. trm ) : Same as above e cept
trmmed reasonaby square. Ths cassfcaton ncudes ngsh stye bees and
a bey cuts not otherwse descrbed, ncudng fancy trmmed bees and
brskets.
rskets. rskets are peces removed from the shouder ends of bees.
ow. |ow s the cheek and part of the neck. Ths cassfcaton ncudes
ow butts and bacon squares.
ead. The head s the hog sku and |awbones wth attached organs and
feshy coverng, e cept the |ows.
Trmmngs. The trmmngs are the boneess meat of a degrees of ean and
fat derved from any porton of the hog carcass whch has ost ts dentty as a
ma|or cut.
oot. The foot s that part of the front or hnd eg from appro matey the
knee ont downward.
Neck bones. Neck bones are bones of the neck wth adherng fesh after
remova from the rough shouder.
Cheek meat and tempe meat. Cheek meat and tempe meat consst of the
feshy coverng of the upper |awbone and forepart of sku.
Lard. Lard s edbe hog fat after renderng. Ths ncudes refned and un-
refned ard, neutra ard, and eaf ard. Unendcrcd fats shoud be converted
to a ard yed bass.
scera. scera are the ntestnes, wth ther contents, and vta organs of
the body cavtes, wth ther attached fats.
dbe offa. dbe offa are the varous edbe products obtaned from hog
vscera and hog heads aso the hog feet and tas.
Inedbe offa. Inedbe offa are the varous nedbe products obtaned n the
saughter of hogs, consstng argey of bood, har, brstes, parts of the vscera
and ther contents, and skn.
Tankage. Tankage s the resdue from renderng or cookng operatons In
the producton of ard or grease from hog products.
resh, ched, or green meat. resh, ched, or green meat s meat whch
has not been sub|ected to any preservatve treatment, such as cookng, dryng,
freezng, or the use of curng agents.
rozen meat. rozen meat s fresh meat hed beow the freezng temperature
of such meat.
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454
In cure. In cure (usuay caed by the trade n process of cure ) s
meat under treatment of curng or preservatve agents. Ths ncudes a meat
packed as barreed pork.
Cured meat. Cured meat s meat whch has gone through a compete curng
or preservatve process.
Ptt down or pack. To pace meat n cure.
Smoked meat. Smoked meat s meat e posed to a smokng treatment.
Cooked meat. Cooked meat s meat e posed to a cookng treatment.
Canned meat. Canned meat s meat cooked and packed n hermetcay
seaed meta or gass contaners.
Dred meat. Dred meat s meat preserved by a dryng treatment.
Genera. arreed pork s to be cassfed accordng to the cut from whch
derved, and reported on bass of put-down green weght.
Sausage. Sausage s chopped or ground meat composed whoy or n chef
vaue from pork and seasoned. It may be n buk, or stuffed n anma casngs,
or packed n other contaners.
resh sausage. resh sausage s sausage made of fresh or frozen meat and
not sub|ected to a treatment of smokng, cookng, or dryng.
Smoked and/or cooked sausage. Smoked and/or cooked sausage s sausage
made from fresh, frozen, or cured meat and further treated by smokng or
cookng, or both, but not treated by dryng.
Dred sausage. Dred sausage s sausage made from fresh, frozen, or cured
meat and further treated by dryng. It may be further treated by smokng or
cookng, or both. It ncudes a eerveates, saams, and mettwursts of Itaan,
Gorman, Posh, or other styes.
Luncheon meats. Luncheon meats are m tures prepared for eatng wth-
out further cookng and ncude such artces as pork oaf, sandwch meat,
head cheese, souse, and smar combnatons. Ths cassfcaton does not
ncude canned ons or canned tongue whoe or part peces of canned ham,
whch are derved from hams canned deved ham, canned spced ham, and
canned spced uncheon meats whch are derved from trmmngs. They are
to be consdered as cooked products of the cuts from whch derved and are
sub|ect to the converson factor prescrbed therefor.
eeder. The term feeder means any ndvdua or ndvduas, actvey
and reguary engaged n the fattenng of hogs for market, or n farmng
operatons, a part of whch s the fattenng of hogs, e cept retaers, whoe-
saers, or dstrbutors of meat, butchers, abattors, saughterhouses, packers,
factors, or commsson merchants.
Producer. The term producer means the ndvdua or ndvduas who
own the hog at the tme of farrowng.
Preparaton of the carcass of any edbe hog product. The term prepara-
ton of the carcass or any edbe hog product means the preparaton, con-
verson, and/or devery of any hog carcass or any edbe hog product, ncud-
ng, but not mted to, any operaton connected wth recevng, handng, stor-
ng, wrappng, cuttng, trmmng, and/or renderng any hog carcass or any
edbe hog product.
Prma parts. The term prma parts means the commercay so-desg-
nated sectons, cuts, or parts of the dressed carcass (Incudng, but not mted
to, such parts as shouders, hams, bees, tongues, vers, and heads) before
they have been cut, shredded, or otherwse subdvded as a premnary to use
n the manufacture of meat products.
Green weght. The term green weght means the weght of any hog
product In ts fresh state, after chng and before any manufacturng opera-
ton (ncudng, but not mted to, such operatons as freezng, curng, cookng,
or dryng) has been performed.
II. Converson actors.
(3) I do hereby estabsh the foowng converson factors for artces proc-
essed from hogs, to determne the amount of ta Imposed or refunds to be
made wth respect thereto:
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455
Msc.
. The foowng tabe of converson factors f es the percentage of the per
pound processng ta on hogs wth respect to a pound of the foowng artces
processed whoy or n chef vaue from hogs:
rtce.
Carcass:
ead and eaf ncuded.
ead ncuded, eaf removed-
ead removed, eaf ncuded.
ead and eaf removed
Wtshre sde
Cumberand sde
Reguar ham
Sknned ham
oneess ham
Rough shouder
Reguar shouder
Sknned shouder
Pcnc
oneess pcnc
Shouder butt and butt
oneess butt
Pate ....
Rough short rbs, short rbs,
e tra short rbs, short cears,
e tra short cears, rb back...
Pork on
at back
Sparcrbs ,
ey D. S. trm
ey S. P. trm, brskets
ow
ead..
Trmmngs
Neckbones
eet -
Tas
Lvers, hearts, and kdneys
Snoute, ears, ps, and mscea-
neous edbe offa
Cheek meat
rans
Tongues
Lard... --
Pork sausage
Dred sausage (ncudng cerve-
ats and saams)
Luncheon meats (ncudng pork
oaf, head cheese, souse, and
sandwch meat)
Inedbe offa
Converson factor.
resh,
Cured.
frozen, n
Cooked,
cure, or
Smoked.
dred, or
barreed
pork.
Dry sat.
cke.
canned.
Per cent.
Per cent.
Per cent.
Per cent.
Per cent.
132
132
125
140
178
134
134
127
142
181
138
138
131
14
18
139
139
132
147
188
145
145
138
154
19
132
132
125
140
178
194
194
184
20
242
219
219
205
229
292
252
252
239
2 7
340
85
85
81
90
115
89
89
8
94
120
94
94
89
100
127
7
7
72
81
103
99
99
95
105
129
123
123
11
130
1
179
179
170
190
242
80
80
7
85
108
135
135
129
143
182
21
21
205
229
292
87
87
83
92
117


3
70
89
124
124
118
131
1 7
180
180
171
191
243
80
80
7
85
108
0
0
58
3
81
80
80
7
85
108
19
19
18
20
2
19
19
18
20
2
44
44
42
47
59
44
44
42
47
59
22
22
21
23
30
88
88
84
94
118
44
44
42
47
59
1
1
157
17
224
110
80
80
7
85
112
0
0
57
3. 75
84
7
7
72. 20
81. 75
10 . 40
0
0
0
0
0
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Msc.
45
. In the event that any ta payer or person entted to a refund estabshes
that any or a of the types of sausages, processed whoy or In chef vaue
from hogs, on whch a ta s mposed, or whch may be the sub|ect of a cam
for refund, whch are ncuded n the above st, contan more or ess pork,
green weght, than represented by the sted converson factor, then the
converson factor, for each pound of pork whch sad sausages are estabshed to
contan, sha be the foowng percentage of the per pound processng tar
on hogs:
(a) If fresh meat, 80 per cent.
(o) If cured, dry sat meat, SO per cent.
(c) If cured, sweet pcke meat, 70 per cent.
( /) If smoked meat, 85 per cent.
(c) If cooked, dred or canned meat, 112 per cent.
C. The foowng tabe of converson factors f es the percentage of the
per pound processng ta on hogs wth respect to a pound of the foowng
hog products sod drecty to the consumer by the producer or feeder of the
hogs:
rtce.
Dressed carcass
Lard
fresh, frozen, n cure, or barreed pork, dry sat cured pork
pcke-cured pork
smoked pork
cooked, dred or canned pork
Converson
factor.
D. When any edbe product for whch no specfc converson factor s pre-
scrbed n these reguatons (1) s whoy or party of pork and s sub|ect to the
payment of a compensatng ta or wth respect to whch a refund of ta s
aowabe upon e portaton or wth respect to whch a credt or refund of tu s
aowabe by reason of the devery thereof for chartabe dstrbuton or use, or
(2) s whoy or n chef vaue of pork and s sub|ect to the payment of a foor
stocks ta or wth respect to whch a credt or refund of ta upon foor stocks s
aowabe, such ta sha be pad or such credt or refund sha be aowed wth
respect to the sad product on the amount of the pork content thereof, accordng
to the converson factor prescrbed for each cut from whch the pork contaned
n such product was derved.
III. emptons.
(4) In my |udgment, the mposton of the processng ta upon hogs processed
by the producer thereof who ses drecty to or e changes drecty wth the
consumer not more than three hundred (300) pounds of the products derved
therefrom, durng any marketng year, s unnecessary to effectuate the decared
pocy of the ct. ccordngy, I do hereby e empt from the processng ta ,
hogs processed by the producer thereof who ses drecty to or e changes d-
recty wth the consumer not more than three hundred (300) pounds of the
products derved therefrom, durng any marketng year: Provded, however.
That f the producer processes hogs produced by hm and ses drecty to or
e changes drecty wth the consumer durng any marketng year, products
derved therefrom n e cess of three hundred (300) pounds, but does not se
or e change n e cess of one thousand (1,000) pounds, he sha be entted
to the foregong e empton, but sha pay the processng ta on the e cess
above three hundred (300) pounds, restored to a ve-weght bass by use
of the converson factors prescrbed as provded heren n paragraphs C and
D under the headng II. Converson factors. Provded further. That f
the producer processes hogs produced by hm and ses or e changes more
than one thousand (1,000) pounds of the products derved therefrom, durng
any marketng year, he sha not be entted to the foregong e empton.
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457
Msc.
When hogs are owned on a share bass, the foregong e empton sha be
apportoned between the |ont owners thereof on the bass of ther respectve
shares.
When a producer has processed hogs produced by hm and has sod, durng
the marketng year, products derved therefrom n e cess of one thousand
(1,000) pounds, and has faed to pay the processng ta on hogs for the month
n whch the sad hogs were processed, due to a reance on the foregong e -
empton, then he sha be abe for the processng ta upon a of the hogs,
ve weght, theretofore processed, wth respect to whch no processng ta
has been pad, as for the month n whch the hog products sod e ceeded one
thousand (1,000) pounds, at the rate of ta n effect on the date of processng.
To restore the hog products sod to a ve-weght bass, the producer sha use
the converson factors prescrbed as provded heren n paragraphs C and D
under the headng II. Converson factors.
When the hogs are processed by the producer, It w not be necessary for
the producer to furnsh an affdavt, or wtnessed statement, upon the process-
ng of hogs for sae or e change by hm, of the hog products sod or e changed,
to the e tent of the foregong e empton and toerance aowance, and/or upon
the processng of hogs by or for the producer thereof for consumpton by hs own
famy, empoyees, or househod, of the hogs saughtered for that purpose, pro-
vded the producer keeps a wrtten record showng the date on whch the hogs
were saughtered the number of hogs saughtered the ve weght of the hogs
saughtered (or where not practcabe, an estmate of the ve weght of the
hogs and the bass used n arrvng at ths estmate) the hog products sod,
the weght thereof, the prce pad therefor, the date of the sae, and (where
practcabe) the name and address of the person to whom sod the hog prod-
acts consumed by hs own famy, empoyees, or househod and the actua or
estmated weght thereof and the ve weght of hogs processed by or for the
producer thereof, hs own famy, empoyees, or househod, together wth the
name and address of the processor thereof.
The provsons of these reguatons sha take effect as of November 1, 1934.
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. G. Secton 15(e) of the grcutura d|ustment ct, as
amended, provdes n part:
Durng any perod for whch a processng ta s n effect wth respect to any
commodty there sha be eved, assessed, coected, and pad upon any artce
processed or manufactured whoy or party from such commodty and m-
ported nto the Unted States or any possesson thereof to whch ths tte ap-
pes, from any foregn country or from any possesson of the Unted States
to whch ths tte does not appy, whether mported as merchandse, or as a
contaner of merchandse, or otherwse, a compensatng ta equa to the amount
of the processng ta n effect wth respect to domestc processng of such com-
modty at the tme of mportaton:
Par. . Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested n hm by ths tte.
Par. I. Secton 1101, Revenue ct of 192 , made appcabe by
ecton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (a) processng ta on the frst domestc processng
of hogs became effectve at the earest moment of November 5, 1933. com-
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458
pensatng ta became effectve wth respect to a artces processed or manu-
factured whoy or n chef vaue from hogs, and mported on or after Novem-
ber 5, 1933. compensatng ta became effectve wth respect to a artces
processed or manufactured whoy or party from hogs, and mported after
11.23 a. m., eastern standard tme, May 9, 1034. See secton 15(e) of the gr-
cutura d|ustment ct as amended by the ct approved May 9,1934 (48 Stat.,
G70), quoted n paragraph G, above.
The present rate of processng ta s gven n artce 2 of these reguatons.
The present compensatng ta on each pound of the varous hog products s
gven n artce 4 of these reguatons.
( ) or reguatons reatng to the processng ta and compensatng ta con-
sut Reguatons 81 and for reguatons reatng to e portaton under secton 17
of the ct consut Reguatons 83, September, 1934, edton, whch are genera
reguatons under the grcutura d|ustment ct, as amended. Reguatons
81 and Reguatons 83, September, 1934, edton, are suppemented by the regu-
atons contaned n ths Treasury decson.
(c) Wth respect to hogs, and artces processed therefrom, the date, Novem-
ber o, 1933, when the processng ta wth respect to hogs frst took effect, s the
effectve date as defned and used n Reguatons 81 and Reguatons 83,
September, 1934, edton. See paragraph (), above, for the dates subsequent
to November 5, 1933, when ncreased rates of processng ta became effectve.
(d) The varous defntons set forth n the reguatons of the Secretary of
grcuture n paragraph (2), above, are hereby made a part of these regua-
tons.
bt. 2. Processng ta . ( ) The rate of procesng ta on the frst domestc
processng of hogs, n force snce the earest moment of March 1, 1934, s 2.25
per hundredweght, ve weght.
( ) Wthn the meanng of the term frst domestc processng of hogs as
defned n paragraph (2) there are three casses of persons who may be abe
for the processng ta on hogs, namey:
Cass 1. person, other than a producer or a feeder, who saughters hogs for
market
Cass 2. person who receves, by sae, transfer, or e change, from a
producer or feeder the carcass of a hog, or any edbe hog product, and who
prepares such carcass or product for further dstrbuton or use. s so used,
the term person means any person engaged n reseng, rohandng, cuttng,
trmmng, renderng, or otherwse preparng such product for market (ncud-
ng, but not mtng to, retaers, whoesaers, dstrbutors, butchers, packers,
factors, or commsson merchants), and ncudes any restaurant, hote, cub,
hospta, nsttuton, or es abshment of smar knd or character and
Cass 3. producer or feeder wth respect to a hog carcass or other edbe
hog product sod drecty to, or e changed drecty wth, consumers.
The form prescrbed for return of processng ta by a processor n cass 1,
s P. T. orm 4 n cass 2, P. T. orm 4 and n cass 3, P. T. orm 4 .
Returns on these forms must be fed n dupcate wth the coector for the
dstrct n whch the prncpa pace of busness of the processor s ocated
on or before the ast day of the month foowng the month n whch the
processng s done. The amount of ta shown to be due on each such return
must be pad at the tme when the return s fed, or f the tme for payment
be postponed, then at the tme or tmes desgnated for payment n such post-
ponement.
(C) Processors n cass 1. ach processor n cass 1 (other than a producer
or feeder) who saughters hogs for market sha fe for each caendar month
a return on P. T. orm 4 n accordance wth the nstructons prnted on the
form and n accordance wth these reguatons. Such processor sha attach to
and make a part of hs return when fed, a statement, n dupcate, wth
respect to the parts of hogs condemned durng the month, showng (1) the
name of each such part, (2) the actua weght thereof, (3) the converson
factor appcabe for determnaton of the equvaent ve weght, and (4) the
equvaent ve weght of such part. or appcabe converson factors see
paragraph (3), above. Credt may be taken ony for a prma part or edbe
porton of the vscera whch has been condemned, as a resut of the frst post-
mortem nspecton made pror to the cuttng of the carcass nto parts, by any
edera, State, county, or muncpa authorty, as beng unft for human food.
See defnton of ve weght n paragraph (2). If the vscera set of a hog Is
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459
Msc.
condemned and the weght of the edbe portons thereof can not be ascertaned
by actua weghng, 2 per cent of the weght of the ve hog from whch such
vscera set was derved may be consdered as the equvaent ve weght of such
edbe portons.
ach processor In cass 1 sha keep a record showng for each caendar month,
(1) the number and ve weght of hogs on hand at the begnnng of the month,
(2) the number and ve weght of hogs receved durng the month, (3) the
number and ve weght of hogs shpped or devered durng the month, (4) the
number and ve weght of hogs destroyed or otherwse dsposed of (urng the
month, (5) the number and ve weght of hogs on hand at the end of the month,
and ( ) the number and ve weght of hogs put In process durng the month.
The ve weght must be ascertaned by actua weghng on accurate scaes and
not by estmaton. Such person sha aso keep a record of the products- of such
processng, and preserve accurate accounts of a transactons nvoved n any
way n any cam for refund, for abatement, or for credt, and of processng
e empt from ta .
(D) Processors n cass 2. ach processor n cass 2, wth respect to hog
carcasses or other edbe hog products receved from a producer or feeder, and
prepared for further dstrbuton or use, sha report each such product so
prepared n monthy return on P. T. orm 4 . ach such person who s aso a
processor of hogs n cass 1 sha e ecute P. T. orm 4 and P. T. orm 4 n
accordance wth the nstructons prnted thereon and n accordance wth these
reguatons. The tota ta shown to be due on P. T. orm 4 sha be entered
on ne 11 of P. T. orm 4 and ncuded wth the tota ta shown by that return
to be due. The orgna and dupcate copes of P. T. orm 4 sha be securey
attached to the respectve orgna and dupcate copes of P. T. orm 4 and
made a part of such return.
ach processor n cass 2 sha keep a record showng for each caendar month
(1) the date of recept of the carcasses or other edbe hog products from a
producer or feeder, (2) the name and address of the producer or feeder from
whom such products were receved, (3) an e act descrpton of ench such prod-
uct conformng wth the descrpton thereof n paragraph (3), above, and (4)
the actua weght of each such product.
( ) Processors n cass 3. ach producer-processor or feeder-processor of
hogs n cass 3 who ses drecty to, or e changes drecty wth, consumers, car-
casses or other edbe hog products derved from hogs processed by hm, or who
sha se, transfer, or e change any such product (1) to any person engaged n
reseng, rehandng, cuttng, trmmng, renderng, or otherwse preparng
such products for market, or (2) to any restaurant, hote, cub, hospta. Insttu-
ton, or estabshment of smar character, sha fe for the month of November,
1934, and for each subsequent caendar month a return of such transactons on
P. T. orm 4 n accordance wth nstructons prnted thereon. Ony such
products sod drecty to, or e changed drecty wth, consumers by the pro-
ducer or feeder sha be deemed to have been processed by the producer or
feeder. See subdvson ( ), beow, and paragraph (4), above, reatve to
e empton n the case of a producer-processor wth respect to saes drecty to,
or e changes drecty wth, consumers.
( ) empton. (a) producer who processes hogs produced by hm and
who, durng any marketng year, ses drecty to, or e changes drecty wth,
consumers not more than 300 pounds of the products derved therefrom, s
e empt from processng ta on the ve-weght equvaent thereof, computed n
accordance wth the converson factors prescrbed, as set forth beow. Ths
e empton s appcabe ony wth respect to hogs owned by the producer from
the tme they were farrowed. feeder-processor s not entted to, and may not
cam, any e empton wth respect to saes, transfers, or e changes of hog
products made by hm.
( ) producer who processes hogs produced by hm and who, durng any
marketng year, ses drecty to, or e changes drecty wth, consumers, products
derved therefrom n e cess of 300 pounds but not In e cess of 1,000 pounds sha
be entted to the e empton on 300 pounds of such products but sha pay the
processng ta on the e cess above 300 pounds. The processng ta on such
e cess sha be computed on a ve-weght bass n accordance wth the conver-
son factors herenafter set forth.
(c) When two or more ndvduas produce a hog, the e empton as to 300
pounds sha be apportoned between the |ont producers thereof on the bass of
ther respectve shares.
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4 0
(d) producer who processes hogs produced by m and who ses drecty to,
or e changes drecty wth, consumers durng any marketng year more than
1,000 pounds of the products derved therefrom sha not be entted to the above
e empton of 300 pounds. When such tota saes or e changes frst e ceed 1,000
pounds, the producer becomes abe for the processng ta on the ve-weght
equvaent of a products derved from hogs processed, whch were sod or
e changed by hm snce the begnnng of the marketng year. The return of
such producer-processor for the month n whch such tota saes or e changes
durng the marketng year frst e ceed 1,000 pounds sha Incude the 300 pounds
whch woud have been e empt e cept for such e cess.
(e) or the purpose of determnng the amount of ta to be pad, the producer
sha use the converson factors set forth beow to restore to a ve-weght bass
the hog products sod or e changed:
rtce.
Converson
factor.
Dressed carcass
Lard
fresh, frozen, n cure, or barreed pork, dry sat-cured pork
pcke-cured pork
smoked pork
cooked, dred, or canned pork
Ptr cent.
132
110
132
125
140
17S
(f) ach producer or feeder sha keep a wrtten record showng: (1) the
date on whch the hogs were saughtered (2) the number of hogs saughtered
(3) the ve weght of the hogs saughtered (or f that s not practcabe, an
estmate of the ve weght of the hogs and the bass used In arrvng at ths
estmate) (4) the hog products sod or e changed (5) the weght thereof
(0) the date of the sae or e change (7) the name and address of the person
to whom sod or e changed, and f to persons other than consumers, the bus-
ness of each such persons. Such record sha be retaned on the premses of
the producer, and sha be open for nspecton by any nterna revenue offcer.
bt. 3. Compensatng ta on mported artces. compensatng ta became
effectve wth respect to a artces processed or manufactured whoy or n
chef vaue from hogs, and mported on and after November 5, 1933, Into the
Unted States or any possesson thereof to whch the ct appes, from any
foregn country or from any possesson of the Unted States to whch the ct
does not appy. compensatng ta became effectve wth respect to artces
processed whoy or party from hogs, and mported after 11.23 a. m., May 9,
1934. The ta appcabe to such artces s gven n artce 4 of these regu-
atons. or detaed reguatons as to ths ta consut Chapter I of Regu-
atons 81, as amended by Treasury Decson 4501, approved December 4, 1934
C. . III-2, 524 .
bt. 4. Rates of ta or of refund wth respect to artces processed from
hops. (a) ffectve March 1, 1934, the rates of compensatng ta or of refund,
wth respect to artces processed from hogs, are as foows:
Rates of ta shown are cents per pound.1
resh, fro-
Cured.
Cooked,
rtce.
zen, In cure,
or barreed
pork.
Smoked.
dred, or
(stoned.
Carcass:
Dry sat.
Pcke.
ead and eaf ncuded
2. 97
2. 97
2.
81
3.
15
4. 00
ead ncuded.eaf removed.
3. 01
3. 01
2.
85
3.
19
4.07
ead removed, eaf ncuded.
3. 10
3. 10
2.
94
3.
28
4. 18
ead and eaf removed
3. 12
3. 12
2.
97
3.
30
4.23
Wtshre sde
3. 2
3. 2
3.
10
3.
4
4. 41
2. 97
3. 97
2.
81
3.
15
4.00
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4 1 Msc.
Rates of ta shown are cents per pound
resh, fro-
tan, n cure.
Cured.
Cooked,
rtce.
or barreed
fork.
Smoked.
dred, or
canned.
Dry sat.
Pcke.
4. 3
4. 3
4.
14
4.
3
5.
44
4. 92
4. 92
4.
1
5.
15
.
57
oneess hsm
5. 7
5. 7
5.
37
.
00
7.
( .-
Rough shouder
1. 91
1. 91
1.
82
2.
02
2.
58
2. 00
2. 00
1.
93
2.
11
2.
70
Sknned shouder..
2. 11
2. 11
2.
00
2.
25
2.
85
Pcnc
1. 71
1. 71
1.
2
1.
82
2.
31
oneess pcnc ..
2. 22
2. 22
2.
13
2.
3
2.
90
Shouder butt and butt
2. 7
2. 7
2.
1
2.
92
3.
7:
oneess butt
4. 02
4. 02
3.
82
4.
27
5.
44
Rough short rbs, short rbs,
e tra short rbs, short cears,
e tra short cears, rb back...
3. 03
3. 03
2.
90
3.
21
4.
09
4. 8
4. 8
4.
1
5.
15
.
57
at back
1. 95
1. 95
1.
8
2.
07
2.
03
Sparerbs
1. 48
1. 48
1.
41
1.
57
2.
00
ey D. S. trm.. .
2. 79
2. 79
2.
5
2.
94
a
75
ey S. P. trm and brskets
4. 05
4. 05
3.
84
4.
29
5.
10
Pate, |ow, and trmmngs. ...
1. 80
1. 80
1.
71
1.
91
2.
43
ead
1. 35
1. 35
1.
30
1.
41
1.
.82
Neck bones and feet
. 42
. 42
40
45
58
Tas, vers, hearts, kdneys,
and brans
. 99
. 99
94
1.
05
1.
32
Snouts, ears, ps, and msce-
aneous edbe offa
. 49
. 49
.
47
51
.
7
1. 98
1. 98
89
2.
11
5
3. 73
3. 73
3.
53
3.
9
5.
04
Lard
2. 47
Dred sausage (ncudng cerve-
1. 80
1.80
1.
71
1.
91
2.
52
Luncheon meats (ncudngpork
ats and saams) ._
1. 35
1. 35
1.
28
1.
43
1.
SO
oaf, head cheese, souse, and
sandwch meat)
1. 71
1. 71
1.
2
1.
83
2
Sausage, pork content .
1. 80
1. 80
1.
71
1.
91
39
2.
52
M) If the ta payer or person entted to refund can show to the satsfacton of the
Commssoner that any or a of the types of sausages processed whoy or n chef vaue
from hogs, on whch a ta s mposed, or whch may be the sub|ect of a cam for refund,
whch are ncuded n the above st, contan more or ess pork, green weght, than
represented by the converson factor prescrbed therefor, then for each pound of pork.
reen weght, whch sad sausages are shown to contan, the rate of ta appcabe n
such case sha be the respectve rate for pork sausage shown n the schedue above.
The whoe (actua) weght, as we as the tota pork content, sha be reported.
12) In th case of an edbe product not. named above, whch ( ) s whoy or party
of pork, and Is sub|ect to t e payment of a compensatng ta , or wth respect to whch
a refund of ta s aowabe upon e portaton, or wth respect to whch a credt or
refund of ta s aowabe by reason of the devery thereof for chartabe dstrbuton or
use, or (b) s whoy or n chef vaue of pork, wth respect to whch a credt or refund
of ta upon foor stocks s aowabe, the amount of ta to be pad, or credt or refund
to be aowed, sha he based upon the pork content thereof at the rate trven above for
each cut from whch the pork contaned n such product was derved. Wth respect to
each such product there sha be entered on (he cam (a) the whoe (actua) wegnt, (b)
the pork content, and (c) the rate of ta , correspondng wth that shown for the cut
In the schedue above.
(8) The estabshment of the pork content of products as provded n (1) and (2),
above, sha be substantated by authentc records or other satsfactory proof.
rt. 5. orm . To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as-
requred by the appcabe provsons of Reguatons 81, or Reguatons 83
(September, 1934, edton), and must be carefuy fed out n e act accordance
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wth the appcabe provsons of the proper reguatons and the nstructons
contaned on such form. The foowng forms wth respect to hogs are hereby
prescrbed:
orm No.
P. T. orm 4 ...
P. T. orm 4 __.
P. T. orm 4 ,
revsed.
P. T. orm 24...
P. T. orm 24C.
P. T. orm 27.
P. T. orm 28-
Desgnaton.
Return of processor of hogs
other than a producer or
feeder who saughters for
market cass 1.
Return of processor of hogs
cass 2.
Return of producer-processor
or feeder-processor of hogs
cass 3.
Cam for refund of ta es ega-
y coected.
Cam for refund of, or credt for,
ta pad wth respect to art-
ces devered for chartabe
dstrbuton or use.
Cam for refund of ta pad wth
respect to artces e ported.
Cam for credt, on return, of
overpayment.
Requred by-
rtce 2(c), above.
rtce 2(d), above.
rtce 2(c), above.
Reguatons 81, artce
31(a).
Reguatons 81, artce 32,
as amended.
Reguatons 83, revsed.
Reguatons 81, artce
31( ).
rt. . ffectve date. Treasury Decson 4425, approved March 20, 1934
C. . III-1, 459 , sha reman n force and effect n so far as t reates to
abty for ta ncurred and refund accrued pror to November 1, 1934, e cept
that t sha not reman n force and effect n so far as t reates to compensatng
ta ncurred and refund of compensatng ta and e port refund accrued after
11.23 a. m., eastern standard tme, May 9, 1934. These reguatons sha be n
force and effect as of the earest moment of November 1, 1934, e cept that they
sha be n force and effect as of 11.23 a. m., eastern standard tme, May 9,
1934, n so far as they reate to abty for compensatng ta ncurred and to
refund of compensatng ta and e port refund accrued after that tme.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved anuary 25, 1935.
T. . Cooudge,
ctng Secretary of the Treasury.
I -21-751
T. D.4549
rocessng and other ta es wth respect to sugar beets or sugar-
cane under the grcutura d|ustment ct, as amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, as
amended by secton 9 of the ct approved May 9, 1934, provdes, n
part:
When the Secretary of grcuture determnes that renta or beneft pay-
ments are to be made wth respect to any basc agrcutura commodty, he
sha procam such determnaton, and a processng ta sha be n effect wth
respect to such commodty from the begnnng of the marketng year therefor
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Mso.
ne t foowng the date of such procamaton e cept that, n the case of sugar
beets and sugarcane, the Secretary of grcuture sha, on or before the
thrteth day after the adopton of ths amendment,1 procam that renta or
beneft payments wth respect to sad commodtes are to be made, and the
processng ta sha be n effect on and after the thrteth day after the date
of the adopton of ths amendment. In the case of sugar beets and sugarcane,
the caendar year sha be consdered to be the marketng year and for the
year 1934 the marketng year sha begn anuary 1, 1934.
Pah. . Secton 9(b), grcutura d|ustment ct, as amended
by secton 3(b) of the ct approved May 9, 1934, provdes n part:
In the case of sugar beets or sugarcane the rate of ta sha be apped to the
drect-consumpton sugar, resutng from the frst domestc processng, trans-
ated nto terms of pounds of raw vaue accordng to reguatons to be ssued
by the Secretary of grcuture, and the rate of ta to be so apped sha be
the hgher of the two foowng quotents: The dfference between the current
average farm prce and the far e change vaue (1) of a ton of sugar beets
and (2) of a ton of sugarcane, dvded n the case of each commodty by the
average e tracton therefrom of sugar n terms of pounds of raw vaue (whch
average e tracton sha be determned from avaabe statstcs of the Depart-
ment of grcuture) e cept that such rate sha not e ceed the amount of the
reducton by the Presdent on a pound of sugar raw vaue of the rate of duty
In effect on anuary 1, 1934, under paragraph 501 of the Tarff ct of 1930, as
ad|usted to the treaty of commerca recprocty concuded between the Unted
States and the Repubc of Cuba on December 11, 1902, and/or the provsons
of the ct of December 17, 1903, chapter 1.
Par. C. Secton 9(d) , grcutura d|ustment ct, as amended
by secton 2 of the ct approved May 9, 1934, provdes, n part:
In the case of sugar beets and sugarcane
( ) The term frst domestc processng means each domestc processng,
Incudng each processng of successve domestc processngs, of sugar beets,
sugarcane, or raw sugar, whch drecty resuts n drect-consumpton sugar.
( ) The term sugar means sugar n any form whatsoever, derved from
sugar beets or sugarcane, whether raw sugar or drect-consumpton sugar,
ncudng aso edbe moasses, srups and any m ture contanng sugar (e cept
backstrap moasses and beet moasses).
(C) The term backstrap moasses means the commercay so-desgnated
by-product of the cane-sugar ndustry, not used for human consumpton or
for the e tracton of sugar.
(D) The term beet moasses means the commercay so-desgnated by-
product of the beet-sugar ndustry, not used for human consumpton or for
the e tracton of sugar.
( ) The term raw sugar means any sugar, as defned above, manufac-
tured or marketed n, or brought Into, the Unted States, n any form whatso-
ever, for the purpose of beng, or whch sha be, further refned (or mproved
In quaty, or further prepared for dstrbuton or use).
( ) The term drect-consumpton sugar means any sugar, as defned
above, manufactured or marketed n, or brought nto, the Unted States In any
form whatsoever, for any purpose other than to be further refned (or Im-
proved n quaty, or further prepared for dstrbuton or use).
(G) The term raw vaue means a standard unt of sugar testng 9 sugar
degrees by the poarscope. ta es sha be mposed n terms of
raw vaue and for purposes of ta measurements a sugar sha
be transated nto terms of raw vaue accordng to reguatons to be ssued
by the Secretary, e cept that n the case of drect-consumpton sugar produced
n contnenta Unted States from sugar beets the raw vaue of such sugar sha
be one and seven one-huudredths tmes the weght thereof.
Par. D. Secton 10(f), grcutura d|ustment ct, as amended
by secton 7 of the ct approved May 9, 1934, provdes:
(f) The provsons of ths tte sha be appcabe to the Unted States and
Its posssessons, e cept the Phppne Isands, the rgn Isands. mercan
Samoa, the Cana Zone, and the sand of Guam e cept that, n the case of
mendment approved May 9, 1034.
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sugar beets and sugarcane, the Presdent, f he fnds t necessary n order to
effectuate the decared pocy of ths ct, s authorzed by procamaton to
make the provsons of ths tte appcabe to the Phppne Isands, the rgn
Isands, mercan Samoa, the Cana Zone, and/or the sand of Guam.
Par. . The procamaton of the Presdent dated September 11,
1934, provdes n part as foows:
nd whereas I fnd t necessary n order to effectuate the decared pocy of
the aforesad grcutura d|ustment ct to make the provsons of Tte I
thereof appcabe to the Phppne Isands n the case of sugar beets and
sugarcane:
Now, therefore, I, rankn D. Roosevet, Presdent of the Unted States of
merca, under and by vrtue of the authorty vested n me by secton 10(f)
of the grcutura d|ustment ct, as amended, do hereby procam that the
provsons of the grcutura d|ustment ct, as amended, are e tended and
made appcabe to the Phppne Isands n the case of sugar beets and sugar-
cane, effectve as of September 12, 1934.
Par. . Secton 13, grcutura d|ustment ct, as amended by
secton 15 of the ct approved May 9,1934, provdes, n part:
Sec. 13. In the case of sugar beets and sugarcane, the ta es provded by
ths tte sha cease to be n effect, and the powers vested n the Presdent or
n the Secretary of grcuture sha termnate at the end of three years after
the adopton of ths amendment1 uness ths tte ceases to be n effect at an
earer date, as herenabove provded. The Secretary of grcuture shaU make
such nvestgatons and reports thereon to the Presdent as may be necessary
to ad hm n e ecutng ths secton.
Par. G. Secton 15(e), grcutura d|ustment ct, as amended
by secton 11 of the ct approved May 9,1934, provdes, n part:
(e) Durng any perod for whch a processng ta s In effect wth respect
to any commodty there sha be eved, assessed, coected, and pad upon any
artce processed or manufactured whoy or party from such commodty and
mported nto the Unted States or any possesson thereof to whch ths tte
appes, from any foregn country or from any possesson of the Unted States
to whch ths tte does not appy, whether mported as merchandse, or as a
contaner of merchandse, or otherwse, a compensatng ta equa to the amount
of the processng ta n effect wth respect to domestc processng of such com-
modty at the tme of mportaton.
Par. . Secton 1 , grcutura d|ustment ct, as amended by
sectons 10 and 17 of the ct approved May 9, 1934, provdes, n
part:
Seo. 1 . (a) Upon the sae or other dsposton of any artce processed
whoy or n chef vaue from any commodty wth respect to whch a processng
ta s to be eved, that on the date the ta frst takes effect or whoy ter-
mnates wth respect to the commodty, s hed for sae or other dsposton
(Incudng artces n transt) by any person, there sha be made a ta
ad|ustment as foows:
(1) Whenever the processng ta frst takes effect, there sha be eved,
assessed, and coected a ta to be pad by such person equvaent to the
amount of the processng ta whch woud be payabe wth respect to the
commodty from whch processed f the processng had occurred on such date.
Such ta upon artces mported pror to, but n customs custody or contro
on, the effectve date, sha be pad pror to reease therefrom. In the case
of sugar, the ta on foor stocks, e cept the reta stocks of persons engaged
In reta trade, sha be pad for the month n whch the stocks are sod,
or used n the manufacture of other artces, under rues and reguatons pre-
scrbed by the Commssoner of Interna Revenue wth the approva of the
Secretary of the Treasury.

1 mendment approved May 9, 1934.
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(b) Te ta mposed by subsecton (a) sha not appy to the reta stocks
of persons engaged n reta trade, hed at the date the processng ta frst
takes effect bat such reta stocks sha not be deemed to ncude stocks hed
n a warehouse on such date, or such porton of other stocks hed on such date
as are not sod or otherwse dsposed of wthn 30 days thereafter.
(c) (1) ny sugar, mported pror to the effectve date of a processng ta
on sugar beets and sugarcane, wt respect to whch t s estabshed (under
reguatons prescrbed by the Commssoner of Interna Revenue, wth the
approva of the Secretary of the Treusury) that there was pad at the tme
of mportaton a duty at the rate n effect on anuary 1, 1034, and (2) any
sugar hed on pr 25, 1934, by, or to be devered under a bona fde contract
of sae entered nto pror to pr 25, 1034, to, any manufacturer or con-
verter, for use n the producton of any artce (e cept sugar) and not
for utmate consumpton as sugar, and (3) any artce (e cept sugar)
processed whoy or n chef vaue from sugar beets, sugarcane, or any product
thereof, sha be e empt from ta aton under subsecton (a) of ths secton,
but sugar hed n customs custody or contro on pr 25, 1934, sha not be
e empt from ta aton under subsecton (a) of ths secton, uness the rate of
duty pad upon the wthdrawa thereof was the rate of duty n effect on
anuary 1, 1934.
Par. I. The procamaton of the Secretary of grcuture, dated
May 9, 1934, provdes:
I, . . Waace, Secretary of grcuture of the Unted States of merca,
actng under and pursuant to an ct of Congress known as the grcutura
d|ustment ct, approved Say 12, 1933, as amended, have determned and
hereby procam that renta and/or benet payments are to be made wth
respect to sugar beets and sugarcane, basc agrcutura commodtes.
Par . Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of te Pres-
dent, to make such reguatons wth te force and effect of aw as may be
necessary to carry out the powers vested In hm by ths tte, ncudng regua-
tons estabshng converson factors for any commodty and artces processed
therefrom to determne the amount of ta mposed or refunds to be made
wth respect thereto.
Par. . The reguatons wth respect to sugar beets and sugar-
cane, made by the Secretary of grcuture, and approved by the
Presdent on une 4, 1934, as revsed and, n part, superseded by reg-
uatons made by the Secretary of grcuture and approved by the
Presdent on ebruary 19, 1935, provde:
(1) I fnd (1) that the dfference between the current average farm prce
and the fur e change vaue of a ton of sugar beets dvded by the average
e tracton of sugar therefrom, In terms of pounds of raw vaue, gves a quo-
tent of 0.4077 cent per pound of sugar raw vaue, and (2) that the dfference
between the current average farm prce and the far e change vaue of a ton
of sugarcane dvded by the average e tracton of sugar therefrom, n terms
of pounds of raw vaue, gves a quotent of 0.7939 cent per pound of sugar
raw vaue (whch current average farm prces, far e change vaues, and
average e tractons of sugar, for both sugar beets and sugar cane, have been
ascertaned and determned by me from avaabe statstcs of the Department
of grcuture). I further fnd that, f the amount of 0.7939 cent (the hgher
of the two quotents resutng as herenabove determned) be apped as the
rate of ta to the drect-consumpton sugar resutng from the frst domestc
processng of sugar beets or sugarcane, transated nto terms of pounds of
raw vaue, such rate w e ceed the amount of 0.5 cent, by whch amount the
Presdent, by procamaton ssued May 9, 1934, reduced the rate of duty on a
pound of sugar raw vaue, n effect on anuary 1, 1934, under paragraph 501
of the Tarff ct of 1930, as ad|usted to the treaty of commerca recprocty
concuded between the Unted States and the Repubc of Cuba on December
11, 1902, and/or the provsons of the ct of December 17, 1903, Chapter I. I
do accordngy determne as of une 8, 1934, that the processng ta , upon the
drect-consumpton sugar resutng from the frst domestc processng of sugar
beets and sugarcane, sha be at the rate of 0.5 cent per pound of sugar raw
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vaue, whch rate of ta equas, but docs not e ceed, the amount of the reduc-
ton by the Presdent on a pound of sugar raw vaue, of the rate of duty n
effect on anuary 1, 1934, under paragraph 501 of the Tarff ct of 1930, as
ad|usted to the treaty of commerca recprocty concuded between the Unted
States and the Repubc of Cuba on December 11, 1902, and/or the provsons of
the ct of December 17, 1903, Chapter I.
I do hereby fnd as of une 8, 1934, after nvestgaton and due notce and
opportunty for hearng to nterested partes and due consderaton havng
been gven to a of the facts, that the processng ta upon the drect-consum-
ton sugar resutng from the frst domestc processng of sugar beets and
sugarcane, at the rate of 0.5 cent per pound of sugar raw vaue (whch
rate, e cept as mted by the amount of the reducton by the Presdent on
a pound of sugar raw vaue of the rate of duty n effect on anuary 1, 1934,
under paragraph 501 of the Tarff ct of 1930, as ad|usted to the treaty of
commerca recprocty concuded by the Unted States and the Repubc of
Cuba on December 11, 1902, and/or the provsons of the ct of December 17,
1903, Chapter I, equas the hgher of the two foowng quotents: The df-
ference between the current average farm prce and the far e change vaue
(1) of a ton of sugar beets and (2) of a ton of sugarcane, dvded n the
case of each commodty by the average e tracton therefrom of sugar u
terms of pounds of raw vaue), f apped as the rate of ta upon srup
of cane |uce and edbe moasses resutng from the frst domestc processng
of sugarcane w cause such reducton n the quantty of such srup of cane
|uce and edbe moasses domestcay consumed as to resut n the accumu-
aton of surpus stocks of sugarcane, srup of cane |uce, aud edbe moasses
or n the depresson of the farm prce of sugarcane. I do accordngy deter-
mne as of une 8, 1934, that the rate of the processng ta upon srup of
cane |uce and edbe moasses, resutng from the frst domestc processng
of sugarcane, sha be 0.125 cent per pound of the tota sugar content thereof
transated nto terms of pounds of raw vaue, whch rate, as of the effectve
date thereof, w prevent such accumuaton of surpus stocks of sugarcane,
srup of cane |uce, and edbe moasses, or n the depresson of the farm prce
of sugarcane.
Defntons.
(2) The foowng terms, as used n these reguatons, sha have the mean-
ngs hereby assgned to them:
rst domestc processng. The term frst domestc processng means each
domestc processng, ncudng each processng of successve domestc process-
ngs, of sugar beets, sugarcane, or raw sugar, whch drecty resuts n drect-
consumpton sugar.
Sugar. The term sugar means sugar In any form whatsoever, derved
from sugar beets or sugarcane, whether raw sugar or drect-consumpton
sugar, ncudng aso edbe moasses, srups, and any m ture contanng sugar
(e cept backstrap moasses and beet moasses).
ackstrap moassef. The term backstrap moasses means the com-
mercay so-desgnated by-product of the cane-sugar ndustry, not used for
human consumpton or for the e tracton of sugar.
eet maasses. The term beet moasses means the commercay so-desg-
nated by-product of the bect-sugar ndustry, not used for human consumpton
or for the e tracton of sugar.
Raw sugar. The term raw sugar means any sugar, as defned above, manu-
factured or marketed n, or brought nto, the Unted States, n any form
whatsoever, for the purpose of beng, or whch sha be, further refned (or
mproved n quaty, or further prepared for dstrbuton or use).
Drect-consumpton sugar. The term drect-consumpton sugar means any
sugar, as defned above, manufactured or marketed n, or brought nto, the
Unted States, n any form whatsoever, for any purpose other than to be
further refned (or mproved n quaty, or further prepared for dstrbuton
or use).
eet sugar. The term beet sugar means a drect-consumpton sugar re-
sutng from the processng of sugar beets.
Sugar trup. The term sugar srup means any product made by dssovng
to the consstency of a srup any sucrose sugar whch has been at any tme
whoy or partay crystazed (ncudng aso, but not mted to, any n-
termedate or fna moasses often caed refners srup obtaned n the
process of refnng raw sugar whch contans more than 90 per cent 90
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of the tota sods theren n the form of tota sugars, when nsed for human
consumpton).
Cane srup and srup of cane |uce. The terms cane smp and srup of
cane |uce mean srup made by the evaporaton of the |uce of the sugarcane
or by the souton of sugarcane concrete.
Granuated sugar, ump sugar, cube sugar, powdered sugar, sugar n the
form of bocks, cones, or any other moded shape, and confectoners sugar.
The terms granuated sugar, ump sugar, cube sugar, powdered sugar,
sugar n the form of bocks, cones, or any other moded shape, and
confectoners sugar mean the commercay so-descrbed or so-desgnated
dfferent forms of sugar, testng by the poarscope 99.8 sugar degrees or above.
Washed sugar, carfed sugar, pantaton whte, sugar, turbnado, and cen-
trfuga sugar. The terms washed sugar, carfed sugar, pantaton
whte sugar, turbnado, and centrfuga sugar, mean the commercay
so-desgnated or so-descrbed dfferent products produced from sugarcane.
Refners soft sugar. The term refners soft sugar (sometmes caed
brown sugar ) means the commercay so-desgnated or so-descrbed product
produced n the process of refnng raw sugar.
Sugar m tures.- The term sugar m tures means the commercay
so-desgnated or so-descrbed m tures contanng sugar.
dbe moasses. The term edbe moasses means the commercay so-
desgnated or so-descrbed by-product of the sugarcane ndustry, when used
for human consumpton (ncudng, when used for human consumpton, frst
moasses, second moasses, any ntermedate or fna moasses often caed
refners srup obtaned n the process of refnng raw sugar whch does not
contan more than 90 per cent 90 of the tota sods theren n the form
of tota sugars, and other moasses not ncuded wthn the terms of any other
defnton n these reguatons).
Raw vaue. The term raw vaue means a standard unt of sugar testng
9 sugar degrees by the poarscope. ta es sha be mposed and a quotas
sha be estabshed n terms of raw vaue and for the purposes of quota
and ta measurements a sugar sha be transated nto terms of raw vaue
accordng to reguatons to be ssued by the Secretary, e cept that n the
case of drect-consumpton sugar produced n contnenta Unted States from
sugar beets, the raw vaue of such sugar sha be one and seven one-hundredths
tmes the weght thereof.
Invert sugar, nvert srup, or nvert mush. The terms nvert sugar, n-
vert srup, or nvert mush, mean any product resutng from the compete
or parta nverson, whether n one or more stages, of any sucrose sugar
whch has been at any tme whoy or partay crystazed.
Tota sugar content. The term tota sugar content (or tota sugars )
means the sum of the sucrose (Cerget) and the reducng sugars contaned n
any grade or type of sugar as defned n the ct.
Refners backstrap. The term refners backstrap means the fna mo-
asses obtaned n the process of refnng raw sugar when not used for human
consumpton.
Converter. The term converter means any person who converts nto
any artce, or uses n the manufacture of any artce, any product or by-
product of sugar beets or sugarcane.
Muscovado sugar. The term muscovado sugar means the dark, most,
stcky, mpure sugar product obtaned by the process of bong the frst cane
srup to a crysta n open kettes and then runnng the crystazed mass nto
kegs, hogsheads, mods, or other contaners, the bottoms of whch are ted wth
sma hoes whch, when opened, aow the moasses to dran off.
TO UTTL O TR NSL TING SUG R INTO T MS O R W LU .
(3) Secton 9(d) (G) of the grcutura d|ustment ct, as amended, pro-
vdes as foows:
The term raw vaue means a standard unt of sugar testng 90 sugar
degrees by the poarscope. ta es sha be mposed and a quotas sha be
estabshed n terms of raw vaue and for purposes of quota and ta meas-
urements a sugar sha be transated nto terms of raw vaue accordng to
reguatons to be ssued by the Secretary, e cept that n the case of drect-
consumpton sugar produced n contnenta Unted States from sugar beets the
raw vaue of such sugar sha be one and seven one-hundredths tmes the weght
thereof.
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4 8
I fnd that, In order to obtan 100 pounds of refned cane sugar, testng by the
poarscope 99.8 sugar degrees and above, t s necessary to use 107 pounds of
sugar raw vaue, . e., sugar testng by the poarscope 98 sugar degrees, and
that the raw vaue of 1 pound of refned sugar testng by the poarscope 99.8
sugar degrees or above s, therefore, 1.07 pounds. I aso fnd that, snce there
Is 1 pound of sugar raw vaue per pound of sugar testng by the poarscope
0 sugar degrees, the pounds of sugar raw vaue to be added to 1 pound for
each degree (and fractons of a degree n proporton) of poarzaton, from 9
degrees to 100 degrees, s to be determned by the formua an( s
0.0175 pound, and that, smary, the pounds of sugar raw vaue to be subtracted
from 1 pound for each degree (and fractons of a degree n proporton) of
poarzaton from 9 degrees to 92 degrees s to be determned by the same
formua and s 0.0175 pound.
I fnd that the most accurate method for transatng any quantty of sugar
testng by the poarscope ess than 92 degrees nto terms of raw vaue s to
fnd what weght of sugar raw vaue w have the same weght of tota sugar
content as such quantty of sugar. I further fnd that the tota sugar content
per pound of 9 -degree sugar (I. e., raw vaue sugar) Is 0.972 pound. I, there-
fore, fnd that the raw vaue of any sugar testng ess than 92 degrees by the
poarscope s to be determned by dvdng the number of pounds of the tota
sugar content thereof by 0.972 pound.
I do hereby prescrbe that, n determnng the tota sugar content of any
sugar, the amount of the sucrose (Cerget) and of the reducng or Invert sugars
contaned theren sha be ascertaned n the manner prescrbed n paragraphs
758, 759, 7 2, and 7 3 of the Unted States Customs Reguatons (1931 edton)
or n the manner prescrbed on pages 3 7 to 383, ncusve, of Offca and Tenta-
tve Methods of the ssocaton of Offca grcutura Chemsts (1930 edton)..
Converson actors.
(4) The foowng tabe f es the amount of sugar, n terms of pounds of
sugar raw vaue, wth respect to 1 pound, net weght, or 1 gaon of the foowng
sted artces:
Pounds of
eupar raw
vaue per
pound of
artce.
. eet sugar other drect-consumpton sugar, ncudng granuated
sugar, ump sugar, cube sugar, powdered sugar, sugar n the
form of bocks, cones, or any other moded shape, and con-
fectoner s sugar, testng by the poarscope 99.8 sugar degrees
or above
. Drect-consumpton sugar, ncudng washed sugar, centrfuga
sugar, carfed sugar, turbnado, pantaton whte sugar,
muscovado sugar, refners soft sugar, sugar m tures, srups,
and moasses (e cept srup of cane |uce, edbe moasses, and
refners backstrap), testng by the poarscope:
99 (pus proportonate part of 0.0175 pound for any add-
tona fracton of a degree above 99 but ess than 99.8 )..
98 (pus proportonate part of 0.0175 pound for any add-
tona fracton of a degree above 98 but ess than 99 )
97 (pus proportonate part of 0.0175 pound for any add-
tona fracton of a degree above 97 but ess than 98 )...
90 (pus proportonate part of 0.0175 pound for any add-
tona fracton of a degree above 9 but ess than 97 )
95 (pus proportonate part of 0.0175 pound for any add-
tona fracton of a degree above 95 but ess than 9 ),..
94 (pus proportonate part of 0.0175 pound for any add-
tona fracton of a degree above 94 but ess than 95 )
93 (pus proportonate part of 0.0175 pound for any add-
tona fracton of a degree above 93 but ess than 94 )
92 (pus proportonate part of 0.0175 pound for any add-
tona fracton of a degree above 92 but ess than 93 )
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C. Dreet-consnmpton sugar, ncudng washed sugar, centrfuga sugar,
carfed sugar, turbnado, pantaton whte sugar, muscovado sugar, refners
soft sugar, sugar m tures, srup and moasses (e cept srup of cane |uce,
edbe moasses, and refners backstrap), testng by the poarscope ess than
92 degrees the poundage of the tota sugar content of each pound of the
artce dvded by 0.972, equas the poundage of sugar raw vaue per pound of
the artce.
G. In the event that the Commssoner of Interna Revenue, or any ta payer,
or any person entted to refund, sha estabsh that any product or by-product,
whoy derved from the processng of sugar beets or sugarcane, does not come
wthn any of the above cassfcatons and has had no converson factor
estabshed for t, or does come wthn any of the above cassfcatons but
contans more or ess tota sugar e pressed n terms of raw vaue than s
represented by the sted converson factor, then the amount of ta or refund
wth respect to such product or by-product sha be computed at the rate of
the processng ta on the bass of the amount of the tota sugar content,
e pressed In terms of raw vaue, estabshed to be actuay contaned theren.
. The amount of ta or refund wth respect to any artce party derved
from the processng of sugar beets, sugarcane and/or any product or by-product
thereof, sha be computed at the rate of the processng ta on the bass of the
amount of sugar, e pressed n terms of raw vaue, estabshed to have been
used n the processng of the sad artce.
(5) In my |udgment, the mposton of the processng ta apped to the
srup of cane |uce (sometmes caed moasses ) resutng from the frst
domestc processng of sugarcane, by or for the producer thereof, who, together
wth hs famy, empoyees or househod, fnay prepares for dstrbuton or
use and ses drecty to, or e changes drecty wth, consumers, or who ses
to, or e changes wth, any person for sae to, or e change wth, or who sha
se to, or e change wth, consumers, wthout further mprovng n quaty or
further preparng for dstrbuton or use, not more than two hundred (200) ga-
ons, n the aggregate, of srup of cane |uce, produced durng any crop year, s
unnecessary to effectuate the decared pocy of the ct. ccordngy, I do
hereby e empt from the processng ta srup of cane |uce, resutng from the
frst domestc processng of sugarcane by or for the producer thereof who,
together wth hs famy, empoyees, or househod, fnay prepares for dstr-
buton or use and ses drecty to, or e changes drecty wth, consumers, or
ses to, or s changes wth, any person for sae to, or e changes wth, or who
sha se to, or e change wth, consumers, wthout further mprovng n
quaty or further preparng for dstrbuton or use, not more than two hundred
(200) gaons, n the aggregate, of srup of cane |uce, produced durng any
crop year: Provded, however, That f the producer processes or has processed
for hm sugarcane produced by hm. and together wth hs famy, empoyees
or househod, fnay prepares for dstrbuton or use and ses drecty to, or
e changes wth, any person for sae to, or e change wth, or who sha se to,
or e change wth, consumers, wthout further Improvng In quaty, or further
preparng for dstrbuton or use, n e cess of two hundred (200) gaons, but
not n e cess of fve hundred (500) gaons, n the aggregate, of srup of cane
uce, produced durng any crop year, such processng sha be e empt to the
e tent of two hundred (200) gaons, but sha be sub|ect to the processng ta
on the amount In e cess of two hundred (200) gaons, sod drecty to, or
e changed drecty wth, consumers, or sod to, or e changed wth, any person
for sae to, or e change wth, or sod to, or e changed wth, consumers:
Provded further, That If the producer processes or has processed for hm
rounds of
sugar raw
vaue per
gaon of
artce.
D. Srup of cane |uce
. dbe moasses
7. 5 00
7. 3 00
0. 0000
. Refners backstrap..
emptons.
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470
sugarcane produced by hm, and together wth hs famy, empoyees or house-
hod, fnay prepared for dstrbuton or use and ses drecty to, or e changes
drecty wth, consumers, or ses to, or e changes wth, any person for sae to,
or e change wth, and who sha se to, or e change wth, consumers, wthout
further mprovng n quaty or further preparng for dstrbuton or use, more
than fve hundred (500) gaons, n the aggregate, of srup of cane |uce,
produced durng any crop year, such processng sha not be sub|ect to the
foregong e empton. or the purposes of ths e empton, the crop year sha
be consdered to commence wth the harvestng of the sugarcane.
In my |udgment, the payment of the processng ta upon the processng of
sugarcane by or for the producer thereof for sae by hm, where such process-
ng drecty resuts n muscovado sugar and where such muscovado sugar s
sod by the sad producer as drect-consumpton sugar, s unnecessary to eftec-
uate the decared pocy of the ct. ccordngy, I do hereby e empt from tho
payment of the processng ta the processng of sugarcane by or for the pro-
ducer thereof for sae by hm, where such processng drecty resuts n musco-
vado sugar and where such muscovado sugar s sod by the sad producer as
drect-consumpton sugar.
The provsons of these reguatons sha take effect as of March 1, 1935.
Par. L. Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. M. Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested n hm by ths tte.
Par. N. Secton 1101, Revenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (a) There became effectve at the earest moment of
une 8, 1934, (1) a processng ta on the frst domestc processng of sugar
beets or sugarcane (2) a compensatng ta on a artces processed or manu-
factured whoy or party from sugar beets or sugarcane, and mported on or
after sad date (3) a ta on foor stocks of certan artces processed from
sugar beets or sugarcane whch, on sad date, were hed for sae or other ds-
poston. These ta es became effectve n the Phppne Isands at the earest
moment, Mana tme, of September 12, 1934, by vrtue of the procamaton1 of
the Presdent whch made the provsons of the grcutura d|ustment ct,
as amended, appcabe to the Phppne Isands n the case of sugar beets and
sugarcane.
The present rates of processng ta are gven n artce 2 of these reguatons.
The present rates of compensatng ta are gven n artce 3 of these regua-
tons. The rates of ta wth respect to foor stocks are gven n artce 3 o
Treasury Decson 4441, approved une 20, 1934 fC. . III-1, 501 .
( ) or reguatons reatng to the processng ta and compensatng ta con-
sut Reguatons SI, for reguatons reatng to the ta wth respect to foor
stocks consut Reguatons 82, and for reguatons reatng to e portaton under
secton 17 of the ct consut Reguatons 83, September, 1934, edton, whch
are genera reguatons under the grcutura d|ustment ct, as amended.
Reguatons SI, Reguatons 82, and Reguatons S3, September, 1934, edton,
are suppemented by the reguatons contaned n ths Treasury decson.
(c) The effectve date as defned and used n Reguatons 81, Regua-
tons S2, and Reguatons 83, September, 1934, edton, and as used n these
reguatons, that s, the date when the processng ta wth respect to sugar
beets and sugarcane became effectve, s une 8, 1934, In the Unted States
1 See paragraph .
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471
Msc.
(ncudng awa and aska) and Puerto Rco, and September 12, 1934, n
the Phppne Isands.
(d) The varous defntons set forth n the reguatons of the Secretary of
grcuture n paragraph (2), above, are hereby made a part of these regua-
tons.
bt. 2. Processng ta . (a) The rate of ta appcabe to the drect-con-
sumpton sugar, resutng from the frst domestc processng (as heren de-
fned) of sugar beets or sugarcane, s 0.5 cent per pound of sugar raw vaue
e cept that the rate of processng ta wth respect to srup of cane |uce and
edbe moasses resutng from the frst domestc processng of sugarcane s
0.125 cent per pound of the tota sugar content thereof transated nto terms
of raw vaue. or amounts of processng ta wth respect to drect-consump-
ton sugar see artce 3.
( ) The form prescrbed for return of processng ta s P. T. orm 8, re-
vsed March, 1935. Returns for March, 1935, and for subsequent months sha
be fed on or before the ast day of the month foowng the month n whch
the processng s done. The amount of ta shown to be due on each such re-
turn must be pad at the tme when the return s fed, or, f the tme for pay-
ment be postponed, then at the tme or tmes desgnated for payment n such
postponement. See artce 5 for st of prescrbed forms.
(c) ach person engaged n successve domestc processngs of sugar beets
or sugarcane or raw sugar, whch drecty resuts n drect-consumpton sugar,
sha keep a wrtten record showng wth respect to sugar beets or sugarcane,
or any product thereof, (1) the quantty on hand at the begnnng of the month,
(2) the quantty receved durng the month, (3) the quantty shpped or de-
vered durng the month, (4) the quantty sod or otherwse dsposed of durng
the month, (5) the quantty on hand at the end of the month, and ( ) the
quantty put n process durng the month. These quanttes must be ascertaned
by actua weghng on accurute scaes or, n the case of srup of enne |uce and
edbe moasses, by actua measurement n gaons, and not by estmaton.
(d) When a shpment of raw sugar, as defned, s made from the pace of
processng, the processor sha e ecute P. T. orm 8 n dupcate. Such form
sha show the date of shpment, the knd of artce, the poarscopc test f
92 or above, or f ess than 92 the tota sugar content, the actua quantty
shpped, the name and address of the person to whom shpment s made, and
the name and address of the shpper. The orgna P. T. orm 8 coverng
each shpment sha be forwarded to the processor to whom shpment s made.
Such processor sha enter the date of recept of the shpment on ths form and
transmt t (and smar forms coverng mported raw sugar receved ) wth
hs return on P. T. orm 8 for the month n whch such shpment was receved.
The dupcate P. T. orm 8 sha be fed by the processor who made the shp-
ment wth hs return on P. T. orm 8 for the month n whch the shpment
was made.
(e) empton. (1) The term producer as used n ths subdvson of
ths artce means the grower of the sugarcane.
(2) or the purposes of e empton from processng ta , the processng of
sugarcane, or the sae or e change of srup of cane |uce derved from sugar-
cane, by any member of the famy or househod, or by an empoyee, of the
producer of the sugarcane sha be deemed to have been done by the producer
hmsef.
(3) If the producer processes, or has processed for hm, sugarcane produced
by hm, and fnay prepares for dstrbuton or use, and ses drecty to, or
e changes drecty wth consumers, or ses to, or e changes wth, any person
for sae to, or e change wth, or who sha se to, or e change wth, consumers,
wthout further mprovng n quaty or further preparng for dstrbuton or
use, not more than 200 gaons, n the aggregate, of srup of cane |uce produced
durng any crop year, such processng s e empt from processng ta .
(4) If the producer processes, or has processed for hm, sugarcane produced
by hm, nnd fnay prepares for dstrbuton or use, and ses drecty to, or
e changes wth, any person for sae to, or e change wth, or who sha se to,
or e change wth, consumers, wthout further Improvng n quaty or further
preparng for dstrbuton or use, n e cess of 200 gaons, but not n e cess of
500 gaons, n the aggregate, of srup of cane |uce produced durng any crop
year, such processng s e empt to the e tent of 200 gaons and s sub|ect to
the processng ta on the amount n e cess of 200 gaons sod drecty to, or
Sce artce 4(c).
083 35 18
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Msc.
472
e chnnged drecty wth, consumers, or sod to, or e changed wth, any person
for sae to, or e change wth, or sod to, or e changed wth consumers.
(5) If the producer processes, or has processed for hm, sugarcane produced
by hm, and fnay prepares for dstrbuton or use, and ses drecty to, or
e changes drecty wth, consumers, or ses to, or e changes wth, any person
for sae to, or e change wth, and who sha se to, or e change wth, con-
sumers, wthout further mprovng n quaty or further preparng for dstrbu-
ton or use more than 500 gaons, In the aggregate of srup of cane |uce pro-
duced durng any crop year, such processng s not e empt from the ta .
( ) or the purpose of e empton, the crop year commences wt the harvest-
ng of the sugarcane.
(7) Products of the processng of sugarcane whch are retaned for con-
sumpton by the producer sha be deemed to have been processed for that
purpose and not for sae or e change.
(8) ach processor of sugarcane nto srup of cane |uce sha keep a
wrtten record showng: (a) the date when the sugarcane was processed ( )
the quantty, In gaons, of srup of cane |uce produced (c) the quantty, n
gaons, of srup of cane |uce processed for the producer of the sugarcane,
(1) for consumpton by hmsef, hs famy, empoyees, or househod, (2) for
sae drecty to, or e change drecty wth, consumers, or sae to, or e change
wth, persons for sae to, or e change wth, consumers, wthout further mprov-
ng n quaty or further preparng for dstrbuton or use, e empt from ta
(frst 200 gaons e empt ony f tota saes or e changes durng crop year do
not e ceed 500 gaons), and (3) to be further Improved n quaty or further
prepared for dstrbuton or use, based on producer s affdavts or certfcates.
Such record sha be retaned on the premses of the processor and sha be
open for Inspecton by any Interna revenue offcer.
(9) P. T. orm 8 , revsed March, 1935, s prescrbed as the form of monthy
processng ta return of a processor of sugarcane nto srup of cane |uce.
eturn on ths form must he made by each such processor for March, 1935,
and for each subsequent caendar month durng the crop year In whch he
processes sugarcane nto srup of cane |uce.
(10) The processng of sugarcane by or for the producer thereof for sae by
hm, where such processng drecty resuts n muscovado sugar and where such
muscovado sugar s sod by the producer of the sugarcane as drect-consump-
ton sugar Is e empt from ta on and after March 1, 1935.
bt. 3. Rates of ta or refund. (a) The amounts of ta mposed and of
refund (or credt) aowabe wth respect to artces processed from sugar
beets or sugarcane, as determned on the bass of converson factors pre-
scrbed by the Secretary of grcuture n hs reguatons, set forth n para-
graph (4), above, are as foows:
mounts of a on the frst domestc processng of sugar beets and sugarcane
on and after March 1, 19S5 rates of compensatng ta on artces processed
or manufactured whoy or party from sugar beets or sugarcane and m-
ported on and after March 1, 1935 amounts of refund or credt aowabe
wth respect to artces processed on and after March 1, 1935, from sugar
beets or sugarcane.
rtces.
( ) eet sugar other drect-consumpton sugar, ncudng granu-
ated sugar, ump sugar, cube sugar, powdered sugar, sugar
n the form of bocks, cones, or any other moded shape, and
confectoner s sugar testng by the poarscope 99.8 sugar
degrees or above
( ) Drect-consumpton sugar, ncudng washed sugar, centrfuga
sugar, carfed sugar, turbnado, pantaton whte sugar, mus-
covado sugar, refners soft sugar, sugar m tures, srups, and
moasses (e cept srup of cane |uce, edbe moasses, and re-
fners backstrap), testng by the poarscope:
99 (pus proportonate part of 0.00875 cent for any add-
tona fracton of a degree above 99 but ess than 99.8 ).
98 (pus proportonate part of 0.00875 cent for any add-
tona fracton of a degree above 98 but ess than 99 ) _ -
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473 Msc.
mounts of ta on the frst domestc processng of sugar beets, etc. Contnued
rtces.
( ) Drect-consumpton sugar, ncudng washed sugar, centrfuga
sugar, etc. Contnued.
97 (pus proportonate part of 0.00875 cent for any add-
tona fracton of a degree above 97 but ess than 98 ) _.
9 (pus proportonate part of 0.00875 cent for any add-
tona fracton of a degree above 9 but ess than 97 ) _
95 (pus proportonate part of 0.00875 cent for any add-
tona fracton of a degree above 95 but ess than 9 ) _
94 (pus proportonate part of 0.00875 cent for any add-
tona fracton of a degree above 94 but ess than 95 ).
93 (pus proportonate part of 0.00875 cent for any add-
tona fracton of a degree above 93 but ess than 94 ).
92 (pus proportonate part of 0.00875 cent for any add-
tona fracton of a degree above 92 but ess than 93 ) _
(C) Drect-consumpton sugar, ncudng washed sugar, centrfuga
sugar, carfed sugar, turbnado, pantaton whte sugar, mus-
covado sugar, refners soft sugar, sugar m tures, srup and
moasses (e cept srup of cane |uce, edbe moasses, and
refners backstrap), testng b3 the poarscope ess than 92
degrees the poundage of the tota sugar content of each
pound of the artce dvded by 0.972 equas the poundage of
sugar raw vaue per pound of the artce
(D) Srup of cane |uce
( ) dbe moasses
( ) Refners backstrap
Rates of ta .
Cent per pound
0. 50875
( )
Cent per gaon.
0. 945
. 92
. 000
The poundage of suuar. row vaue, per pound of the artce, mutped by 0.5 cent
Is the per pound ta wth respect to the artce.
(G) In the event that the Commssoner of Interna Revenue, or any ts -
payer, or any person entted to refund, sha estabsh that any product or
by-product, whoy derved from the processng of sugar beets or sugarcane,
does not come wthn any of the above cassfcatons and has had no conver-
son factor estabshed for t, or does come wthn any of the above cassfca-
tons but contans more or ess tota sugar e pressed n terms of raw vaue
than s represented by the sted converson factor, then the amonnt of ta
or refund wth respect to such product or by-product sha be computed at the rate
of the processng ta on the bass of the amount of the tota sugar content,
e pressed n terms of raw vaue, estabshed to be actuay contaned theren.
( ) The amount of ta or refund wth respect to any artce party derved
from the processng of sugar beets or sugarcane or from any product or
by-product thereof, sha be computed at the rate of the processng ta on the
bass of the amount of sugar, e pressed n terms of raw vaue, estabshed
to have been used n the processng of the sad artce.
( ) In determnng the tota sugar content of any sugar (as defned), the
amount of the sucrose (Cerget) and of the reducng or nvert sugars con-
taned theren sha be ascertaned n the manner prescrbed n paragraphs
758, 759, 7 2, and 7 3 of the Unted States Customs Reguatons (1931 edton) or
n the manner prescrbed on pages 3 7 to 383, ncusve of Offca and Tentatve
Methods of the ssocaton of Offca grcutura Chemsts (1930 edton).
(c) ny return or credt of ta , made pursuant to the provsons of secton
15(c), or any refund made under the provsons of secton 17(a) of the
ct, sha be made ony on the foowng bass:
(I) If the ta pad was a compensatng ta , or a ta wth respect to
foor stocks, the amount of refund sha be the amount of ta actuay due
and pad wth respect to the partcuar product devered or e ported.
(2) If the ta pad was a processng ta , the amount of refund sha be
determned n accordance wth the rate of processng ta n effect at the
tme of the frst domestc processng of the sugar beets or sugarcane from
whch the devered or e ported product was processed and n accordance
wth the proper converson factor n effect nt that tme.
et. 4. Compensatng ta on mported artees. (o) compensatng ta s
effectve wth respect to a artces processed or manufactured whoy or
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Msc.
474
party from sugar beets or sugarcane, and Imported on and after une 8, 1934,
Into the Unted States (ncudng awa an aska) and Puerto Rco from
any foregn country, or from any possesson of the Unted States to whch
the ct does not appy, or mported on or after September 12, 1934, nto the
Phppne Isands from any foregn country or from any possesson of the
Unted States to whch the ct does not appy. The ta appcabe on and after
March 1, 1935, to such artces s gven n artce 3 of these reguatons. De-
taed reguatons as to the compensatng ta are contaned n Chapter I of
Reguatons 81, as amended by Treasury Decson 4501, approved December
4, 1934 O. . III-2, 524 . Chapter I of Reguatons 81, as amended by
Treasury Decson 4501, sha not be appcabe n the Phppne Isands.
( ) The compensatng ta wth respect to a artces processed or manu-
factured whoy or party from sugar beets or sugarcane and mported nto
the Phppne Isands from any foregn country or from any possesson of the
Unted States to whch the ct does not appy, w be coected by the coector
of nterna revenue, atmore, Md., through a deputy statoned at Mana, P. I.
(c) Raw sugar whch s to be further refned (or mproved n quaty, or
further prepared for dstrbuton or use) s not sub|ect to compensatng ta .
The person makng an entry or wthdrawa of mported raw sugar (as denned)
sha e ecute 1 . T. orm S n dupcate. Such form sha show the number
and date of the customs entry, the knd of artce, the poarscopc test f
92 degrees or above, or f ess than 92 degrees the tota sugar content, and
the actua quantty entered or wthdrawn, together wth the name and address
of the person to whom shpment w be made and the name and address of the
person makng the entry or wthdrawa. oth orgna and dupcate P. T.
orms 8 , coverng each transacton, sha be presented pror to the reease
of the sugar to the coector of customs, who, after stampng both copes to
show the date and oce of recept, sha return the orgna P. T. orm 8
to the person makng the entry or wthdrawa wth the customs permt of
devery. Ths copy sha be forwarded by such person to the person to whom
the shpment s made, and the atter sha fe t as provded n artce 2(d).
The dupcate P. T. orm 8 w be retaned by the coector of customs unt
the cose of the month and then w be transmtted to the Commssoner of
Interna Revenue. The provsons of ths subdvson of ths artce do not
appy to sugar comng nto the Unted States from the Phppne Isands.
bt. 5. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as
requred by the appcabe provsons of Reguatons 81, Reguatons 83, Sep-
tember, 1934, edton, or these reguatons, and must be carefuy fed out n
e act accordance wth the appcabe provsons of the proper reguatons and
the nstructons contaned on such form. The foowng forms wth respect
to sugar beets or sugarcane are hereby prescrbed:
orm No.
P. T. orm 8,
revsed March,
1935.
P. T. orm 8 ...
P. T. orm 8- ,
revsed March,
1935.
P. T. orm 24...
P. T. orm 24C.
P. T. orm 27..
P. T. orm 28..
Desgnaton.
Processng ta return.
Invoce of sugar products to be
further refned, etc.
Processng ta return of proces-
sor of sugarcane nto rup of
cane |uce.
Cam for refund of overpay-
ment under grcutura d-
|ustment ct.
Cam for refund of, or credt
for, ta pad wth respect to
artces devered for charta-
be dstrbuton or use.
Cam for refund of ta pad
wth respect to artces e -
ported.
Cam for credt on monthy re-
turn.
Requred by
Reguatons 81, artce 11.
rtces 2(d) and 4(c) of
these reguatons.
Reguatons 81, artce 11.
rtce 2(e) of these
reguatons.
Reguatons 81, artce
31(a).
Reguatons 81, artce 32,
as amended.
Reguatons 83 (Septem-
ber, 1934, edton).
Reguatons 81, artce
31( ).
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475
Msc.
bt. . ffectve date. Treasury Decson 4441, approved une 20, 1934
C. . III-1, 501 , sha reman n force and effect n so fur as t reates to
abty for ta ncurred and refund accrued pror to March 1, 1935. Wth
respect to ts appcabty n the Phppne Isands such Treasury decson s
hereby amended as foows: (a) Wherever the date of une 8, 1934, appears,
the date wth respect to the Phppne Isands sha be September 12, 1934
( ) wherever the dates une 80, 1934, and uy 31, 1934, appear n artce 2,
such dates wth respect to the Phppne Isands sha be September 30, 1934,
and October 31, 1934, respectvey (c) wherever the dates une 7, 1934, and
ugust 7, 1934, appear n artce 4, such dates wth respect to the Phppne
Isands sha be September 11, 1934, and November 11, 1934, respectvey.
These reguatons sha be n force and effect as of the earest moment of
March 1, 1935, n the Unted States (ncudng Iawa and aska) and n
Puerto Rco, and sha be n force and effect as of the earest moment
(Mana tme) on March 1, 1935, n the Phppne Isands.
Gt|y T. everng,
Commssoner of Interna Revenue.
pproved May 21, 1935.
T. . CoOLIDG ,
ctng Secretary of the Treasury.
I -11-7377
T. D.4530
Processng and other ta es wth respect to tobacco under the
grcutura d|ustment ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, pro-
vdes, n part:
When the Secretary of grcuture determnes that renta or beneft pay-
ments are to be made wth respect to any basc agrcutura commodty, he
sha procam such determnaton, and a processng ta sha be n effect wth
respect to such commodty from the begnnng of the marketng year therefor
ne t foowng the date of such procamaton.
Par. . procamaton of the Secretary of grcuture, dated
ugust 10, 1933, provdes:
I, Re toed G. Tugwet , ctng Secretary of grcuture of the Unted States
of merca, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1933, as amended, have deter-
mned and hereby procam that renta and/or beneft payments are to be
made wth respect to cgar-eaf tobacco, a market cassfcaton of tobacco
hereby determned to be a basc agrcutura commodty wthn the meanng
of the above ct.
procamaton of the Secretary of grcuture, dated September
, 1933, provdes:
I, enby . Waace, Secretary of grcuture of the Unted States of
merca, actng under and pursuant to an ct of Congress known as the
grcutura d|ustment ct, approved May 12, 1933, as amended, have deter-
mned and hereby procam that renta and/or beneft payments are to be
made wth respect to Maryand tobacco, a market cassfcaton of tobacco
hereby determned to be a basc agrcutura commodty wthn the meanng
of the above ct.
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47
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, enby . Waace, Secretary of grcuture of the Unted States of mer-
ca, actng under and pursuant to an ct of Congress known as the grcutura
d|ustment ct, approved May 12, 1933, as amended, have determned and
hereby procam that renta and/or beneft payments are to be made wth
respect to urey tobacco, a market cassfcaton of tobacco hereby determned
to be a basc agrcutura commodty wthn the meanng of the above ct.
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, enby . Waace, Secretary of grcuture of the Unted States of mer-
ca, actng under and pursuant to an ct of Congress known as the grcutura
d|ustment ct, approved May 12, 1933, as amended, have determned and
hereby procam that renta and/or beneft payments are to be made wth
respect to fre-cured tobacco, a market cassfcaton of tobacco hereby deter-
mned to be a basc agrcutura commodty wthn the meanng of the above ct.
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, emby . Waace, Secretary of grcuture of the Unted States of mer-
ca, actng under and pursuant to an ct of Congress known as the grcutura
d|ustment ct, approved May 12, 1933, as amended, have determned and
hereby procam that renta and/or beneft payments are to be made wth
respect to fre-cured tobacco, a market cassfcaton of tobacco hereby deter-
mned to be a basc agrcutura commodty wthn the meanng of the above ct.
procamaton of the Secretary of grcuture, dated September
5, 1933, provdes:
I, enry . Waace, Secretary of grcuture of the Unted States of mer-
ca, actng under and pursuant to an ct of Congress known as the grcutura
d|ustment ct, approved May 12, 1933, as amended, have determned and
hereby procam that renta and/or beneft payments are to be made wth
respect to dark ar-cured tobacco, a market cassfcaton of tobacco hereby de-
termned to be a basc agrcutura commodty wthn the meanng of the above
ct.
Pah. C. Secton 9(b) of the grcutura d|ustment ct, as
amended, provdes n part:
The processng ta sha be at such rate us equas the dfference between the
current average farm prce for the commodty and the far e change vaue of
the commodty e cept that f the Secretary has reason to beeve that the ta
at such rate on the processng of the commodty generay or for any partcuar
use or uses w cause such reducton n the quantty of the commodty or
products thereof domestcay consumed as to resut In the accumuaton of sur-
pus stocks of the commodty or products thereof or n the depresson of the
farm prce of the commodty, then he sha cause an approprate nvestgaton
to be made and afford due notce and opportunty for hearng to nterested
partes. If thereupon the Secretary fnds that any such resut w occur, then
the processng ta on the processng of the commodty generay, or for any
desgnated use or uses, or as to any desgnated product or products thereof
for any desgnated use or uses, sha be at such rate as w prevent such
accumuaton of surpus stocks and depresson of the farm prce of the
commodty.
Pak. D. Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be
necessary to carry out the powers vested n hm by ths tte, Incudng regua-
tons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguaton sha be sub|ect to such pen-
aty, not n e cess of 100, as may be provded theren.
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Par. . Secton 15(e) of the grcutura d|ustment ct, as
amended, provdes n part:
Durng any perod for whch a processng ta Is n effect wth respect to
any commodty there sha be eved, assessed, coected, and pad upon any
artce processed or manufactured whoy or party from such commodty and
mported nto the Unted States or any possesson thereof to whch ths tte
appes, from any foregn country or from any possesson of the Unted States
to whch ths tte does not appy, whether mported as merchandse, or as a
contaner of merchandse, or otherwse, a com ensntng ta equa to the amount
of the processng ta n effect wth respect to domestc processng of such com-
modty at the tme of mportaton: .
Pab. . Secton 1 of the grcutura d|ustment ct, as
amended, provdes n part:
(C) Upon the sae or other dsposton of any artce processed whoy or n
chef vaue from any commodty wth respect to whch the e stng rate of the
processng ta s to be ncreased, or decreased, that on the date such Increase,
or decrease, frst takes effect wth respect to the commodty, s hed for sae or
other dsposton (ncudng artces n transt) by any person, and upon the
producton of any artce from a commodty n process on the date on whch the
rate of the processng ta s to be ncreased or decreased, there sha be made
a ta ad|ustment as foows:
(1) Whenever the rate of the processng ta on the processng of the com-
modty generay or for any desgnated use or uses, or as to any desgnated
product or products thereof for any desgnated use or uses, or as to any cass
of products, s decreased, there sha be credted or refunded to such person an
amount equvaent to the dfference between the rate of the processng ta pay-
abe or pad at the tme mmedatey precedng the decrease n rate and the
rate of the processng ta whch woud have been payabe wth respect to the
commodty from whch processed, f the processng had occurred on such date:
Provded, hocever. That no such credt or refund sha be made uness the
rate of the processng ta mmedatey precedng sad decrease Is equa to, or
ess than, the rate of the processng ta n effect on the date on whch any foor
stocks ta was pad pror to the adopton of ths amendment.
(2) Whenever the rate of the processng ta on the processng of the com-
modty generay, or for any desgnated use or uses, or as to any desgnated
product or products thereof for any desgnated use or uses, or as to any cass
of products, s ncreased, there sha be eved, assessed, and coected a ta
to be pad by such person equvaent to the dfference between the rate of the
processng ta payabe or pad at the tme mmedatey precedng the ncrease
n rate and the rate of the processng ta whch woud be payabe wth respect
to the commodty from whch processed, f the processng had occurred on such
date.
Par. G. The reguatons wth respect to cgar-eaf tobacco, and wth
respect to Maryand, urey, fue-cured, fre-cured, and dark ar-cured
tobacco, made by the Secretary of grcuture, wth the approva of
the Presdent, dated September 14, 1933, as revsed and, n part,
superseded by reguatons made bv the Secretary of grcuture, wth
the approva of the Presdent, dated une 30, 1934, September 27,
1934, and anuary 19, 1935, provde:
I. Marketng. Year.
(1) I do hereby ascertan and prescrbe that for the purposes of sad ct the
frst marketng year for cgar-eaf, Maryand, urey, fue-cured, fre-cured and
dark ar-cured tobacco sha begn October 1, 1933.
II. Rates or Ta .
(2) . Cgar-eaf tobacco. 1 do hereby fnd that the rate of ta as of October
1, 1933, whch equas the dfference between the current average farm prce of
cgar-eaf tobacco, farm saes weght, and the far e change vaue of cgar-eaf
tobacco, farm saes weght, whch prce and vaue, both as defned n sad ct,
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478
have been ascertaned by ne from avaabe statstcs of the Department of gr-
cuture, w cause such reducton n the quantty of cgar-eaf tobacco, or prod-
ucts thereof, domestcay consumed as to resut n the accumuaton of surpus
stocks of cgar-eaf tobacco, or products thereof, or n the depresson of the farm
prce of cgar-eaf tobacco. I do accordngy hereby determne, as of October 1,
1933, that the rate of the processng ta on te frst domestc processng of cgar-
eaf tobacco sha be three (3) cents per pound, unsweated, farm saes weght,
whch rate w prevent such accumuaton of surpus stocks and depresson of
the farm prce of cgar-eaf tobacco.
I do hereby estabsh the foowng measures of ta for sweated cgar-eaf
tobacco, to be effectve on and after ebruary 1, 1935: Whenever sweated cgar-
eaf tobacco from whch stem has not been removed s processed, the measure of
ta to be pad by the processor n respect of each pound of such tobacco processed
sha be three and seventy-rve hundredths (3.75) cents, e cept that when the
cgar-eaf tobacco so processed s of the knd cassfed n the Unted States
Department of grcuture, ureau of grcutura conomcs, Servce and eg-
uatory nnouncements, No. 118, as fre-cured tobacco, the measure of ta sha
be three and twenty-fve hundredths (3.25) cents whenever sweated cgar-eaf
tobacco from whch stem has been removed s processed, the measure of ta to be
pad by the processor n respect of each pound of such tobacco processed sha be
fve (5) cents, e cept that when the cgar-eaf tobacco so processed s of the knd
cassfed n the Unted States Department of grcuture, ureau of grcu-
tura conomcs, Servce and Reguatory nnouncements, No. 118, as fre-cured
tobacco, the measure of ta sha be four and three-tenths (4.3) cents. The
above amounts are n accordance wth the respectve weght reatonshps deter-
mned to e st between cgar-eaf tobacco n such states and the farm saes
weght of unsweated cgar-euf tobacco.
I do hereby fnd, as of ebrunry 1, 1935, after nvestgaton and due notce
and opportunty for hearng to nterested partes, and due consderaton havng
been gven to a of the facts, that the processng ta at the rate determned
by the Secretary of grcuture as of October 1, 1933, to equa the dfference
between the current average farm prce and the far e change vaue of cgar-
eaf tobacco, on the processng of cgar-eaf tobacco manufactured nto scrap
chewng and/or smokng tobacco, w cause such reducton n the quantty
of cgar-eaf tobacco manufactured nto scrap chewng and/or smokng tobacco,
domestcay consumed, as to resut n the accumuaton of surpus stocks of
cgar-eaf tobacco, or of scrap chewng and/or smokng tobacco produced
therefrom, or n the depresson of the farm prce of cgar-eaf tobacco. I do
hereby, accordngy, determne, as of ebruary 1, 1935, that the processng ta
on the frst domestc processng of cgar-eaf tobacco used n the manufacture
of scrap chewng and/or smokng tobacco sha be at the rate of two (2)
cents per pound, unsweated, farm saes weght, whch rate, as of the effectve
date thereof, w prevent such accumuaton of surpus stocks of cgar-eaf
tobacco, scrap chewng and/or smokng tobacco produced therefrom, and
depresson of the farm prce of cgar-eaf tobacco. Whenever sweated cgar-
eaf tobacco from whch stem has not been removed s processed n the
manufacture of scrap chewng and/or smokng tobacco, the measure of ta
to be pad by the processor In respect of each pound of such tobacco processed
sha be two and fve-tenths (2.5) cents whenever sweated cgar-eaf tobacco
from whch stem has been removed s processed n the manufacture of scrap
chewng and/or smokng tobacco, the measure of ta to be pad by the processor
n respect of each pound of such tobacco processed sha be three and three-
tenths (3.3) cents these amounts beng In accordance wth the respectve
weght reatonshps determned to e st between cgar-eaf tobacco In such
states and the farm saes weght of unsweated cgar-eaf tobacco.
(3) . Maryand tobacco. In order to effectuate the decared pocy of the
ct, I fnd t necessary to ad|ust the rate of the processng ta on Maryand
tobacco to conform to such rate as w equa the dfference between the
current average farm prce and the far e change vaue of Maryand tobacco
as of October 1, 1934. I do accordngy determne as of October 1, 1934, that
the processng ta on the frst domestc processng of Maryand tobacco sha
be at the rate of zero (0) cents per pound, farm saes weght, whch rata
equas the dfference between the current average farm prce for Maryand
tobacco and the far e change vaue of Maryand tobacco, whch prce and
vaue, both as defned n sad ct, have been ascertaned by me from avaabe
statstcs of the Department of grcuture.
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(4) C. urey tobacco. In order to effectuate the decared pocy of the ct,
I fnd t necessary to ad|ust the rate of the processng ta on urey tobacco
to conform to such rate as w equa the dfference between the current average
farm prce and the far e change vaue of urey tobacco as of October 1,
1934. I do accordngy determne as of October 1, 1934, that the processng
ta on the frst domestc processng of urey tobacco sha be at the rate of
s and one-tenth ( .1) cents per pound, farm saes weght, whch rate equas
the dfference between the current average farm prce for urey tobacco and
the far e change vaue of urey tobacco, whch prce and vaue, both as
defned In sad ct, have been ascertaned by me from avaabe statstcs of
the Department of grcuture. Whenever urey tobacco n processng order
from whch stem has not been removed s processed, the measure of ta sha
be seven (7) cents per pound of such tobacco whenever urey tobacco n
processng order from whch stem has been removed s processed, the measure
of ta sha be nne and fve-tenths (9.5) cents per pound of such tobacco
these amounts beng n accordance wth the respectve weght reatonshps
determned to e st between urey tobacco n such states and the farm saes
weght of urey tobacco.
I do hereby fnd, as of ebruary 1, 1935, after nvestgaton and due notce
and opportunty for hearng to nterested partes, and due consderaton havng
been gven to a of the facts, that the processng ta at the rate determned by
the Secretary of grcuture as of October 1, 1934, to equa the dfference
between the current average farm prce and the far e change vaue of urey
tobacco, on the processng of urey tobacco manufactured nto chewng
tobacco, w cause such reducton n the quantty of urey tobacco manu-
factured nto chewng tobacco, domestcay consumed, as to resut n the
accumuaton of surpus stocks of urey tobacco, or of chewng tobacco pro-
duced therefrom, or n the depresson of the farm prce of urey tobacco. I
do hereby, accordngy, determne, as of ebruary 1, 1935, that the processng
ta on the frst domestc processng of urey tobacco used n the manufacture
of chewng tobacco sha be at the rate of two and fve-tenths (2.5) cents per
pound, farm saes weght, whch rate, as of the effectve date thereof, w
prevent such accumuaton of surpus stocks of urey tobacco, chewng tobacco
produced therefrom, and depresson of the farm prce of urey tobacco
whenever urey tobacco n processng order, from whch stem has not been
removed, s processed n the manufacture of chewng tobacco, the measure of
ta sha be two and nne-tenths (2.9) cents per pound of such tobacco when-
ever urey tobacco n processng order, from whch stem has been removed, s
processed n the manufacture of chewng tobacco, the measure of ta sha be
three and nne-tenths (3.9) cents per pound of such tobacco these amounts
beng In accordance wth the respectve weght reatonshps determned to
e st between urey tobacco n such states and the farm saes weght of
urey tobacco.
(5) D. ue-cured tobacco. I do hereby determne as of October 1, 1933,
that the processng ta on the frst domestc processng of fue-cured tobacco
sha be at the rate of four and two-tenths (4.2) cents per pound, farm saes
weght, whch rate equas the dfference between the current average farm
prce for fue-cured tobacco and the far e change vaue of fue-cured tobacco,
whch prce and vaue, both as defned n sad ct, have been ascertaned by
me from avaabe statstcs of the Department of grcuture. Whenever fue-
cured tobacco n processng order from whch stem has not been removed s
processed, the measure of ta sha be four and seven-tenths (4.7) cents per
pound of such tobacco whenever fue-cured tobacco In processng order from
whch stem has been removed s processed, the measure of ta sha be s
and one-tenth ( .1) cents per pound of such tobacco these amounts beng n
accordance wth the respectve weght reatonshps determned to e st between
fue-cured tobacco n such states and the farm saes weght of fue-cured tobacco.
I do hereby fnd, as of ebruary 1, 1935, after nvestgaton and due notce
and opportunty for hearng to nterested partes, and due consderaton hav-
ng been gven to a of the facts, that the processng ta at the rate deter-
mned by the Secretary of grcuture as of October 1, 1933, to equa the df-
ference between the current average farm prce and the far e change vaue
of fue-cured tobacco, on the processng of fue-cured tobacco manufactured
nto chewng tobacco, w cause such reducton n the quantty of fue-cured
tobacco manufactured nto chewng tobacco, domestcay consumed, as to
resut n the accumuaton of surpus stocks of fue-cured tobacco, or of chew-
ng tobacco produced therefrom, or n the depresson of the farm prce of
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480
fue-cured tobacco. I do hereby, accordngy, determne, as of ebruary 1,
1935, that the processng ta on the frst domestc processng of fue-cured
tobacco used n the manufacture of chewng tobacco sha be at the rate of
two (2) cents per pound, farm saes weght, whch rate, as of the effectve
date thereof, w prevent such accumuaton of surpus stocks of fue-cured
tobacco, chewng tobacco produced therefrom, and depresson of the farm prce
of fue-cured tobacco whenever fue-cured tobacco n processng order, from
whch stem has not been removed, s processed n the manufacture of chewng
tobacco, the measure of ta sha be two and three-tenths (2.3) cents per pound
of such tobacco whenever fue-cured tobacco n processng order, from whch
stem has been removed, s processed n the manufacture of chewng tobacco,
the measure of ta sha be two and nne-tenths (2.9) cents per pound of such
tobacco these amounts beng n accordance wth the respectve weght reaton-
shps determned to e st between fue-cured tobacco n such states and the
farm saes weght of fue-cured tobacco.
( ) . re-cured tobacco. I do hereby determne as of October 1, 1933, that
the processng ta on the frst domestc processng of fre-cured tobacco sha
be at the rate of two and nne-tenths (2.9) cents per pound, farm saes weght,
whch rate equas the dfference between the current average farm prce for
fre-cured tobacco and the far e change vaue of fre-cured tobacco, whch
prce and vaue, both as defned n sad ct, have been ascertaned by me from
avaabe statstcs of the Department of grcuture. Whenever fre-cured
tobacco n processng order from whch stem has not been removed s processed,
the measure of ta sha be three and two-tenths (3.2) cents per pound of such
tobacco whenever fre-cured tobacco n processng order from whch stem has
been removed s processed, the measure of ta sha be four and one-tenth
(4.1) cents per pound of such tobacco these amounts beng n accordance wth
the respectve weght reatonshps determned to e st between fre-cured
tobacco n such states and the farm saes weght of fre-cured tobacco.
I do hereby fnd, as of ebruary 1, 193o, after nvestgaton and due notce
and opportunty for hearng to nterested partes, and due consderaton havng
been gven to a of the facts, that the processng ta at the rate determned
by the Secretary of grcuture as of October 1, 1933, to equa the dfference
between the current average farm prce and the far e change vaue of fre-
cured tobacco, on the processng of re-cured tobacco manufactured nto
chewng tobacco, w cause such reducton n the quantty of fre-cnred tobacco
manufactured nto chewng tobacco, domestcay consumed, as to resut n
the accumuaton of surpus stocks of re-cured tobacco, or of chewng tobacco
produced therefrom, or n the depresson of the farm prce of fre-cured tobacco.
I do hereby, accordngy, determne, as of ebruary 1. 1935, that the processng
ta on the frst domestc processng of fre-cured tobacco used n the manu-
facture of chewng tobacco sha be at the rate of two (2) cents per pound,
farm saes weght, whch rate, as of the effectve date thereof, w prevent
such accumuaton of surpus stocks of fre-cured tobacco, chewng tobacco
produced therefrom, and depresson-of the farm prce of fre-cured tobacco
whenever fre-cured tobacco n processng order, from whch stem has not been
removed, s processed n the manufacture of chewng tobacco, the measure of
ta sha be two and two-tenths (2.2) cents per pound of such tobacco when-
ever fre-cured tobacco n processng order, from whch stem has been removed,
s processed n the manufacture of chewng tobacco, the measure of ta sha
be two and nne-tenths (2.9) cents per pound of such tobacco these amounts
beng n accordance wth the respectve weght reatonshps determned to e st
between fre-cured tobacco n such states and the farm saes weght of fre-
cured tobacco.
(7) . Dark ar-cured tobacco. I do hereby determne as of October 1, 1933,
that the processng ta on the frst domestc processng of dark ar-cured
tobacco sha be at the rate of three and three-tenths (3.3) cents per pound,
farm saes weght, whch rate equas the dfference between the current average
farm prce for dark ar-cured tobacco and the far e change vaue of dark ar-
cured tobacco, whch prce and vaue, both as defned n sad ct. have been
ascertaned by me from avaabe statstcs of the Department of grcuture.
Whenever dark ar-cured tobacco n processng order from whch stem has
not been removed s processed, the measure of ta sha be three and eght-
tenths (3.8) cents per pound of such tobacco whenever dark ar-cured tobacco
In processng order from whch stem has been removed s processed, the meas-
ure of ta sha be fve and one-tenth (5.1) cents per pound of such tobacco,
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481
Msc.
these amounts beng n accordance wth the respectve weght reatonshps
determned to e st between dark ar-cured tobacco n such states and the
farm saes weght of dark ar-cured tobacco.
I do hereby fnd, as of ebruary 1, 1935, after nvestgaton and due notce
and opportunty for hearng to Interested pnrtes, and due consderaton hav-
ng been gven to a of the facts, that the processng ta at the rate deter-
mned by the Secretary of grcuture as of October 1, 1933, to equa the df-
ference between the current average farm prce and the far e change vaue of
dark ar-cured tobacco, on the processng of dark ar-cured tobacco manufac-
tured nto chewng tobacco, w cause such reducton n the quantty of dark
ar-cured tobacco manufactured nto chewng tobacco, domestcay consumed,
as to resut n the accumuaton of surpus stocks of dark ar-cured tobacco,
or of chewng tobacco produced therefrom, or n the depresson of the farm
prce of dark ar-cured tobacco. I do hereby, accordngy, determne, as of
ebruary 1, 1935, that the processng ta on the frst domestc processng of
dark ar-cured tobacco used n the manufacture of chewng tobacco sha be
at the rate of two (2) cents per pound, farm saes weght, whch rate, as of
the effectve date thereof, w prevent such accumuaton of surpus stocks of
dark ar-cured tobacco, chewng tobacco produced therefrom, and depresson of
the farm prce of dark ar-cured tobacco whenever dark ar-cured tobacco n
processng order, from whch stem has not been removed, s processed n the
manufacture of chewng tobacco, the measure of ta sha be two and three-
tenths (2.3) cents per pound of such tobacco whenever dark ar-cured tobacco
n processng order, from whch stem has been removed, s processed n the
manufacture of chewng tobacco, the measure of ta sha be three and one-
tenth (3.1) cents per pound of such tobacco these amounts beng n accordance
wth the respectve weght reatonshps determned to e st between dark
ar-cured tobacco n such states and the farm saes weght of dark ar-cured
tobacco.
III. Defntons.
(8) The foowng terms, as used n these reguatons, sha have the mean-
ngs hereby assgnd to them:
rst domestc processng. The frst domestc processng of cgar-eaf tobacco
s the fabrcatng of the product to be used by the consumer. The acts of
stemmng, sweatng or fermentng, and condtonng sha not be deemed
processng.
(a) Iu the case of cgars, stoges, cheroots, or sma cgars, t s the fabrcat-
ng of cgar-eaf tobacco nto the form to whch no tobacco s added and from
whch no tobacco s subtracted a scrap, cuttngs, and cppngs not eft n
such products sha be deemed not to have been processed.
( ) In the case of scrap chewng and/or smokng tobacco, t s the preparng
of any form of cgar-eaf tobacco for consumpton as scrap chewng and/or
smokng tobacco.
The frst domestc processng of Maryand, urey, fue-cured, re-cured, or
dark ar-cured tobacco s the fabrcatng of the product to be used by the
consumer. In the case of cgarettes, smokng tobacco, chewng tobacco, and
snuff, t s the fabrcatng of any one or more of the above knds of tobacco nto
the artces to be consumed.
Cgar-eaf tobacco. Cgar-eaf tobacco Is eaf tobacco, cassfed n Unted
States Department of grcuture, ureau of grcutura conomcs, Servce
and Reguatory nnouncements, No. 118, n casses 4, 5, , and 8, and any tobacco
of other grades or types of eaf tobacco (ncudng, but not mted to, Mary-
and, urey, fue-cured, fre-cured and dark ar-cured tobacco), used n the
manufacture or fabrcaton of cgars, stoges, cheroots, sma cgars, scrap
chewng tobacco, and/or scrap smokng tobacco.
Maryand. Maryand tobacco s the knd of ar-cured tobacco cassfed as
type 32 n the Unted States Department of grcuture, ureau of grcutura
conomcs, Servce and Reguatory nnouncements, No. 118, e cept such
tobacco so cassfed as Is specfcay ncuded n the above defnton of cgar-
eaf tobacco. It sha be deemed to Incude aso a the other domestc ght
ar-cured tobacco e ceptng urey when processed n the manufacture of cga-
rettes, smokng tobacco, chewng tobacco, and/or snuff.
urey. urey tobacco Is the knd of ar-cured tobacco cassfed as type 31,
n the Unted States Department of grcuture, ureau of grcutura conom-
cs, Servce and Reguatory nnouncements, No. 118, e cept such tobacco so
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Msc.
482
cassfed us s specfcay ncuded n the above defnton of cgar-eaf
tobacco.
fue-cured. ue-cured tobacco s tbe knd of tobacco cassfed as types 11,
12, 13, 14. and 90 n the Unted States Department of grcuture, ureau of
grcutura conomcs, Servce and Reguatory nnouncements, No. 118, e cept
ch tobacco so cassfed as s specfcay ncuded n the above defnton of
cgar-eaf tobacco. It sha be deemed to ncude uso a other fue-cured tobacco
when processed n the manufacture of cgarettes, smokng tobacco, chewng
tobacco, aud/or snuff.
re-cured. re-cured tobacco s the knd of tobacco cassfed as types
21, 22, 23, and 24, n the Unted States Department of grcuture, ureau
of grcutura conomcs, Servce and Reguatory nnouncements, No. 118,
e cept such tobacco so cassfed as s specfcay ncuded n the above defn-
ton of cgar-eaf tobacco. It sha be deemed to ncude aso a other domestc
fre-cured tobacco when processed n the manufacture of cgarettes, smokng
tobacco, chewng tobacco, and/or snuff.
Dark ar-cured. Dark ar-cured tobacco s the knd of tobacco cassfed
as types 33, 3 , and 37, n the Unted States Department of grcuture,
ureau of grcutura conomcs, Servce and Reguatory nnouncements,
No. 118, e cept such tobacco so cassfed as s specfcay ncuded n the
above defnton of cgar-eaf tobacco. It sha be deemed to ncude aso a
other domestc dark ar-cured tobacco when processed n the manufacture of
cgarettes, smokng tobacco, chewng tobacco, and/or snuff.
Processng order. Processng order s the state of Maryand, urey, fue-
cured, fre-cured, and/or dark ar-cured tobacco at the tme of processng
thereof.
Cgarettes. Cgarettes are ros of tobacco wrapped n paper.
Snuff. Snuff s tobacco that has been cut, ground, or puverzed nto sma
partces for use n snffng, dppng, or chewng.
Smokng tobacco. Smokng tobacco s tobacco of dfferent knds prepared
for use prncpay for smokng purposes.
(a) Granuated smokng tobacco. Granuated smokng tobacco s tobacco
that s cut, threshed, or broken nto sma partces sutabe partcuary for
ppe smokng or hand-roed cgarettes.
( ) Other smokng tobacco. Other smokng tobacco s tobacco not granu-
ated whch s prepared for use prncpay for ppe smokng.
Chewng tobacco. Chewng tobacco s tobacco of dfferent knds prepared
for use prncpay for chewng purposes.
(a) Pug chewng tobacco. Pug chewng tobacco s chewng tobacco manu-
factured and pressed Into fat cakes.
( ) Twst. Twst s the type of chewng tobacco manufactured n the form
of a twst.
(c) Other chewng tobacco. Other chewng tobacco s tobacco prepared for
use prncpay for chewng.
Leaf tobacco. Leaf tobacco s tobacco n the forms n whch t appears
between the tme t s strpped from the stak, or prmed and cured, and the
tme t enters nto a manufacturng process.
Leaf tobacco from whch stem has not been removed
nstemmed. Unstemned eaf tobacco s eaf tobacco from whch stem or
md-rb has not been removed, ncudng both whoe eaf and eaf-scrap.
Leaf-scrap. Leaf-scrap s eaf tobacco consstng of oose and tanged whoe
and/or broken eaves.
Leaf tobacco from whch stem has been removed:
Stemmed or strps. Stemmed or strps are eaf tobacco from whc stem
or md-rb has been removed.
Strp-scrap. Strp-scrap s eaf tobacco consstng of oose and tanged por-
tons of stemmed or strps.
Shredded fer. Shredded fer s eaf tobacco commony known as such
and usuay consstng of strp-scrap of two or more types of tobacco.
Cuttngs. Cuttngs are portons of cgar-wrapper and/or cgar bnder strps.
Cppngs. Cppngs are sma portons of strps, frequenty ncudng
sma portons of wrapper, bnder, and fer strps.
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483
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y-products:
Sftngs. Sttngs are partces of enf tobacco savaged from the resdue of
tobacco after processng.
Dust.- Dust s the resdue of tobacco resutng from processng, after stt-
ngs have been savaged.
Sweatng. Sweatng s the handng of eaf tobacco as t passes through
one or more fermentatons.
Order. Order s the state of tobacco wth respect to ts mosture content.
Sweated. Sweated s the condton of cgar-eaf tobacco whc has passed
through one or more seasona fermentatons or whch has reached a corre-
spondng degree of fermentaton.
ermentng. See Sweatng.
Condtonng. Condtonng s the preparng of cgar-eaf tobacco for storage.
nsweated. Unsweated s the condton of unfermented cgar-eaf tobacco.
Cgars Stoges Cheroots. Cgars, stoges, and cheroots are ros of tobacco
wrapped wth tobacco.
Sma cgars. Sma cgars are cgars weghng not more than three (3)
pounds per thousand (1,000).
Scrap chewng and/or smokng tobacco. Scrap chewng and/or smokng
tobacco s tobacco prepared for chewng or smokng purposes from scraps,
cuttngs, or cppngs resutng from the manufacture of cgars, or from
tobacco eaves prmary of the types cassfed n casses 4, 5, G, and 8 n the
Unted States ureau of grcutura conomcs, Servce and Reguatory
nnouncements, No. 118, cut or broken nto sma peces but not shredded or
granuated, to whch favorng or sweetenng may or may not have been added.
arm saes weght. The farm saes weght of eaf tobacco s the weght
of eaf tobacco n ts unstemmed form and n the order t s usuay devered
by the grower.
I . Convekson actors.
(9) . I do hereby estabsh the foowng converson factors for artces
processed from cgar-eaf tobacco, to determne the amount of ta mposed
or refunds to be made wth respect thereto.
The foowng tabe of converson factors f es the percentage of the per
pound processng ta on cgar-eaf tobacco wth respect to a pound of the
foowng artces processed whoy, party, or n chef vaue from cgar-eaf
tobacco:
Per cent.
Cgars, stoges, cheroots, sma cgars 1 7
Sttngs and/or dust 0
In the computaton of the weght of cgars, stoges, cheroots, or sma cgars
for the purposes of the appcaton of the above tabe of converson factors,
In order to compute the ta ad|ustment on foor stocks, 1,000 cgars, stoges,
or cheroots sha be deemed to wegh seventeen and one-haf (17 /|) pounds,
If the ta payer so eects, and 1,000 sma cgars sha be deemed to wegh
two and seventy-fve hundredths (2.75) pounds, f the ta payer so eects.
I do hereby estabsh (as of ebruary 1, 1935) the foowng converson
factor for scrap chewng and/or smokng tobacco processed whoy, party, or
n chef vaue, from cgar-eaf tobacco, to determne the amount of ta mposed
or refunds to be made wth respect thereto:
rtce.
Unt
Converson factor.
Scrap chewng and/or smok-
ng tobacco.
Pound
110 per cent of the per pound proc-
essng ta on cgar-eaf tobacco
used n the manufacture of scrap
chewng and/or smokng tobacco.
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Msc.
484
. I do hereby estabsh the foowng converson factors for artces proc-
essed from urey, fue-cured, fre-cured and/or dark ar-cured tobacco to deter-
mne the amount of ta mposed or refunds to be made wth respect thereto,
e cept ta es and refunds on foor stocks:
rtce.
Unt.
Converson factor.
Cgarettes .
1,000
Smokng tobacco:
(1) Granuated smokng
tobacco.
(2) Smokng tobacco
other than granu-
ated.
Pound
Pound.
Chewng tobacco:
(1) Pug chewng
bacco.
to-
Pound
(2) Twst chewng to-
bacco.
Pound.
183 per cent of the per pound proc-
essng ta on fue-cured to-
bacco, pus
122 per cent of the per pound proc-
essng ta on urey tobacco,
pus
8 per cent of the per pound proc-
essng ta on Maryand to-
bacco.
88 per cent of the per pound proc-
essng ta on fue-cured to-
bacco, pus
29 per cent of the per pound proc-
essng ta on urey to-
bacco.
59 per cent of the per pound proc-
essng ta on urey tobacco,
pus
7 per cent of the per pound proc-
essng ta on dark ar-cured
tobacco, pus
per cent of the per pound proc-
essng ta on fue-cured to-
bacco, pus
1 per cent of the per pound proc-
essng ta on fre-cured to-
bacco.
45 per cent of the per pound proc-
essng ta on urey tobacco
used n the manufacture of
chewng tobacco, pus
33 per cent of the per pound proc-
essng ta on fue-cured to-
bacco used n the manufacture
of chewng tobacco, pus
21 per cent of the per pound proc-
essng ta on dark ar-cured
tobacco used n the manu-
facture of chewng tobacco.
70 per cent of the per pound proc-
essng ta on dark ar-cured
tobacco used n the manu-
facture of chewng tobacco,
pus
1 per cent of the per pound proc-
essng ta on urey tobacco
used n the manufacture of
chewng tobacco, pus
5 per cent of the per pound proc-
essng ta on fre-cured to-
bacco used n the manufacture
of chewng tobacco.
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rtce.
Chewng tobacco Con.
(3) Other chewng
bacco.
to-
Snuff_
Sttngs and dust.
Unt.
Pound-.
Pound
Pound.
Converson (actor.
50 per cent of the per pound proc-
essng ta on urey tobacco
used n the manufacture of
chewng tobacco, pus
23 per cent of the per pound proc-
essng ta on dark ar-cured
tobacco used n the manufac-
ture of chewng tobacco, pus
10 per cent of the per pound proc-
essng ta on fre-cured to-
bacco used n the manufacture
of chewng tobacco.
102 per cent of the per pound proc-
essng ta on fre-cured to-
bacco, pus
5 per cent of the per pound proc-
essng ta on dark ar-cured
tobacco, pus
1 per cent of the per pound proc-
essng ta on urey tobacco.
0
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund estabshes that any artce processed whoy
or party from Maryand, urey, fue-cured, fre-cured, and/or dark ar-cured
tobacco (n case of chewng tobacco, see foowng paragraph) on whch a ta
s mposed (other than a ta on foor stocks) or whch may be the sub|ect
of a cam for refund (other than a refund on foor stocks), whch s ncuded
n the above st s processed whoy or party from a knd or knds of tobacco
other than those sted above for such artce, or contans more or ess of the
knds of tobacco so sted than represented by the sted converson factors,
the converson factor sha be:
(a) 144 per cent of the per pound processng ta on Maryand tobacco for
each pound of Maryand tobacco sad artce s estabshed to contan, pus
(b) 155 per cent of the per pound processng ta appcabe to the urey
tobacco used n the manufacture of sad product for each pound of urey
tobacco sad artce s estabshed to contan, pus
(c) 145 per cent of the per pound processng ta appcabe to the fue-
cured tobacco used n the manufacture of the sad product for each pound of
fue-cured tobacco ad artce s estabshed to contan, pus
(d) 143 per cent of the per pound processng ta on fre-cured tobacco for
each pound of fre-cured tobacco sad artce s estabshed to contan, pus
(e) 15 per cent of the per pound processng ta on dark ar-cured tobacco
for each pound of dark ar-cured tobacco sad artce s estabshed to contan.
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund estabshes that any chewng tobacco processed
whoy or party from Maryand, urey, fue-cured, fre-cured, and/or dark
ar-cured tobacco on whch a ta s mposed (other than a ta on foor stocks),
or whch may be the sub|ect of a cam for refund (other than a refund on
foor stocks), whch s ncuded n the precedng st s processed whoy or
party from a knd or knds of tobacco other than those sted heren for such
chewng tobacco, or contans more or ess of the knds of tobacco so sted than
represented by the sted converson factors, the converson factor sha be:
(a) 144 per cent of the per pound processng ta on Maryand tobacco for
each pound of Maryand tobacco sad chewng tobacco s estabshed to contan,
pus
( ) 155 per cent of the per pound processng ta on urey tobacco used In
the manufacture of chewng tobacco for each pound of urey tobacco sad
chewng tobacco s estabshed to contan, pus
(c) 145 per cent of the per pound processng ta on fue-cured tobacco used
n the manufacture of chewng tobacco for each pound of fue-cured tobacco
sad chewng tobacco s estabshed to contan, pus
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48
( ) 1-43 per cent of the per pound processng ta on fre-eured tobacco used
In the manufacture of chewng tobacco for each pound of fre-cured tobacco
sad chewng tobacco s estabshed to contan, pus
(c) 15 per cent of the per pound processng ta on dark ar-cured tobacco
used n the manufacture of chewng tobacco for each pound of dark ar-cured
tobacco sad chewng tobacco s estabshed to contan.
C. I do hereby estabsh the foowng converson factors for artces processed
from urey, ue-cured, fre-cured and/or dark ar-cured tobacco to determne
the amount of ta mposed on foor stocks or refunds to be made wth respect
to foor stocks:
rtce.
Cgarettes.
Smokng tobacco:
(1) Granuated smok-
ng tobacco.
(2) Smokng tobacco
other than granu-
ated.
Chewng tobacco:
(1) Pug chewng to-
bacco.
(2) Twst chewng to-
bacco.
(3) Other chewng to-
bacco.
Snuff
Sftngs and dust.
Converson factor.
183 per cent of the per pound proc-
essng ta on fue-cured tobacco.
88 per cent of the per pound proc-
essng ta on fue-cured tobacco.
59 per cent of the per pound proc-
essng ta on urey tobacco.
45 per cent of the per pound proc-
essng ta on urey tobacco used
n the manufacture of chewng
tobacco.
70 per cent of the per pound proc-
essng ta on dark ar-cured tobacco
used n the manufacture of chewng
tobacco.
50 per cent of the per pound proc-
essng ta on urey tobacco used
n the manufacture of chewng
tobacco.
102 per cent of the per pound proc-
essng ta on fre-cured tobacco.
0.
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund estabshes that any artce processed whoy
or n chef vaue from Maryand, urey, fue-cured, fre-cured, or dark ar-cured
tobacco (n case of chewng tobacco, see foowng paragraph) on whch a ta
on foor stocks s mposed or whch may be the sub|ect of a cam for refund
on foor stocks, whch s ncuded n the above st s processed whoy or n
chef vaue from a knd of tobacco other than that sted above for such
artce, or contans more or ess of the knd of tobacco so sted than repre-
sented by the sted converson factor, the converson factor for such artce
sha be:
(a) If processed whoy or In chef vaue from Maryand tobacco, 144 per cent
of the per pound processng ta on Maryand tobacco for each pound of Mary-
and tobacco sad artce s estabshed to contan.
( ) If processed whoy or n chef vaue from urey tobacco, 155 per cent
of the per pound processng ta appcabe to the urey tobacco used n the
manufacture of sad product for each pound of urey tobacco sad artce s
estabshed to contan.
(c) If processed whoy or n chef vaue from fue-cured tobacco, 145 per cent
of the per pound processng ta appcabe to the fue-cured tobacco used n the
manufacture of the sad product for each pound of fue-cured tobacco whch
sad artce s estabshed to contan.
(d) If processed whoy or n chef vaue from fre-cured tobacco, 143 per cent
of the per pound processng tn on fre-cured tobacco, for each pound of fre-
cured tobacco whch sad artce s estabshed to contan.
(e) If processed whoy or n chef vaue from dark ar-cured tobacco, 15
per cent of the per pound processng ta on dark ar-cured tobacco, for each
pound of dark ar-cured tobacco whch sad artce s estabshed to contan.
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487
Msc.
In the event that any ta payer, the Commssoner of Interna Revenue, or any
person entted to a refund estabshes that any chewng tobacco processed
whoy or n chef vaue from Maryand, urey, fue-cured, tre-cured, or dark
ar-enred tobacco, on whch a ta on foor stocks s mposed or whch may be
the sub|ect of a cam for refund on foor stocks, whch s ncuded n the pre-
cedng st Is processed whoy or n chef vaue from a knd of tobacco other
than that sted heren for such chewng tobacco, or contans more or ess of the
knd of tobacco so sted than represented by the sted converson factor, the
converson factor for such artce sha be:
(a) If processed whoy or n chef vaue from Maryand tobacco, 144 per cent
of the per pound processng ta on Maryand tobacco for each pound of Mary-
and tobacco sad chewng tobacco s estabshed to contan.
( ) If processed whoy or n chef vaue from urey tobacco, 15. er cent
of the per pound processng ta on urey tobacco used n the manufacture of
chewng tobacco for each pound of urey tobacco sad chewng tobacco s
estabshed to contan.
(c) If processed whoy or n chef vaue from fue-cured tobacco, 14. er
cent of the per pound processng ta on fue-cured tobacco used n the manu-
facture of chewng tobacco for each pound of fue-cured tobacco sad chewng
tobacco s estabshed to contan.
(d) If processed whoy or n chef vaue from fre-cured tobacco, 143 per
cent of the per pound processng ta on re-cured tobacco used n the manu-
facture of chewng tobacco for each pound of tre-cured tobacco sad chewng
tobacco s estabshed to contan.
(e) If processed whoy or n chef vaue from dark ar-cured tobacco, 15
per cent of the per pound processng ta on dark ar-cured tobacco used n
the manufacture of chewng tobacco for each pound of dark ar-cured tobacco
sad chewng tobacco s estabshed to contan.
The provsons of these reguatons sha take effect as of ebruary 1, 1035.
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par.I. Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested n hm by ths tte.
Par. . Secton 1101, Revenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, .sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng reguatons are hereby
prescrbed:
- rtce 1. Genera. (a) processng ta on the frst domestc processng
of egar-eaf tobacco, Maryand, urey, fue-cured, fre-cured, and dark ar-
cured tobacco became effectve at the earest moment of October 1, 1933. When
the processng ta became effectve, a compensatng tu aso became effectve
wth respect to a artces processed or manufactured whoy or n chef
vaue from any type or knd of tobacco named above, and mported on or after
October 1, 1033. compensatng ta became effectve wth respect to a
artces processed or manufactured whoy or party from any of the above
types or knds of tobacco, and mported after 11.28 a. m., eastern standard tme,
May 9, 1934.
The respectve rates of processng ta are gven n artce 2 of these regua-
tons. The respectve rates of compensatng ta , ta on foor stocks, or of
refund, are gven n artce 4 of these reguatons.
( ) y vrtue of the procamatons of the Secretary of grcuture, set
orth n paragraph , above, Reguatons 81, reatng to the processng ta and
compensatng ta , Reguatons 82, reatng to the ta on foor stocks, und
Reguatons 83, September, 1034, edton, reatng to e portaton, whch are
genera reguatons under the grcutura d|ustment ct, became appcabe
to the types and knds of tobacco referred to n such procamatons. These
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Msc.
488
reguatons suppement, but are not ntended to change or revoke n any way.
Reguatons 81, Reguatons 82, or Reguatons 83, September, 1934, edton.
(c) The effectve date, as defned and used n Reguatons 81, Reguatons
82, and Reguatons 83, September, 1934, edton, s:
(1) October 1, 1933, wth respect to the above market cassfcatons of to-
bacco, and artces or products processed or manufactured whoy or n chef
vaue therefrom
(2) ugust 1, 1934, wth respect to the reducton n the rate of ta on the
processng of fue-cured tobacco used In the manufacture of pug chewng
tobacco or twst tobacco
(3) October 1, 1934, wth respect to the ncrease n the rate of ta on the
processng of urey tobacco and the reducton n the rate of ta on the
processng of Maryand tobacco
(4) ebruary 1, 1935, wth respect to the reducton n the rate of ta on the
processng of cgar-eaf tobacco n the manufacture of scrap chewng or smok-
ng tobacco, the revson of the measure of ta appcabe to the processng of
cgar-eaf tobacco of the knd cassfed n Unted States Department of gr-
cuture, ureau of grcutura conomcs, Servce and Reguatory nnounce-
ments, No. 118, as fre-cured tobacco used n the manufacture of cgars, and
the reducton n the rate of ta on the processng of urey, fue-cured, fre-
cured, and dark ar-cured tobacco n the manufacture of chewng tobacco.
(d) The varous defntons set forth n the reguatons of the Secretary of
grcuture n paragraph G, above, are hereby made a part of these reguatons.
bt. 2. Processng ta es. (o) Reguatons 81 shoud be consuted for de-
taed reguatons wth respect to processng ta . The form prescrbed for re-
turn of the tn on the processng of cgar-eaf tobacco s P. T. orm , revsed
ebruary, 1935. The form prescrbed for return of ta on the processng of
Maryand, urey, fue-cured, fre-cured, and dark ar-cured tobacco, s P. T.
orm , revsed ebruary, 1935. The amount of ta shown on each such re-
turn must be pad at the tme the return s fed, or f the tme of payment
be postponed or e tended, then at the tme or tmes desgnated for payment
n such postponement or e tenson.
( ) The respectve rates of ta on the processng of cgar-eaf tobacco, Mary-
and, urey, fue-cured, fre-cured, and dark ar-cured tobacco are as foows
Rates of ta per pound.
Market cassfcaton of tobacco.
ffectve date.
Unsweated,
ppcabe to
Cgar-eaf of any knd e cept that
cassfed n Unted States De-
partment of grcuture, . .
., Servce and Reguatory
nnouncements, No. 118, as
fre-cured tobacco, used n the
manufacture of cgars or sma
cgars
farm saes
weght.
Stem not
removed.
Stem
removed.
SweaUd.
Sweatd.
0.05
Cgar-eaf of the knd cassfed n
Unted States Department of
grcuture, . . ., Servce
and Reguatory nnounce-
ments, No. 118, as fre-cured to-
bacco, used n the manufacture
of cgars or sma cgars
Oct. 1, 1933
0.03
0. 0375
Cgar-eaf of any knd used n the
manufacture of scrap chewng
or smokng tobacco
eb. 1,1935
eb. 1,1935
.03
.02
.0325
.025
.043
.033
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489
Msc.
Market cassfcaton of tobacco.
Maryand
urey:
Used n manufacture of
Chewng tobacco
Other artces 1
ue-cured:
Used n manufacture of
Chewng tobacco
Other artces 1
re-cured:
Used n manufacture of
Chewng tobacco
Other artces 1
Dark ar-cured:
Used n manufacture of
Chewng tobacco
Other artces 1
feet re date.
Oct. 1, 1934
eb.
Oct.
eb.
Oct.
eb.
Oct.
eb.
Oct.
1, 1935
1, 1934
1, 1935
1, 1933
1, 1935
1, 1933
1, 1935
1, 1933
Rates of ta per pound.
Unsweated,
farm saes
weght.
0. 00
. 025
. 0 1
. 02
. 042
02
. 029
.02
. 033
ppcabe to
Stem not Stem
removed. removed.
In proettono ordtr.
0. 00
. 029
.07
. 023
. 047
. 022
. 032
. 023
. 038
0. 00
. 039
. 095
. 029
. 0 1
. 029
. 041
. 031
. 051
1 cept cgars and scrap chewng or smokng tobacco.
(c) Strop chewng or smokng tobacco. Wth respect to a cgar-eaf to-
bacco n process on ebruary 1, 1935, and manufactured nto scrap chewng
or smokng tobacco, the frst domestc processng of whch was not competed
pror to that date, and on whch processng ta attached at the rate n effect
pror to that date, the processor w be entted to credt or refund of the dffer-
ence between the rate n effect pror to, and the rate effectve ebruary 1, 1935.
The rate of credt or refund s 1 cent per pound, unsweated farm saes weght,
or wth respect to such tobacco, sweated, 1.25 cents per pound If stem has not
been removed, or 1.7 cents per pound f stem has been removed. Cam for
such credt shoud be e ecuted on P. T. orm 28 and attached to the monthy
return upon whch such credt s camed. Cam for refund of such ta shoud
be made on P. T. orm 24, whch sha affrmatvey state that the cam Is
not for the refund of ta es egay or erroneousy coected, but s for the
refund of ta es wth respect to tobacco n process on ebruary 1, 1935.
(d) Chewng tobacco. Wth respect to a fue-cured, fre-cured, and dark
ar-cured tobacco n process on ebruary 1, 1935, and manufactured nto chew-
ng tobacco, the frst domestc processng of whch was not competed pror to
that date, and on whch processng ta attached at the rate n effect pror to
that date, the processor w be entted to credt or refund of the dfference
between the rate n effect pror to, and the rate effectve ebruary 1, 1935.
The rates of credt or refund wth respect to each pound of such tobacco are:1
Market cassfcaton of tobacco.
orm saes
weght.
In processng order.
Stem not
removed.
Stem
removod.
ue-cured:
Used n manufacture of
Pug chewng or twst.
Other chewng
re-cured -_.
0. 013
. 022
. 009
. 013
0. 014
. 024
. 01
. 015
0. 019
. 032
. 012
. 02
1 Snce the rate of ta n effect Immedatey precedng ebruary 1, 1935, wth respect
to the pro-essng of urey nto chewng tobacco, was nether equa to nor ess than the
rate n effect wth respect thereto pror to une 2 . 1934, no refund or credt w he
aowed wth respect to urey tobacco n process of manufacture Into chewng tobacco
on ebruary , 1935, or wth respect to any chewng tobacco manufactured whoy or In
chef vaue from urey and hed on ebruary 1, 1935.
of the ct, paragraph .)
(See provso secton 1 (C)
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490
Cam for such credt shoud be e ecuted on P. T. orm 28 and attached to
the monthy return on whch such credt s camed. Cam for refund of
such ta shoud be made on P. T. orm 24 whch sha affrmatvey state that
the cam s not for the refund of ta es egay or erroneousy coected, but
s for the refund of ta es wth respect to tobacco n process on ebruary 1,
1935.
(c) ach processor of the market cassfcatons of tobacco covered by these
reguatons sha keep, for each caendar month, a record as respects each
market cassfcaton of tobacco, of (1) the quantty on hand at the begnnng
of the perod, (2) the quantty receved durng the perod, (3) the quantty
shpped or devered durng the perod, (4) the quantty sod or otherwse ds-
posed of as waste durng the perod, (5) the quantty on hand at the end of the
perod, and ( ) the quantty put n process durng the perod. These quanttes
must be ascertaned by actua weghng on accurate scaes and not by estmaton.
(f) The processng of tobacco used n the producton of nsectcdes or
fertzers s e empt from the ta .
et. 3. Compensatng ta on mported artces. compensatng ta became
effectve wth respect to artces processed whoy or n chef vaue from any
market cassfcaton of tobacco, and mported on or after October 1, 1933, nto
the Unted States or any possesson to whch the ct appes, from any foregn
country or any possesson of the Unted States to whch the ct does not appy.
compensatng ta became effectve wth respect to artces processed whoy
or part / from any of the market cassfcatons of tobacco, and mported after
11.23 a. m., eastern standard tme, May 9, 1934. The respectve rates of ta
appcabe to such artces, effectve ebruary 1, 1935, are gven n artce 4
of these reguatons. or detaed reguatons as to ths ta consut Chapter I
of Reguatons 81, as amended by Treasury Decson 4501, approved December
4, 1934 C. . I -2, 524 .
kt. 4. Rates of ta or of refund wth respect to artces processed from
toacco. (a) ffectve ebruary 1, 1935, the rates of compensatng ta , or of
refund or credt, wth respect to artces processed from any market cassf-
caton of tobacco, desgnated as a commodty, e ported or devered for char-
tabe dstrbuton or use, are as foows:
rtces.
Cgars, stoges, cheroots per pound
Sma cgars do_.
Scrap chewng or smokng tobacco do_.
Cgarettes per 1,000
Smokng tobacco:
Granuated per pound
Other than granuated or scrap do-.
Chewng tobacco:
Pug do..
Twst do..
Other than pug, twst, or scrap do..
Snuff do..
Sftngs and dust do..
If the ta payer or person entted to refund can estabsh that any artce
ncuded n the above st, on whch a ta s mposed, or whch may be
the sub|ect of a cam for refund (other than a refund wth respect to foor
stocks), s processed from a knd or knds of tobacco other than those sted
wth respect to the artce n paragraph G, above, or contans more or ess
of the knd of tobacco than represented by the converson factor prescrbed
therefor, the respectve rate of ta gven beow sha be used wth respect
to the quantty of each knd of tobacco content. The eecton must be mado
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491
Msc.
t the tme when the customs entry or cam s fed, n whch case the customs
entry and nvoce or cam must show: (1) the knd or knds of tobacco from
whch the artce has been processed, and (2) the actua quantty of each
knd of tobacco contaned n the artce. The appcabe rates of ta or of
refund are:
nd of tobacco contaned n tbe artce.
Rate per
pound of con-
tent of such
toacco.
Maryand
ur ey:
(1) Used n the manufacture of chewng tobacco
(2) Used n the manufacture of other artces
ue-cured:
(1) Used n the manufacture of chewng tobacco
(2) Used n the manufacture of other artces
re-cured:
(1) Used n the manufacture of chewng tobacco
(2) Used n the manufacture of other artces
Dark ar-cured:
(1) Used n the manufacture of chewng tobacco
(2) Used n the manufacture of other artces
0. 00
. 03875
. 09455
. 029
. 0 09
. 028
. 04147
. 0312
. 05148
rt. 5. Refund or credt on foor stocks of chewng tobarco. (a) ny person
who, at the earest moment of ebruary 1, 1935, hed for sae or other dspo-
ston any chewug tobacco, or scrap chewng or smokng tobacco, wth respect
to whch a ta had been pad or s payabe under the provsons of the gr-
cutura d|ustment ct, s (e cept n the case of artces processed whoy
or n chef vaue from urey tobacco) entted to refund (or credt aganst
any ta due under the ct) of the dfference between the amount of ta pad
wth respect to the artce and the amount of ta that woud have been payabe
wth respect thereto f the processng of the commodty had occurred on ebru-
ary 1, 1035. Rates of such refund or credt arc as foows:
rtce.
Tobacco component of
chef vaue.
Rate per
pound of the
artce.
Scrap chewng or smokng tobacco.
Twst chewng tobacco
Cgar-eaf
Dark ar-cured.
0. 011
. 0091
cept wth respect to scrap chewng or smokng tobacco and twst chewng
tobncc , the amount of credt or refund whch may be aowed, wth respect to
chewng tobacco, s based on the rate of ta appcabe to that knd of tobacco
(other than urey) from whch such chewng tobacco s processed whoy or n
chef vaue. The camant s requred to show on hs cam for credt or refund :
(1) the brand name of such chewng tobacco, (2) the factory number and ds-
trct where manufactured, (3) the net weght of the artce, (4) tbe knd of
tobacco from whch the artce was processed whoy or n chef vaue, and (5)
the weght of that knd of tobacco contaned n the artce. In the case of twst
chewng tobacco, whch s processed whoy or n chef vaue from fue-cured or
fre-cured tobacco, the rate of credt or refund aowabe s based on the quantty
or e cepton as to urey tobacco, see footnote to artce 2(d).
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Msc.
492
of that knd of tobacco from whch the artce s processed whoy or n chef
vaue. The appcabe rates of credt or refund are:
Rate per
pound of con-
tent of such
nd of tobacco (rom whch chewng tobacco was processed whoy or n chef vaue.
ue-cured._ . . .
0. 01885
. 01287
. 02028
re-cured
Dark ar-cured .
The term person and the term sae or other dsposton sha have the
same meanngs n these reguatons as gven respectvey n artce 1(c) and
1(f) of Reguatons 82.
( ) The cam for credt or refund referred to n (a) above sha be made
on P. T. orm 24D, revsed anuary, 1935. The form sha be fuy and ac-
curatey fed out n accordance wth the nstructons prnted thereon, and
n accordance wth these reguatons.
(1) The cam sha show wth respect to each cass of products nventored
thereon (a) the amount of ta pad or payabe wth respect to the products
sted n the nventory, credt or refund of whch ta s camed, ( ) the knd
of ta pad or payabe, that s, processng ta , ta on foor stocks, or com-
pensatng ta , (c) to whch coector the ta was pad, and (d) f credt or
refund of processng ta s camed, the month and year n whch the processng
of the commodty occurred whch resuted n the product sted n the nventory.
(2) The camant sha, as of the begnnng of busness on ebruary 1, 1035,
make or cause to be made an nventory of such of the artces enumerated n
(a) above, as wore hed by hm, at that tme, for sae or other dsposton. The
same rues as to ownershp or tte and as to the nventory as are contaned
n artces 5 and 11, respectvey, of Reguatons 82 sha be appcabe wth
respect to cams fed hereunder, ncudng cams wth respect to reta stocks.
Ths nventory sha be set forth on the form mentoned above n paragraph
( ) of ths artce.
(3) ach cam sha be supported by evdence satsfactory to the Comms-
soner that the ta , for credt or refund of whch the cam s made, was
actuay pad to a coector of Interna revenue.
(4) The cam sha be sgned by the camant, and sha be sworn to by hm
f an ndvdua, or, f a corporaton or frm, by a duy authorzed ofcer or
member thereof.
(5) The cam, f It s for refund, shoud be fed prompty wth the
coector of nterna revenue of the dstrct u whch the camant has hs
prncpa pace of busness (or, f he has no prncpa pace of busness In
the Unted States, wth the coector at atmore, Md.). cam for credt
on ths form must be attached to the return on whch such credt Is camed,
when such return s fed wth the coector.
(c) ny person who fes a cam for credt or refund, as provded In (f)
above, sha preserve for four years thereafter, a compete and detaed record
of the facts upon whch the cam, Incudng the nventory, was based. Such
person sha aso retan a true copy of the nventory on the premses where
the artces were hed on the effectve date. The books, records, papers,
documents, etc., upon whch such cam was based sha be open for nspecton
by any nterna revenue offcer. The records sha be kept In such manner,
and sha contan such nformaton, as w enabe the Commssoner to deter-
mne the accuracy of the nventory and the vadty of the cam.
bt. . orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as
requred by the appcabe provsons of Reguatons 81, Reguatons 82, or
Reguatons 83, and must be carefuy fed out n e act accordance wth the
appcabe provsons of the proper reguatons and the nstructons contaned
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493
Regs. 84, rt. 1 .
on such form. The foowng forms wth respect to tobacco are hereby
prescrbed:
orm No
Desgnaton.
Requred by-
P. T. orm ,
revsed ebru-
ary, 1935.
P. T. orm ,
revsed ebru-
ary, 1935.
P. T. orm 24...
P. T. orm 24C.
P. T. orm 24D,
revsed anu-
ary, 1935.
P. T. orm 27. ..
P. T. orm 28...
Return of processor of cgar-eaf
tobacco.
Return of processor of tobacco,
other than cgar-eaf.
Cam for refund of ta es e-
gay coected.
Cam for refund of, or credt for,
ta pad wth respect to art-
ces devered for chartabe
dstrbuton or use.
Cam for refund of, or credt for,
ta pad wth respect to chew-
ng tobacco, and scrap chew-
ng or smokng tobacco.
Cam for refund of ta pad
wth respect to artces e -
ported.
Cam for credt on return, of
overpayment.
Reguatons 81, artce 11,
and artce 2(a), above.
Reguatons 81, artce 11,
and artce 2(a), above.
Reguatons 81, artce
31(a).
Reguatons 81, artce 32,
as amended (T. D. 4454
C. . III-2, 479 ).
rtce 5, these regua-
tons.
Reguatons 83 (Septem-
ber, 1934, edton).
Reguatons
31(o).
81, artce
rt. 7. Treasury Decson 4395, approved September 30, 1933 (C. . II-2,
4 ), sha reman In force and effect ony n so far as t reates to abty
for ta ncurred and to refund (e cept ta ncurred or refund accrued
durng the perod begnnng ugust 1, 1934, and endng September 30, 1934,
wth respect to pug chewng tobacco and twst tobacco mde from fue-cured
tobacco) accrued pror to October 1, 1934.
Treasury Decson 4494, approved November 8, 1934 C. . III-2, 500|,
sha reman n force and effect ony n so far as t reates to abty for
ta ncurred, and rght to refund accrued (urng the perod October 1, 1934,
to anuary 31, 1935 and to ta ncurred or refund accrued begnnng ugust
1, 1934, and endng September 30, 1934, wth respect to pug chewng tobacco
and twst tobacco made from fue-cured tobacco. These reguatons sha be
n force and effect ns of the earest moment of ebruary 1, 1935, n so far
as they reate to abty for ta ncurred or refund accrued, on nnrt after
that date.
Gt|t T. evkk g,
Commssoner of Interna Revenue.
pproved March 8, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
COTTON CONTROL CT ( PPRO D PRIL 21, 1934, PU -
LIC, NO. 1 9, S NTY-T IRD CONGR SS).
S CTION 14. G N R L ND P N L PRO ISIONS.
Reguatons 84, rtce 1 : Transportaton, I -7-7319
purchase, or sae of nt cotton. P. T. 23
ae tags must be attached to baes of nt cotton devered by a
standng-rent tenant to hs andord n payment of rent.
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Regs. 84, rt. 3 .
494
dvce s requested whether bae tags must be attached to baes
of nt cotton devered by a standng-rent tenant to hs andord n
payment of rent.
The ta mposed by the Cotton Contro ct, approved pr 21,
1934 (Pubc, No. 1 9, Seventy-thrd Congress), attaches upon the
gnnng of the cotton and must be pad by the gnner, e cept -where
payment s postponed as provded n secton 4(f) of the ct.
Secton 14(b) of the Cotton Contro ct reads n part as foows:
cept as may be permtted by reguatons prescrbed by the Com-
mssoner, wth the approva of the Secretary of the Treasury, wth due regard
for the protecton of the revenue, no person sha: (2) se, pur-
chase, or open any bae of nt cotton to whch a bae tag ssued under ths
ct s not attached.
rtce 1 of eguatons 84, as amended by Treasury Decson
44 8 (C. . III-2, 535), reads n part as foows:
No person sha purchase or se a bae of nt cotton uness there s at-
tached thereto a bae tag ssued under the ct, and uness the seer of the
cotton devers to the purchaser at the tme of the sae a certfcate of tag-
gng: .
The term standng-rent tenant appes to any person who rents
and as a tenant and pays as rent a f ed quantty of cotton, rre-
spectve of the quantty produced. The term share tenant appes
to any person engaged n the producton of cotton who pays rent for
the and he farms by deverng to hs andord (1) a share of the
crop produced on such and or (2) a share of the proceeds of the
crop so produced. Under these crcumstances both the andord and
the tenant are producers.
devery of baes of nt cotton by a standng-rent tenant to hs
andord n payment of rent consttutes a transfer of property for
a consderaton and s a sae of the cotton wthn the meanng of
secton 14(b) of the ct and artce 1 of eguatons 84.
In vew of the foregong, t s hed that a bae tag must be at-
tached to each bae of nt cotton devered by a standng-rent tenant
to hs andord n payment of rent. Where a en card s attached
to a bae of nt cotton, the standng-rent tenant may not dever
such cotton to hs andord n payment of rent unt such tenant ob-
tans and attaches a bae tag thereto, as requred by artce 21 of
eguatons 84. In such cases, bae tags can not be ssued unt the
tenant surrenders ta -e empton certfcates or pays the ta to the
coector of nterna revenue based upon the net weght of nt cotton
n each bae.
S CTION 20. R UNDS.
eguatons 84, rtce 3 : Credt and refund. I -18-7472
P. T. 24
Refunds of ta pad under the Cotton ct approved pr 21,
1934, where (he producer was not n possesson of ta -e empton
certfcates when the cotton was gnned.
Inqury s made whether a refund of the ta pad under the Cot-
ton ct, approved pr 21, 1934 (Pubc, No. 1 9, Seventy-thrd
Congress), s aowabe n the foowng cases:
(1) Where a producer found t necessary to have hs cotton gnned
before he coud obtan the ta -e empton certfcates to whch he
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495
Regs. 85, rt. 31.
was entted under the Cotton ct, pad the equvaent of the ta
to the gnner, and ater obtaned such certfcates and devered them
to the gnner.
(2) Where a producer pad the equvaent of the ta to the gnner
at the tme cotton produced by hm n e cess of hs aotment was
gnned, and subsequenty devered to the gnner surpus ta -e emp-
ton certfcates -whch he had purchased.
The Cotton ct (approved pr 21, 1934) mposes a ta on the
gnnng of cotton harvested durng the crop year wth respect to
whch the ct s n effect. The ta s payabe by the gnner, e cept
where the payment of the ta s postponed us provded n secton 4(f)
of the ct and artce 13 of Reguatons 84. Secton 4(e)2 provdes
that no ta sha be mposed wth respect to an amount of cotton har-
vested n any crop year from each farm equa to ts aotment. Sec-
ton 9(a) provdes for the ssuance of ta -e empton certfcates by
the Secretary of grcuture to producers under certan condtons.
Secton 9(d) provdes that any and a certfcates of e empton may
be transferred or assgned n whoe or n part n such manner as the
Secretary of grcuture may prescrbe. The Secretary of gr-
cuture, through the grcutura d|ustment dmnstraton, has set
up a natona poo for the sae of ta -e empton certfcates turned
nto the poo by producers who produced ess than ther aotted
amounts of cotton. Producers who produced cotton n e cess of
ther aotments can purchase these surpus ta -e empton certfcates
and use them n securng e empton from ta wth respect to the
gnnng of surpus cotton produced by them, provded the certfcates
are n ther possesson when the, cotton s gnned.
In cases comng wthn (1) above, t s hed that the gnner, upon
compance wth the provsons of secton 20 of the ct and artce
3 of Reguatons 84, s entted to a refund of the ta pad on the
gnnng of the cotton n queston where t s concusvey shown that
the cotton gnned was harvested durng a crop year wth respect to
whch the ct was n effect and was wthn the aotment of the
farm. The gnner shoud submt wth hs cam the proper ta -
e empton certfcates.
In cases comng wthn (2) above, t s hed that the ta was not
erroneousy or egay assessed or coected wthn the meanng of
secton 3220 of the Revsed Statutes, as amended, and that devery
of ta -e empton certfcates n such cases after the cotton s gnned
does not warrant refund of the ta es pad.
SIL R PURC S CT.
SC DUL -10 O TITL III O T R NU CT O 192 , S
DD D Y S CTION 8 O T SIL R PURC S CT O 1934.
SIL R, ND SO ORT , S L S ND TR NS RS.
Reguatons 85, rtce 31 : Scope. I -2-7248
S.4
transfer of an nterest n sver buon by or to a corporaton
organzed under the Chna Trade ct (1922) s sub|ect to ta under
the Sver Purchase ct of 1934.
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The queston s presented whether a transfer of an nterest n
sver buon by or to a corporaton organzed under the Chna Trade
ct, 1922 (42 Stat., 849), s sub|ect to the ta mposed by Schedue
-10 of Tte III of the Revenue ct of 192 , as added by secton
8 of the Sver Purchase ct of 1934, where the sver buon s
outsde the Unted States and the transfer thereof s whoy effected
outsde the Unted States.
The ta mposed by Schedue -O of the Revenue ct of 192 , as
added by secton 8 of the Sver Purchase ct of 1934, upon the trans-
fer of any nterest n sver buon attaches to a such transfers
outsde the Unted States f ether party thereto s a resdent of the
Unted States .
Secton 2 of the Revenue ct of 192 provdes n part as foows:
(a) When used n ths ct

(3) The term domestc when apped to a corporaton or partnershp
means created or organzed n the Unted States or under the aw of the
Unted States .
The term resdent ncudes a domestc corporaton. ( rtce
20(e), Reguatons 85.) corporaton organzed under the Chna
Trade ct, 1922, s a corporaton created or organzed n the
Unted States or under the aw of the Unted States, and s, there-
fore, a domestc corporaton wthn the meanng of secton 2(a)3
of the Revenue ct of 192 . Snce under artce 20(e) of Regua-
tons 85 the term resdent ncudes a domestc corporaton, t
foows that a corporaton so organzed s a resdent of the Unted
States wthn the meanng of the aw and reguatons.
In vew of the foregong, t s hed that a transfer of an nterest
n sver buon under the crcumstances stated by or to a corpora-
ton organzed under the Chna Trade ct, 1922, s sub|ect to the ta
mposed by Schedue -10 of the Revenue ct of 192 , as added by
secton 8 of the Sver Purchase ct of 1934.
TO CCO CT, PPRO D UN 28,1934 (PU LIC, NO. 483,
S NTY-T IRD CONGR SS).
I - -7304
P. T. 21
Labty for the tobacco sae ta where tobacco s destroyed
by fre.
The queston s presented whether abty for the tobacco sae
ta mposed by the Tobacco ct, approved une 28, 1934 (Pubc,
No. 483, Seventy-thrd Congress), s ncurred wth respect to tobacco
destroyed by fre.
The ta mposed by the Tobacco ct appes to the frst bona fde
sae of certan tobacco harvested subsequent to une 28, 1934, and
pror to May 1, 1935, e cept Maryand tobacco, rgna sun-cured
tobacco, and cgar eaf tobacco. (T. D. 4452, C. . III-2, 555.)
Snco the ta s mposed on the frst bona fde sae of the tobacco, no
abty for the ta s ncurred wth respect to tobacco destroyed
pror to the frst bona fde sae thereof. The destructon of tobacco
subsequent to the frst bona fde sae does not reeve the seer from
abty for the ta .
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497
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I - -7305
P. T. 22
Ta abty of sae of eaf scrap tobacco by a warehouseman.
rung s requested whether the sae by an aucton warehouseman
of eaf scrap tobacco whch becomes detached from varous ots at
eaf tobacco whe n a warehouse s sub|ect to the tobacco sae ta m-
posed by the Tobacco ct, approved une 28, 1934 (Pubc, No. 483,
Seventy-thrd Congress).
The ta mposed by the Tobacco ct appes to the frst bona
fde sae of certan tobacco harvested subsequent to une 28, 1934,
and pror to May 1, 1935, e cept Maryand tobacco, rgna sun-
cured tobacco, and cgar eaf tobacco. (T. D. 4452, C. . III-2,
555.) The sae of eaf scrap tobacco by an aucton warehouse-
man s sub|ect to the ta mposed by the Tobacco ct uness such
sae s a resae. If ts resae character s estabshed by affdavt
on T. . orm 112 showng pror sae and payment of the ta , the
resae s not sub|ect to the ta .
I -10-73 0
G. C. M. 144 2
Statutory perod for fng cams for refund of ta es pad
pursuant to the Tobacco ct of une 28, 1934.
n opnon s requested as to the statutory perod wthn whch
cams must be fed for the refund of ta es pad pursuant to the pro-
vsons of the Tobacco ct, approved une 28, 1934 (Pubc, No. 483,
Seventy-thrd Congress).
Under authorty granted n secton 3 of that ct, the Secretary of
grcuture, by procamaton dated uy 3, 1934, prescrbed a ta of
25 )er centum of the sae prce of certan tobacco harvested subsequent
to une 28, 1934, and pror to May 1, 1935, on the frst bona fde sae
thereof.
method for coecton of the ta s not e pressy prescrbed by the
ct. owever, secton (b) makes appcabe to the ta nsofar as
not nconsstent wth the provsons of ths ct, a prov-
sons of aw appcabe wth respect to the ta es mposed by secton
00, Tte I, of the Revenue ct of 192 . mong the provsons so
made appcabe s secton 1119 of the Revenue ct of 192 , whch
provdes that any ta mposed by Tte I of that ct may, under
reguatons, be coected by stamp. Coecton by stamp of the ta
under the Tobacco ct on tobacco saes made on and after ugust 1,
1934, s provded by Treasury Decson 4452 (C. . III-2, 555).
Te ct of May 12,1900, as amended by secton 1013(a) of the Reve-
nue ct of 1924, provdes that no cam for the redempton of or
aowance for stamps sha be aowed uness presented wthn four
years after the purchase of the stamps from the Government. Secton
11(a) of the Tobacco ct provdes:
No refund of any ta , penaty, or nterest pad under ths ct sha be aowed
uness cam therefor s presented wthn s months after the date of payment
of such ta , penaty, or nterest.
The queston s presented whether cams for the recovery of ta es
pad under the Tobacco ct by the use of tobacco sae ta stamps are
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to be consdered as cams for refund sub|ect to the -month perod of
mtaton provded n that ct, or as cams for redempton of stamps
sub|ect to the 4-year perod of mtaton provded n the ct of May
12, 1900, as amended.
Snce secton 1119 of the Revenue ct of 192 authorzes coecton
of the ta mposed by secton 00 of that ct by stamps, and snce the
ct of May 12,1900, as amended, appes to ta es pad by stamps, the
atter ct may be regarded as appcabe wth respect to the ta es
mposed by secton 00 and, therefore, kewse appcabe ( nsofar
as not nconsstent ) wth respect to the ta es mposed by
the Tobacco ct.
The ct of May 12, 1900, as amended, appears nconsstent wth
secton 11(a) of the Tobacco ct, uness the atter contempates the
dstncton, esewhere recognzed n the nterna revenue aws, between
cams coverng ta es pad n cash and those coverng ta es pad by
stamps, the atter beng characterzed as cams for redempton of
stamps. There appears to be no reason for aowng persons payng
ta es n cash ony s months wthn whch to fe cams, and aow-
ng a 4-year perod to those makng payment by stamps. Presumaby,
Congress dd not so ntend. The anguage of secton 11(a) s broad
enough to cover ta es pad by stamps as we as ta es pad n cash,
and t shoud be apped to both. ccordngy, cams for the redemp-
ton of stamps whch have been used for the payment of the ta es
mposed by the Tobacco ct are cams for refund wthn the ntent
of secton 11(a) of the ct and, therefore, are sub|ect to the -month
perod of mtaton theren prescrbed.
The foregong reasonng does not appy to cams coverng unused
stamps. Such cams are not for the refund of ta es actuay pad and,
therefore, are not wthn the scope of secton 11(a). They are cams
for redempton of unused stamps and are governed by the ct of May
12, 1900, as amended.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
I - 8-7473
P. T. 25
Ta abty of saes of eaf scrap tobacco by a warehouseman.
(Tobacco ct, approved une 28, 1934.)
rung s requested whether the sae by a warehouseman of eaf
scrap tobacco coected from the drveways and unoadng pat-
forms pror to any sae thereof s sub|ect to the tobacco sae ta
mposed by the Tobacco ct, approved une 28, 1934 (Pubc, No.
483, Sevent| -thrd Congress).
The ta mposed by the Tobacco ct appes to the frst bona fde
sae of certan tobacco harvested subsequent to une 28, 1934, and
pror to May 1, 1935, e cept Maryand tobacco, rgna sun-cured
tobacco, and cgar eaf tobacco. (T. D. 4452, C. . III-2, 555.)
The sae of the eaf scrap tobacco n queston by the warehouse-
man consttutes the frst bona fde sae thereof. The warehouseman
must coect and wegh such eaf scrap tobacco each day and he
must ether keep a record of the weght of such tobacco coected or
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499
Msc.
store and se the same separatey from any accumuaton of eaf
scrap tobacco coected from the warehouse foor. ( or ta abty
of eaf scrap tobacco coected from the warehouse foor, see
P. T. 22, page 497, ths uetn.) The warehouseman s requred to
e ecute a memorandum of sae on T. . orm 112, coverng a saes
of such eaf scrap tobacco on any one day and pay the ta duo
thereon. T. . orm 112 must be attached to the monthy nforma-
ton return on T. . orm 111 to be fed wth the coector of
nterna revenue as provded n artce 5(a) of Treasury Decson
4452, supra.
I -23-7539
P. T. 2
Saes of tobacco by the producer who sub|ects the tobacco to a
manufacturng process before sae are sub|ect to the ta mposed
by the Tobacco ct, approved une 28, 4, measured by the prce
for whch the manufactured tobacco s sod.
Inqury s made reatve to the ta abty under the Tobacco ct,
approved une 28, 1934, of saes of tobacco where the producer sub-
|ects the tobacco to a manufacturng process and ses t through the
mas n manufactured form.
The Tobacco ct, approved une 28, 1934 (Pubc, o. 483, Sev-
enty-thrd Congress), mposes a ta upon the frst bona fde sae of
tobacco harvested subsequent to une 28, 1934, and pror to May 1,
1935, e cept Maryand tobacco, rgna sun-cured tobacco, and
cgar eaf tobacco. (T. D. 4452, C. . III-2, 555.)
Where the producer of tobacco, the sae of whch s ta abe under
the Tobacco ct, sub|ects the tobacco to a manufacturng process
before sae and ses t n manufactured form, whether by ma or
otherwse, the sae s ta abe under the Tobacco ct, approved une
28, 1934, as the frst bona fde sae, and the ta s measured by the
prce for whch the manufactured tobacco s sod.
TITL II O T LI UOR T ING CT O 1934.
I -4-7280
T. D.451
mendng paragraph 7 of Treasury Decson 4418 G. . III-1,
522 , as amended by Treasury Decson 4429 C. . III-1, 527 ,
reatng to stamps ndcatng ta payment of dsted sprts n
bottes.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
Paragraph 7 of Treasury Decson 4418, approved anuary 27,
1934, as amended by Treasury Decson 4429, approved pr 25,
1934, s further amended so as to read as foows:
I ab. 7. (a) cept as provded n paragraph 8, coectors w se the stamps
upon appcaton therefor, ony to (1) regstered dsters, rectfers, mporters,
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and propretors of ndustra acoho pants, concentraton, genera and speca
bonded warehouses and (2) to whoesae deaers engaged In packagng acoho
for ndustra use1 n contaners havng a capacty n e cess of 1 and ess than
5 wne gaons. In suppyng the stamps for use under these reguatons, co-
ectors w requre such evdence as they deem proper as to the need for the
quantty of stamps for whch appcaton s made. orm 237 w ndcate to
coectors the appro mate number of stamps requred by rectfers.
( ) ach dster, rectfer, mporter, and propretor of an ndustra acoho
pant, concentraton, genera or speca bonded warehouse, and whoesae deaer
engaged n packagng acoho for ndustra use, who purchases stamps from the
coector of nterna revenue, w render a report each mouth on orm 9 ,
statng the number of stamps of each denomnaton on hand the 1st day of the
month, the number purchased durng the month, the number used durng the
month, and the number on hand at the cose of the month. One copy of the
report on orm 90 must be maed to the coector, and two copes to the
dstrct supervsor, on or before the 5th day of the month foowng the month
for whch the report s rendered, and the dstrct supervsor sha forward one
copy to the Commssoner. One copy must be retaned In the fes of the person
renderng the report.
These reguatons sha become effectve on pr 15, 1935,
Weght Matthews,
ctng Commssoner of Interna Revenue.
pproved anuary 22, 1935.
. MORG NT U, r.,
Secretary of the Treasury.
I -9-7347
T. D.452
Strp stamps to be attached to bottes of mported dsted sprts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
Coectors of Interna Revenue, Dstrct Supervsors, Coectors of
Customs, and Others Concerned:
(1) Strp stamps, requred by the Lquor Ta ng ct of 1934 to
be attached to bottes of dsted sprts, may n accordance wth the
procedure prescrbed heren, be purchased by mporters to be aff ed
to the bottes by the producer or e porter n the foregn country.
(2) The mporter, or hs duy authorzed agent, w make requ-
ston on Interna Revenue orm 428, n dupcate, for strp stamps
to be sent to the foregn producer or e porter, and w attach
thereto a statement under oath n the foowng form:
Port of
I soemny swear (or affrm) that the stamps requested on the orm 4U8 to
whch ths statement Is attached, are requred, and w be used, for the quan-
ttes of the brands and knds of dsted sprts sted beow whch w be
Imported by , hoder of 1 Permt No.
(Name and address of the mporter.)
Issued by the edera coho Contro dmnstraton, from
(Name and address
, through the ports of
of the foregn producer or e porter.) (Torts at whch warc-
, to suppy e stng orders and/or antcpated
house or consumpton entres w be fed.)
requrements wthn 30 days from ths date.
Sec edera coho Contro dmnstraton reguatons reatng to nonndustra
use of dsted sprts and wne, Genera Reguatons, Seres 4.
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501 (Msc.
Number of bottes.
Sze of bottes.
rands
nds.
1
Subscrbed and sworn to before me ths
The orm 428, n dupcate, together wth the sworn statement,
w be submtted to the coector of customs of the dstrct n whch
the pace of busness of the mporter, or hs duy authorzed agent,
s ocated. The coector of customs w approve the orm 428 f
he s satsfed that the mporter s the hoder of an I permt ssued
by the edera coho Contro dmnstraton, and that the stamps
are requred for dsted sprts to be mported to suppy e stng
orders and/or antcpated requrements wthn 30 days from the
date of the requston. The mporter, or hs duy authorzed agent,
w submt the orgna of the approved orm 428 to the coector
of nterna revenue, who w se hm the strp stamps apped for,
and the coector of customs w attach the dupcate orm 428 to
the sworn statement to be retaned n hs res.
(3) The mporter, or hs duy authorzed agent, sha have nde-
by overprnted n pan and egbe etters and fgures on each of
the strp stamps, at hs e pense, the name and address of the mporter
and the brand and knd of dsted sprts contaned n the bottes,
whch sha, for e ampe, be as foows: ohn Doe Co., at-
more, Md., God Meda Irsh Whskey. The mporter, or hs duy
authorzed agent, sha submt the strp stamps to the coector of
customs, who w verfy the overprntng and make an ndorse-
ment showng the verfcaton on the sworn statement submtted wth
orm 428. fter verfcaton and ndorsement on the sworn state-
ment, the coector of customs w dever the strp stamps to the
mporter, or hs duy authorzed agent, for transmsson to the
producer or e porter abroad. The coector w transmt a copy
of the sworn statement to the. coector of customs at each of the
ports at whch warehouse or consumpton entres w be fed.
(4) The foregn producer or e porter w pany and egby
mark the foowng egend on each case contanng bottes of sprts
to whch strp stamps are attached :
The stnmps requred by the Unted States Lquor Ta ng ct of 1934 are
aff ed to the bottes contaned n ths case, consstng of bottes,
(Number.)
each contanng
(Net contents of bottes.)
(Name of producer or e porter.)
_day of , 193
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502
(5) Upon arrva of the dsted sprts n ths country, warehouse
entres and consumpton entres sha have ndorsed thereon by the
mporter, or hs duy authorzed agent, the foowng egend:
Strp stamps requred by the Lquor Ta ng ct of 1934 were aff ed
abroad. The stamps were purchased by upon a requs-
(Name of purchaser.)
tou approved by the coector of customs at ,
(Port where orm 428 was approved.)
on
(Date of approva of orm 428.)
( ) The coector of customs of the port at whch warehouse or
consumpton entres are fed sha prompty notfy the coector of
customs who approved the requston on orm 428, of the number
and denomnaton of strp stamps shown by the usua customs e -
amnaton to have been attached to the contaners. The coector of
customs who approved the requston w credt such strp stamps
aganst the number purchased under the orm 428 descrbed n the
ndorsement on the entry referred to n paragraph 5.
(7) In the event of dverson of a or part of the sprts to a
5 ort other than that specfed n the sworn statement fed wth
orm 428, the mporter sha request the coector of customs who
approved the orm 428 to transmt a copy of the statement to the
coector of customs at the port to whch the sprts are dverted.
The coector of customs at the port to whch the sprts were d-
verted sha prompty notfy the coector of customs who approved
the orm 428 of the number and denomnaton of strp stamps
shown by the usua customs e amnaton to have been attached to the
contaners.
(8) In case any rreguartes or dscrepances are found, the co-
ector of customs at the port of entry sha make demand for rede-
very of une amned packages, and sha not reease e amnaton or
redevered packages unt satsfactory e panaton and/or proper
correctons have been made.
(9) ny breach of these reguatons, or faure to use the strp
stamps wthn a reasonabe tme for the purpose for whch they were
procured, not satsfactory e paned to the coector of customs,
w be grounds for dena of approva of further requstons for
purchase of strp stamps for aff ng abroad under these reguatons.
(10) Coectors of customs w furnsh the ureau of Customs
on pr 1, uy 1, October 1, and anuary 1 of each year a con-
sodated report showng the name of the mporter, number of
stamps, and denomnaton of stamps purchased on requstons on
orm 428, approved by them, not used wthn 90 days from the date
of approva.
(11) The procedure estabshed heren may be foowed, at the
opton of the mporter, n eu of that prescrbed n Treasury Dec-
sons 4404 C. . III-2, 425 , 4473 C. . III-2, 42 , and
449 C. . III-2, 423 ,
Gut T. everng,
Commssoner of Interna Revenue.
rank Dow,
ctng Commssoner of Customs.
pproved ebruary 21, 1935.
. Moroentau, r.,
Secretary of the Treasury.
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503
(Msc.
I -18-7471
Ct. D. 958
SI L, CIS T S R IS D ST TUT S LI UOR T ING CT O 1934
D CISION O COURT.
1. Reta and Woesa|: Lquor Deaers Immunty of Statc
governmenta functon pouce power.
State whch, pursuant to authorty granted by ts egsature,
operates whoesae and reta quor stores under a State quor
contro board s not performng a governmenta functon nor e er-
csng the poce power of the State, and s not e empt from the
ta mposed by secton 205 of Tte 2 of the Unted States Code
(Revsed Statutes, secton 3244, as amended).
2. Lquor oor Ta Consttutonaty.
The foor ta mposed by the Lquor Ta ng ct of 1934 s not
unconsttutona as a drect ta upon property of the State, but
s an e cse ta and need not be apportoned.
3. State as a Person.
When a State becomes a deaer n nto catng quors It dvests
tsef, so far as ts transactons n that prvate busness are con-
cerned, of ts soveregn character and fas wthn the reach of the
edera ta as a person, wthn the meanng of secton 11 of
Tte 2 of the Unted States Code (Revsed Statutes, secton 3140)
and secton 241n) of Tte 20 of the Unted States Code (Lquor
Ta ng ct of 1934).
Dstrct Court of the Unted States for the Mdde Dstrct of
Pennsyvana.
Commonueath of Pennsyvana e rc, Wam . Schnader, ttorney Genera,
v. vn . , Davd L. Lawrence, and Leo C. Mundy, Coectors of
Interna Revenue.
December 28, 1934.
opnon.
Watson, .: Ths acton was brought In the Court of Common Peas of
Dauphn County aganst vn . , Davd L. Lawrence, and Leo C. Mundy,
coectors of nterna revenue, and the case was thereafter removed to ths
court on petton of the defendants. Subsequenty, Wam . ye, actng
coector of nterna revenue for the frst dstrct of Pennsyvana, and ames
L. C Tooe, r., coector of nterna revenue for the twenty-thrd dstrct of
Pennsyvana were substtuted as defendants n pace of vn . and
Davd L. Lawrence, espectvey.
The defendants have moved ths court to dsmss the b of compant for the
reason, anons others, that the b sets forth no facts whch, f true, woud
entte the companant to the reef prayed for.
The b aeges that the defendants are coectors of Interna revenue for the
frst, twefth, and twenty-thrd revenue dstrcts, whch ncude the entre
area of the Commonweath of Pennsyvana that, on November 29, 1933, the
State egsature passed an act desgnated as Pennsyvana quor contro
act that, by vrtue of the authorty of sad act, the Commonweath of Pennsy-
vana s engaged n the operaton of Pennsyvana quor stores, and, n con-
necton therewth, buys, possesses, and ses acohoc, sprtuous, vnous, and
fermented quors and other acohoc beverages and combnatons of quora
for beverage purposes that the pantff operates 239 reta quor stores
and aso 5 warehouses from whch saes are made at whoesae that sad
Pennsyvana quor contro act s an e ercse of the poce power of the
Commonweath of Pennsyvana for the protecton of the pubc wefare, heath,
peace, and moras, and to prohbt the return of the saoon that t consttutes
a compete system for contro of the mportaton, sae, and dstrbuton of
acohoc quors (e cept mat quors) n the Commonweath that the opera-
ton of sad quor stores and warehouses by the Commonweath Is an Integra
083 30 17
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504
part of sad system or contro that, for the supervson and management
of Pennsyvana quor stores and warehouses, and generay for the admns-
traton of ts quor aws, pantff created the Pennsyvana Lquor Contro
oard by the act of November 29, 1933 that the pantff, actng through the
Pennsyvana Lquor Contro oard, has empoyed varous managers, assstant
managers, and other persons to assst n the management and operaton of
the severa Pennsyvana quor stores and warehouses and of other factes
ust d n connecton therewth that, on anuary 12, 1934, the Commonweath
of Pennsyvana hed and was the owner, for purposes of sae, of appro matey
1,000,000 gaons of wnes, sprts, and quors that the defendants, purportng
to act under the revenue aws of the Unted States, have demanded that the
Commonweath pay certan quor cense fees on account of each of ts stores
and warehouses, and aso a foor ta on quors owned and possessed by the
Commonweath on the effectve date of the edera Lquor Ta ng ct of 1934
that defendants have demanded that pantff regster and make returns as
reta and whoesae quor deaers for purposes of speca ta es, and have
demanded that pantff pay a of sad speca ta es for ts quor stores and
warehouses that defendants have threatened to proceed to enforce aganst
the pantff coecton of sad speca ta es, and to nvoke aganst t and ts
offcers, agents, and empoyees the penates provded by the aw n case
pantff fas to make payment of the ta that defendants have kewse
notfed pantff that they consder t abe to pay the foor ta mposed
by the Lquor Ta ng ct of 1934, and have decared ther ntenton to enforce
coecton from and penates aganst the pantff n case pantff fas to
make payment of the ta es that the pantff s not sub|ect to the desgnated
statutes of the Unted States and s mmune from any ta mposed thereby,
and that the cts of Congress whch Imposed such ta es do not by ther terms
ncude a State, or ts offcers or empoyees, and were not ntended to do so.
The b prays for an n|uncton restranng the defendants from takng any
steps to coect sad ta es. or present purposes, the provsons of the State
act set forth n the b to whch I have |ust referred are a that requre
consderaton.
The provsons of the edera statutes, so far as necessary to be stated,
foow:
U. S. C, Tte 28, secton 205 (It. S. secton 3244, as amended) :
(a) Reta quor deaers. Reta deaers n quor sha pay 25. very
person who ses or offers for sae foregn or domestc dsted sprts, wnes or
mat quors otherwse than as herenafter provded n ess quanttes than
5 wne gaons at the same tme sha be regarded as a reta deaer n quors.
(b) Whoesae quor deaers. Whoesae quor deaers sha each pay
100. very person who ses, or offers for sae foregn or domestc dsted
sprts, wnes or mat quors, otherwse than as herenafter provded n
quanttes of not ess than 5 wne gaons at the same tme sha be regarded
as a whoesae quor deaer.
U. S. C, Tte 2 , secton 11 (R. S. 3140 ebruary 27, 18T7, ch. 9, secton
1, 19 Stat., 248) :
where not otherwse dstncty e pressed or manfesty ncom-
patbe wth the ntent thereof, the word person, as used n ths tte, sha
be construed to mean and ncude a partnershp, assocaton, company, or
corporaton, as we as a natura person.
U. S. C, Tte 20, 254-a ( anuary 11, 1934, ch. 1, Tte I, secton 10(a), 48
Sat., 315) :
Upon a dsted sprts produced n or mported Into the Unted States
upon whch the nterna-revenue ta mposed by aw has been pad, and
whch, on anuary 12, 1934, are hed by any person nnd ntended for sae
or for use In the manufacture or producton of any artce ntended for sae,
there sha be eved, assessed, coected, and pad a foor ta equa to the
amount f any, by whch the ta provded for under ths tte e ceeds the
ta so pad, not ncudng n the computaton of the ta so pad the 30 cent
ta mposed by secton 254 of ths tte.
U. S. C, Tte 2 , secton 451-a ( anuary 11, 1934, ch. 1, Tte I, secton 10(b),
48 Stat., 315) :
Upon a artces specfed n secton 442 or 450 of ths tte produced n
or Imported Into the Unted States upon whch the nterna-revenue ta m-
posed by aw has been pad, and whch, on anuary 12, 1934, are hed by
any person and ntended for sae or for use n the manufacture or producton
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505
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of any artce ntended for sae, there sha be eved, assessed, coected, and
pad a foor ta equa to the amount, f any, by whch the ta provded for
under such sectons of ths tte e ceeds the ta so pad, not ncudng n the
computaton of the ta so pad the 30 cent ta mposed by secton 254 of
ths tte.
U. S. C, Tte 20, secton 451-b ( anuary 11, 1034, ch. 1, Tte I, secton 10(e),
48 Stat., 315) :
Upon a wnes hed by the producer thereof upon anuary 12, 1934, and
ntended for sae or for use n the manufacture or producton of any artce
ntended for sae, there sha be eved, assessed, coected, and pad a foor
ta equa to the amount, f any, by whch the ta provded for under secton
443 of ths tte e ceeds the ta pad upon the grape brandy or wne sprts
used n the fortfcaton of such wne.
U. S. C, Tte 2 , secton 254-b ( anuary 11, 1934, ch. 1, Tte I, secton 10(d),
48 Stat., 315) :
The person requred by sectons 254-a, 451-a, and 451-U of ths tte to
pay any foor ta sha, wthn 30 days after anuary 12, 1934, make return
under oath n such form and under such reguatons as the Commssoner of
Interna Revenue, wth the approva of the Secretary of the Treasury, sha
prescrbe. Payment of the ta shown to be due muy be e tended to a date
not e ceedng seven months after anuary 12, 1934, upon the rng of a bond
for payment n such form and amount and wth such suretes as the Com-
mssoner of Interna Revenue, wth the approva of the Secretary of the
Treasury, may prescrbe. provsons of aw (ncudng penates) app-
cabe n respect of nterna-revenue ta es on dsted sprts or wnes sha,
n so far as appcabe and not nconsstent wth sad sectons be appcabe
n respect of the ta es mposed by sad sectons.
U. S. C, Tte 2 , secton 241-a ( anuary 11, 1934, ch. 1, Tte I, secton 10(e),
48 Stat., 315) :
s nsed n sectons 254-a, 254-b, 2 7 to 270, 273, and 451-a of ths tte, the
term person ncudes an ndvdua, a partnershp, an assocaton, and a
corporaton.
U. S. C, Tte 2 , secton 242-a ( anuary 11, 1934, ch. 1, Tte I, secton
10(e), 48 Stat., 315) :
s used n sectons 254-a, 254-b, and 2 7 to 273 of ths tte, the term ds-
ted sprts ncudes products produced n such manner that the person pro-
ducng tbem s a rectfer wthn the meanng of secton 204 of ths tte.
The premnary questons rased by the defendants were decded by ths
court n dsmssng pantff s petton to remand the case to the Court of
Common Peas of Dauphn County, Pa., where t was hed that the cause s
wthn the |ursdcton of ths court.
The State chaenges the vadty of the ta , and that s the fundamenta
queston here nvoved. The pantff seeks to nvoke a prncpe resutng from
our dua system of government, whch s that the nstrumentates, means
and operatons, whereby the States e ercse the governmenta powers beong-
ng to them are e empt from ta aton by the Unted States. Ths
prncpe has frequenty been announced by the Supreme Court of the Unted
States and s frmy estabshed. (Coector v. Day, 11 Wa., 113 McCuoch v.
Maryand, 4 Wheat., 31 Indan Moocyce Co. v. Unted States, 283 U. S., 570,
575 Ct. . 354, C. . -, 439 .) ut ths rue, by ts terms, ndcates that the
e empton of State agences and nstrumentates from Natona ta aton s
mted to those whch are of a strcty governmenta character, and does not
e tend to those whch are used by the State n the carryng on of an ordnary
prvate busness. In South Carona v. Unted States (199 U. S., 437), t was
hed that It s reasonabe to hod that whe the Natona Government may
do nothng by ta aton n any form to prevent the fu dscharge by the State
of ts governmenta functons, yet whenever n State engages n a busness whch
s of a prvate nature that busness s not wthdrawn from the ta ng power
of the Naton.
It s contended that the buyng and seng of quor by the State s a proper
e ercse of the poce power of the State and s the performance of a govern-
menta functon. It s argued that the poce power may be deveoped and
changed to meet changng condtons. Whe ths s true, nevertheess, the poce
power s and remans a governmenta power, and apped to busness actvtes
s the power to reguate those actvtes, not to engage n carryng ten on.
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50
South Carona v. Unted States, supra Rppc v. ecker, 3 Man., 100,
111-112, 57 N. W., 331.)
In the case of Oho v. ererng (292 U. S., 300), t was hed that: If a
State chooses to go nto te busness of buyng and seng commodtes, ts
rght to do so may be conceded so far as the edera Consttuton s concerned
but the e ercse of the rght s not the performance of a governmenta func-
ton and must fnd Its support n some authorty apart from the poce power.
When a State enters the market pace seekng customers t dvests tsef of ts
quas soveregnty pro tanto, and takes on the character of a trader, so far,
at east, as I e ta ng power of the edera Government s concerned. (Com-
pare Georga v. Chattanooga, 204 U. S., 4T2, 480-483 Unted states ank v.
Panters ank, 0 Wheat., , 907 ank of entucky v. Wster, 2 Pet., 318,
323 rscoe v. ank of entucky, 11 Pet., 257, 323-320 Curren v. rkansas,
15 ow., 304, 309.)
The decsons n the South Carona ease and In the Oho cast sustan the
dentca ta provsons nvoved In the present case e ceptng the foor ta
provsons. I, therefore, foow those decsons as controng, and hod that
fcnee the State was not. e empt from the ta the statute reached the ndvdua
seers who acted as dsposers for the State.
It Is nssted that the foor ta s unconsttutona as apped to Pennsyvana
that t s a ta upon the property of the State that there can be no dstnc-
ton between the quor owned by the State and other property owned by the
State. The queston s, what s the nature of the ta . Obvousy, the ta was
ntended by Congress as an e cse ta .
The Consttuton, rtce I, secton 8, provdes: The Congress sha have
power to ay and coect ta es, dutes, mposts and e cses, to pay the debts
and provde for the common defense and genera wefare of the Unted States
but a dutes, mposts and e cses sha be unform throughott the Unted
States.
In ackstoue, oume I, page 318, an e cse s defned : n nand mpos-
ton, pad sometmes upon the consumpton of the commodty, or frequenty
upon the reta sae, whch s the ast stage before the consumpton. Cooey n
hs work on Ta aton, page 3, defnes t as n nand mwst eved upon
artces of manufacture or sae, and aso upon censes to pursue certan trades,
or to dea n certan commodtes. Webster s New Internatona cas t:
a on the nand manufacture, sae, or consumpton of commodtes or for
censes to foow certan occupatons, and these ta es are usuay known as
nterna revenue ta es.
In the case of Paton v. ra u, ecutr (184 U. S., 08), t was hed that
the ta on manufactured tobacco s a ta on an artce manufactured or for
consumpton, and mposed at a perod ntermedate the commencement of
manufacture and the fna consumpton of the artce, and that such ta s an
e cse. In that case, Mr. ustce rewer, n the opnon, sad: ver snce
the eary part of the Cv War there has been a body of egsaton, gathered
n the statutes under the tte Interna Revenue, by whch, upon goods ntended
for consumpton, e cses have been mposed n dfferent forms at some tme
ntermedate the begnnng of manufacture or producton and the act of con-
sumpton. mong the artces thus sub|ected to those e cses have been quors
and tobacco, appropratey seected therefor on the ground that they arc not a
part of the essenta food suppy of the Naton, but are among ts comforts
and u ures. The frst of these cts, passed on uy 1, 1S 2 (12 Stat., 432),
n terms provded for the coecton of nterna dutes, stamp dutes, censes,
or ta es mposed by ths ct, and ncuded manufactured tobacco of a de-
scrptons. Subsequent statutes changed the amount of the charge, the ct of
1890 reducng t to 0 cents a pound. Then came the ct n queston, whch, for
the purpose of provdng means for the e pendtures of the Spansh War,
ncreased the charge to 12 cents a pound, specfyng dstncty that t was to
be n eu of the ta now mposed by the aw. Nothng can be cearer than
that n these varous statutes, the ast ncuded among the number, Congress
was ntendng to keep ave a body of e cse charges on tobacco, sprts, etc.
It may be that a the ta es enumerated n these varous statutes were not
e cses, but te great body of them, ncudng the ta on tobacco, were pany
e cses wthn any accepted defnton of the term.
I concude, therefore, that the foor ta whch s eved by ths ct s not a
ta upon property of the State as such, but s an e ese and propery so caed.
It s aso contended that the foor ta s a drect ta , whch must e appor-
toned among the States accordng to popuaton. In Poock v. armers Loan f
Trust Co. (15 U. S., 429) t was hed: That drect ta es, wthn the neae-
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507
Msc.
of the Consttuton, are ony captaton ta es, as e pressed In that nstrument,
an ta es on rea estate. s I have aready hed that the foor ta s an
e cse as such, t need not be apportoned.
I can not agree wth the contenton that a State s not embraced wthn the
meanng of the word person as used In U. S. C, Tte 20, sucton 205, and
defned n secton 11 of that tte, and as used n U. S. C, Tte 20, secton 354-a,
and U. S. C, Tte 2 , secton 451-a, U. S. C, Tte 20, secton 254-b, and defned
n U. S. C, Tte 2 , secton 241-a. In Oho v. everng, supra, t was sad:
y secton 205 the ta s eved upon every person who ses, etc., and by
secton 11 the word person s to be construed as meanng and ncudng a
partnershp, assocaton, company or corporaton, as we as a natura person.
Whether the word person or corporaton ncudes a State or the Unted
States depends upon the connecton n whch the word s found. Thus, n
Staney v. Schwaby (147 U. S., 508, 517), t s sad that the word person n
the statute there under consderaton woud ncude the Unted States as a
body potc and corporate. (See aso Oddngs v. oer, 19 Mont., 2 3, 200,
48 Pac, 8 Sate v. erod, 9 an., 194, 199.) State s a person wthn
the meanng of a statute punshng the fase makng or frauduent ateraton
of a pubc record wth ntent that any person may be defrauded. (Martn v.
State, 24 Te ., 1, 08.) Under a statute defnng a negotabe note as a note
made by one person whereby he promses to pay money to another person, and
provdng that the word person shoud be construed to e tend to every cor-
poraton capabe by aw of makng contracts, t was hed that the word ncuded
a State. (Indana v. Woram, 0 (N. Y.), 33, 38.) nd a State s a person
or a corporaton wthn the purvew of the prorty provsons of the ank-
ruptcy ct.
When a State engages n prvate busness, t dvests tsef, so far as ts
transactons n that prvate busness are concerned, of ts soveregn character
and takes that of a prvate ctzen. Instead of communcatng to that prvate
busness ts prveges and prerogatves, t descends to the eve of a prvate
ctzen. s to the transactons n such prvate busness, t can not cam
the prveges or mmuntes of a soveregn.
Great dangers woud menace the revenues of the Unted States f the mmun-
tes from edera ta aton here camed shoud be nduged. These dangers are
we stated by ustce rewer n South Carona v. Unted States, supra: Ob-
vousy, f the power of the State Is carred to the e tent suggested, and wth t
s reef from a edera ta aton, the Natona Government woud be argey
crpped n ts revenue. Indeed, f a the States shoud concur n e ercsng
ther powers to the fu e tent, t woud be amost Impossbe for the Naton to
coect any revenues. In other words, In ths ndrect way t woud be wthn
the competency of the States to practcay destroy the effcency of the Natona
Government.
The cts n controversy, so far as the charges upon the pantff are con-
cerned, are consttutona. The State tsef, when t becomes a deaer n nto -
catng quors, fas wthn the reach of the ta as a person. The b fas to
set forth facts whch woud entte the companant to the reef prayed for.
Now, December 28, 1934, pantff s b of compant as amended s dsmssed,
and the premnary n|uncton granted anuary 31, 1934, s dssoved.
I -23-7543
T. D.4557
Saes of dsted sprts by dsters.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to the Lquor Ta ng ct of 1934 (sectons 201 and 205,
Tte II), and . . Res. 370, approved une 18, 1934, and for the
protecton of the revenue of the Unted States, dsters sha se or
dspose of dsted sprts n the contaners ony prescrbed by Regu-
atons No. 13, as amended, e cept n case of saes to rectfers or
benders, or to dspensares or other agences operated and man-
taned by any State or potca subdvson thereof, or for e port,
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Regs. 15, rt. III.
508
or for shpment n bond. None of the provsons of ths Treasury
decson sha appy to saes of anhydrous or ta -free acoho, or
restrct the purchase or sae of warehouse recepts coverng dsted
sprts n Government bonded warehouses.
These reguatons sha be effectve mmedatey.
Gt|y T. ever q,
Commssoner of Interna Revenue.
pproved une 3, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -23-7544
T. D. 4558
Saes of dsted sprts by rectfers.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton. D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to secton 05, Revenue ct of 1918 (secton 255, Tte
2 , U. S. C), and the Lquor Ta ng ct of 1934 (sectons 201 and
205, Tte II), and . . Res. 370, approved une 18, 1934, and for
the protecton of the revenues of the Unted States, rectfers sha
se or dspose of dsted sprts n the contaners ony prescrbed
by Reguatons No. 13, as amended, e cept n case of saes to rect-
fers or benders, or to dspensares or other agences operated and
mantaned by any State or potca subdvson thereof, or for
e port. None of the provsons of ths Treasury decson sha appy
to saes of anhydrous or ta -free acoho, or restrct the purchase
or sae of warehouse recepts coverng dsted sprts n Government
bonded warehouses.
These reguatons sha be effectve mmedatey.
Guy T. everno,
Commssoner of Interna Revenue.
pproved une 3, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
LI UOR CONTROL CT O 1934.
Reguatons 15, rtce III: ottng I -2-7249
of rectfed sprts and products. T. D. 4500
( so rtce I .)
mendment to Reguatons 15 ottng of wnes and certan
cordas and queurs at rectfyng pants.
Treasury Department,
Offce ok Commssoner of Interna Revenue,
Washngton, I). C.
To Dstrct Supervsors and Others Concerned:
Rectfers who botte wnes and certan cordas and queurs that
requre bottng from the orgna package or from the contaner n
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509
Regs. 18, rt. II.
whch compounded, may provde, n eu of a ocked bottng tank, a
room n the rectfyng pant wthn whch the wnes, cordas or
queurs may be paced under Government sea ock, pendng
approva of orms 230 or 237, payment of the ta , f due, and
bottng.
Such room must be secure and of substanta constructon, and
the door or doors or any other openngs thereof must be equpped for
ockng wth Government ocks.
When t s desred to botte such wnes, cordas or queurs, the
packages contanng same w be paced n the room and gauged,
orm 230 or orm 237, as the case may be, prepared and submtted
for approva and payment of ta , f due, n accordance wth the
procedure set forth n Reguatons 15.
Upon approva of orm 230 or orm 237, as the case may be, and
the payment of ta , f due, the wnes, cordas or queurs may be
botted from the orgna packages or the contaners n whch com-
pounded. The approved orm 230 or orm 237, as the case may
be, w be attached to the door of the room whe the wnes, cordas
and queurs are beng botted, nstead of beng attached to the bot-
tng tanks as provded n rtces III and I of Regua-
tons 15.
pprova of such room and bottng must be obtaned from the
dstrct supervsor, who w authorze bottng of ony those wnes,
cordas and queurs whch t s mpractcabe to botte from the
prescrbed ocked bottng tank.
Reguatons 15 are amended accordngy.
Gut T. everng,
Commssoner of Interna Revenue.
pproved anuary 3, 1935.
. MoRG NT U, r.,
Secretary of the Treasury.
T ON RM NT D M LT LI UORS.
Reguatons 18, rtce II: Canceaton I -3-72
and aff ng of stamps. T. D. 4513
Canceaton of beer stamps.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Dstrct Supervsors and Others Concerned:
Subparagraph (b) of paragraph 20, rtce II, Reguatons
18, reatng to the manufacture and ta -payment of fermented mat
quors, s amended to read as foows:
Par. 20. (b) Uness the Commssoner sha, n any case, authorze the
canceaton of stamps n some other manner, the brewer must, pror to aff ng
the stump to the package, cance t by perforatng theren the name under
whch he conducts busness, or some sutabe abbrevaton thereof to be ap-
proved by the supervsor, and the date when canceed. If the ntas of a
brewer are adequate for dentfcaton, the supervsor may, n hs dscreton,
approve the use of such ntas for the perforaton of beer stamps. When
beer stamps are perforated wth the ntas of the brewer, the permt number,
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Regs. 18.
510
If any, must aso be perforated n the stamps. The date of canceaton may,
f preferred, be ndcated by numeras, sgnfyng the number of the month,
the day of the month, and the ast two fgures of the number of the current
year, as, for e ampe, 3-21-33, meanng March 21, 1933. The perforatons must
appear on the rght or eft margn of the stamp at a suffcent dstance from
the centra porton to prevent obteraton of the perforatons when the spgot
Is drven through the stamp.
Weght Matthews,
ctng Commssoner of Interna Revenue.
pproved anuary 15, 1935.
T. . Coodoe,
ctng Secretary of the Treasury.
Reguatons 18, rtce I: Marks, brands, 1 -11-7378
and abes. T. D. 4531
Rebrandng beer barres.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
Subparagraph (b) of paragraph 24, Reguatons 18, reatng to
the manufacture and ta payment of fermented mat quors, s
hereby amended to read as foows:
Par. 24. (b) No wooden barre or keg whch has been rebranded across the
staves and no wooden barre or keg whch has the name of more than one
manufacturer branded thereon may be used by a brewer as a contaner for
fermented quor: Provded, That the remova and repacement of one or
more staves by the brewer whose name and address was orgnay so branded
on the barre or keg sha not be deemed to be a rebrandng and, Provded
further, That where barres or kegs are sod by one brewer to another, the
brands on such barres or kegs may, upon appcaton to, and approva of, the
dstrct supervsor, be scraped and the barres or kegs rebranded by the
purchasng brewer.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved March 5, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 18, Paragraphs 11 (d), 12(b), 21, I -18-7475
22(a), 22(b), 37(b). 40(a), 40(b), 44(a), T. D.4544
44(b), 45, 47(d), 48(f), 51(d).
Meter readngs.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraphs 11(d), 12(b). 21, 22(a), 22(b), 37(b), 40(a), 40(b),
44(a), 44(b), 45, 47(d), 48(f), and 51(d) of Reguatons 18. reatng
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511
Regs. 18.
to the manufacture and ta payment of fermented mat quors, are
hereby amended, effectve mmedatey.
The dstrct supervsor s authorzed n paragraph 11(d), as
amended, to furnsh brewers wth one key to the contnuous counter
of each meter, the amended paragraph to read as foows:
Par. 11. (d) One key to each meter w e kept at the brewery n a cabnet
desgnated the Government cabnet whch w be secured wth a Saght
sea ock. The brewer w be furnshed wth one key to each meter.
In paragraph 12(b), as amended, manufacturers are prohbted
from deverng meter keys to anyone e cept the dstrct supervsor.
The amended paragraph reads as foows:
Par. 12. (b) On the date a meter s shpped to a brewery, the manufacturer
sha so advse the supervsor of the dstrct wheren the brewery s ocated,
statng the date of shpment and the manufacturer s sera number of the meter.
The manufacturer sha at the same tme forward to the dstrct supervsor
two keys for each meter. Under no crcumstances sha meter keys he sent
or devered by the manufacturer to the brewer or to any person other than
the dstrct supervsor. The dstrct supervsor w furnsh the brewer wth
one meter key when meter Instaaton has been competed. The manufacturer s
seas on the meter must reman ntact unt removed by an Inspector and
repaced wth Government cap seas.
rewers are authorzed n paragraph 21, as amended, to take day
readngs from the contnuous counter nstead of the set back counter
of the meter and to omt the accountng for fractona parts of a
barre n reportng ther day removas of beer by ppe ne for
ta payment. The amended paragraph reads as foows:
Pab. 21. t such tme each day when no more beer s to be run through the
meter on that day for bottng, the brewer w note the present and ast pre-
vous readngs of the meter on orm 139, prepared n trpcate, aso the quan-
tty n whoe barres that has passed through the meter snce hs ast prevous
readng as shown by the contnuous counter thereof and w cance on the mar-
gn of each, n the manner prescrbed for the canceaton of stamps for bar-
res or kegs of fermented mat quor, the correspondng number of beer stamps.
The set back counter may be used by the brewer for checkng contnuous coun-
ter readngs and upon competon of the day s run for bottng and canceaton
of stamps t must be set at zero. The brewer w mmedatey attach the can-
ceed stamps to one copy of orm 13 ) to be devered to the nspector at such
tme as an nspector, assgned by the dstrct supervsor, vsts the brewery to
take the meter readng. One copy of each orm 139 w he attached to orm
103 and transmtted to the dstrct supervsor. The thrd copy w be retaned
by the brewer as a part of hs Government record. The nspector havng sat-
sfed hmsef by an nspecton of the stamps that they are suffcent to cover
the ta due on the beer passed through the meter as ndcated by orms 139
and that they have been propery canceed by the brewer w n the presence
of the brewer further cance and deface the stamps so devered, by drvng
through them a de or punch, n such manner as to cut from the center of each
stamp a pece thereof not ess than one-haf nch square.
In paragraph 22(a), as amended, nspectors are authorzed to ds-
contnue the reportng of fractona parts of a barre as shown by
the contnuous counter and are nstructed n deta as to the proce-
dure to be foowed n readng the meters at the tme of ther n-
spectona vsts. The amended paragraph reads as foows:
Pab. 22. (a) The dstrct supervsor w assgn nspectors to vst each brew-
ery as necessary where beer s beng transferred by ppe ne to the bottng
house for the purpose of readng the meter or meters. report on orm 138,
n dupcate, sha be made by the nspector as to meter readng at the brewery.
The nspector sha note the ast prevous and present meter readngs on orm
138, aso the quantty n whoe barres that has passed through the meter
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Regs. 18.
512
snce the ast nspectona readng, as shown on the contnuous counter thereof.
In the event the nspector arrves at the brewery before any beer has passed
through the meter on that partcuar day, or at a tme durng the day when
beer Is passng through, he w gve the date of hs readng as of the prevous
day. To determne, n the atter event, the quantty to be noted on orm 138
as havng passed through the meter snce the ust nspectona readng, he
w deduct from the present actua whoe barre readng, as ndcated by the
contnuous counter, the quantty n whoe barres as shown by the set back
counter. If beer has been transferred through the bottng house by ppe ne
free of ta for e portaton, Ihe nspector w determne the tota number of
barres, ncudng the fractona parts of a barre, so transferred, by e amnaton
of orms 127. In the event cerea beverage s removed through meters the
nspector sha e ecute a certfcate In trpcate statng that t was removed
n accordance wth paragraph 51 (d) and (e) attach one copy to orm 138 and
gve two copes to the brewer who w submt one copy wth orm 103 to whch
orms 139 are attached and retan the thrd copy for hs fes. The nspector
w deduct such quantty from the tota number of whoe barres that has
passed through the meter snce the ast Inspectona readng, the dfference n
whoe ban-es beng the ta abe quantty. avng competed the readng of
the meter, the nspector w procure from the brewer hs retaned copes of
orm 139 made out snce the ast nspectona readng of the meter and w
e amne same for the purpose of determnng the suffcency of ta payments
reported by the brewer. or any underpayment of ta thereby dscosed,
the nspector w procure from the brewer orm 139, together wth suffcent
stamps to cover the ta on whoe barres. Upon competon of hs e amnaton
and comparson, the nspector sha append to hs report on orm 138 the orms
139 to whch the canceed stamps are attached and forward them to the dstrct
supervsor, together wth hs day report on orm 1494. One copy of each
report, orm 138, w be forwarded to the dstrct supervsor as ndcated above
and the other copy w be paced n the Government cabnet at the brewery for
reference when the meter s agan read by the nspector.
In paragraph 22(b) provson s made for the retenton by the ds-
trct supervsor of canceed beer stamps n hs offce and for the
renderng by hm of a monthy report of transactons at breweres
on orm 185. The amended paragraph reads as foows:
Par. 22. (b) The dstrct supervsor sha after audt, and on or before the
ast day of the month, succeedng the rendton thereof, forward to the Com-
mssoner the returns on orm 103, rendered by the respectve brewers,
accompaned by orms 139. The copes of orm 139 to whch the canceed
stamps are attached w be retaned by the dstrct supervsor. Cure w be
taken to see that the returns, orm 139, of each brewer are attached to the
proper orm 103.
monthy report on orm 185, by States, w be rendered each month by
the dstrct supervsor, summarzng the transactons as to a breweres In
hs dstrct.
typographca error n the number of the form to be used by
nspectors n reportng meter readngs of beer removed for e porta-
ton has been corrected n paragraph 37(b), as amended. The
amended paragraph reads as foows:
Par. 37. (b) It w be the duty of the nspector to supervse the packagng
of the fermented quor, and he w make the necessary notatons of meter
readngs to determne defntey that the shpment contans the e act knd and
quantty of fermented mut quor specfed n the appcaton. The nspector
w report on orm 138 the quantfy of beer run through the meter for e port.
Proper notaton w be made on ths form fo show that the beer was removed
for e port.
Paragraphs 40(a) and 40(b) are amended, n order to provde
that brewers sha make appcaton. orm 127, n trpcate, nstead
of n dupcate, to remove fermented mat quor for e port and that
the nspector sha pace one copy of each appcaton n the Gov-
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513
Regs. 18.
emnent cabnet at the brewery. The amended paragraphs read
as foows:
Par. 40. (a) rewers sha use orm 127, n trpcate, In makng appcaton
to dstrct supervsors for permsson to remove fermented mat quors for
bottng, n packages or by way of ppe ne or condut, ta -free for e portaton.
Request sa aso be made on such form for the attendance of an nspector to
superntend the transfer.
Par. 40. (b) Upon recept of such appcaton, an nspector, to be desgnated
by the dstrct supervsor, sha proceed to the brewery and superntend the
transfer of the fermented mat quor to the bottng house, efore permttng
the transfer of the fermented mat quor by ppe ne, the nspector sha take
the readng of the contnuous counter of the meter, notng the quantty of quor
n the tank or tanks to determne that t agrees wth the quantty specfed n the
appcaton, orm 127, and at the same tme sha note thereon the readng of
the contnuous counter of the meter. Upon competon of transfer and bottng
he sha agan record the readng of the contnuous counter of the meter and
thereupon e ecute part 2 of the brewer s appcaton. orm 127, certfyng theren
the tota quantty of fermented mat quor receved for bottng, as dscosed by
the meter, and the quantty actuay botted, and sha report for assessment of
ta (computed under secton 3339, R. S.) any defcency between the two quant-
tes. oth such readngs must ncude fractona parts of barres. The In-
spector sha pace one copy of the competed orm 127 In the Government
cabnet at the brewery for reference In subsequent readngs of the meter and
sha mmedatey transmt two copes of competed orm 127 to the dstrct
supervsor.
Paragraphs 44(a), 44(b),45, 47(d), and 48(f) are amended to pro-
vde for the dscontnuance of the submsson to the deputy comms-
soner of reports coverng the e portaton of beer e cept n cases
where osses occur nvovng the assessment of ta , n whch atter
event a reports coverng such e portaton w be retaned by the
dstrct supervsor unt evdence of andng s receved when they w
be forwarded to the Commssoner wth reports proposng assessment
of ta on the defcency. The amended paragraphs read as foows:
Par. 44. (a) The dstrct supervsor recevng from the coector of customs
at the port of e portaton the e ecuted appcaton and entry on orm 550, and,
upon e amnaton and comparson of same wth the report of the nspector,
coverng the remova for e portaton, fndng that the entry has been propery
certfed as to nspecton, adng and cearance for the foregn port and that
no shortage has been reported n transt for e port, sha note on orm 550 the
actua quantty ceared for e portaton and sha retan same n hs ofU e
pendng the recept by hm of evdence of foregn andng. Upon recept of sats-
factory evdence of foregn andng, and there beng no shortage n e portaton,
he sha enter approprate credt n the account kept wth the e port bond.
Par. 44. (b) If a shortage s reported the dstrct supervsor sha enter
credt for the actua quantty, f any, receved at the foregn port as ndcated
by the evdence of andng and sha report for assessment at once the amount
of the ta due on any such shortage dscosed.
Par. 45. The supervsor sha keep an account wth each brewer coverng the
e portaton of fermented mat quors whch sha refect the foowng:
(a) The name and address of the brewer
( ) Date of e portaton
(c) mount of ta abty nvoved n such e portaton
(d) The name of foregn purchaser
(e) Date, term, and pena sum of e port bond and
f) The amount of ta abty debted and credted aganst the bond.
statement of the status of any e port bond as to ta abty sha be
furnshed to the Commssoner on orm 128 as and when requred.
Par. 47. (d) The andng certfcate sha be fed wth the dstrct super-
vsor wth whom the entry for e portaton was fed.
Par. 48. (f) The dstrct supervsor recevng such appcaton and evdence
sha e amne same and ndorse thereon hs approva or dsapprova and f
satsfed as to ts vadty w enter proper credt n the account kept wth
the bond.
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Regs. .
514
In paragraph 51(d), as amended, provson s made for nspectors
to report on orm 138 meter readngs of cerea beverage removed by
ppe ne. The amended paragraph reads as foows:
Par. 1. (d) Cerea beverages removed to the bottng house must pass
through the beer ne and meter used for the transfer of fermented quor.
Such transfers of cerea beverages must be conducted under the mmedate
supervson of an nspector assgued for tnt purpose. The nspector sha
report on orm 138, prepared n dupcate, the quantty of cerea beverage n
whoe barres and fractona parts of a barre passed through the meter, notng
thereon the contnuous counter readngs of the meter before and after the
remova thereof. One copy of the form w be paced n the Government
cabnet and one copy w be forwarded mmedatey to the dstrct supervsor.
Gut T. kvekng,
Commssoner of Interna Revenue.
pproved pr 23, 1935.
L. W. Robert, r.,
ctng Secretary of the Treasury.
OTTLING DISTILL D SPIRITS IN OND.
Reguatons C. I -17-74 2
T. D.4542
Sze of bottes for dsted sprts botted n bond.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Sectons 7, 8, and 13 of Reguatons G, ottng of Dsted
Sprts n ond under the cts of March 3, 1897, and ebruary 17,
1922, as amended by Treasury Decson 11 Pro. , approved pr
25, 1933, are hereby further amended to read as foows:
Sec. 7. Sprts may be botted n bond ether before or after ta payment n
1-quart, -quart (M gaon), 1-pnt, M-pnt, -pnt, or f pnt bottes, and
n no other szes. The amount of sprts contaned n any botte sha not vary
from the amount ntended or stated to be contaned n such botte more than 2
pe- cent. (See secton 22.)
Sec. 8. Case and strp stamps. Case stamps for dsted sprts botted n
bond for domestc sae or use w be prnted n s denomnatons: 3 gaons
for cases contanng 12 bottes of 1 quart each 2.4 gaons for cases contanng
12 bottes of 4,f, quart (Ms gaon) each 3 gaons for cases contanng 24
bottes of 1 pnt each 3 gaons for cases contanng 48 bottes of P nt each
8 gaons for cases contanng ( bottes of pnt each and 3 gaons for cases
contanng 240 bottes of pnt each.
The strp stamps w be marked otted n ond and w bear the
foowng data:
The rea name of the actua bona fde dster the number of the dstery
and nterna revenue coecton dstrct n whch the sprts were produced
the proof of the sprts the dstng season whether Sprng or a the
bottng season the knd and number of warehouse and dstrct n whch the
sprts are botted.
The stamps w be bound n books of 20 csse stamps to whch are attached
te requred number of strp stamps.
Skc. 13. Capacty and numberng of cases. Sprts botted n bond sha be
packed n cases to contan the foowng number of bottes: 12 bottes con-
tanng 1 quart each 12 bottes contanng quart (Ms gaon) each 24
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515
Msc.
bottes contanng 1 pnt each 48 bottes contanng pnt each 9 bottes
contanng 4 pnt each nnd 240 bottes contanng pnt each.
cases fed as above set forth sha contan 3 gaons of sprts each,
e cept cases fed wth 12 bottes of quart ( gaon) capacty, whch sha
contan 2.4 gaons of sprts each.
ach case fed w be gven a sera number. Where a dstery, genera
or speca bonded warehouse has a bottng warehouse aready estabshed,
the seres n use w be contnued wthout regard to the owner or producer
of the sprts. t warehouses hereafter estabshed, the cases botted w be
numbered seray, begnnng wth No. 1 for the frst case fed. When the
sera numbers of enses botted at any warehouse, whether estabshed before
or after the ssuance of these reguatons, have reached the number 999999
the propretor may, f e so desres, begn a new seres commencng wth No. 1
as orgnay.
Gut T. everno,
Commssoner of Interna Revenue.
pproved pr 17, 1935.
. Morgenthau, r.,
Secretary of the Treasury.
DISTILL D SPIRITS, TC.
I -10-73 4
T. D.4528
Dsposton to be made of forfeted dsted sprts (ncudng
acoho), wnes and fermented mat quors.
Treasury Department and
Department of ustce,
Offces of the Secretary of the Treasury
and the ttorney Genera,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, Unted
States Marshas, and Others Concerned:
1. The foowng procedure sha govern the dsposton of ds-
ted sprts (ncudng acoho), wnes and fermented mat quors
forfeted under any provson of nterna revenue aws:
2. Lquors avaabe for use by governmenta agences:
The requrements that forfeted quors be sod or destroyed, as
herenafter provded, sha not appy to (a) dsted sprts sub|ect
to such dsposton as may be made by the Commssoner of Interna
Revenue pursuant to the drecton of the Secretary of the Treasury
(secton 3450, . S.), and (b) dsted sprts (ncudng pure and
denatured acoho) and wnes forfeted under secton 34 0, R. S., and
sub|ect to destructon under paragraph 9 hereof, whch are reported
to the Drector of Procurement, Treasury Department, and dsposed
of on hs order as provded by reguatons governng the operaton
of the Procurement Dvson, ranch of Suppy. ny such sprts
or other quors so reported to, and not ordered dsposed of by, the
Drector of Procurement sha be sub|ect to sae or destructon as
herenafter provded.
3. Preparaton for sae:
(a) Dsted sprts sha be sod n the contaners n whch sezed,
but sha not be reeased to the purchaser unt they have been trans-
ferred by the purchaser to kegs, barres, or smar contaners, of a
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Msc.
51
capacty of 5 wne gaons or greater, nor unt the empty con-
taners and the stamps, abes, and a coverngs sha have been
destroyed by the purchaser.
( ) If, upon nspecton, t s apparent that the sprts are not
saabe, for the reason that they are unft for human consumpton or
for ndustra purposes, they sha not be sub|ected to chemca tests
as herenafter provded, but sha be destroyed.
4. Tests:
(a) Representatve sampes of dsted sprts sha be taken from
the contaners n whch sezed, and sha be anayzed by the nearest
Government chemsts.
(b) fter sae of the dsted sprts and ther transfer to kegs,
barres, or smar contaners, and pror to ther reease to the pur-
chaser, a composte sampe of not ess than 1 pnt taken from each
keg or barre, sha be anayzed by the nearest Government chemst
and the report of anayss retaned n the fes of the seng offcer.
(c) If the report of anatyss of sampes taken before or after sae
dscoses the sprts are not ft for human consumpton or for ndus-
tra purposes, they sha be destroyed.
5. Method of dsposton:
(a) dvertsement for sae
(1) dvertsements for sae sha conform to e stng aws, and to
e stng reguatons e cept as herenafter provded, and sha con-
tan a statement that the Government reserves the rght to destroy
the quor f, on reanayss after sae, quors are found unft for
human consumpton or ndustra purposes.
(2) dvertsements for sae sha aso contan a statement that
ony dsters, rectfers, mporters, and whoesae quor deaers
quafed to botte sprts, or prvate ndvduas desrng to pur-
chase such sprts for persona use, w be entted to bd thereon
and that a other bds w not be consdered: Provded, That as to
sprts sutabe for ndustra purposes ony, the advertsements sha
state that bds w be accepted from, and the sprts sod ony to,
propretors of ndustra acoho pants for denaturaton, or reds-
taton and denaturaton, wthout the payment of the nterna
revenue ta thereon.
(3) cept where saes are to be made of sprts sutabe for n-
dustra purposes ony, as provded n paragraph 4(a)2, advertse-
ments sha aso contan a statement that the purchaser w be re-
qured to pay nterna revenue ta mposed on the sprts at the rate
of 2 per proof gaon, or wne gaon f beow 100 proof, and aff
nterna revenue stamps to kegs or barres before reease.
(b) Sae:
(1) The sprts sha be sod to the hghest quafed bdder.
(2) Sprts sha be reeased to the purchaser ony when nterna
revenue stamps have been purchased and aff ed to each keg or barre
where such stamps are requred.
(3) If sprts are sod to prvate ndvduas for persona use an
affdavt that such sprts are purchased for persona use and w not
be resod, sha be requred of such ndvduas before the reease of
the sprts.
. Wnes:
(a) suffcent number of bottes or contaners n each ot of the
ame knd, brand, and producton sha be opened and nspected for
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the purpose of determnng the cassfcaton for nterna revenue
ta es, and that the contents are potabe and conform wth the abes
and marks on the contaners thereof.
( ) If upon nspecton, the offcer s satsfed the wnes are not
potabe, the wnes and contaners (e cept kegs and barres) sha be
destroyed.
(c) If he s satsfed that the wnes are potabe, but f any marks,
abes, or brands on the contaners (but not on the corks) do not
correcty represent the contents or bear any trade mark or trade
name, such marks, abes, or brands sha be removed, as far as may
be practcabe, wthout destroyng the contents or contaners. If a
trade mark or trade name s bown n the botte or other contaner,
or s otherwse not practcaby removabe, the contents w be re-
moved, where practcabe, wthout destructon, to another appro-
prate contaner, and the orgna contaner sha be destroyed. If
such marks, abes, or brands on the contaners (but not on the corks)
are not removabe, and t s mpractcabe to transfer the contents, the
contaners and contents sha be destroyed.
(d) If the offcer s n doubt as to potabty or dentty of the
wnes n any ot, he sha take representatve sampes thereof and
submt them to the nearest Government chemst for anayss.
(e) The procedure upon report of anayss sha conform to the
requrements of paragraph 5(c).
(/) Wnes sha be sod to the hghest bdder pursuant to adver-
tsement as requred by aw, and the advertsement sha contan the
statement that the wnes are to be sod sub|ect to the payment of
the nterna revenue ta .
(g) The nterna revenue ta sha be payabe and pad before
reease of the wnes n the manner provded by e stng reguatons
pertanng thereto.
7. ermented mat quors (beer, ae, porter, sake, etc.):
(a) Inspecton, anayss, advertsement, sae, and destructon of
fermented quors sha be accompshed n the same manner as heren
provded for wnes.
(b) Snce stamps may not be obtaned for the purpose of payng
the ta , the ta sha be pad to the coector of nterna revenue, who
w ssue recept therefor on orm 1, and enter the amount on hs
assessment st as an advance coecton. The seng offcer n each
such case sha notfy the coector of nterna revenue, n wrtng,
of the name and address of the purchaser, the number and knd of
contaners, and the quantty of fermented mat quors purchased,
and the recept when ssued sha bear notaton correspondng wth
such notce. The purchaser sha e hbt the recept to the seng
offcer before reease.
8. Labeng:
The foowng certfcate sha be paced on a kegs, barres, drums,
cases or any other outer contaners of quors sod :
I hereby certfy that on the day of , 1933, at ,
(Cty and State.)
of contaned heren were
( uantty n gaons.) ( nd of quor.)
sod to
(Name and address of purchaser.)
(Sgned)
Dstrct upcrvsor, or the Unted States Marsha.
( s the case may be.)
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518
Contaners of sprts sutabe for ndustra use ony sha aso
bear an addtona certfcate sgned by the seng offcer to the effect
that the sprts are sod for denaturaton or redstaton and de-
naturaton ony. These certfcates sha reman on the contaner to
whch they are attached unt the quor s removed therefrom,
whereupon they sha be effaced and obterated.
The purchaser of sprts sha compy n a respects wth the
appcabe provsons of the reguatons reatng to abeng sprts
acqured at Government saes ssued by the edera coho Contro
dmnstraton. (Msbrandng Reguatons, Seres 1, Revson 1,
ssued ugust 10, 1934, promugated to customs offcers n ureau
of Customs Crcuar Letter 12G0, dated ugust 21, 1934.) (See
ppend , attached hereto.)
9. quors offered for sae and not sod at the sae advertsed
or any ad|ournment thereof, sha be destroyed, uness dsposed of as
provded by paragraph 2 hereof: Provded, That such acton does
not confct wth any order of the court: nd provded further, That
f, n the opnon of the seng offcer, the faure to se s not suf-
fcent ndcaton of unsaabty, such quor may be rooffered.
10. Sae sha not be made n voaton of State or oca aws and
the recept of an affdavt of the purchaser that he has comped and
w compy wth a State and oca aws n connecton wth the
purchase, and the avaabty to State and oca enforcement offcers
of the records of sae, sha be deemed to be compance wth ths
provson.
II. MORG NT U, r.,
Secretary of te Treasury.
omkr Cummnos,
ttorney Genera-.
ebruary 27, 1935.
PP NDI .
edera coot. Contro dmnstraton Msbrandng Reguatons, Seres
1, Revson 1, Issued ugust 10, 1934. Suppement II, Reatng to Ds-
ted Sprts cqured at Government Saes.
Sec. 1 . Notwthstandng the foregong provsons of these reguatons, ds-
ted sprts uequred by members of the dsted sprts ndustry, dsted
sprts rectfyng ndustry, acohoc beverages mportng ndustry, or acohoc
beverage whoesae ndustry, at any sae conducted by the Unted States Gov-
ernment subsequent to the (ate of promugaton of these reguatons (. e.,
ugust 10, 10.34), sha be abeed as herenafter n ths suppement provded.
Sec. 17. Dsted sprts acqured at such Government saes sha not be sod
or otherwse ntroduced nto commerce by members of such ndustres n the
bottes n whch so acqured, uness pror thereto (1) the abes appearng on
such bottes at the Government sae have been removed, and (2) the wrtten
consent of the owner of a trade mark or brand name bown nto such bottes
as been obtaned.
Seo. 18. Dsted sprts acqured at such Government saes sha not be
sod or otherwse ntroduced nto commerce n bottes by members of such ndus-
tres, uness pror thereto such dsted sprts have been abeed or reabeed
as foows:
(a) If the dsted sprts are rectfed (otherwse than by purfcaton or
bottng) foowng purchase at the Government sae, then the abeng sha
be n conformty wth sectons 2 to 13, ncusve, of these reguatons.
( ) If the dsted sprts are not rectfed, or are rectfed ony by pur-
fcaton or bottng, foowng purchase at the Government sae, then the abe-
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519
Regs. 13, rt. 1.
og sha be n conformty wth such sectons, but sub|ect to the modfcatons
thereof specfed n secton 19 beow.
Sec. 19. The modfcatons herenbefore referred to sha be as foows:
(0) The brand abe sha conspcuousy state the foowng:
(1) dstnctve brand name beongng to the purchaser or the person for
whom botted, rehotted, or reabeed.
(2) Purchased from Unted .States Government after sezure.
(3) The name and address of the purchaser or the person for whom botted,
rebotted, or reabeed.
(4) The cass and type of dsted sprts, e. g., rye whsky, bourbon whsky,
Scotch whsky, rum, gn, corda, etc. Ths statement sha conform wth the
report of the Government, but sha be sub|ect to the mtatons of (g) beow.
(5) The brand abe or an addtona abe may state nformaton obtaned
from the report of the Government chemst, whch does not confct wth the
provsons of ths secton, but such statement sha be sub|ec t to the mtatons
of (g) beow.
( ) The year and, f desred, the month of sezure may be stated.
(c) No representaton sha be made as to the age of the dsted sprts,
e cept that dsted sprts aged n wood for any perod after sezure may
state on the abe that such dsted sprts have been aged n wood for such
perod.
(d) Whskys sha not be quafed as straght, bended, or sprt, but f
mtaton whsky, the brand abe sha so state.
(e) No statement sha be made as to bottng n bond or under supervson
of any Government.
(/) The statements requred as to percentage of straght whsky, neutra
sprts or neutra whsky, favorng and coorng matter, and dsted or com-
pound gn, may be omtted.
(g) The abeng of dsted sprts acqured at such Government saes sha
not (1) drecty or ndrecty or by nference create the mpresson that any
statement on the new abe appeared on the orgna abes, f any, at tme
of Government sae, or s derved from a report of a Government chemst, or
(2) e cept as specfcay authorzed by (a) (o) of ths secton, make any state-
ment as to the orgna source, producer, or pace of manufacture, or as to
the character of the dsted sprts.
Sec. 20. Pursuant to the provsons of rtce I of the Code of ar Com-
petton for the Dsted Sprts Rectfyng Industry, as amended, dsted
sprts may be acqured n buk or n bottes by members of the dsted sprts
rectfyng ndustry, at saes conducted by the Unted States Government.
R GUL TION O T TR IC IN CONT IN RS O
DISTILL D SPIRITS.
Reguatons 13, rtce 1: Defntons. I -4-7281
T. D.4517
mendment of paragraphs (o), (e), and (), artce 1, of Regua-
tons No. 13, under the provsons of |ont resouton approved
une 18, 1934, entted ont resouton to protect the revenue by
reguaton of the traffc n contaners of dsted sprts.
Treasury Department,
Offce of the Secretary of the Treasury,
Washngton, D. O.
To Dstrct Supervsors and Others Concerned:
Paragraphs (c), (e), and (), artce 1, of Reguatons No. 13,
under the provsons of |ont resouton approved une 18, 1934,
entted ont resouton to protect the revenue by reguaton of
the traffc n contaners of dsted sprts, are amended to read
as foows:
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Regs. 13, rt. 1.
520
(c) Dsted sprts sha mean (a) ethy acoho, hydrated o de of
ethy, and sprts of wne, from whatever source derved or by whatever proc-
ess produced, and ( ) any acohoc dstate ft for beverage purposes, such
as whsky, brandy, gn. run, queurs, cordas and btters, and a compounds,
by whatever name caed, contanng dsted sprts and ft for beverage pur-
poses, but sha not ncude wne contanng 24 per centum or ess of acoho
by voume.
(e) Lquor botte sha mean any gass contaner for packagng dsted
sprts for sae at reta, of a capacty of one-haf pnt or greater, conformng to
these reguatons and to the reguatons prescrbed by the edera coho
Contro dmnstraton, the reguatons n that regard heretofore promugated
by the edera coho Contro dmnstraton beng hereby adopted as a
part of these reguatons.1
() Dster sha mean any person operatng a regstered dstery under
the nterna revenue aws, and sha Incude the propretor of an ndustra
acoho pant engaged n bottng, for nonndustra use, ethy acoho, hydrated
o de of ethy, or sprts of wne, from whatever source derved or by whatever
process produced.
These reguatons sha become effectve on pr 15, 1935.
pproved anuary 22, 1935.
. MORG NT T , r.,
Secretary of the Treasury.
PP NDI , R IS D.
Dgest of Cebtan Portons of Reguatons of the edera coho Contro
dmnstraton Rkatnq to Standard ottes.
1. The standard bottes prescrbed by reguatons of the edera coho
Contro dmnstraton are bottes of such sze that they hod dsted sprts
n an amount equa to one of the standards of f set forth n paragraph 2,
wth a head space not n e cess of 5 per centum of the tota capacty of the
botte after cosure.
2. (a) The standards of f wth certan toerances not here set forth, are as
foows (fs n amounts ess than pnts omtted) :
. permanent standards.
or a dsted sprts, wThether domestcay manufactured, domestcay
botted, or mported:
1 gaon.
/ gaon.
1 quart.
4, quart.
1 pnt.
pnt.
In addton, for Scotch and Irsh whsky and Scotch and Irsh type whsky
of domestc manufacture and for brandy and mm, whether domestcay manu-
factured, domestcay botted, or mported:
pnt.
3. s used wth reference to standard bottes, the term, gaon means
Unted States gaon of 231 cubc nches of acohoc beverages at 8 .
(20 C), and a other unts of qud measure are subdvsons of the gaon as
so defned.
4. Copes of the reguatons of the edera coho Contro dmnstraton
reatng to standards of f for botted dsted sprts (Msbrandng Regua-
tons, Seres 2), and those reatng to nonndustra use of dsted sprts and
wne (Genera Reguatons, Seres 4) may be obtaned from the edera coho
Contro dmnstraton, Department of ustce udng, Washngton, D. C.
1 DROSt of pertnent portons of the reputatons of the edera coho Contro d-
mnstraton w be found n ppend , Itevsed.
See edera coho Contro dmnstraton reguatons reatng to nonndustra use
of dsted sprts and wne, Genera Reguatons, Seres 4.
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521
Regs. 13, rt. 2.
Reguatons 13, btce 1: Defntons. I -22-7530
T. D.4554
mendment of paragraph (c), artce 1, of Reguatons No.
13, as amended by Treasury Decson No. 4517 page 519, ths
uetn , ssued under the |ont resouton approved une 18,
1934, entted ont resouton to protect the revenue by regua-
ton of the traffc n contaners of dsted sprts.
Treasury Department,
Offce of Secretart of the Treasury,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph (c), artce 1, of Reguatons No. 13, as amended by
Treasury Decson No. 457| approved anuary 22, 1935, ssued pur-
suant to the provsons of |ont resouton approved une 18, 1934,
entted ont resouton to protect the revenue by reguaton of
the traffc n contaners of dsted sprts, s amended to read as
foows:
Dsted sprts sha mean (a) ethy acoho, hydrated o de of ethy, and
sprts of wne, from whatever source derved or by whatever process produced,
and ( ) any acohoc dstate tt for beverage purposes, such as whsky,
brandy, gn, rum, queurs, cordas and btters, and a compounds, by what-
ever name caed, contanng dsted sprts and tt for beverage purposes, but
sha not ncude wne contanng 24 per centum or ess of acoho by voume:
Provded, That ths defnton sha not appy to or ncude anhydrous acoho,
and acoho wthdrawn for ta -free purposes, pursuant to Tte 111 of the
Natona Prohbton ct and reguatons thereunder.
pproved May 24,1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 13, rtce 2: Manufacture and I -25-75 2
sae of bottes for packagng dsted sprts. T. D. 45 0
mendment of artces 2 and 5, Reguatons No. 13, to provde
for the abeng of quor bottes, and other contaners, n whch
dsted sprts are packaged or mported.
Treasury Department,
Offce of te Secretary of the Treasury,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Reguatons No. 13, prescrbed uy 1, 1934, as amended, aro
hereby further amended:
y addng to artce 2 a new paragraph numbered (4) as foows:
(4) Lquor bottes, and other contaners, authorzed by ths artce, n whch
dsted sprts are packaged for sae at reta, sha aso bear abes wth the
foowng brands and marks thereon:
(a) rand name, knd, and acohoc content of the dsted sprts, by proof,
e cept that the acohoc content may be stated n percentage, by voume, n tho
case of queurs, cordas, btters, cocktas, gn fzzes, or other such specates.
( ) Net contents of such bottes or contaners, uness the statement of the
net contents Is egby bown theren.
(c) Name and address of the dster or rectfer, by or for whom the sprts
are botted, e cept that the name and address of a deaer may be subst-
tuted for the name and address of the dster or rectfer, If such name and
address are preceded by the words otted for or otted e -
pressy for .
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egs. 13, rt. 5.
522
(d) If whsky, not bended or rectfed, the age thereof, but ths statement
sha not be requred as to Scotch. Irsh, or Canadan whsky, or whsky botted
n bond.
(c) If bended or rectfed whsky, the age of the youngest whsky theren,
but ts statement sha not be requred as to Scotch, Irsh, or Canadan whsky
and the respectve percentage, by voume, of whsky, or whskes, and neutra
sprts.
(/) statement of the percentage, by voume, of coorng matter, f such
coorng matter s present n the dsted sprts n e cess of 21/, per cent by
voume, e cept that ths requrement sha not appy to queurs, cordas,
btters, cocktas, gn fzzes, or other such specates.

Reguatons 13, rtce 3: Use of bottes I -3-72G3
for packagng dsted sprts. T. D.4509
mendment of paragraph (1) of artce 3 of Reguatons No. 13,
under the provsons of |ont resouton approved une 18. 1934,
as amended bv Treasury Decson 4498, approved November 2S,
1934 C. . III-2, 5 4 .
Treasu ry Department,
Offce of Secretary of the Treasury,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
Treasury Decson 4498, approved November 28, 1934, amendng
paragraph (1) of artce 3, of Reguatons No. 13, under the prov-
sons of |ont resouton approved une 18, 1934, s amended by
addng thereto the foowng:
nd provded further, That upon appcaton by any dster, rectfer, or
whoesae quor deaer, the supervsor of the dstrct n whch the pant of
such dster, rectfer, or whoesae quor deaer s ocated may, by the
ssuance of an approprate permt, authorze (a) the use, unt March 15, 1935,
for packagng dsted sprts generay, of gass contaners not marked as
requred by these reguatons where such contaners were manufactured for
such dster, rectfer, or whoesae quor deaer pror to uy 13. 1934, and
have Mown theren the name or trade-mark, or a brand name, of such dster,
rectfer, or whoesae quor deaer, and/or ( ) the use unt March 15, 1935,
for packagng queurs, cordas, btters, gn fzzes, and such other specates
as may be specfed from tme to tme by the Commssoner, of gass contaners
of dstnctve shape or desgn not marked as requred by these reguatons,
where such contaners were procured by such dster, rectfer or whoesae
quor deaer pror to uy 13. 1934.
pproved anuary 11, 1935.
. MORG NT U, r..
Secretary of the Treasury.
Reguatons 13, rtce 5: Imports and I -25-75 3
e ports. T.D.45 0.

Reguatons No. 13, arc hereby further amended:
y addng to artce 5 a new paragraph numbered (7) as foows:
(7) Lquor bottes, and other contaners, authorzed by ths artce, n whch
dsted sp rts are mported for sae at reta, sha aso bear abes wth the
foowng marks and brands thereon:
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523
Regs. 3, rt. 10
(a) rand name, knd, and acohoc content of the dsted sprts, by proof,
e cept that the acohoc content may be stated n percentage, by voume, n the
case of queurs, cordas, btters, cocktas, gn fzzes, or other such specates.
( ) Net contents of such bottes or contaners, uness the statement of the
net contents Is egby bown theren.
(c) Name and address of the mporter, or e cusve agent, or soe dstrbu-
tor, or other person responsbe for the mportaton.
(d) If whsky, not bended or rectfed, the age thereof, but ths statement
sha not be requred as to Scotch, Irsh, or Canadan whsky.
(c) If bended or rectfed whsky, the age of the youngest whsky theren,
but ths statement sha not be requred as to Scotch, Irsh, or Canadan whsky
and the respectve percentage, by voume, of whsky, or whskes, and neutra
sprts.
(/) statement of the percentage, by voume, of coorng matter, If such
coorng matter s present n the dsted sprts n e cess of / per cent by
voume, e cept that ths requrement sha not appy to queurs, cordas,
btters, cocktas, gn fzzes, or other such specates.
These reguatons sha be effectve mmedatey.
pproved une 15, 1935.
L. W. Robkkt, r.
ctng Secretary of the Treasury.
INDUSTRI L LCO OL.
Reguatons 3( coho), rtce 10: pp- I -19-7489
caton for a permt. T. D. 4545
mendng Treasury Decson 4485 fC. . III-2, 5 8, 5G9 and
reatng to orms 27- , 27- , 27-C, 27 , and 1431.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, I). C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Treasury Decson 4485 and nstructons on orms 27- , 27- ,
27-C, and 27 are hereby amended to provde that the quartery
fng of orms 27- , 27- , 27-C, 27y2, and 1431 be dscontnued
on and after the effectve date of ths Treasury decson, but such
notces sha be fed at the commencement of busness and annuay
thereafter as of uy 1, or the nearest dvdend date wthn 0 days
thereof, gvng a the nformaton requred n the forms and n the
nstructons thereon: Provded however, That such notces, wth
any addtona nformaton desred, sha be fed as otherwse pro-
vded by aw and reguatons and whenever specfcay requred n
wrtng by the Commssoner of Interna Revenue.
In the case of corporatons and smar ega enttes, a st of
stockhoders and a statement showng the number of shares of stock
or votng trust certfcates authorzed, and outstandng, the par vaue,
and the votng rghts of the owners thereof, sha be fed on sepa-
rate sheets accompaned by an affdavt as to the correctness thereof,
whch affdavt sha be e ecuted by the propretor or by some person
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Regs. 3, rt. 117.
524
duy authorzed to e ecute the same on behaf of the corporaton or
other ega entty.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 3, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 3( coho), rtce 117: Sae and I -2-7250
use of competey denatured acoho. T. D. 4507
mendng artce 117 of Reguatons No. 3, reatve to produc-
ton, ta payment, etc., of ndustra acoho, and the manufacture,
sae, and use of denatured acoho, effectve pr 1, 1931, as
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue.
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraphs 12 and 13 of artce 117 of Reguatons No. 3, reatve
to producton, ta payment, etc., of ndustra acoho, and the
manufacture, sae and use of denatured acoho, effectve pr 1,
1931, as amended by Treasury Decson No. 9 Pro. , effectve une
3, 1932, and Treasury Decson No. 1 Pro. , effectve ugust 2,
1933, are hereby rescnded, and the foowng substtuted n eu
thereof:
Contaners of products other than competey denatured, acoho sha not
be branded as such, nor sha such products be advertsed, shpped, sod, or
offered for sae as competey denatured acoho.
Supervsors sha nstruct a fed offcers under ther drecton
to warn propretors of garages, pant shops, hardware stores, and
other reta deaers guty of such practces, to mmedatey ds-
contnue the same, and that anyone fang to do so sha be reported
to the proper Unted States attorney for prosecuton.
Chas. T. Russe,
ctng Commssoner of Interna Revenue.
pproved anuary 5, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 3( coho), rtce 117: Sae and I -22-7528
use of competey denatured acoho. T. D. 4553
Revokng competey denatured acoho formua No. 5.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Chemsts n Charge, uthorzed Chemsts,
and Others Concerned:
ffectve une 1, 1935, competey denatured acoho formua No.
5 s hereby revoked and acoho sha not be denatured n accordance
wth ths formua after that date.
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525
Regs. 3, rt. 14 .
Stocks of competey denatured acoho formua No. 5 made pror
to une 1,1935, whch are n the hands of producers or controed by
them, must be dsposed of by anuary 1, 193 .
Guy T. everng,
Commssoner of Interna Revenue.
pproved May 24, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 3( coho), Tetas 14 : Genera -8-7335
provsons governng use. T. D. 4524
Sae and shpment of propretary sovents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
rtce 14 of Reguatons No. 3, as amended by Treasury De-
cson 1 Pro. , dated ugust 2,1933, s further amended by addng
after the thrd paragraph thereof a new paragraph as foows:
Propretary sovents manufactured from specay denatured acoho, for-
mua No. 1, may be sod by the manufacturers ony to users, or to deaers for
resae, for sovent or manufacturng purposes, and ony n meta packages
bearng embossed sera numbers such as prescrbed by artce 111, as amended
by Treasury Decson No. 9, wth respect to competey denatured acoho, and
bearng the embossed permt number or symbo of the manufacturer: Prvvded,
That upon wrtten authorzaton of the Commssoner, shpments of such so-
vents may be made by the manufacturer n raroad tank cars, or n tank
wagons or tank trucks owned and operated by the manufacturer, to actua
users for sovent or manufacturng purposes and not for resae, condtoned (1)
that such users sha mantan records of the recept and actua use of such
sovents, and (2) that such records sha be avaabe for nspecton by nterna
revenue offcers.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ebruary 1 , 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 3( coho), rtce 14 : Genera I -17-74 1
provsons governng the use of specay de- T. D. 4541
natured acoho.
uthorzng a new specay denatured acoho formua for use
n the manufacture of rubbng acoho compounds, and revsng
the second paragraph of artce 14 . Reguatons No. 3, pertanng
to the manufacture and sae of rubbng ucoho compounds.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Chemsts n Charge, uthorzed Chemsts,
and Others Concerned:
ffectve une 1, 1935, specay denatured acoho formua No.
23 may no onger be wthdrawn for the manufacture of rubbng
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Regs. 3, rt. 14 .
52
acoho compounds. The foowng new specay denatured acoho
formua No. 23-G s hereby authorzed for the manufacture of rub-
bng acoho compounds and a preparatons comng under the
genera cassfcaton of rubbng acoho:
To every 100 gaons of ethy acoho add 10 gaons of acetone
U. S. P. and 4.25 avordupos pounds of sucrose octa acetate.
SP CI IC TIONS O SUCROS OCT C T T .
Sucrose octa acetate s an organc acetyaton product beng a
whte nonhygroscopc powder havng an ntensey btter taste.
Metng pont. It sha have a metng pont of not ess than
9 C. or not more than 72 C.
Reducton wth copper sats. It sha gve a red precptate when
tested wth enedct s souton n the foowng manner:
dd 1 gram of the sampe to 100 cc. of dsted water n 500
cc. renmeyer fask, and to ths m ture add 1.5 cc. of concentrated
hydrochorc acd souton. Transfer to a refu condenser, aow
the m ture to come to a bo and bo for 10 mnutes to nsure com-
pete hydroyss of the sampe. Measure out 10 cc. of the resutng
souton, add 10 cc. of enedct s souton and heat n bong water
for 10 mnutes. red precptate ndcates the presence of sucrose
octa-acetate.
enedct s souton. Dssove 17.3 grams of copper suphate
(CuS04.5 20), 173 grams of sodum ctrate and 100 grams of an-
hydrous sodum carbonate n dsted water and dute to 1,000 cc.
wth dsted water.
ree acd as acetc acd. The free acd as acetc acd sha not be
greater than 0.15 per cent by weght when tested n the foowng
manner:
Dssove a 1-gram sampe n 50 cc. of neutra acoho, and ttrate
wth N/10 sodum hydro de souton usng phenophthaen as an
ndcator.
_ ,. .. ., cc. NaO used normaty
Per cent acd as acetc acd , . ,
Weght of sampe
Sucrose octa-acetate content. It sha contan not ess than 98
per cent sucrose octa-acetate by weght when tested accordng to the
foowng method:
Wegh a 1.50 gram sampe, and transfer to a 500 cc. renmeyer
fask contanng 100 cc. of neutra ethy acoho and e acty 50 cc.
of N/2 sodum hydro de souton. ttach the renmeyer fask to
a refu condenser, refu the matera for one hour, coo and ttrate
the e cess sodum hydro de wth N/2 suphurc acd souton usng
phenophthaen as an ndcator.
(cc. NaO used normaty cc. 2SO. used
. . . normaty) 8.478
Per cent sucrose octa-acetate . :
Weght of sampe
Insoube matter. It sha contan not more than 0.30 per cent
nsoube matter.
In addton to the above chemca and physca propertes, any
matera furnshed under these specfcatons must have the same de-
naturng propertes as the standard sampe of sucrose octa acetate
on fe wth the coho Ta Unt.
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527
Regs. 3, rt. 14 .
Where ths compound s furnshed n seaed contaners to denatur-
ng pants by reputabe manufacturers guaranteed to compy wth
the above specfcatons t w not be necessary to submt sampes
to the authorzed chemsts for e amnaton and approva.
On and after une 1, 1935, a rubbng acoho compounds or prep-
aratons comng under the genera cassfcaton of rubbng acohos
must be manufactured wth specay denatured acoho formua No.
23-G, and they must contan 70 per cent absoute ethy acoho by
voume, or as near 70 per cent as s practcabe to be obtaned by the
ordnary commerca methods used for compoundng acohoc prep-
aratons. In order that the fnshed products sha contan 70 per
cent absoute ethy acoho by voume the manufacturer shoud use
103.7 fud ounces of specay denatured acoho formua No. 23 (1,
to whch must be added any two of the foowng ngredents n the
quanttes ndcated and then made up to 1 gaon wth water:
Znc suphocarboate U. S. P. I grans.. 512
orc acd U. S. P. do 40
Tncture of quassa U. S. P. I mnms.. 25(5
Dethyphthaate not ess than 99 per cent pure fud ounces 1. 28
In addton to the above ngredents the manufacturer may aso
add such odorous consttuents as s desred, provded they are shown
n the formua submtted for approva.
Supervsors shoud notfy a permttees manufacturng rubbng
acoho compounds to make appcaton to amend ther basc permts
authorzng them to obtan specay denatured acoho formua No.
23-G for use n the manufacture of rubbng acoho compounds that
have been approved for manufacture wth specay denatured acoho
formua No. 23- .
Permttees manufacturng rubbng acoho compounds n accord-
ance wth formua approved by the ureau, whch conform wth
the methods of manufacture and formua set forth n ths Treasury
decson, w not be requred to submt new formuas on orm
1479- n quadrupcate for approva, and w ony be requred
to amend ther basc permt to provde for the, wthdrawa and use
of specay denatured acoho formua No. 23-G.
No appcaton for the wthdrawa of specay denatured acoho
formua No. 23- for the manufacture of rubbng acoho compounds
or any preparatons comng under the cassfcaton of rubbng
acohos shoud be approved after May 31, 1935, and the faure of
any permttee to compy wth the requrements of ths Treasury
decson w consttute bad fath on the part of the permttee and
grounds for the revocaton of hs permt.
ffectve une 1,1935, the second paragraph of artce ft of Reg-
uattons No. 3 s hereby amended to read as foows:
ny product manufactured wth specay denatured acoho formua No.
23-G under permt ssued pursuant to these reguatons and abeed and sod
as a rubbng acoho compound must be put up and sod by the manufacturer
thereof n contaners or packages n whch t s to be devered to the ut-
mate consumer. Such contaners or packages sha not e ceed 1 pnt n
capacty, and must be abeed to show name and address of the manufacturer.
Where rubbng acoho compounds are manufactured and botted under the
name of a deaer for resae to the egtmate trade, the manufacturer must
pace hs name and address or hs permt number on the abes of the contaners
n type of suffcent sze to be ceary egbe. No mseadng statement w ba
permtted on abes whch woud gve the Impresson that the product 19
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Msc.
528
pure acoho, and a product whch s not marketed under a trade name must
be abeed Rubbng coho Compound, n type of the same sze and coor.
cauton notce must aso be paced on each abe to the effect that the prepara-
ton s for e terna use ony and s medcated so that f taken nternay
serous gastrc dsturbance w resut. Labes or facsmes thereof must be
submtted for approva before use. The saes of ths product must be confned
to persons egtmatey engaged n a bona fde drug trade, or to hosptas, san-
tarums, turksh baths or other estabshments or stores where such compounds
have customary been sod, or used for massage or other e terna purposes.
aure to compy wth these requrements and to confne saes to such persons,
or the makng of saes to such persons In quanttes n e cess of ther reasonabe
requrements w consttute bad fath on the part of the permttee and grounds
for the revocaton of hs permt.
Weght Matthews,
ctng Cotnmssoncr of Interna Revenue.
pproved pr 17, 1935.
T. . COOLID ,
ctng Secretary of the Treasury.
Reguatons 3( coho), rtce 14 : Genera I -22-7529
provsons governng the use of specay de- T. D. 4555
natured acoho.
Treasury Decson 4541 page 525, ths uetn amended.
Treasury Department,
Offce of Commssoner of Interva Revenue,
Washngton, G.
To Dstrct Supervsors, Chemsts n Charge, uthorzed Chemsts,
and Others Concerned:
The effectve date of Treasury Decson 4541, authorzng a new
specay denatured acoho formua for use n the manufacture of
rubbng acoho compounds, and revsng the second paragraph of
artce 14G, Reguatons No. 3, pertanng to the manufacture and
sae of rubbng acoho compounds, s hereby e tended from une
1, 1935, to uy 1, 1935.
Gur T. everng,
Commssoner of Interna Revenue.
pproved May 24, 1935.
T. . Coodge,
ctng Secretary of the I rcasury.
RRISON N RCOTIC L W, S M ND D Y S CTION 432
O T R NU CT O 1928.
I -15-7432
Mn. 430
Regstraton and ta aton of departments of chemstry, med-
cne, dentstry, veternary, and pharmacy, n schoos, coeges,
and unverstes. Mmeograph 4150 (C. 1 . III-1, 539) amended.
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529
Msc.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, March 22, 1935.
Coectors of Interna Revenue and Others Concerned:
1. Paragraph of Mmeograph 415 , dated ebruary 27, 1934,
s hereby amended to read as foows:
. ( ) The regstraton and ta aton of schoos, coeges, and unverstes
under the arrson narcotc aw, as amended, are based prncpay upon
(her use, or uses, of narcotc drugs. Coeges of medcne and pharmacy,
therefore, shoud ordnary be regstered n Cass I . The hgher speca
ta abty n Cass I, however, w appy to such of these nsttutons as
are engaged n anaytca and/or e permenta work and a other educa-
tona nsttutons havng departments whch are regstered to obtan narcotcs
soey for research or e permenta purposes.
( ) In order that no msunderstandng n ths connecton may arse re-
gardng unverstes, coeges, and schoos whch have pharmacy, chemstry,
or other scentfc departments, the foowng nstructons are gven:
(1) Pharmacy, chemstry, and other scentfc schoos, coeges, or unver-
stes (other than those whch are e empt) usng narcotc drugs prmary n
e permenta, anaytca, and/or research work are propery cassfed as
compounders (Cass I), sub|ect to regstraton and ta at 24 per annum.
(2) Medca, denta, and veternary schoos, coeges, or unverstes (other
than those whch are e empt) usng narcotc drugs prmary n the treat-
ment of patents (human bengs, anmas, and/or brds), athough e per-
menta, anaytca, and/or research work s nomna or ncdenta thereto, are
propery cassfed as practtoners (Cass I ), sub|ect to regstraton and
ta at 1 per annum.
(3) If, however, medca, denta, and veternary schoos, coeges, or un-
verstes (other than those whch are e empt) use narcotc drugs prmary
In e permenta, anaytca, and/or research work, . e., not drected to the
treatment of patents, or where the treatment of patents s ony nomna or
ncdenta to the e permenta, anaytca, and/or research work, they are
propery cassfed as compounders (Cass 1), sub|ect to regstraton and
ta at 24 per annum.
(4) If unverstes, coeges, and schoos (oer than those whch are e -
empt) have a department, or departments, whch are propery cassfed under
the foregong as practtoners (Cass I ) and aso have another depart-
ment, or departments, whch are propery cassfed under the foregong as
compounders (Cass I), each such unversty, coege, or schoo (ta abe
entty) s sub|ect to regstratons and ta es at 1 and 24, respectvey, per
annum, or a tota annua ta abty of 25. unversty, coege, or schoo
whch Is a narcotcs ta payer may, accordngy, be sub|ect to more than one
ta f ts use of narcotc drugs s propery descrbed under more thnu one
of the four casses named n Reguatons 5, artce 9 but a unversty s a
unt and consttutes ony one ta abe entty or ta payer even though t has
severa coeges and schoos whch are ocated wthn cose pro mty
of each other and are merey departments. owever, where a ta payer s
engaged n the same cass of narcotc drug actvty or busness at ocatons
entrey separate and dstnct from each other, he s sub|ect to a separate
regstraton and ta wth respect to each such ocaton (see second sentence,
artce 9, and artce 18, Reguatons 5), nasmuch as the ta , beng based
on narcotc drug actvtes, s busness or occupatona.
2. Correspondence reatve to ths mmeograph shoud refer to the
number and to the symbos MT: ST.
Guy T. everng,
Commssoner.
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530
T INSON CT (PU LIC, NO. 135, S NTY-T IRD
CONGR SS).
Secton 3. I -7-7321
I. T. 28 1
Charges nvoved n the determnaton of the costs of performng
a nava contract under secton 3 of the nson ct (48 Stat., 503).
dvce s requested reatve to certan charges of the M Company
nvoved n the determnaton of costs of performng Navy contracts
under secton 3 of the nson ct, approved March 27, 1934 (Pubc,
No. 135, Seventy-thrd Congress, . R. 04, 48 Stat., 503).
It s not ntended that estabshed accountng procedure sha be
dsrupted or nterfered wth where such procedure s reasonaby
compete and suffcenty detaed to permt, wthout dffcuty, ad-
|ustment of the book costs where necessary for purposes of secton 3
of the nson ct, Sub|ect to the condton that the costs camed
are found reasonaby to appertan to the performance of a Navy
contract and to the verfcaton of the facts and fgures nvoved, no
ob|ecton s made to the methods used by the M Company n account-
ng for the costs of contracts whch may be entered nto between t
and the Navy Department under the nson ct, e cept n the foow-
ng partcuars:
(1) Schedue () property nsurance Schedue (12) abty
nsurance Schedue ( ) unempoyment nsurance.
The M Company carres ts own nsurance rsks on materas, sup-
pes, and manufacturng factes, to meet compensaton pad to em-
poyees for n|ures receved n the performance of ther dutes, and
for unempoyment n any State where such nsurance s requred,
accountng for the rsks and transactons through the medum of a
reserve account to whch are credted aowances at varyng rates,
the aowances beng assessed aganst ts varous operatons. The
company states that the e penses thus determned and charged
are ower than the premum rates quoted by nsurance companes and
that t ntends to produce accruas whch are appro matey equa
to the actua charges to the reserve account durng the current year,
whch charges are understood to be ts actua osses. Such a method
s neary tantamount to the use of the amount of actua osses n
computng ts cost of sef-nsurance. It s hed, however, that the
aowabe cost under secton 3 of the nson ct of sef-nsurance
for any partcuar perod of tme durng whch a Navy contract s
performed s the amount of the actua osses suffered durng such
perod from the nsurabe rsks assumed n connecton wth the con-
tract and n determnng the profts derved from the contract, the
book cost of such sef-nsurance w be ad|usted n accordance
wth the facts as they appear upon competon or other termnaton
of the contract.
(2) Schedue (19) genera admnstratve (bad debts).
Losses on account of bad debts are not, generay speakng, reated
to or a cost of performng a Navy contract therefore, they are
unaowabe for purposes of secton 3 of the nson ct.
(3) Schedue genera e penses. (Item 2 State ncome ta .
Item 3 edera ncome ta .)
urther consderaton has been gven to the contentons for the
aowance of State and/or edera ncome ta es as costs of per-
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531
Mac.
formng a Navy contract, but the concuson has been reached that
I. T. 2821 (C. . III-2, 580), whch hods that such ta es are not
aowabe as costs, s correct.
(4) Schedue (1 ) amortzaton (of speca equpment).
Inasmuch as t s not reasonaby certan unt a Navy contract s
competed or otherwse termnated whether speca equpment nec-
essary acqured to perform t w be used n performng other con-
tracts or works, the determnaton of a proper aowance under
secton 3 of the nson ct for obsoescence (other than norma and
n addton to ordnary e hauston, wear and tear, of such equpment
n connecton wth a partcuar contract) must awat the competon
or other termnaton of the contract and be based upon reevant
condtons then e tant. (Cf. artces 201, 202, 204, 20 , 209, and
artce 205, as amended by T. D. 4422, C. . III-1, 58, of Regu-
atons 77.)
The vews heren stated have been approved by the Secretary of
the Treasury and concurred n by the Secretary of the Navy.
MISC LL N OUS.
Reguatons 2(Pro.), Secton 1220: Wthdrawas I - -7309
for use of Unted States. T. D. 4520
mendng secton 1220, Reguatons 2, dspensng wth recepts
for quor wthdrawn for Government use pror to devery to
Government offcers.
Theasuht Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
Paragraph 1 of secton 1220, Reguatons 2, s amended by strk-
ng therefrom the words after sgnng the recept on ts reverse
sde n the twefth ne of sad paragraph.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved ebruary 4, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -12-7392
T. D.4534
Cabnet for Government property and contro of strp stumps.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraphs 1 and 4, Treasury Decson 4527, approved ebruary
25, 1935 beow , are amended to read as foows:
In order to safeguard the keys to Government ocks, to factate the transfer
of such keys from one offcer to another, and to provde a secure pace for
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532
keepng other Government property, such as seas, stamps, records, etc., the
propretor of eac dstery ncudng gran, moasses and frut dsteres),
dstery bonded warehouse, genera and speca bonded warehouse, concen-
traton warehouse, ndustra acoho pant, ndustra acoho bonded ware-
house, denaturng pLnt, rectfyng pant, and brewery, w provde a meta
cabnet of adequate strength and sze, equpped wth stapes for the nserton
of a ock. ach cabnet must be approved by the dstrct supervsor as to con-
structon, ocaton, and securty, and sha be nstaed on or before pr 1,
19.15.
On and after pr 1, 10S3, or pror thereto, f a cabnet for Government off-
cers s nstaed and approved, rectfers and propretors of nterna revenue
bonded warehouses ntendng to botte dsted sprts after ta payment may
purchase stamps ndcatng ta payment of dsted sprts n bottes, requred
by Tte II, of the Lquor Ta ng ct of 1934, n antcpaton of ther need.
Requston for such stumps on orm 42S w be submtted to the dstrct super-
vsor, who w wrte thereon the name and address of the storekeeper-gauger
n charge of the rectfyng pant or nterna revenue bonded warehouse and
w return the form to the appcant. The appcant w then forward the
orm 428, wth remttance for the stamps, to the coector of nterna revenue.
The coector w forward the stamps by regstered ma to the storekeeper-
gauger named on the orm 428, who w mmedatey pace them n the
Government cabnet. In nstances where t s mpractca to shp arge quan-
ttes of strp stamps by regstered ma t s permssbe to shp same by
e press, provded that a return recept s procured n each case. The e pense
of forwardng the stamps by regstered ma or e press to the storekeeper-
gauger w be borne by the appcant.
Gur T. evebng,
Commssoner of Interna Revenue.
pproved March 14, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -9-7349
T.D. 4527
Cabnet for Government property and contro of strp stamps.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Coectors of Interna Revenue, and Others
Conceted:
Paragraph 1. In order to safeguard the keys to Government ocks,
to factate the transfer of such keys from one offcer to another,
and to provde a secure pace for keepng other Government prop-
erty, such as seas, stamps, records, etc., the propretor of each ds-
tery (ncudng gran, moasses and frut dsteres), dstery
bonded warehouse, genera and speca bonded warehouse, concen-
traton warehouse, ndustra acoho pant, ndustra acoho bonded
warehouse, denaturng pant, rectfyng pant, and brewery, w
provde a meta cabnet of adequate strength and sze, equpped wth
stapes for the nserton of a ock. ach cabnet must be approved
by the dstrct supervsor as to constructon, ocaton, and securty,
and sha be nstaed on or before March 1, 1935.
(2) Where a cabnet or other secure pace for the safe-keepng
of keys, seas, stamps, records, etc., has prevousy been provded,
whch, n the opnon of the dstrct supervsor, affords adequate
protecton for the keys, seas, etc., the supervsor may authorze
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533
Msc.
the contnued use of such cabnet or other secure pace of safe-keep-
ng n eu of the cabnet specfed above.
(3) The cabnet sha be ocked wth a saght sea ock, the key
to whch sha reman at a tmes n the possesson of the Govern-
ment offcer assgned to duty at the pant, or the dstrct supervsor.
Government offcers must not eave the cabnet open, e cept n ther
mmedate presence, nor gve the key thereof to anyone, e cept
another Government offcer authorzed to receve t.
(4) On and after March 1, 1935, or pror thereto, f a cabnet for
Government offcers s nstaed and approved, rectfers and pro-
pretors of nterna revenue bonded warehouses ntendng to botte
dsted sprts after ta payment may purchase stamps ndcatng
ta payment of dsted sprts n bottes, requred by Tte II of
the Lquor Ta ng ct of 1934, n antcpaton ot ther need.
Requston for such stamps on orm 428 w be submtted to the
dstrct supervsor, who w wrte thereon the name and address
of the storekeeper-gauger n charge of the rectfyng pant or nter-
na revenue bonded warehouse and w return the form to the
appcant. The appcant w then forward the orm 428, wth
remttance for the stamps, to the coector of nterna revenue. The
coector w forward the stamps by regstered ma to the store-
keeper-gauger named on the orm 428, who w mmedatey pace
them n the Government cabnet. The e pense of forwardng the
stamps by regstered ma to the .storekeeper-gauger w be borne
by the appcant.
(5) t the begnnng of busness under ths procedure, nventory
of a stamps on hand w be made |onty by the storekeeper-gauger
and the rectfer or propretor of the nterna revenue bonded ware-
house. The stamps w be devered to the storekeeper-gauger, who
w gve the rectfer or propretor a recept therefor. s sprts
are botted, the storekeeper-gauger w dever to the propretor
of the estabshment the requred stamps for aff ng to the bottes
of sprts that have been ta pad.
( ) The storekeeper-gauger w keep a detaed day record of
stamps n record book No. 2115. The storekeeper-gauger w enter
n the book the number of each denomnaton devered to hm by the
propretor, as requred by paragraph 5, the number of each denom-
naton receved durng the month, by dates, and the number of
each denomnaton used durng the month, showng the dates on
whch they were used.
(7) t the cose of each month, or wthn fve days thereafter,
the storekeeper-gauger w prepare a report on orm 182, n trp-
cate, showng the number of each denomnaton on hand at the De-
gnnng of the month, the number of each donomnaton receved
durng the month, the number of each denomnaton used durng
the month and the number of each denomnaton on hand at the
end of the month. One copy of the report w be mmedatey for-
warded to the dstrct supervsor, one copy w be furnshed to the
propretor of the estabshment, and the storekeeper-gauger w
retan one copy on fe n the Government cabnet.
| 8) If the propretor empoys a commerca prntng concern to
prnt the data requred to be paced on the stamps, the storekeeper-
gauger w, upon wrtten request of the propretor, dever to nm
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Msc.
534
the number of e e denomnaton requested for such purpose. The
request must show the name and address of the prntng concern to
whom they are to be sent. The storekeeper-gauger w keep a
record of a stamps devered to the propretor for prntng. The
record must show the number of each denomnaton, the date, name
and address of the prnter, and upon return to hm after prntng,
the storekeeper-gauger w enter the date thereof, notng whether
the proper number of each denomnaton has been returned to hm.
(9) Strp stamps denotng ta payment may be stored n the cabnet
used by propretors of nterna revenue bonded warehouses for the
custody of botted n bond strp stamps, provded that the cabnet
s aways ocated on the bonded premses and s convenent and
accessbe to the Government offcer.
(10) Rectfers who are authorzed to botte dsted sprts after
ta payment, and who have fuy comped wth these and other
appcabe reguatons, may, n the dscreton of the dstrct super-
vsor, be authorzed to compete the bottng operatons after sun-
down, provded that such authorzaton s confned to bottng of
sprts whch have been ta -pad and reeased from bottng tanks
under the supervson of a Government offcer, and that such sprts
sha not be removed from the premses unt the foowng mornng.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ebruary 25, 1935.
L. W. Robert, r.,
ctng Secretary of the Treasury.
I -15-7434
T. D.4537
mendment of Reguatons No. 7, revsed uy 10, 1014, and
Reguatons o. 7, effectve May 1, 1030.
Treasury Department.
Offce of Commssoner of Interna Revenue,
Yasngton, D. C.
To Dstrct Supervsors and Others Conccrned:
1. Reguatons No. 7, concernng the ta on dsted sprts,
revsed uy 10, 1914, are amended as foows:
y strkng from ne 3, paragraph 2, page 75, the word uy
and substtutng therefor the word May.
2. Reguatons No. 7, reatve to the producton, fortfcaton, ta
payments, etc., of wne and the producton of grape brandy for
fortfcaton, effectve May 1, 1930, are amended as foows:
y strkng from ne 2, paragraph 412, the word uy and
substtutng therefor the word May.
3. Persons engaged n busness as dsters, usng materas other
than frut, and operatng a dstery (not concentraton) ware-
house, who contnue n such busness subsequent to pr 30, 1935,
must gve a new dster s annua warehousng bond, orm 359, on
May 1, 1935, coverng sprts to be deposted n the warehouse durng
the ensung year, uness the sprts thereafter deposted each month
are covered by dster s monthy warehousng bond, orm 80.
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535
Msc.
new annua warehousng bond ( orm 359) must be fed on the 1st
day of May n each succeedng year, f the dster contnues to
depost sprts n the warehouse, or monthy warehousng bonds
( orm 80) may be gven n eu of the annua warehousng bond.
4. Where a dster of frut brandy has estabshed a dstery
bonded warehouse for the storage of brandy and the busness of
dstng and operaton of the dstery bonded warehouse are to
be contnued subsequent to pr 30, 1935, a new frut dster s
annua warehousng bond, orm 79, must be fed on May 1, 1935,
coverng the brandy to be deposted n the warehouse durng the
perod for whch the bond s gven, and on the 1st day of May n
each succeedng year that the dster contnues to depost brandy
n the warehouse.
5. dster s annua warehousng bond, orm 359 or 79, fed on
May 1,1935, w cover sprts or brandy, as the case may be, entered
for depost n the dstery warehouse on sad date, as we as the
sprts or brandy deposted theren durng the ensung year. Ds-
ters annua warehousng bonds (359 and 79) fed uy 1, 1934,
w reman abe for payment of the ta mposed by aw on a
sprts or brandy deposted n the dstery warehouse durng the
perod from uy 1, 1934, to pr 30, 1935, and w contnue n
force unt a such sprts or brandy have been awfuy removed
from the warehouse.
. Unt revsed forms have been prepared and dstrbuted, bond
forms (359 and 79) now n use shoud contnue to be accepted wth
the necessary ateratons to conform to the reguatons as amended.
7. These reguatons do not appy to or affect the fng of ds-
ters producton bonds, orms 30 and 30y25 concentraton ware-
houseman s bond, orm 1521, and transportaton and warehousng
bond. orm 1522, requred under the provsons of secton 32 0,
Unted States Revsed Statutes, and the ct provdng for the con-
centraton of dsted sprts.
Guy T. everng,
Commssoner of Interna Revenue.
pproved pr 8, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -13-740
T. D.453
stabshng an coho Ta Unt n the ureau of Interna Rev-
enue, and defnng ts |ursdcton.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Offcers and mpoyees of the ureau of Interna Revenue, Co-
ectors of Interna Revenue, and Others Concerned:
1. Treasury Decson 4432 C. . III-1, 534 , secton 2, para-
graph (d) whch reads as foows:
Inqures and nvestgatons reatng to the fng of returns for occupa-
tona and commodty ta es and penates n respect to dsted sprts, acoho,
008. . 35 s
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Msc. 53
wnes, fermented quors, cerea beverages, denatured acoho, and other such
quors and quds, e cept that the coectors of Interna revenue w reman
charged wth the routne nspecton of the paces of busness of reta deaers n
such quors and quds
s amended by strkng out, e cept that the coectors of nterna
revenue w reman charged wth the routne nspecton of the paces
of busness of reta deaers n such quors and quds.
Gut T. everno,
Commssoner of Interna Revenue.
pproved March 22, 1935.
. Moroenthac, r.,
Secretary of the Treasury.
I -8-732
T. D.4525
Reports of pants and warehouses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and. Others Concerned:
1. Paragraph 3, Treasury Decson 4479, approved October 4, 1934
C. . III-2, 574 , s amended to read as foows:
One transcrpt ony of whoesae quor deaers book, 52, rendered on orms
52 , D2 , 370 (52C), and 338, w e submtted to the dstrct supervsor.
2. Ths reguaton sha become effectve March 1, 1935.
Gut T. everno,
Commssoner of Interna Revenue.
pproved ebruary 19, 1935.
. Mo G NT U, r.,
Secretary of the Treasury.
I - 1-7379
T. D. 4532
Reports of pants and warehouses.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
ffectve mmedatey, paragraph 2, Treasury Decson 4479, ap-
proved October 4, 1934 C. . III-2, 574 , s amended to read as
foows:
fter audtng such reports, the foowng must be stamped thereon and
sgned by the audtng cerk:
udted :
M
------ (Date)
fter audt, and not ater than the ast day of the month succeedng that
for whch the reports are rendered, the supervsor w transmt the Comms-
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537
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soner s copes of such reports, so stamped, wth the supervsor s monthy
accounts, to the Deputy Commssoner, coho Ta Unt, Washngton, D. C.
Guy T. everng,
Commssoner of Interna Revenue.
pproved March 12, 1935.
. MORG NT U, r.,
Secretary of the Treasury.
I - -7277
T. D.4515
Wnemakers bonds.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
L new wnemaker s bond, orm 700, whch combnes the terms
of wnemakers bonds, orms 25 , 99, and 99- , has been adopted.
2. ond on orm 700 must be n a pena sum suffcent to cover the
ta at the rate provded by aw for each gaon of wne, and each
proof gaon of brandy wthdrawn for fortfcaton of wne, pos-
sessed at any one tme at the bonded wnery, and brandy n transt
to the bonded wnery, and fortfed wnes n transt therefrom to
other bonded premses and sha be not ess than 500 nor more
than 50,000 for a snge bonded wnery.
3. The pena sum of the bond, orm 700, fed by propretors of
bonded wneres, who are not engaged n the producton of fortfed
wnes, or propretors of bonded wne storerooms, must be suffcent
to cover the ta at the rate provded by aw for each gaon of wne
to be possessed at any one tme at such estabshments, and n transt
therefrom to other bonded premses and sha not be ess than 500,
nor more than 50,000 for a snge wnery or storeroom.
4. ond on orm 700 sha be a contnung obgaton and sha be
n mutpes of 100.
5. If the same person, frm, or corporaton operates two or more
bonded wneres, whether wnes are or are not fortfed theren, or
bonded wne storerooms, a snge banket bond, orm 700, may be
fed n eu of the separate bond, or bonds. The pena sum of such
banket bond sha be equa to the tota of the pena sums requred
for the separate estabshments, but n no case sha the pena sum
of the bond e ceed 100,000.
. Wnemakers bonds, orms 25 , 99, and 99- n force and
effect, need not be repaced by bonds on orm 700 at ths tme.
owever, where wnemakers desre to fe new bonds, orm 700,
such bonds, f approved, sha be n eu of, and not n addton to,
the bonds theretofore fed. Wnemakers contnung the busness of
fortfyng wnes durng the ne t fsca year must repace bonds on
orms 25 and 99- by bonds on orm 700 not ater than uy 1,
1935.
7. ond on orm 700 may be gven wth approved corporate
surety, or by ndvdua suretes (of whch there must be two), or
by the depost of proper coatera.
8. The provsons of Reguatons 18, rtce II, paragraph
M (ff) et seq., reatng to the manufacture and ta payment of fer-
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538
mented mat quors, approved October 25, 1934, so far as appcabe,
are hereby e tended to the e ecuton (ncudng the e ecuton by
one or more suretes), approva, dsposton, reef of suretes, and
reease as to future abty of wnemakers bonds, orm 700.
9. wnemaker producng wne of an acohoc content n e cess
of 3.2 per centum of acoho by weght and wne contanng not more
than 3.2 per centum of acoho by weght under the ct of March
22, 1933 (48 Stat., 1 ), may fe consent of surety on orm 1533
e tendng the terms of hs bond coverng producton of wne of the
hgher acohoc content to cover producton of wne of the ower
acohoc content, or the wnemaker may fe a separate permt bond
on orm 109 to cover producton of wne of such ower acohoc
content. permt bond on orm 109 may not be accepted of a
wnemaker producng wne of the hgher and ower acohoc content
to the e cuson of bonds on orms 99, 99- , or 700.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved anuary 18, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -20-7502
T. D. 454
rut dsters and wnemakers bonds.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D- 0.
To Dstrct Supervsors and Others Concerned
1. frut brandy dster, not operatng a dstery bonded ware-
house, who aso operates a bonded wnery, or wneres, or bonded
storerooms, whether the estabshments be n one or more dstrcts,
may furnsh bond securty for a such operatons by fng frut ds-
ter s bond ( orm 30 ) wth suretes (corporate or ndvdua) or
securty, and wnemaker s bond ( orm 700) each n the ma mum
pena sum of 100,000, the wnemaker s bond ( orm 700) beng gven
wthout suretes or securty and supported by the consent of the
obgors on the frut dster s bond ( orm 30 ) e ecuted on orm
1533. The consent, n such case, must aso contan a provson that,
n the event the frut dster s bond ( orm 30 ) s for any reason
suspended or rendered noperatve durng ts term, abty there-
under sha contnue so as to support the wnemaker s bond ( orm
700). When the frut dster s bond ( orm 30y2) s renewed on
May 1 of each year, a new consent of the obgors thereon must be
e ecuted to support the wnemaker s bond ( orm 700).
2. If a frut brandy dster, operatng a dstery bonded ware-
house, gves frut dster s annua warehousng bond ( orm 79)
wth suretes or securty n a pena sum not ess than 500 nor more
than 100,000 to cover hs dstery warehouse, and producton bond
( orm 30y2) n the ma mum pena sum of 100,000 wth suretes or
securty, he may, wth the consent of the obgors on the producton
bond, as provded n the frst paragraph hereof, support hs wne-
maker s bond ( orm 700).
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539
Msc.
3. rut brandy dsters who desre to take advantage of ether of
the above prveges, effectve as of May 1, 1935 may do so by sub-
sttutng the bonds and consents descrbed for ther present bonds.
4. cept as modfed by ths Treasury decson, the provsons of
pror reguatons sha reman n force and effect.
Gut T. everng,
Commssoner of Interna Revenue.
pproved May 14, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -7-7322
Mm. 428G
ppcaton of edera coho Contro dmnstraton genera
reguatons reatng to the noundustra use of dsted sprts,
seres 4, and Treasury Decsons 4510 page 499, ths uetn and
4517 page 519, ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, anuay 31,1935.
Dstrct Supervsors, Coectors of Interna Revenue, and Others
Concerned:
Secton 3(a) of edera coho Contro dmnstraton genera
reguatons reatng to nonndustra use of dsted sprts, seres 4,
defnes the ndustra use of acoho, other dsted sprts and wne
to ncude certan manufacturng uses, where the resutng products
are unft for beverage purposes. These uses are, among others, the
manufacture by reta druggsts of medcna, pharmaceutca, and
antseptc products, and the compoundng of physcans prescrp-
tons. Secton 4(b) of such reguatons paces a mtaton upon the
capacty of the contaner n whch nonndustra sprts may be
packaged, mtng such capacty to a gaon or ess.
eretofore acoho, e cept as t was used n the producton of
beverage quors, was, n the absence of a defnte pronouncement by
the edera coho Contro dmnstraton on the sub|ect, deat
wth by ths ureau as a chemca raw matera and ts use as ndus-
tra. The packagng of acoho n any contaner was permtted, and
no dstncton was made as to the casses of persons who mght re-
ceve acoho n buk, repackage t, and obtan stamps under Tte II
of the Lquor Ta ng ct of 1934 (secton 7, Treasury Decson 4418
C. . III-1, 522 , as amended).
To brng acoho for nonndustra uses under the Treasury De-
artment s reguatons requrng the packagng of sprts n marked
ottes, Reguatons 13 have been e tended by Treasury Decson 4517
to ncude acoho, and to permt propretors of ndustra acoho
pants, among others, to obtan marked quor bottes for packagng
acoho. Treasury Decson 4418 was aso further amended by
Treasury Decson 451 , by strkng from secton 7 (a) and (b) the
phrase and reta druggsts and whoesae deaers authorzed to
botte and se acoho for nonbeverage purposes and by nsertng
n eu thereof (n 7(a)) the phrase to whoesae deaers engaged
n packagng acoho for ndustra use n contaners havng a capac-
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Msc.
540
ty n e cess of 1 and ess than 5 wne gaons. The words ndus-
tra acoho pants, and were aso nserted after the words pro-
pretors of n these subdvsons of secton 7.
The effect of these amendments s (1) to permt propretors of
ndustra acoho pants, and rectfers, and whoesae deaers au-
thorzed to botte sprts, who engage n packagng acoho for non-
ndustra use, to obtan marked bottes and red strp stamps (2)
to prevent reta druggsts, and whoesae deaers who are not rec-
tfers, from packagng acoho n contaners havng a capacty of 1
gaon or ess and (3) to permt the procurement of such stamps by
whoesae deaers and propretors of ndustra acoho pants en-
gaged n packagng acoho for ndustra purposes n contaners of
a capacty n e cess of 1 and ess than 5 wne gaons. s such atter
contaners, t s understood, are not now used commercay, strp
stamps of the proper denomnatons are not avaabe at present.
Unt such stamps are ssued, gaon stamps may be obtaned for the
purpose and changed to state the e act quantty of acoho n the
contaners n the manner provded by Treasury Decson 4420 C. .
III-1, 52 . Contaners of acoho for ndustra use, of a ca-
pacty of 5 wne gaons, or greater, w bear the stamps now pro-
vded by aw and reguatons.
Propretors of ndustra acoho pants, and others ncuded by
Reguatons 13, must use the same symbos and warnng for acoho
bottes as they are now usng for bottes of other sprts.
The effectve date of both Treasurv Decsons 451 and 4517 s
pr 15, 1935. The perod between anuary 22, 1935 (the date of
ssuance of the Treasury decsons) and pr 15 was aowed for
trade read|ustments, ncudng the packagng of acoho n un-
marked contaners and the dsposton of acoho aready packaged.
Ths does not mean that the edera coho Contro dmnstraton
reguatons, whch went nto effect mmedatey, are postponed, or
that, pror to pr 15, acoho for nonndustra purposes may not
be packaged n marked bottes, or strp stamps obtaned for ndus-
tra acoho packages.
Correspondence reatve to the nstructons set forth heren shoud
refer to the number of ths mmeograph and to the symbo T.
Gut T. everng,
C ommssoner.
I -15-7435
T. D.4538
Dutes of storekeeper-gaugers and dsters at whsky, rum, and
gn dsteres.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
1. cept wth the e press approva of the Deputy Commssoner,
coho Ta Unt, not more than one storekeeper-ganger (e cusve
of the storekeeper-gauger n charge, where one s assgned) w be
assgned to any whsky, rum, or gn dstery for each 8-hour shft
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541
Msc.
for the mmedate supervson of the operatons of the st house,
fermentng room and mea room.
2. Dsters w wegh, or measure (n the case of moasses), a
materas receved on the dstery premses and a materas used
for the producton of mash, wort, beer, or dsted sprts, recordng
such data (on orms 12 and 13) as prescrbed by secton 3303, R. S.
(2 U. S. C. ., 314). They w prepare weght (or quantty) sps
for a materas receved and used, at the tme of weghng or meas-
urng, and furnsh sgned copes to the storekeeper-gauger. Ds-
ters w aso determne and record n book orm 25. n accordance
wth the provsons of such secton, the tme of the day when any
yeastng or other composton s put nto any mash or beer for the
purpose of e ctng fermentaton the quantty of mash n each tub
the number of dry nches the gravty and temperature of the beer
at the tme of fng, at 12 o cock noon on every day thereafter,
and at the tme of emptyng and the tme when any fermentng tub
s empted of rpe mash or beer.
3. No materas sha be receved on the premses of any whsky,
rum, or gn dstery, or used for the producton of dsted sprts,
or for any other purpose, e cept when the storekeeper-gauger s
present on the dstery premses. Storekeeper-gaugers assgned to
such dsteres, however, w not be requred personay to wegh
or measure materas receved upon such premses or materas used
for the producton of dsted sprts. The storekeeper-gauger n
charge w unock the matera room and hoppers at the commence-
ment of each day s operatons, and ock them at the cose of busness
each day, gvng empoyees of the dstery access to materas dur-
ng the day under hs genera supervson.
4. Smary, storekeeper-gaugers assgned to such dsteres w
not be requred to determne the temperature and gravty of the
mash or beer n fermentng tubs, or ascertan the number of dry
nches, or to record such tems n book orm 17, Record of store-
keeper-gaugers at regstered dsteres, or orm 88, Storekeeper-
gauger s monthy abstract. They w, however, make such spot
tests of materas n fermentng tubs as may be necessary to determne
the accuracy of the dster s entres n book orm 25.
5. The storekeeper-gauger n charge w see that dsters man-
tan and keep current the records above referred to. e w make
such nspectons and tests of the dster s records and operatons as
may be necessary to nsure that they are compete and accurate. e
w e ercse genera supervson over a operatons and transactons
conducted by the dster and hs empoyees.
. Storekeeper-gaugers w record a materas receved on the
dstery premses (but not the data as to the conveyances by whch
such materas are devered), and a materas used for the pro-
ducton of mash, wort, beer, or dsted sprts (n part 1 of book
orm 17) as prescrbed by secton 3302, R. S. (2 U. S. C. ., 3 5).
Informaton as to materas receved w be obtaned from the
weght sps and compared wth the dster s commerca records
and book orm 12. Informaton as to materas used w be
obtaned from the weght sps and compared wth the dster s
record, book orm 13.
7. Storekeeper-gaugers w record n part 2 of book orm 17,
Record of yeastng, gravty, temperature, dry nches and the
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542
quantty of mash or beer n fermentng tubs n dstery, the tme
when any fermentng tub s empted of rpe mash or beer, and the
number of each tub. These tems w be entered n the coumns
desgnated Number of tub, t tme tubs are empted, Date,
and our. No other entres n part 2 w be requred.
8. Storekeeper-gangers w submt on monthy report orm 88
ony the tems requred on page 1 (but not the coumn desgnated
Sop or spent beer ), and the tems on the ast page (but not the
summary statement eer account ). No entres w be made on
page 2.
9. Ths Treasury decson w become effectve on May 1, e cept
that the provsons of paragraph 8 sha be effectve for the month of
pr.
Weght Matthews,
ctng Commssoner of Interna Revenue.
pproved pr 9, 1935.
. MoRG NT U, r.
Secretary of the Treasury.
I -21-7518
T. D. 4551
orm 1477 to be fed annuay.
Treasury Department,
Offce of Commssoner of Interna Revenue, .
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
orm 1477, ppcaton for permt to procure specay denatured
acoho, by persons hodng permts on orm 147 or orm 1481,
w hereafter be approved by dstrct supervsors for one year. Not
more than one-twefth of the amount of specay denatured acoho
authorzed by a permt orm 1477 may be procured n any one
caendar month, and wthdrawas must be so reguated that the per-
mttee w not have on hand, n transt and unaccounted for, durng
any caendar month, more than the quantty f ed n hs basc permt,
orm 147 or orm 1481.
Guy T. everng,
Commssoner of Interna Revenue.
pproved May 21, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -25-75 0
T. D.4559
Reguatons concernng orms 27- , 27 , 27- , 27-C, and 1431.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
1. orm 27- (Notce by dsters) and orm 27 ( rut ds-
ter s notce) sha be fed by propretors of dsteres before
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543
Msc.
engagng n the busness of dstaton and thereafter as of May 1
each year by those contnung n sad busness.
2. orm 27- (Notce by rectfers) and orm 27-C (Notce by
brewers) sha be fed by the rectfer or brewer before commencng
busness. The fng of new notces ( orms 27- and 27-C) an-
nuay w not be requred.
3. orm 1431 ( ppcaton for permt to operate ndustra aco-
ho pant, bonded warehouse, and denaturng pant, under Tte III
of the Natona Prohbton ct, and Reguatons 3) sha be fed
by persons desrng to obtan orgna permts to operate such estab-
shments, and appcatons ( orm 1431) for renewa of permts
under sad ct and reguatons sha be fed wth dstrct super-
vsors not ater than September 15 of each year.
4. The Commssoner or the dstrct supervsor may at any tme
requre the fng of new notces or appcatons on the forms men-
toned, wth any addtona nformaton desred.
5. In the case of corporatons and smar ega enttes, there
sha be fed, on separate sheets, at the commencement of busness
and annuay thereafter as of May 1, or the nearest dvdend date
wthn 0 days thereof, a st of stockhoders, and a statement under
the sea, f any, of the corporaton or other ega entty, showng
the number of shares of stock or votng trust certfcates authorzed
and outstandng, the par vaue thereof and the votng rghts of
the owners, accompaned by an affdavt as to the correctness of
such st and statement, whch affdavt sha be e ecuted by some
offca of the corporaton or other ega entty duy authorzed to
e ecute the same.
. rungs and decsons not n harmony wth the foregong
are hereby rescnded.
Gut T. e.verng,
Commssoner of Interna Revenue.
pproved une 13, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -4-727
T. D.4514
Requrng, n certan oases, return of ncome, war-profts, and
e cess-profts, n connecton wth property whch s or has been
n the custody of the Unted States under the Tradng wth the
nemy ct amendng Treasury Decson 41 8.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 111(h) of Treasury Decson 41C8 (C. . II-2, 413), ap-
proved une 21,1928, s hereby amended to read as foows:
(h) Returns. It shoud be noted that In many cases aowance of deduc-
tons and credts w be contngent upon the makng of a return n accordance
wth the appcabe Revenue ct. The submsson of evdence n accordance
wth subdvson (f), above, w be consdered as the makng of the return
requred by any such Revenue ct ony (1) for any ta abe perod endng on
or before December 31, 1934, durng whch a or part of the property of the
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544
ta payer was hed by the ttorney Genera or the en Property Custodan,
or (2) for any ta abe perod endng wthn one year from the date of the
frst reease to the ta payer, under secton 9 e cusve of subdvsons (9)
and (10) of subsecton (b) of the Tradng wth the nemy ct, as amended
by the Settement of ar Cams ct of 1928, of property hed by the ttorney
Genera or the en Property Custodan, whchever perod ends ater. In a
other cases a return w be requred n accordance wth the appcabe Revenue
ct and the appcabe ncome ta reguatons.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved anuary 18, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -7-7320
T. D.4522
mnaton of requrement for recepts n connecton wth
credts camed on orm 30. Treasury Decson 1505 revoked.
Treasury Department,
Offce of Commssoner of Intern a Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Other Offcers and mpoyees
Concerned:
Treasury Decson 1505, dated November 22, 1909, provdes as
foows:
y reason of the requrements of the udtor for the Treasury Department,
hereafter each cam for aowance n stamp account on orm 30 must be ac-
companed by a recept from each party to whom a stump covered by the cam
Is ssued. Ths recept shoud be dated, and shoud gve the name, number,
and vaue of each stamp.
The above mentoned Treasury decson s hereby revoked, effec-
tve March 1, 1935.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ebruary 7, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -17-74 0
Mm. 4317
Issuance of new green cards enttng attorneys and agents to
practce before the Treasury Department.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, pr 3, 1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Dstrct Supervsors, Deputy Commssoners, and Other Offcers
and mpoyees Concerned:
The ureau s n recept of a memorandum from the secretary,
Commttee on nroment and Dsbarment of the Treasury Depart-
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545
Msc.
ment, whch s quoted beow for the nformaton and gudance of
a concerned:
The new green cards enttng attorneys and agents to practce before the
Treasury Department w be maed by the Commttee on nroment and
Dsbarment pr 1, 1935. Thrty dnys w be aowed for gettng these nto
the hands of the entre enroed membershp. Unt May 1, 1935, ether the
whte or green permanent card may be recognzed. fter that date, ony
the green card s to be recognzed. Temporary cards w contnue to be whte.
Offcas and empoyees of the ureau w be governed by the n-
structons contaned n the above-quoted memorandum, and after
May 1,1935, w not recognze any attorney or agent who s not abe
to present for ther nspecton ether a new green permanent card or
a whte temporary card. The whte temporary card s effectve for
a perod of s months from the date of ssuance.
Correspondence wth respect to the nstructons contaned n ths
mmeograph shoud be addressed to the Commssoner of Interna
Revenue, attenton Pub. e.
Guy T. ever g,
C ommssoner.
I -23-7541
T. D.455
ureau of Interna Revenue.
Treasury Department,
Offce of the Secretary,
Washngton, D. C, May 29,1935.
To Commssoner of Interna Revenue, Commssoner of Narcotcs,
Interna Revenue and Narcotc Offcas, and Other Offcas and
mpoyees of the Treasury Department Concerned:
1. Secton 4 of the ct entted n ct of Congress to create a u-
reau of Customs and a ureau of Prohbton n the Department of
the Treasury, approved March 3, 1927 (U. S. O, tte 5, secton
281c), reads as foows:
Sec. 4. (a) The rghts, prveges, powers, and dutes conferred or mposed
upon the Commssoner of Interna Revenue and hs assstants, agents, and n-
spectors, by any aw n respect of the ta aton, mportaton, e portaton, trans-
portaton, manufacture, producton, compoundng, sae, e change, dspensng,
gvng away, possesson, or use of beverages, nto catng quors, or narcotc
drugs, or by the Natona Prohbton ct, as amended, or any other aw reatng
to the enforcement of the eghteenth amendment, are hereby transferred to, and
conferred and mposed upon, the Secretary of the Treasury.
(b) The Secretary of the Treasury s authorzed to confer or mpose any of
eueh rghts, prveges, powers, and dutes upon the Commssoner of Prohbton,
or any of the offcers or empoyees of the ureau of Prohbton, and to confer
or mpose upon the Commssoner of Interna Revenue, or any of the offcers or
empoyees of the ureau of Interna Revenue, any of such rghts, prveges,
powers, and dutes whch, n the opnon of the Secretary, may be necessary n
connecton wth nterna revenue ta es.
2. Secton 3(b) of the ct of Congress entted n ct to create
n the Treasury Department a ureau of Narcotcs, and for other
purposes, approved une 14, 1930, prescrbes as foows:
(b) The Secretary of the Treasury s authorzed to confer or mpose any
of the rghts, prveges, powers, and dutes n respect of narcotc drugs
enumerated n subdvson (a) of secton 4 of the ct entted n ct to
create a ureau of Customs and a ureau of Prohbton n the Department
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54
of the Treasury, approved March 3, 1927 (U. S. C, tte 5, secton 281c),
upon the Commssoner of Narcotcs, or any offcer or empoyee of the ureau
of Narcotcs.
3. ( ) In conformty wth, and under authorty conferred by, the
above sectons, the Secretary of the Treasury on uy 1, 1930, ssued
an order (Treasury Decson 2 ureau of Narcotcs) prescrbng
the dutes and powers of the Commssoner and other empoyees
of the ureau of Narcotcs, ncudng the fed servce, and trans-
ferrng certan personne, records, and property from the ureau of
Prohbton n the Treasury Department to the ureau of Narcotcs.
Secton III of such order reserved the rght to revoke such order
or any provson thereof at any tme.
( ) Secton III, paragraph (1) (h) of the order of uy 1, 1930,
conferred and mposed the foowng rghts, prveges, powers, and
dutes upon the Commssoner of Narcotcs:
(h) The compromse of any crmna or cv case arsng under ether of
the above aws, n accordance wth secton 3229 of the Revsed Statutes of
the Unted States, and the determnaton, asserton, and compromse of
abty for nterna revenue ta es and penates under ether of the above
aws, e cept that a moneys sha be receved and accounted for by co-
ectors of nterna revenue, under the drecton of the Commssoner of Interna
Revenue.
4. Pursuant to the provsons of secton 4(b) of the ct of Con-
gress approved March 3, 1927, and secton 3(b) of the ct of Con-
gress approved une 14, 1930, quoted heren, and n the e ercse of
authorty conferred upon me by these aws, Secton III, paragraph
(1) (h) of the order (Treasury Decson 2 ureau of Narcotcs)
s hereby amended to read as foows, such amendment to become
effectve mmedatey upon the approva of ths order:
III.
Rghts, Pkveqes, Poweks, and Dutes Conferred and Imposed Upon the
COMMISSION O N COTICS.
(1)
(h) The compromse of any crmna abty (e cept as reates to den-
quency n regstraton and denquency n payment of ta ) arsng under
ether of the above aws, n accordance wth secton 3229 of the Revsed
Statutes of the Unted States, and the recommendaton for assessment of
cv abty for nterna revenue ta es and ad vaorem penates under ether
of the above aws.
5. The rghts, prveges, powers, and dutes conferred and m-
posed upon the Commssoner of Interna Revenue by Secton of
the order (Treasury Decson 2 ureau of Narcotcs), are hereby
e tended to ncude (1) the compromse of any cv abty nvov-
ng denquency to regstraton, denquency n payment of ta , and
ad vaorem penates, and of any crmna abty ncurred through
denquency n regstraton and denquency n payment of ta , n
connecton wth the sad cts of anuary 17, 1914, and December 17,
1914, as amended, n accordance wth secton 3229 of the Revsed
Statutes of the Unted States, (2) the determnaton of abty
for and the assessment and coecton of speca ta es mposed by the
sad cts of anuary 17, 1914, and December 17, 1914, as amended,
(3) the determnaton of abty for and the assessment and coec-
ton of the ad vaorem penates mposed by secton 317 of the Re-
vsed Statutes of the Unted States, as amended, for denquency n
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547
Msc.
regstraton, and (4) the determnaton of abty for and the asser-
ton of the specfc penaty mposed by the sad ct of December 17,
1914, as amended, for denquency n regstraton and payment or
ta .
In any case where a genera offer s made n compromse of cv
and crmna abty ordnary compromsabe hereunder by the
Commssoner of Interna evenue and of crmna abty ord-
nary compromsabe hereunder by the Commssoner of Narcotcs,
the case may be |onty compromsed by these offcers, n accordance
wth secton 3229 of the Revsed Statutes of the Unted States.
. The rght to amend or suppement ths order or any provson
thereof from tme to tme, or to revoke ths order or any provson
thereof at any tme, s hereby reserved.
. MORG NT U, r.,
Secretary of the Treasury.
I -11-7375
Mn. 4293
Symbos for use n correspondence.
Treasury Department,
Offce of Commssoner of Interna evenue,
Washngton, D. C, ebruary 23, 1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Dstrct Supervsors, Deputy Commssoners, and Other Offcers
and mpoyees Concerned:
The foowng drectons supersede those contaned n Mmeograph
4071 C. . II-2, 493 and a other nstructons n confct here-
wth. so, secton , Part I, of the Interna Revenue Manua s
amended to conform to the foowng:
very etter prepared n the ureau n Washngton w bear n
the upper eft-hand corner of the frst page, and mmedatey beow
the nstructons ddress repy to, etc., a symbo that w ndcate
the offce of orgn: Provded, That ths practce w not appy to
congressona correspondence or to etters prepared for sgnature by
others than offcas of ths ureau.
very etter addressed to the ureau by a fed offce, f t s n
repy to a communcaton from the ureau, w bear mmedatey
above the body of the etter and near the center of the sheet the sym-
bo that appears n the communcaton that s beng answered thus,
ttenton: IT: R: 3: ST . If the etter s not n repy to a
ureau communcaton, the symbo of the unt, dvson, or secton n
the ureau concerned v be ndcated n the same manner, pro-
vded there s no queston as to the proper symbo f any doubt
e sts, no symbo whatever w be used.
Where a fed offce uses a system of symbos n conductng ts cor-
respondence, the symbo used n ths connecton w be paced n the
upper eft-hand corner of the frst sheet of each etter addressed to
the ureau |ust beow the nstructons In repy refer to. The
ureau etter, f any, repyng to such communcaton w show the
fed offce symbos above the oody of the etter n the same manner
as s prescrbed n the ne t precedng paragraph.
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548
nveopes wth prnted or typewrtten address w be used by
fed offces n transmttng ma to the ureau rather than wndow
enveopes. so, every such enveope or wrapper w bear n the
ower eft-hand corner of the face thereof the same symbo that s
quoted n the communcaton whch t ncoses. There s no ob|ecton
to forwardng n one enveope a number of communcatons ntended
for the same unt or dvson of the ureau n fact, ths s desrabe.
Under no crcumstances, however, shoud correspondence pertanng
to the work of one unt be ncosed n an enveope addressed to
another unt.
Informaton whch w assst the fed offcer n determnng the
destnaton of correspondence that s not n repy to ureau etters
may be obtaned by drectng an nqury to the dmnstratve Dv-
son, Communcaton Secton.
Ony one sub|ect w be treated n any one etter.
The foowng represents the organzaton and symbos used:
Offce of the Commssoner.
d dmnstratve Dvson.
d : C Communcaton Secton.
d : P Prntng and ndng Secton.
d: SL Space and Lease Secton.
d : S Suppes and qupment Secton.
I Personne Dvson.
Pub. Re. Pubc Reatons Dvson.
SD Speca Deputy Commssoner.
SD: Tn Tranng Dvson.
TS Technca Staff.
ccounts and Coectons Unt.
C: DC Deputy Commssoner.
C: D ssstant Deputy Commssoner.
C:D Dsbursement ccountng Dvson.
C: Co Coecton ccountng Dvson.
C: P S Coectors Personne, qupment, and Space Dvson.
coho Ta Unt.
T: 1 Deputy Commssoner.
L G L DI ISION.
T: 2 Lega dvsor.
DMINISTR TI .
T: 3 ssstant to Deputy Commssoner.
T: 31 Procedure Dvson.
T: 32 ed Inspecton.
T : 33 Personne and Suppy Dvson.
T: 34 Statstca Secton.
N ORC M NT.
T: 4 ssstant Deputy Commssoner ( nf.).
T: 41 Chef of nforcement Dvson.
T: 42 Case Report Secton.
T: 43 Sugar and Moasses Secton.
T: 44 Pardon and Paroe Secton.
T: 45 nforcement es Secton.
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549
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P RMISSI .
T: 5 ssstant Deputy Commssoner (Perm.).
T: 51 Laboratory Dvson.
T: 52 Chef of udt Dvson.
T : 53 onded ccounts Secton.
T: 54 Ta Secton.
Offce of the ssstant Genera Counse.
GC: ppeas Dvson.
GC: C Cv Dvson.
GC : C: C Compromse Secton.
GC: I Interpretatve Dvson.
GC: L R Legsaton and Reguatons Dvson.
GC: P Pena Dvson.
GC: R Revew Dvson.
GC: d dmnstratve Dvson.
Mas and Records Secton.
Lbrary and Manuscrpt Secton.
Reorganzaton Secton.
Income Ta Unt.
IT: Deputy Commssoner.
ssstant Deputy Commssoner.
IT: : | Speca d|ustment Secton.
IT: : C Conference Secton.
IT : : RR Rues Reguatons Secton.
IT: : Sr Servce Secton.
IT: : ed Procedure Dvson.
audt revew dvson.
IT: R ead of Dvson.
IT: R: Secton .
IT: R: Secton .
IT: R: C Secton C.
IT: R: D Secton D.
IT: R: Secton .
IT: R: RU Revew Unt.
CL RING DI ISION.
IT: C ead of Dvson.
IT: C : CC Cams Contro Secton.
IT: C : P Provng Secton.
IT: C : St Statstca Secton.
R CORDS DI ISION.
IT: R ead of Dvson.
IT: R: es Secton.
IT : R : S Sortng Secton.
LU TION DI ISION.
IT : ead of Dvson.
IT: : p pprasa Secton.
IT: : M Mnng Secton.
IT: : OG O Gas Secton.
IT: : Se Securtes Secton.
IT: : T Tmber Secton.
Integence Unt.
SI Chef, Integence Unt.
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550
MISC LL N OUS T UNIT.
MT : DC Deputy Commssoner.
MT : CST Capta Stock Ta Dvson.
MT: T state Ta Dvson.
MT: PT Processng Ta Dvson.
MT : ST Saes Ta Dvson.
MT: S Sver Ta Dvson.
MT: T Tobacco Dvson.
Wrght Matthews,
ctng Commssoner.
PU LIC, NO. 373, PPRO D UN 18, 1934.
Reguatons 17, rtce I: Defntons. I -12-7388
T. D. 4533
mendng rtce I, rtce II, and rtce III of Reguatons
No. 17, approved September 11, 1934.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Dstrct Supervsors a d Others Concerned:
Paragraph (d) of rtce I, of Reguatons No. 17, s amended
to read as foows:
(d) Substance sha mean cane moasses of the grade commony known
as backstrap moasses dehydrated moasses corn sugar, beet sugar, and cane
sugar hydro sugar srup, . e. any known corn dervatve contanng more
than 0 per cent reducng sugar cacuated as de trose on a dry bass yeast
cder mat oak chps, charred and not charred.

Reguatons 17, rtce II: Returns. I -12-7389
T. D.4533

The frst paragraph of rtce II of Reguatons 17 s amended
to read as foows:
very person n the Unted States who consgns, ses or otherwse dsposes
of any substance, as defned n paragraph (d) of rtce I of these reguatons,
sha, when requred In wrtng by the Commssoner or supervsor, render n
wrtng a correct return under oath showng (1) the date of the consgnment,
sae, or other dsposton of the substance (2) the quantty and knd of the
substance consgned, sod, or otherwse dsposed of (3) the name and com-
pete address of the purchaser, or person to whom dsposton s made, and f
the sae or dsposton s made by or through any other person, the name
and compete address of such other person (4) the name and compete ad-
dress of the consgnee (5) the date and method of shpment or devery,
such as by truck, or other conveyance, and the State or cty regstraton
number of such truck, or other conveyance, f any ( ) the name and com-
pete address of the drver of such truck, or other conveyance, as shown by
the drver s operator s cense, f any, gvng the number of the cense and the
date of ssuance (7) the name and compete address of the person to whom
actua devery has been, or s to be, made and (8) the e act date of such de-
very, or proposed devery. Where shpment s made by a common carrer,
such as a raroad, truckng company, steamboat ne, etc., the nformaton
requred by subdvsons (5) and (() of ths artce need not be reported, but n
eu thereof there sha be furnshed the compete routng of the shpment.

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551 Msc.
Reguatons 17, rtce III: Records. I -12-7390
T. D.4533
rtce III of Reguatons 17 s amended by nsertng theren,
after the word packages appearng at the end of subdvson (c),
the foowng:
(d) 100 gaons cder (e) 250 pounds mat (f) 300 pounds of dehydrated
moasses (g) 250 gaons of hydro or sugar srup.
Guy T. evekng,
Commssoner of Interna Revenue.
pproved March 14, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
. . 4304. PU LIC, NO. 3, S NTY- OURT CONGR SS.
I -9-734
n ct To amend the Second Lberty ond ct, as amended,
and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Cong : ess assembed, That the Second
Lberty ond ct, as amended, s further amended as foows:

Sec. . The Second Lberty ond ct, as amended, s further
amended, by addng a new secton, as foows:
Sec. 22. (a) The Secretary of the Treasury, wth the approva of the Pres-
dent, s authorzed to ssue, from tme to tnre, through the Posta Servce or
otherwse, bonds of the Unted States to be known as Unted States Savngs
onds. The proceeds of the Savngs onds sha be avaabe to meet any
pubc e pendtures authorzed by aw and to retre any outstandng obga-
tons of the Unted States bearng nterest or ssued on a dscount bass. The
varous Issues and seres of the Savngs onds sha be In such forms, sha be
offered In such amounts wthn the mts of secton 1 of ths ct, as amended,
and sha be Issued n such manner and sub|ect to such terms and condtons
consstent wth subsectons (b) and (c) hereof, and ncudng any restrcton
on ther transfer, as the Secretary of the Treasury may from tnre to tme
prescrbe.
(b) ach Savngs ond sha be ssued on a dscount bass to mature not
ess than 10 nor more than 20 years from the date as of whch the bond s
ssued, and provson may be made for redempton before maturty upon such
terms and condtons as the Secretary of the Treasury may prescrbe: Provded-,
That the ssue prce of Savngs onds and the ternrs upon whch they may be
redeemed pror to maturty sha be such as to afford an nvestment yed not
n e cess of 3 per centum per annum, compounded semannuay. The de-
nomnatons of Savngs onds sha be n terms of ther maturty vaue and
sha not be ess than 25. It sha not be awfu for any one person at any
one tme to hod Savngs onds ssued durng any one caendar year n an
aggregate amount e ceedng 10,000 (maturty vaue).
(c) The provsons of secton 7 of ths ct, as amended (reatng to the
e emptons from ta aton both as to prncpa and as to nterest of bonds
ssued under authorty of secton 1 of ths ct, as amended), sha appy as
we to the Savngs onds and, for the purposes of determnng ta es and
ta e emptons, the ncrement n vaue represented by the dfference between
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552
the prce pad nnd the redempton vaue receved (whether at or before matur-
ty) sha be consdered as nterest. The Savngs onds sha not bear the
crcuaton prvege.
Sec. 7. Secton 112 of the Revenue ct of 192 s amended by
addng at the end thereof the foowng: In order to avod the fre-
quent substtuton of securtes such rues and reguatons may mt
tne effect of ths secton, n approprate casses of cases, to bonds and
notes of the Unted States maturng more than a year after the
date of depost of such bonds as securty. The phrase bonds or
notes of the Unted States sha be deemed, for the purposes of ths
secton, to mean any pubc-debt obgatons of the Unted States
and any bonds, notes, or other obgatons whch are uncondtonay
guaranteed as to both nterest and prncpa by tho Unted States.
pproved ebruary 4, 1935.
I -18-7474
. . 359. TU LIC, NO. 40, S NTY- OURT CONGR SS.
n ct To amend certan provsons reatng to pubcty of cer-
tan statements of Income.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 55(b)
of the Revenue ct of 1934 reatng to fng and makng pubc
certan ncome statements s amended to read as foows:
(b) (1) ncome returns fed under ths tte for any ta abe year be-
gnnng after December 31, 11)34 (or copes thereof, f so prescrbed by regua-
tons made under ths subsecton), sha be open to Inspecton by any offca,
body, or commsson, awfuy charged wth the admnstraton of any State
ta aw, f the nspecton s for the purpose of such admnstraton or for the
purpose of obtanng nformaton to be furnshed to oca ta ng authortes as
provded n paragraph (2). The nspecton sha be permtted ony upon
wrtten request of the governor of such State, desgnatng the representatve
of such offca, body, or commsson to make the nspecton on behaf of such
offca, body, or commsson. The nspecton sha be made n such manner,
and at such tmes and paces, as sha be prescrbed by reguatons made by
the Commssoner wth the approva of the Secretary.
(2) ny nformaton thus secured by any offca, body, or commsson of any
State may be used ony for the admnstraton of the ta aws of such State,
e cept that upon wrtten request of the governor of such State any such nfor-
maton may be furnshed to any offca, body, or commsson of any potca
subdvson of such State, awfuy charged wth the admnstraton of the
ta aws of such potca subdvson, but may be furnshed ony for the purpose
of, and may be used ony for, the admnstraton of such tu aws. ny
offcer, empoyee, or agent of any State or potca subdvson, who dvuges
(e cept as authorzed n ths subsecton, or when caed upon to testfy n any
|udca or admnstratve proceedng to whch the State or potca subdvson,
or such State or oca offca, body, or commsson, as such, Is a party) any
Informaton acqured by hm through an nspecton permtted hm or another
under ths subsecton sha be guty of a msdemeanor and sha upon con-
vcton be punshed by a fne of not more than 1,000, or by mprsonment for
not more than one year, or both.
pproved pr 19, 1935.
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553
Msc.
OL OM RG RIN .
I -1-7234
MS. 158
Schedue o| oeomargarne produced and materas used durng the month of
November, 19S4, as compared wth November, 1938.
November.
1934.
November,
1033.
Pound .
I 28, (538, 793
Pound .
23, 724, 099
Ingredent schedue for uncoored oeomargarne:
28,08.5. 152
22, 798, 520
100
477
Corn o
12,745, 834
14,242, 5 7
40,805
1,909,31
2,187
m
7,277. 559
3, 775
M
Mk
11,50 .383
344.0 1
1,724,445
217.584
159.283
13. 550
35 ,557
1,718, 024
10, 71
5,703, 204
788, 755
1,743, 154
2 9. 11
40, 9 .5
51, 435
2 1, 790
1,382,855
9 854
11.517
Neutra ard.-. .
Oeo o
Sat
ege t a be o
739
Tota
31.130, 4
2 , 521,301
1 9,755
218, 59
Ingredent schedue for coored oeomargarne:
57,9 2
39,540
utter
35
57
Coor ...
41, 45
137
45,0
154
45, 541
13, 109
39, 942
510
780
300
2,813
11,324
21
4,125
204
29,008
302
1, 8
13.2.54
5,080
1,7 2
315
8,200
1,849
17,218
15
15
Mk
Oeo o
Oeo stock
75
Tota
201,452
2 3, 210
1 Of the amount produced, 24,794 pounds were reworked.
1 Of the amount produced, 4,552 pounds were reworked.
1 Of the amount produced, 537 pounds were reworked.
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Msc.
554
I - -730
MS. 159
Schedue of oeomargarne produced and materas used durng the month of
December, 1934, a compared wth December, 1933.
December,
1934.
De933be ,
Pounds.
30,348,741
POUT.
21,045,338
29. 7 9. 335
20,798,7 7
Ingredent schedue for uncoorcd oeomargarne:
150
35
13,730,137
12,920,437
11.9 5
1.729, 7
,595
212
,009,851
7,02
1,187,742
218,0 1
35,512
33, 50
244, 2 4
1,228,873
7.S95
7,513, 9
71,808
733
,843,414
t05, 117
2,051.074
283.5 5
171,3.5
2.525
31 ,1 0
1,799,543
10,487
24,413
ecthn -. -
Mk
Oeo o
Oeo stork -
Pam o
at.
7,471
egetabe o
175
33,224.353
23.357,191
123.137
340,471
Ingredent schedue for coored oeomargarne:
57.334
34.772
nutter
35
41,047
101
19,384
271
3 . 34
10,453
29,44
140
395
200
1,190
.59
3
108,0 2
304
55,8 5
405
9 . 39
28,509
79.2 8
8,925
4, 38
Coor
Mk
1, 09
27,22
3
29
Sat
Tota
147, S95
411,480
1 Of the amount produced, 28,931 pounds were reworked.
1 Of the amount produced, 4,839 pounds were reworked.
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#
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555
Msc.
I -10-73 1
MS. 1 0
Schedue of oeomargarne produced and materas used durng the month of
anuary, 1935, as compared wth anuary, 1934.
anuary,
anuary,
1934.
1935.
Pounds.
33,338,513
Pounds.
17. 2 ,472
Tota wthdrawn ta -pad
33,12(1, M
18,388,900
Ingredent schedue for uncoorcd oeomargarne:
utter
3 8
1,575
10,4 8.150
00
1,494, 402
44,1
283
4,242,931
815,841
1,170,943
2 7,852
23,5 5
31, 124
219,995
1,02 ,892
7,030
Corn o
14, 351. 75
Cottonseed o
8,980,979
88.875
1.32
7, 38,998
415. .534
2,199.924
240,842
229, 0 5
MUk
Oeo o
383.88
1,951. 098
15.84
.931
Sat
9.228
Tota
3 ,503,848
19,820,582
293,785
243,885
Ingredent schedue for coored oeomargarne:
8,052
32,150
utter
25
7 ,405
172
34,057
273
94.191
17.412
95,042
4,475
1,780
4. .5 7
21.041
12
90,224
Dervatve of gycerne.
199
41,737
134
9,590
20,355
42,978
7,050
305
1,27
21,274
2
0
Mk
Oeo 5tock__
Sat
Sugar _ . .........
13,750
Tota..
3 3,202
295,184
Of the amount produced, 8,513 pounds were reworked.
Of the amount produced, 12,244 pounds were reworked.
1 Of the amount produced, 12 pounds were reworked.
Of the amount produced, 10 pounds were reworked.
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Msc. 55
I -14-7417
MS. 1 1
Schedue of oeomargarne produced and materas used durng the month of
ebruary, 1935, as compared wth ebruary, 193 .

ebruary,
1935.
ebruary,
1934.
Pound .
41,551.5 3
Pounds.
21,339.483
Ingredent schedue for uncoorcd oeomargarne:
41,599.445
21. 48,593
00
950
17,187, 775
12, 70, 15
500
1,849.019
54, 24
451
I/ecthn
12,121,444
1 5,241
1,308
9,512, 070
491.331
2, 512, 820
213. 727
309. 8
Mk
4,911, 49
889,84
1, 492,919
24 ,015
25.289
1 ,732
192, 7
1, 173,343
7,994
Oeoo
13,714
2,448,348
20,79
2 ,022
10.410
egetabe o
39,805
45. 4. 9
23, 02,570
343. 027
232. 739
Ingredent schedue for coored oeomargarne:
120,94
SI. S
utter
44
Coor
94,104
28
49,8 9
492
109, 824
13.972
103,077
3.107
,2 0
424
24,731
21
74,908
177
40,382
83
Mk
9,5 3
21.819
48. 00
5,740
17S
1.838
19,0 1
9
49
Neutra ard
Oeo o
Oeo stock
Peanut o
Sat _
Sugar . .
7. 750
Tota..
413,9 1
282,403
Of the amount produced, 30,3 9 pouuds were reworked.
Of the amount produced, 4,435 pounds were reworked.
I Of the amount produced, 12 pounds were reworked.
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#
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557
Msc.
I -17-74 4
MS. 1 2
Schedue of oeomargarne produced and materas used durng the month of
March, 19S5, as compared cth March, 193//.
1
March, 1935.
March, 1934.
Pounds.
1 33,907,010
Pounds.
23,278,52
Ingredent schedue for uncoored oeomargarne:
33. 8,03
21,722,510
utter
289
95
Com o
475,8 4
13,49 ,211
700
2,093, 284
52,779
392
5, 583, 433
1,077,727
1, 753,973
293,295
28,75
270,057
1,348,510
Lecthn
9,818,353
121, 978
1, 80
7, 47,073
3 4. 248
1, 87,587
224.021
215,57
378, 218
1, 915, 780
7,238
15. 102
118,20
Mk
Oeo o
Sat
8,733
14,498
Tota
3 ,991. 213
2 .023,04
292,543
337,942
Ingredent schedue for coored oeomargarne:
89, 748
58,97
utter
15
Coor
84,300
258
35,527
343
53,339
9.810
8.359
4,080
4,025
333
20.372
15
103,099
357
4,412
3 2
98.350
29,928
70, 432
12, 137
1,050
2,814
28,
15
0
Mk
NeutrnI ard -
Oeo o
Oeo stearns - . . ,
Peanut o ______
at _
12,250
Tota
313, 02
411, 82
1 Of the amount produced, 20,491 pounds were reworked,
Of the amount produced, ,748 pounds were reworked.
1 Of the amount produced, 1,824 pounds were reworked.
Of the amount produced, 19 pounds were reworked.
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#
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Msc.
558
I -21-7515
MS. 1 3
Schedue of oeomargarne produced and materas used durng te month of
pr, 1935, as compared wth pr, 1934.
pr, 1935.
Tota producton o( uncoored oeomargarne..
Tota wthdrawn ta -pad..
Ingredent schedue for uncoored oeomargarne:
utter
Cocoanut o
Corn o.
Cottonseed o
Dervatve of gycerne...
Lecthn
Mk
Neutra ard
Oeo o
Oeo stearne
Oeo stock
Peanut o
Sat
Sesame o
Soda (bemoste of)
Soya bean o
Sugar
egetabe o
Tota.
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue for coored oeomargarne:
Cocoanut o
Coor
Cottonseed o
Dervatve of gycerno
Lecthn
Mk..
Neutra ord
Oeo o
Oeo stearne
Oeo stock
Peanut o
Sat
Soda (benroate of)
Soya bean o
Sugar
Sunfower seed o
Tota.
Pmndt.
37.177,814
37,159,911
298
15, 884,015
1U, 982,0O9
174,309
3.493
8,584, 149
321.857
1, 3, 749
1 0.29
217,943
49 , 171
2,1 1,022
5,410
19,041
15 ,979
408
40,791.147
241, 73
100.937
s . oa
227
42,824
412
7
0,871
12,717
59.0 1
1.330
3. 0
587
21,989
58
4
1 Of the amount produced, 31,455) pounds were reworked.
1 Of the amount produced, 13, 0 pounds were reworked.
Of the amount produced, 181 pounds were reworked.
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#
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e
559
Msc.
TO CCO.
I -1-7235
T.
Statement of manufactured tobacco produced, by casses, durng the month of
October, 1934, showng the ncrease or decrease n each cass as compared
tcth the prevous month.

Cass.
Pounds.
Increase.
Decrease.
5, S17,732
42 , 37
378, 330
3, 5 S5. 782
17, 792, 319
Pounds.
512,252
59, 195
25,915
397, 349
2,455,785
Pounds.
Tota. -
27, 80, 800
3, 450, 49
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I -4-7307
T.7
Statement of manufactured tobacco produced, by casses, durng the month of
November, 1934, showng the ncrease or decrease n each cass as compared
wth the prevous month.
Cass
Oass.
Pounds.
Increase.
Decrease.
Pounds.
Pounds.
38,902
Twfst
4,878,830
443,883
241,328
17, 248
ne cut chewng
137,002
102, 203
1, 50,831
Scrap chewng. ....I.. ..::
3, 4 3. 579
1 ,141, 488
o C
25,1 9, 108
2,511, 92
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I -10-73 2
T. 8
Statement of manufactured tobacco producer , by casses, durng the month of
December, 1934, showng the ncrease or decrease n each cass as compared
wth the prevous month.
Cass.
Pounds.
Increase.
Decrease.
Pounds.
Pounds.
ne-cut chewng
4,159, 842
370, 551
211, 51
3, 057, 94
13,152,883
718,988
73,332
29, 77
SmoLne
405,885
2,988, 05
20,952, 21
4,21 ,487
Nora. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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I -14-7418
T.9
Statement of manufactured tobacco produced, by causes, durng the month of
anuary, 1035, showng the ncrease or decrease n each cass as compared
wth the prevous month.
Cass.
Pounds.
Increase.
Decrease.
Pug
5,103. 497
450,252
252,919
Pound .
948, 55
79.701
41,2 8
711.799
3,278.257
Pounds.
Twst
Smokng
3. 7 9, 493
1 , 431, O
Tota
30,012,301
5,059. 80
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I -19-7487
T. 10
Statement of manufactured tobacco produced, by casses, durng the months
of anuary and ebruary, 1935, as compared wth anuary and ebruary,
1931
anuary,
anuary,
1934.
ebruary,
1935.
ebruary,
1934.
1935.
Pounds.
5,108,497
450, 252
252,919
3, 7 9, 493
1 , 431,140
Pound .
Pound .
Pound .
5, 551. 834
42 .2 8
242,735
3,5 1. 411
15.479,003
Pug
5,139,500
417,430
281, 12
4,710, 520
441.442
191,817
Tw t
4,0 3,403
1 , 192, 54
3.1 9, 22
14, 57, 7 8
Tota
28,012,301
2 ,094,491
23.171,1 9
25, 2 1. 251
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s
annua report.
I -23-7540
T. 11
Statement of manufactured tobacco produced, by casses, durng the month of
March, 1935, as compared wth March, 1934.
March,
1935.
March,
1934.
March,
1935.
March.
1934.
Pounds.
Pound .
Pounds.
15,424,215
Pound .
17,250,403
Pug
4,907, 117
430,334
3 7, 78
, 210,018
443,785
220.733
Smokng
Twst
ne-cut chewng
3, 484, 097
3,717,041
Tota
24, 13,441
27.841.985
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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5 1
Msc.
1 I -25-75 1
Dsbarments and suspensons from practce before Treasury Department of
attorneys and agents
DIS RM NTS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the dsbarment from further practce be-
fore the Treasury Department of the foowng-named attorneys and
agents:
Name.
ddress.
Date of
dsbarment.
Cause.
en. W. 8
rown, Cyde
arns, ames
Cathrae, Wam M.
Cha ken, rank D...
Davdson, Robert...
Dorenkamp, enry .
Los ngees, Caf.
Roanoke, a
Phadepha, Pa.
usts, a
New York, N. Y.
Detrot, Mch....
Dyke, L. M.
conn. braham
tn , Cfford ....
rench, rederck W
Got ham. red ., r.
ackett, Chauncey.
erehy, Catherne
.
offmann, rthur
ent, Roberta, r.
Lousve, y.
Daas. Te .
Charged wth havng been convcted In State
court for msappropraton of funds. Charges
found proved.
Charged wth knowngy preparng a fase n-
come ta return for a ta payer. Charges
found proved.
Charged wth makng fase ncome ta returns
for hmsef. Charges found proved.
Charged wth knowngy preparng frauduent
ncome ta returns for ta payers. Charges
found proved.
Charged wth faure to fe ncome ta returns
and to pay ncome ta es for two years.
Charges found proved.
Charged wth ssung worthess checks to a
coector of nterna revenue n payment of
ta es and, wth other offenses. Charges
found proved.
Charged wth preparng a fase edera Income
ta return for a ta payer and wth havng
been convcted n Unted States dstrct
court for preparng such fase return.
Charges found proved.
Charged wth makng a fase ncome return
for hmsef. Charges found proved.
Charged wth knowngy fng protest contan-
ng fase statement of facts n a ta case for a
ta payer and makng fase statement of facts
before a conference on sucbta case. Charges
found proved.
Charged wth feonousy msappyng funds of
bankng corporaton. Charges found proved.
Charged wth ssung and obtanng money on
worthess checks, and wth havng been con-
vcted on such charges n a State court.
Charges found proved.
Charged wth gross neggence n fang to fe
ncome ta returns whch he was empoyed
to prcpnre and fe, am wth un|ustnabo
faure to surrender upon request records of
ta payer. Charges found proved.
Charged wth havng been dsbarred as an
attorney by the Supreme Court of the Ds-
trct of Coumba. Charges found proved.
Charged wth havng been dsbarred from prac-
tce as an attorney n the edera court of the
eastern dstrct of Mchgan. Charges found
proved.
Charged wth havng been convcted of ar-
ceny, n State court. Charges found proved.
Charged wth havng been convcted of secret-
ng a person wth ntent to e tort money
and pecunary gan. Charges found proved
Ths rung (75011 Incudes aso rungs Nob. 7237, 7251. 7204, 7279, 7291. 7308,
7323, 733C. 7348. 7303, 7370, 7391, 7407. 7410. 743.1. 7448. 7403, 7470, 7400, 7501,
7513. 7531, 7542, and 7552. These rungs nave been thus consodated because
pubcaton of each one separatey woud be argey dupcaton.
Ths st ncudes a attorneys nnd agents whose dsbarment from practce before
thp Treasury Department was pubshed durng the 12-month perod ended une 30,
1935, and a suspensons In effect durng the 0-month perod anuary -.uo 30, 1035.
ncusve. It does not Incude those barred from practce by reason of dsapprova of
ther appcaton for enroment.
ormery Toedo,
Oho, now De
trot, Mch.
ammond, Ind...
ormery North
ast, Pa., ater
Redwood Cty,
Caf., now
Tampa, a.
Grand Rapds,
Mch.
ormery Wash-
ngton. D. C,
now Provnce-
town, Mass.
Detrot, Mch
11 West orty-
second Street,
NewYork.N.Y.
eacon, N. Y
Mar. 30,1934
ug. 1 ,1934
une 1,1934
May 17,1934
May 8,1934
Mar. 28,1934
May 4,1934
Sept. ,1934
May 29,1934
une 14,1934
ug. 3,1934
Mar. ,1935
May 18,1934
ug. 2,1933
pr. 30, 1935
Mar. ,1935
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Msc.
5 2
Name.
ddress.
rssoII. braham.
Lackey, Carence ..
Landreau, Norman
.
Leavtt, en|amn D
Lchtenberg, oseph.
Mannng, nthony
eronous.
McLaurn, Syvester
L.
Neey, Robert
O ren, ugh ..-
O Tooe, rthur ...
Posner, acob D
Rosewater, . W
Rowe, Uomer W.
Schmtz, Chares.
Sverstrom, Samue
D.
Smth, Roy L
Stunnng. ndreas
ragh.
TnkofI, PaysofT.
ormery New
York, S.Y., now
Long ranch,
N. .
ormery St. Lous,
Mo., now ast
St. Lous, 111.
Washngton, D. C
Date of
dsbarment.
Chcag
111..
atmore, Md.
ormery New
York, N. Y.,
ater Uouton,
Mane.
Washngton,D. C.
Chcago, 111.
Rochester, N. Y...
ersey Cty, N. ..
New York, N.Y..
Ceveand, Oho-
ormery Md-
and, Te ., Inter
rownfed.Te .
San rancsco,
Caf.
Chcago, 111.
Greensboro, N. C.
ormery St. Pau,
Mnn., now
ose, Idaho.
Chcago, 111 _.
pr. 10,1934
eb. 2 ,1934
Mar. 8,1935
Mar. 0,1931
uy 20,1933
ug. 24,1934
eb. 20,1934
ug. 3,1933
pr. 10,1934
pr. 10,1934
une 14,1934
ug. 2,1934
eb. 2 .1934
May 4,1934
May 8,1934
Sept. 4,1934
May 3,1934
Nov. 23,1934
Cause.
Charged wth havng been dsbarred by the
Supreme Court of New York for professona
msconduct. Charges found proved.
Charged wth havng been Indcted and con-
vcted for makng fase ncome ta returns
for a ta payer. Charges found proved.
Charged wth havng been convcted of em-
bezzement. Charges found proved.
Charged wth knowngy preparng a fase
ncome ta return for a ta payer. Charges
found proved.
Charged wth havng been dsbarred from prac-
tce as an attorney before the courts of ad
more, Md. Charges found proved.
Charged wth knowngy preparng a fase
edera ncome ta return for a ta payer.
Charges found proved.
Charged wth havng been dsbarred as attor-
ney by the Supreme Court of the Dstrct of
Coumba. Charges found proved.
Charged wth handng a ta case n whch
respondent ganed knowege of the facts and
ssues nvoved whe empoyed as actng co-
ector of Interna revenue, and wth retanng
funds of the ta payer after demand made
therefor by the ta payer, sad funds havng
been receved n trust and ntended for pay-
ment to the coector of nterna revenue.
Charges found proved.
Charged wth recevng money to ad|ust the
ncome ta abty of two cents and ap-
propratng such funds to hs own use.
Charges found proved.
Charged wth havng been convcted n State
court for msappropraton of funds. Charges
found proven.
Charged wth havng been convcted for fraud-
uent use of the Unted States mas. Charges
found proved.
Charged wth preparng fase returns for two
years for a ta payer, and wth convcton n
Unted States dstrct court on such charges.
Charges found proved.
Charged wth appropratng money beongng
to a Natona orm Loan ssocaton to hs
own use. Charges found proved.
Charged wth havng been convcted and sen-
tenced n Unted States dstrct court for
conspracy to voate the Natona Prohb-
ton ct. Charges found proved.
Charged wth knowngy preparng and fng
fase cam for refund and procurng pay-
ment of such fase cam for a ta payer.
Charges found proved.
Charged wth knowngy preparng fase re-
turns for ta payers. Charges found proved.
Charged wth msappropratng funds and wth
havng been dsbarred from practce as attor-
ney by the Supreme Court of Mnnesota.
Charges found proved.
Chsrged wth havng been ndcted and con-
vcted n the Unted States dstrct court for
knowngy preparng a frauduent ncome ta
return. Charges found proved.
G
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:
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5 3
Msc.
SUSP NSIONS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the suspenson from practce before the
Treasury Department for the perod stated n each case of the
foowng-named attorneys and agents:
Name.
ddress.
Perod of
suspenson.
Cause.
anchard, Chares
rtey, red
Coumbus, Oho..
1 year, from
uy 13, 1934.
ound guty of gross neggence for fng er-
roneous persona ncome ta returns.
ormery Wash-
ngton. D. C,
now Mam, a.
5 years, from
ug. 3, 1034.
Charged wth fang to fe ncome ta re-
turns for the years 1925 to 1930, ncusve.
Charges found proved.
Rnppa, Nathan
ormery 51S
Panknton
udng, M-
waukee, Ws.,
now Marner
Tower, 0 West
Wsconsn ve-
nue, Mwau-
kee, Ws.
months, from
Nov. , 1934.
Charged wth mproper deay n payng to
the Government money receved from
cent for payment of ncome ta . Charges
found proved.
DIS RM NT T RMIN T D.
y drecton of the Secretary of the Treasury, the order of dsbar-
ment entered aganst the foowng-named person was termnated as
ndcated beow:
Name.
ddress.
Remarks.
Roanoke, a__
Dsbarment ordered ugust 1 , 1934 rehearng granted
order of dsbarment annued and rescnded March 25,
1935.
R SIGN TIONS ROM NROLLM NT TO PR CTIC OR T TR SURY
D P RTM NT.
The foowng-named persons have tendered ther resgnatons
from enroment to practce before the Treasury Department. The
Commttee on nroment and Dsbarment has accepted ther resg-
natons and ordered ther names strcken from the ro of attorneys
and agents enroed to practce before the Treasury Department.
They are therefore no onger entted to practce before the Treasury
Department.
Name.
rcher, Tobas R
ate, Chares W
onanno, ames
rouner, Samue ..--
Caddck, Wam ndrew
Carter, I.eo M
Chares, Mton C
Chodosch, Davd S
Cohen, Morrs
Cooperman. acob
psten, Dane
Oumbner, Martn
Lfes. Php
Moser, Lous Seymour
O ren, Thos. ..
Pcon, Sau
Rentscher, Water M
Rce, Sas P
Rosenberg, Lous
Tatt, Isdore
Wooey, rnest 8
ddress.
Los ngees, Caf
ormery Mam, a., now aama-
roo, Mch.
ar Rockaway, N. Y
Now York ,N. Y
Pttsburgh, Pa..
Okmugee, Oka -
ormery New York, N. Y., now
Yonkers, N. Y.
New York, N. Y..
New York, N. Y
New York, N. Y
Phadepha. Pa
New York. N. Y
New York, N. Y
Chcago, 111
oston, Mass -
Paterson, N.
Memphs, Tenn -
every s. Caf
New York, N . Y
New York. N. Y -----
ormery ansas Cty, Mo., now New
York, N. Y.
Desgnaton.
ttorney
gent
gent
gent
gent
gent
gent
gent
gent
gent
ttorney
gent
gent
gent
gent
gent...
gent
gent
gent....
gent
gent....
Date of ac-
ceptance.
an. 11,1935
May 20, 1935
May 23,1935
May 20,1935
May 20, 1935
Mar. 21.1935
May 20,1935
May
May
May
May
May
May
May
May
May
May
an.
M v
May
Mar.
23.1935
20, 1935
20, 1935
20. 1935
20. 1935
23. 1935
20, 1935
20, 1935
23. 1935
23, 1935
31, 1935
20. 1935
20, 1935
21, 1935
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IND .
.
ccountng methods, changes n, reguatons, 1934 ct
dmssons ta . (See Msceaneous ta es.)
ffated corporatons:
greement as to ta aocaton, evdence
mortzed bond dscount, deducton
Deangs by subsdary n parent s stock, ncome
Losses, burden of proof
Net osses
gences of a State. (See State.)
gents, preparaton of returns, affdavt requrements
rpanes on Unted States vesses of w ar, gasone and ubrcatng
o sod for use n
rports, constructon and/or mantenance not essenta govern-
menta functon
aska, ens for edera ta es, notces
coho:
mendment of Treasury Decson 4485 and nstructons on
orms 27- , 27- , 27-C, 27 , and 1431
everages ta , Maryand
endng wth gasone
Denatured-
Manufacture, sae, and use of
Propretary sovents, sae and shpment, reguatons
amended
Industra, producton, ta payments, etc
Ta Unt, estabshment and |ursdcton
en Property Custodan, ncome and profts ta es, returns
mendments:
orms 27- , 27- , 27-C, 27, and 1431
Mmeograph 415
Reguatons 2 (Pro.), secton 1220
Reguatons 3 ( coho)
rtce 117-..
rtce 14 ...
Reguatons , sectons 7, 8, and 13
Reguatons 7
May 1, 1930, edton..-
uy 10, 1914, revson
Reguatons 13
rtce 1
rtce 2
rtce 3
rtce 5
Reguatons 15
Reguatons 17
rtce I
rtce II..
rtce III
Rung
o.
7252
7317
17232
7233
7372
7244
7258
/739
7422
7429
7428
7507
7489
7255
7511
7250
7335
7250
740
727
7489
7432
7309
7250
7335
74 1
74 2
7434
7434
17281
7530
75 2
72 3
75 3
7249
7388
7389
7390
(505)
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5
mendments Contnued.
Reguatons 18
rtce II
rtce I
Paragraphs 11(d), 12(b), 21, 22(a), 22(b), 37(b), 40(a),
40(b), 44(a), 44(b),45, 47(d), 48(f), 51(d)
Reguatons 4 , Chapter
Reguatons 4, artce 3
Reguatons 74, artce 3
Reguatons 77 1
rtce 3
rtce 221(g) --.
Reguatons 79, artce 2
Reguatons 83, Chapter III
Reguatons 8 -
rtce 23(m)-(g)
rtce 143-2 -
rtce 143-3
rtce 144-1
Reguatons governng reports of pants and warehouses
Revenue ct of 1934, secton 55(b)
Second Lberty ond ct, Revenue ct of 192 , secton 112
Treasury Decsons
2 (Narcotcs)
41 8, rtce 111(h) - --.
4418, paragraph 7
4432, secton 2, paragraph (
44 0
4478
4479
Paragraph 2
Paragraph 3
4485
4527, paragraphs 1 and 4
4541 -
mortzaton, bonds, e penses ncdenta to ssuance of
nnutes:
mpoyees retrement, treatment of empoyees contrbu-
tons
Raroad empoyees retrement fund
Ta abty of, 1934 ct
Teachers retrement, contrbutons by unversty n part
payment
ssessments:
Labor unon, deducton
Ta es. (See Ta es.)
ssgnments, future ncome
ttorneys and agents:
Dsbarments and suspensons
ees, busness e pense deducton
Practce requrements before Treasury Department, ssuance
of new green cards
Preparaton of returns, affdavt requrements
wards, condemnaton, nvountary converson, gan or oss
.
ae tags. (See Cotton.)
ankruptcy, property turned over to trustee, ess deducton
anks:
Commssons on rea estate oans, ncome, when reported-.
Depost accounts, sae of, capta oss
Rung
No.
72
7378
7475
720
7527
7431
7431
7447
7517
7512
7447
7393
7393
7393
7379
7474
734
7541
727
7280
740
7238
7238
7379
732
7489
7392
7529
73 8
7478
722
7437
7381
74
(74 8
7509
75 1
7497
74 0
/739
742L
257
754
749
7284
G
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5 7
anks Contnued.
Dscounts and commssons, when reported
Income transferred to trustees, ta abty
Interest on debentures ssued to Reconstructon nance Cor-
poraton, deducton
Stockhoders assessment abty, deducton
eer:
Canceaton of stamps, reguatons amended
Import dutes, deducton
Rebrandng of barres, reguatons amended
onds:
Dscount, amortzaton of, affated corporatons, deducton.
change of, gan of oss
rut dsters and wnemakers
Incdenta ssuance e penses, amortzaton deducton
Interest. (See Interest: onds.)
Irrgaton dstrct, Caforna, e empton
Purchase and retrement, capta gans and osses
Put and ca transactons, oss deducton mtaton
Wnemakers
Wthhodng of ta on nterest. (See Wthhodng of ta at
source.)
onuses, advance, o and gas ease, depeton deducton
rokers:
Informaton returns
Ownershp certfcates, dvdends, use of orm 10S7
ureau of Interna Revenue:
coho Ta Unt, estabshment and |ursdcton
Commssoner of Narcotcs, rghts, dutes, etc., conferred and
mposed upon
Correspondence symbos
usness e penses:
ttorney s fee
Corporaton s contrbutons to communty chest
mpoyers, Wsconsn unempoyment reserves and compensa-
ton act, deducton --
Labor unon dues and assessments
Operatng e penses, o and gas wes
Premums, nsurance. (Sec Insurance.)
Raroads, rehabtaton of propertes prevousy under ed-
era contro
Rung
No.
7493
7521
7409
7227
72
7240
7378
/7232
7233
7520
7502
73 8
7345
7241
7300
7277
7230
172 2
7285
7298
740
7541
7375
7497
7233
7339
74
7330
C.
Cabarets, admssons ta , mnmum charge for refreshments, etc..
Caforna:
Communty property and ncome
Irrgaton dstrct bonds
Capta) e pendtures:
dvance payments by raroad essee, prevousy deducted as
operatng e pense -
Corporate payments to fe benefcary of former rea estate
owner
O and gas, operatng e penses
Capta gans and osses:
ond purchase and retrement
change of muncpa bonds under refundng pan
usband and wfe, |ont return, oss deducton mtaton
Reguatons, 1934 ct
083 35 10
7358
7374
7399
7345
7358
7548
7330
7241
7520
7352
72 1
Page.
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5 8
Capta gans and osses Contnued.
Saes, bank depost account, oss deducton mtaton
Trust company, sae of stock, deducton mtaton
Capta stock ta :
ccrua date, 1934 ct
oregn corporatons, ad|usted decared vaue, reguatons
amended
Inspecton of returns, etc., reguatons
Cemetery company, dstrbutons to hoders of trust certfcates,
ta abty
Chartabe contrbutons, deducton by partnershp
Chna Trade ct, 1922, transfer of sver buon to or by Chna
Trade ct corporaton
Cosng agreements, e ecuton by ctng Commssoner vadty.
Cocoanut o. (See Processng ta es.)
Code authortes, e empton
Coorabe sae by manufacturer (parent corporaton) to a sub-
sdary
Commssons:
Rank oans, ncome, when reported
Trustees , gft of trust property
Communty property and ncome, Caforna
Compensatng ta es, credt or refund, pena, etc., nsttutons
Compensaton:
ddtona
edera empoyees, foregn servce, aowances for quar-
ters, etc
Lvng aowances
Customs gency Servce members
oregn Commerce Servce members
Nonresdent aen empoyees of wne and quor concerns,
ta abty
Raroad empoyees retrement fund, contrbutons to, n-
come
State offcers and empoyees. (See State.)
Compromse of ta es:
Cases nvovng forfeture of sezed vehces
naty, duress not shown
Revew of ttorney Genera s settements
Condemnaton awards:
Invountary converson, gan or oss
Year ta abe .
Consodated net ncome, amortzaton of bond dscount, deduc-
ton
Consodated returns. (See Returns.)
Constructve recept:
uture ncome, assgnment of
Interest coupons, uncoected
Royates coected under trust agreement
Contracts:
Casng-head gas, depcton deducton
Nava, nson ct, e cess profts
Contrbutons:
Chartabe
Deducton mtaton, husband and wfe returns
Partnershp deducton
Communty chest, corporaton s busness e pense deducton..
Unversty s payments toward purchase of teachers annutes
e empton
Conveyances. (See Msceaneous ta es: Stamp ta es.)
Cooperatve assocatons, saes of gasone to
ng
No.
7284
7228
7254
7527
723
7275
728
7248
7243
7412
/7427
17458
17493
749
7445
7399
7247
17450
7492
7492
7450
7353
722
7488
7444
7359
7257
7549
17232
7233
74G8
7509
7415
7425
7523
7321
73 9
728
7233
7381
7278
G
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5 9
Corporatons:
ffated, net oss deducton, ntercompany transactons
Contrbutons to communty chest, busness e pense deduc-
ton
empton. (See empt corporatons.)
oregn, ad|usted decared vaue, reguatons amended
Raroad, returns, orm 1090 revsed
Correspondence symbos, ureau of Interna Revenue
Cotton:
ae tags, cotton devered to andord by standng-rent tenant
Gnnng ta , deducton
Cotton ct ( pr 21, 1934), refunds, e empton certfcates fur-
nshed after cotton was gnned
Court decsons:
hes Reaty Corporaton v. Commssoner
mercan Steamshp Co. v. Wckwre Spencer Stee Co
mercan Te te Wooen Co. v. Commssoner
nderson v. Madsen Investment Co
tknson v. Unted States
andes v. Commssoner
eaumont v. Ieverng
reene e a. v. Unted Sates
rown v. Commssoner
rown ence Wre Co. Unted States v
u v. Unted Staes
unker Country Cub v. Unted States
ushman v. Unted States
Cem Securtes Corporaton v. Commssoner
Centra Repubc Trust Co. Commssoner v
Chcago uncton Raways et a. v. Unted States
Coastwse Transportaton Corporaton Commssoner v
Commssoner hes Reaty Corporaton v
Commssoner mercan Te te Wooen Co. v
Commssoner andes v
Commssoner rown v
Commssoner Cem Securtes Corporaton v
Commssoner v. Centra Repubc Trust Co
Commssoner v. Coastwse Transportaton Corporaton
Commssoner Cummngs e a. v
Commssoner Denman v
Commssoner Donneey ct a. v
Commssoner v. Genera Gas ectrc Corporaton
Commssoner artey v
Commssoner enz v
Commssoner errng v
Commssoner v. ghway Traer Co
Commssoner opkns v
Commssoner orner v
Commssoner Iowa Guarantee Mortgage Corporaton v
Commssoner endrck Coa Dock Co. v
Commssoner v. ren Chan Co. and Ceveand Chan ct Man-
ufacturng Co
Commssoner Marquette O Dstrbuton Co. v
Commssoner McGur, Inc., v
Commssoner v. Mc ey
Commssoner v. Murphy
Commssoner Od Coony Trust Co. of oston v
Commssoner v. Schwarz et a
Commssoner Seberng Rubber Co. v
Commssoner Smth v
Commssoner Snyder v
Commssoner Superntendent of ve Cvzed Trbes, for
Sandy o , Creek No. 12 3, v
Rung
No.
7258
22
7233
332
7527
423
7297
84
7375
547
7319
493
74 7
5
7472
494
7355
245
738
355
7317
327
7243
23
741
370
7257
195
7331
217
74 9
350
7301
2 7
7559
438
7510
310
7405
421
742
385
7341
221
749
183
7522
15
7289
319
7355
245
7317
327
7257
195
7301
2 7
7341
221
749
183
72S9
319
7454
209
7401
289
7302
298
7372
338
7535
250
7354
231
7230
303
7385
293
7288
247
7287
171
7414
187
74S2
3 0
7373
348
7425
272
7549
185
749
183
7259
28
7470
390
7550
383
7315
257
7275
244
7508
1 4
7534
158
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570
Court decsons Contnued.
Commssoner Ttsuorth v
Commssoner an War v
Commssoner non Petroeum Co. of Te as v
Commssoner Wood v
Corbe Investment Co. v. evcrng
Cvmmngs et a. v. Commssoner
Dauphn Depost Trust Co. v. Unted Sates
Denman v. Commssoner
Donneey et a. v. Commssoner
Dorrancc et a. v. Phps
Dougas Wcuts v
Duggan Sun- erad Corporaton v
an s v. everng
sh et a., benefcares, v. everng
sh et a., e ecutors, v. everng
et a. Schnadcr v
Genera Gas ectrc Corporaton Commssoner v
Gant urnture Co. v. Unted States
Gregory v. everng
Grnne everng v
Guf, Mobe Northern R. R. Co. v. everng
artey v. Commssoner
enz v. Commssoner
everng eaumont v
everng Corbet Investment Co. v
everng ars v
everng sh et a., benefcares, v
everng sh et a., e ecutors, v
everng Gregory v
everng v. Grnne
everng Guf, Mobe Northern R. R. Co. v
everng yman v
everng v. Inter-Mountan Lfe Insurance Co
everng v. endrck Coa Dock Co
everng McDonad v
everng New York, Chcago St. Lous Raroad Co.v
everng Od Msson Portand Cement Co.
everng v. Post t Shedon Corporaton
everng v. Rankn
everng v. Securty Savngs cfc Commerca ank
everng Shaw Prntng Co. v
everng v. Tayor
everng v. Tu-n e O Syndcate
everng v. Wheeng Mod oundry Co
errng v. Commssoner
ghway Traer Co. Commssoner v
opkns v. Commssoner
ormc Co. v. Unted States.
orner v. Commssoner
owbcrt v. Noma
urey v. Unted States
yman v. evcrng
Inter-Mountan Lfe Insurance Co. evcrng _
Iowa Guarantee Mortgage Corporaton v. Commssoner
ackson v. Prce
endrck Coa Dock Co. v. Commssoner
endrck Coa Dock Co.: everng v
ren Chan Co. and Ceveand Chan Manufacturng Co.:
Commssoner v
Ladncr Sharp Dohmc, Inc., v
Lbbey-Owcns- ord Gass Co. v. Unted Sates
Rung
No.
Pace
7442
205
7497
292
7330
17
7408
279
7548
178
7454
209
7430
439
7401
289
7302
298
7484
373
7274
228
7452
190
7342
242
7524
392
7524
392
7471
503
7372
338
7537
29G
7273
193
7332
287
7232
332
7535
559
7354
231
7331
217
7548
178
7342
242
7524
392
7524
392
7273
193
7332
387
7232
332
213
7314
7443
339
7483
3 5
7509
280
7358
322
7233
332
7258
220
7504
1 0
7402
300
7370
174
7272
1 8
7229
253
7344
352
7230
303
7385
293
7288
247
7558
433
7287
171
7384
201
7523
305
7314
213
7443
339
7414
187
7481
31
7482
300
7483
3 5
7373
348
7525
407
7498
370
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t
r
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s
t
.
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g
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s
s
_
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#
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g
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571
Court decsons Contnued.
Loose v. Unted States
Madsen Investment Co. nderson v
Marquette O Dstrbuton Co. v. Commssoner
McDonad v. everng
McGur, Inc., v. Commssoner
Mc ey Commssoner v
McLaughn v. Pacfc Lumber Co
Murphy Commssoner v
New Y ork, Chcago St. Lous Raroad Co. v. everng..-
Norrs owbert v
Od Coony Trust Co. of oston v. Commssoner
Od Msson Portand Cement Co. v. everng
Pacfc Lumber Co. McLaughn v
Phadepha Rapd Transt Co. v. Unted Staes
Phps Dorrance ct a. v
Post Shedon Corporaton everng v
Prce ackson v
Rankn everng v
Raybesos-Manhattan, Inc., v. Unted States
Schnader v. e a
Schwarz et a. Commssoner v
Securty Savngs Commerca ank everng v
Seberng Rubber Co. v. Commssoner
Sharp Dohme, Inc., v. Ladner
Shaw Prntng Co. v. everng
Smth v. Commssoner
Snyder v. Commssoner
Stoen Isand ygea Ice Cod Storage Co. v. Unted States
Stem ros. v. Unted States
Stevens Manufacturng Co. v. Unted States
Sun- erad Corporaton v. Duggan
Superntendent of ve Cvzed Trbes, for Sandy o , Creek
No. 1S 3, v. Commssoner
Tayor everng v
Ttsworth v. Commssoner
Twn e O Syndcate everng v
Unted States tknson v
Unted States reene et a. v -
Unted Sates v. rown ence Wre Co
Unted States u v
Unted States unker Country Cub v
Unted Staes ushman v
Unted Sates Chcago uncton Raways et a. v
Unted Sates Dauphn Depost Trust Co. v
Unted Staes Gant urnture Co. v
Unted States orme fe Co. v
Unted Staes urey v
Unted Staes Lbbey-Owcns- ord Gass Co. v
Unted Sates Loose v
Unted States Phadepha Rapd Transt Co. v
Unted States Raybestos-Manhattan, Inc., v
Unted States Stoen Isand ygea Ice Cod Storage Co. v
Unted Sates Stern ros, v
Unted States Stevens Manufacturng Co. v
an Wart v. Commssoner
nton Petroeum Co. of Te as v. Commssoner
Wheeng Mod oundry Co. everng v
Wckwre Spencer Stee Co. mercan Steamshp Co. v
Wcuts v. Dougas
Wood v. Commssoner
Courts, crcut, power to make fndngs of fact, remand of case..
7415
2 9
7243
23
7425
272
7509
280
7549
185
7490
183
7244
335
7259
28
7358
322
7384
204
7470
390
7233
332
7244
335
7334
284
7484
373
7258
22
7481
31
7504
1 0
7557
431
7471
503
7550
383
7402
300
7315
257
7525
407
7370
174
7275
240
7508
1 4
7444
341
7455
234
7400
259
7452
190
7534
90
7272
1 8
7442
205
7229
253
741
370
7409
350
7559
438
7510
310
7405
421
7420
385
7522
150
7430
439
7537
290
7558
433
7523
305
7498
37
7415
209
7334
2S4
7557
431
7444
341
7455
234
7400
259
7497
292
7330
17
7344
352
7380
355
7274
228
74 8
279
7504
1 0
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#
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572
Credt or refund:
Cams, refund, statutory perod for fng (Tobacco ct)
Converson factors, sausage
state ta overpayment apped aganst ncome ta pad on
same profts
Interest on overpayment, computaton
Processng ta , pena, etc., nsttutons
Rsfunds, Cotton ct ( pr 21, 1934). (See Cotton ct.)
Suts. (See Sute: Recovery of ta es.)
Credts:
ganst net ncome
arned ncome credt
Interest on Unted States obgatons, husband and wfe,
separate computaton
oregn ta es. (See Credts: Ta es.)
Persona e empton, husband and wfe, eecton
Processng ta , pena, etc., nsttutons
Ta es
oregn
Great rtan, smar credt requrement
Me co absenteesm ta
Payment by foregn subsdary of domestc company.
Crude petroeum. (See Msceaneous ta es.)
Customs agency servce, members aowances for quarters, etc,
e empton
Rung
No.
73 0
7303
7510
7498
7247
/7271
7295
7295
7242
7247
7313
7440
7231
D.
Deeds. (See Msceaneous ta es: Stamp ta es Conveyances.)
Defcency, estate ta , e tenson of tme for payment
Defntons, substance as used n Reguatons 17
Denatured acoho:
Competey, formua No. 5 revoked
orm 1477, fed annuay
New formua for use n manufacture of rubbng acoho
compounds
Depcton:
Casng-head gas contracts
O and gas
Gross ncome from the property, reguatons amended-
Leases
dvance royaty or bonus
pportonment between essee, assgnor, and essor
onus payment, percentage bass
Propertes, percentage bass, computaton
Property n hands of e ecutor, gan or oss bass..
Deprecaton:
Property n hands of e ecutor, gan or oss bass
Transferee s deducton
Damonds sod n ots
Dsbarments. (See ttorneys and agents.)
Dscount:
ank oans, when reported
onds, amortzaton of, affated corporatons
Dsted sprts:
ppcaton of edera coho Contro dmnstraton regu-
atons
otted n bond, sze of bottes
Imported, strp stamps attached to bottes
(Incudng acoho), wnes, and quors forfeted, procedure..
7492
7441
7388
7528
7518
/74 1
7529
7523
7447
7230
7229
7383
7330
7535
7535
7370
7293
7493
17232
7233
7322
74 2
7347
73 4
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#
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e
573
Dsted sprts Contnued.
In bottes
Labeng quor bottes and other contaners
Reguatons
Of traffc n contaners of
Reatng to nonndustra use of
7, amended
Saes by dsters and rectfers
Use of bottes for packagng, reguatons amended
Wthdrawn for Government use, recepts for, dspensed wth
Dsters:
orms 27- and 27 , reguatons concernng
rut brandy, bonds
Saes of dsted sprts
Storekeeper-gaugcrs and dsters at whsky, rum, and gn
dsteres, dutes of
Dvdends:
ank s dstrbuton on preferred stock ssued to Reconstruc-
ton nance Corporaton
Canceaton or redempton stock
Cemetery company operatng under trust agreement
arned surpus dstrbuton
oregn corporaton, wthhodng or nformaton returns
Intercompany, deducton
Lfe nsurance proceeds
Net ncome determnaton, earned ncome credt
Preferred stock e changed for god notes
Wthhodng ta at source, reguatons amended
Dues and assessments, abor unon, deducton
Dues and ntaton fees. See Msceaneous ta es.)
Dutes, mport, on sprts, wnes, etc., deducton
.
arned ncome credt:
usband and wfe
ont return
Separate computaton
Net ncome determnaton, dvdend ncuson
Nonresdent ctzen, e empton
mergency reef admnstraton:
edera or State
State, offcers and empoyees, compensaton
State reef assumed by edera mergency Reef dmns-
traton
state ta :
Defcency, e tenson of tme for payment
Gross estate
Genera power of appontment
ont tenants and tenants by entrety ---
Power of appontment, presumpton of ntent to e ercse,
effect of compromse agreement
Transfer
In contempaton of death
In trust, to take effect at death
Overpayment apped aganst ncome ta
G
Rung
No.
7280
5 2
5 3
/7281
7530
7322
7434
7543
7544
(72 3
7281
7309
75 0
7502
7543
7544
7435
7409
7314
7275
7342
7494
7315
7454
7271
7423
7393
74
7240
7395
7295
7271
7331
7333
7312
7500
7441
7332
742
7470
7524
7550
7510
41
10
41
a
48
38
31
3
3
31
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#
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e
574
stoppe:
ccrua method empoyed by ta payer accepted by Comms-
sserton of chm for overpayment
Change n bass for computng ncome, benefts receved
Credt of overassessment aganst addtona ta es, wavers..
vason of surta by ncorporaton
cess profts, nava contracts, nson ct
I cess-profts ta , returns:
sca year begun In 1933 and ended n 1934, separate bass.
Raroad corporatons, affated groups
change rates, foregn
changes:
Gan or oss. (See Gan or oss: changes.)
Notes for stock, accrued nterest and dvdend, treatment of
empt corporatons:
Code authortes
odng company, organzed and operated dstn-
gushed
empt ncome:
owances for quarters, etc.
Customs gency Servce members
oregn Commerce Servce members
nnutes and od-age pensons
Contrbutons by unversty toward purchase of teachers
annutes
arned ncome, nonresdent ctzens
Indans. (See Indans.)
Interest, bond, ome Owners Loan Corporaton
Pubc utty corporaton
State offcers and empoyees. (See State.)
tenson of tme:
state ta defcency
ng of returns
Mutua nsurance companes, caendar year 1934
Persona hodng companes and mutua nsurance com-
panes, caendar year 1934
Payment of ta
Defcences n and nstaments of, rues governng app-
catons for
Mutua nsurance companes, caendar year 1934
Persona hodng companes and mutua nsurance com-
panes, caendar year 1934
edera mergency Reef dmnstraton:
Saes to
State reef assumed by, saes to
ees, attorney s, busnes e pense deducton
ducary returns, reguatons, 1934 ct
re:
Insurance, proceeds, year of accrua
Losses, not compensated for by nsurance, when deductbe..
rearms, shes, and cartrdges. (See Manufacturers . cse
ta es.)
oregn:
Commerce Servce members, aowances for quarters, etc.,
e empton
Rung
No.
7537
7455
7400
74 9
7413
7321
7329
73 5
7327
7423
7412
7452
7492
7450
7437
.7478
7381
7331
7382
7334
7441
17457
7514
73
7441
7457
73
7333
7500
7497
7292
7479
7385
7450
G
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3
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#
p
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e
575
oregn Contnued.
Corporatons
d|usted decared vaue, reguatons amended
Dvdends, nformaton returns
Wne and quor concerns, saes contracts and empoy-
ees compensaton, ncome
Wthhodng ta at source. (.See Wthhodng ta at
source.)
change, rat-es prevang December 31, 1934
orms:
27- , 27 , 27- , 27-C, and 1431, reguatons concernng-.-
30, recepts n connecton wth credts camed on, requre-
ment emnated
1087, ownershp certfcate, dvdends
1090, statement of ncome, and profts and oss accounts,
revsed
1477, denatured acoho
G.
or oss:
changes
onds, muncpa, under refundng pan
Notes for stock, accrued nterest and dvdend
Invountary converson of property
Reorganzaton, transfer made to avod ta
ass, property n hands of e ecutor
Contract to cut and remove tmber, when profts re-
ported
Partnershp assets contrbuted n knd, bass
Property
cqured by bequest, bass
cqured n reorganzaton, bass
Transmtted at death
Rea property, reorganzaton, cost to transferor
Stock
cqured n reorganzaton, bass
cqured upon e change for partnershp nterest
Margna transactons, frst-n, frst-out ruo
Termnaton of trust, donor s bass
transactons, osses. (See oesses.)
(See Manufacturers e cse ta es.)
Gft ta :
Transfers
onds, notes, etc., of Unted Staes or ts agences
In trust, corpus to chartabe nsttuton
Rea estate, husband and wfe, Caforna
Trustees commssons, trust property
Governmenta functon:
Constructon and/or mantenance of an arport re-
constructon of sewers, etc., by State or potca subdvson
Government property, cabnet for, and contro of strp stamps...
Great rtan, ta es, smar credt requrement
Guardan, transfer of stock to ward:
Dstrct of Coumba, Mssour, North Carona, Oho
Pennsyvana - -
Rung
No.
7527
7494
7353
7327
75 0
7320
7298
7297
7518
7520
7423
T7257
7453
1745
7273
7535
7301
7424
7288
7355
/7505
750
7355
7287
7442
7342
7S04
7508
7371
7517
7245
7524
7145
7428
7485
7349
7392
7313
755
7459
G
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0
1
3
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0
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2
2

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4
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#
p
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57
Rung
No.
.
arrson narcotc aw, regstraton of schoos, etc. (Mn. 4150
amended)
ogs ( grcutura d|ustment ct). (See Processng ta es.)
ome Owners Loan Corporaton, nterest on bonds of, ta abty.
usband and wfe:
Capta oss, |ont return, deducton mtaton
Chartabe contrbutons, deducton mtaton
Credt for nterest on Unted States obgatons, separate
computaton
arned ncome credt
ont return
Separate computaton
ont
Returns
Tenants, Wsconsn, ta deducton n separate returns
Persona e empton
I.
Import dutes on sprts, wnes, etc., deducton
Improvements by essees, reguatons amended
Income from sources wthn Unted States, foregn wne and
quor concerns, saes contracts and empoyees compensaton. -
Indans:
Creek, ncome from restrcted aotment
Crude petroeum
ve Cvzed Trbes and State schoo ands
omestead aotments, Osage and Semnoe Indans
Indvdua returns. (See Returns.)
Informaton at source:
Ownershp certfcates, dvdends, use of orm 10S7 by brokers
and nomnees
Returns, foregn corporaton, dvdend payments
Informaton returns. (See Returns.)
Inspecton of returns. (See Returns.)
Instament saes:
Persona property, automobe fnancng corporaton
Retroactve provsons of 192 ct, use of, to escape ta
Insurance:
Premums, deducton, nsurance as oan securty
Proceeds, fre nsurance, year of accrua
Insurance companes:
Lfe, reserves aganst matured coupons, deductons
Mutua (other than fe), e tenson of tme, fng returns,
payment of ta , caendar year 1934
Interest:
ccrued, notes e changed for preferred stock
ank debentures ssued to Reconstructon nance Corpora-
ton, deducton
onds
ome Owners Loan Corporaton, e empton
Wthhodng. (See Wthhodng of ta at source.)
Corporate payments to fe benefcary of former rea estate
owner
Coupons, uncoected, constructve recept
Overpayments. (See Interest: Refunds.)
Refunds, overpayment, computaton
Unted States obgatons, credt for, husband and wfe
7432
7382
7352
73G9
7295
7395
7295
7395
725
7242
7240
7431
7353
7534
7403
7404
7298
7494
7414
73S4
T7338
17343
7479
7443
1/73
7457
7423
7409
7382
7548
7415
749S
7295
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1
3
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2

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0
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8
9
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5
4
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_
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#
p
d
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g
o
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e
577
Invountary converson of property:
Condemnaton award, gan or oss
Gan or oss
Irrgaton dstrct, bonds, e empton
.
ont:
Returns, husband and wfe, cassfcaton
Stock and banks, nterest on bonds of, ownershp certfcates.
Tenants, Wsconsn, rea estate ta , deducton
.
entucky saes ta
L.
Labor unon, dues and assessments, deducton
Leases:
O and gas, depeton
dvance royaty or bonus
pportonment between essee, assgnor, and essor
O, gas, and coa, conveyance of. (See Msceaneous ta es:
Stamp ta es.)
Lberty ond ct, second, amendments
Lens, edera ta es, fng of notces, aska
Lmtaton perod:
ssessment of ta es
Commencement date, ndvdua and consodated re-
turns
Transferee
Cams for refund, redempton of unused tobacco saes ta
stamps
Coecton of ta es, wavers, dssoved corporaton, estoppe..
Credt or refund, estate ta overpayment apped aganst n-
come ta pad on same profts
Returns, suffcency
Suts, recovery of ta es, constructon of secton 322 , Revsed
Statutes
quor:
ottng of wnes, cordas and queurs at rectfyng pants,
reguatons amended
Deaers-
Reports of pants and warehouses
State mmunty and poce power, person cassfed
ermented mat, meter readngs, reguatons amended
oor ta , consttutonaty
State stores
Reta, ta abty of profts
Ta abty of profts
Loans, bank, commssons, ncome, when reported
Losses:
dvance payments by raroad essee, prevousy deducted
as operatng e pense
ffated corporatons, burden of proof .
rtce ost n transt, shpper ndemnfed by carrer
ank-
Purchasng stock and assets n other bank, qudatng
dvdends
Stockhoders assessment abty, deducton
Rung
No.
7257
17453
745
7345
7395
7397
725
/7410
7411
74
7230
7229
734
7507
7373
738
73 0
74 9
7510
7341
7523
7249
732
7471
7475
7471
731
7439
17493
7490
7358
7244
74S
7402
7227
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1
3
-
0
1
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578
Rung
No.
Page.
Losses Contnued.
ankrupt, property turned over to trustee
re, not compensated for by nsurance, when deductbe
Gambng transactons, evdence
Securtes, offset aganst persona gans
Stock-
orced saes, deducton mtaton
Offset aganst partnershp gans
Put and ca transactons, deducton mtaton
Wash saes
Stockhoders, qudaton of corporaton, when deductbe
ountary payment to credtors, deducton
Lubrcatng o. (See Manufacturers e cse ta es.)
M.
Manufacturers e cse ta es:
Coorabe sae by manufacturer (parent corporaton) to a
subsdary
Damonds sod n ots
mergency reef admnstraton, edera or State, saes to...
rearms, shes, and cartrdges, Chapter , Reguatons 4 ,
amended
Gasone
Lost n transt by ppe ne carrer shpper ndemnfed..
Producer, bender of acoho and gasone
Saes
or use n arpanes on Unted States vesses of war.
State, constructon and/or mantenance of an ar-
port
To cooperatve and sef-hep assocatons
Lubrcatng o
Petroatum
Saes
or use n arpanes on Unted States vesses of war.
To a State, constructon and/or mantenance of an
arport
Saes
y subsdary ta abe as saes by the parent corporaton,
ta abe artces used n constructon of sewers,
754
7385
7331
7495
7533
7299
7300
7480
7311
7302
17427
7458
7293
7333
729
748
7511
7429
7428
7278
744
7429
7428
17427
7458
State,
etc
To State for use of Natona Guard
Sportng goods, games, ta abty of certan shoes
State reef assumed by edera mergency Reef dmns-
traton, saes to
Tros and nner tubes, retreaded and rebut tres
Toet preparatons, he yresorcno souton, mouth wash,
etc
Maryand, acohoc beverages ta , deducton
Massachusetts, pubc admnstrator, compensaton
Meter readngs, mat quor brewers, reguatons amended
Me co absenteesm ta , credt for
Mnng equpment, conveyance of. See Msceaneous ta es:
Stamp ta es.)
Msceaneous ta es:
dmssons, cabarets, etc., mnmum charge for refreshment,
etc
Crude petroeum
Produced from ands of ve Cvzed Trbes and State
schoo ands 7403
Restrcted homestead aotments, Osage and Semnoe
Indans 7404
7485
724
752
7500
7551
7525
7255
7351
7475
7440
7374
G
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e
579
Msceaneous ta es Contnued.
Dues and ntaton fees, sportng cub
Lquor deaers, State mmunty and poce power, person
cassfed
Stamp ta es
onds, rrgaton dstrct, Caforna, e empton
Certfcates of partcpaton ta ed as corporate secur-
tes
Conveyances
Leases, o, gas and coa, West rgna
Mnng equpment, West rgna
Reaty and personaty
Redempton of unused tobacco saes ta stamps, statu-
tory perod
Sver buon, saes and transfers
Ta on, deducton
To or by a Chna Trade ct corporaton
Stock, transfer of rght to receve
Tobacco ct of 1934
Cams for refund (Tobacco ct), statutory perod
for fng
Destructon by fre (Tobacco ct)
Leaf scrap
Coected from oadng patform, etc. (To-
bacco ct)
Sae of (Tobacco ct) 1
Tobacco manufactured and sod by the producer. _
Transfer of stock from guardan to ward
Dstrct of Coumba, Mssour, North Carona,
Oho
Pennsyvana
Transferee s abty -
Mssour:
Property ta es, accrua date
Pubc admnstrator, compensaton
Montana:
Pubc admnstrator, compensaton
State reta quor stores proft, ta abty
N.
Narcotc aw. (See arrson narcotc aw.)
Natona Guard, saes of artces for use of
Natona Industra Recovery ct, returns, reguatons respectng
use of orgna and furnshng copes of
Nebraska, property ta es, accrua date
Net ncome:
ases of computaton, reguatons, 1934 ct
Computaton, change n bass, estoppe
Consodated, deangs by subsdary n parent s stock
Net osses:
ffated corporatons
Intercompany transactons
Successor corporaton s deducton
Nonresdent aens:
arned ncome
Wne and 1 quor concerns, saes contracts and empoyees
compensaton, ncome
Notes, sera, purchase and retrement, ncome
Rung
No.
7405
7471
7345
7430
7318
7318
7318
73 0
7553
7248
(7557
7558
7559
73 0
7304
7473
7305
7539
755
7459
7559
7438
735
7357
731
724
723
72 8
7252
7400
7372
7315
7258
7341
7331
7353
72S9
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1
3
-
0
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2

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#
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e
580
o.
Oho saes ta
O and gas:
Depeton aowance. (See Depcton.)
Gross ncome from the property, reguatons amended
Oeomargarne:
Schedue of producton and materas used
November, 1934 and 1933
December, 1934 and 1933
anuary, 1935 and 1934
ebruary, 1935 and 1934
March, 1935 and 1934
pr, 1935 and 1934
Osage Indans, crude petroeum from restrcted homestead aot-
ments
Ownershp certfcates:
onds
Interest, |ont stock and banks
Ta -free covenant, nterest wthhodng
Dvdends, use of orm 1087 by brokers and nomnees
P.
Partnershps:
Chartabe contrbutons by, deducton
Dstrbutve shares
ccountng perods of frm and members dfferent
state of deceased partner, ncome
Losses on securtes offset aganst persona gans
Persona stock osses offset aganst partnershp gans
Sae of asset contrbuted n knd, gan or oss
Peanuts. (See Processng ta .)
Pensons, od-age, ta abty
Permt appcaton ( orm 1431) for operatng ndustra acoho,
bonded warehouse, and denaturng pants
Persona e empton. (See Credts aganst net ncome.)
Persona e penses, attorney s fees
Persona hodng companes:
tenson of tme, fng returns, payment of ta , caendar
year 1934
Surta on, payment by stockhoders on pro rata shares
Ppe ne carrer, gasone ost n transt, shpper ndemnfed
Practce requrements before Treasury Department. (See ttor-
neys and agents.)
Processng ta es:
Cocoanut o
terng, etc
.traton and carfcaton, S. T. 758 and S. T. 800 re-
voked
Credt or refund, pena, etc., nsttutons
ogs
Converson factors, sausage
Reguatons
Peanuts
armers stock weght
Processng for producer s use as seed
Sugar beets or sugarcane, reguatons governng
Tobacco
Products for use as sea stores
Reguatons governng
Producer of gasone. (See Manufacturers e cse ta es: Gaso-
ne.)
Property ta es. (Sec Ta es: State Property ta es.)
Rung
No.
7421
7447
7234
730
73 1
7417
74 4
7515
7404
7397
7238
7298
728
7555
7510
7495
7299
7424
7437
75 0
7497
730
7398
748
7387
7499
7247
7303
7290
7538
72 0
751
7512
7377
G
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1
3
-
0
1
-
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2

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4
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#
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581
ng
No.
Pubc admnstrators, compensaton, e empton.
Pubc utty corporaton, ncome, e empton
Pubcty returns:
Certan statements of ncome
7351
735
7357
7334
Income ta , statement of tems on
Purchase and retrement of sera notes, ncome..
-
uarters, aowances for:
oregn Commerce Servce empoyees
oregn Customs gency Servce empoyees.
R.
Raroads:
ffaton, e cess-profts ta returns - - - -. - -- -
Compensaton, edera contro perod, deducton for rehab-
taton e pendtures _
mpoyees retrement fund, contrbutons to, ncome
Rates of e chanpe, foregn
Recepts for credts camed on orm C30, requrement emnated. -
Records, under provsons of Pubc, No. 373, when requred, regu-
atons amended
Rectfers:
orms 27- and 27-C, reguatons concernng
Saes of dsted sprts
Refunds. (Sec Credt or refund.)
Regstraton of schoos, etc., under arrson narcotc aw (Mn.
415 amended)
Reguatons. (See mendments: Reguatons.)
Reorganzaton:
Gan or oss, transfer made to avod ta
Property acqured n, gan or oss bass
Reserves:
reght aowances and cash dscounts
Lfe nsurance company ..
Retrement annutes, raroad empoyees, a abty
Returns:
ffdavt of attorney or agent preparng
Consodated
greement as to ta aocaton .
sca years begun n 1933 and ended n 1934, eecton...
cess-profts ta , affated groups of raroad corporatons
tenson of tme for fng, caendar year 1934:
Mutua nsurance companes
Persona hodng companes and mutua nsurance com-
panes
ducary, reguatons, 1934 ct
usband and wfe, |ont return:
Capta oss, deducton mtaton
Cassfcaton .
Income and profts ta es, property n custody of en Prop-
erty Custodan
Income, capta stock, and e cess-profts ta , reguatons re-
spectng use of orgna and furnshng copes
Indvduas, reguatons, 1934 ct
7474
552
7283
02
7328
111
93
7547
90
7289
310
7450
44
7492
45
73 5
138
7358
322
722
43
7327
73
7320
544
7390
137
75 0
542
7544
508
7432
.528
7273
193
7355
245
7537
29
7443
339
722
43
(739
84
17422
8
7317
327
7329
115
73 5
138
(7457
83
17514
83
73G
82
7292
11
7352
111
7395
81
727
543
723
8
72 5
79
G
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1
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2

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#
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e
582
Returns Contnued.
Informaton
rokers
1934 and subsequent caendar years
Informaton at source. (See Informaton at source.)
Inspecton of, Speca Commttee Investgatng the Muntons
Industry, Unted States Senate
ont returns, husband and wfe, cassfcaton
Pubcty
Certan statements of ncome
Statement of tems on
Raroad corporatons
ffated groups, e cess-profts ta
orm 1090 revsed
Stamps, cams ( orm 30), T. D. 15 5 revoked
Suffcency, statute of mtaton
Under provsons of Pubc, No. 373
Revocaton, Treasury Decson 15 5
Royates, o and gas eases, advance royates, depeton deduc-
ton
S.
Saes:
Coorabe, by manufacturer (parent corporaton) to a sub-
sdary
Gan or oss
ass, property n hands of e ecutor
equest property, bass
Contract to cut and remove tmber, when profts reported
Property transmtted at death
Stock-
cqured n reorganzaton, bass
Margna transactons, frst-n, frst-out rue
Termnaton of trust, donor s bass
Instament. (See Instament saes.)
Securtes, partnershp osses offset aganst persona gans
Stock-
cqured upon e change for partnershp nterest
pportonment cost of preferred and common
Gan or oss
Losses from forced saes, deducton mtaton
Persona osses offset aganst partnershp gans
Undentfed shares, concusveness of oard s fndng--
Wash saes, osses
Stock and bond, put and ca transactons, ess deducton
mtaton
Ta . (See Ta es.)
Wash saes, stock acqured through rghts
Schoo ands, State, crude petroeum produced from
Scrp n payment of nterest on bonds, wthhodng
Second Lberty ond ct, amendments
Sef-hep assocatons, saes of gasone to_.t
Semnoe Indans, crude petroeum from restrcted homestead
aotments
Sewers, constructon by a State, etc
Sver buon. (See Msceaneous ta es: Stamp ta es.)
South Dakota:
Gross ncome ta
Property ta es, accrua date
Rung
No.
72 2
7285
7324
7554
7395
7474
7283
7328
7350
.7547
73 5
7297
7320
7341
7389
7320
7230
(7427
7458
7535
7288
7301
/7505
750
7442
7504
7371
7495
7342
7272
7287
7533
7299
7354
7480
7300
74S0
7403
7340
734
7278
7404
7485
7270
72 9
G
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1
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2

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#
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e
583
mport dutes, deducton
goods. See Manufacturers e cse ta es.)
aps:
Strp, contro of
Ta es. (See Msceaneous ta es.)
State:
gences, cooperatve and sef-hep assocatons
s quor deaer, mmunty and poce power, person cass-
fed
Constructon and/or mantenance of an arport by
Constructon of sewers, etc., by
mergency reef admnstraton, saes to
Offcers and empoyees, compensaton -
ttorney empoyed for snge tgaton
mergency Reef dmnstraton
Manager of muncpay owned waterworks
Pubc admnstrators
rgna quor stores
Reef assumed by edera mergency Reef dmnstraton,
saes
Schoo ands, crude petroeum produced from
Ta es. (See Ta es: State.)
Stock:
Dvdends. See Dvdends.)
Margna transactons, trade or busness, burden of proof
Put and ca transactons, oss deducton mtaton
Redempton or canceaton, dstrbuton n
Saes
pportonment cost of preferred and common
orced, deducton mtaton
Gan or oss
Persona osses offset aganst partnershp gans
Trust company, capta osses, mtaton
Undentfed snares, concusveness of oard s fndng. _
gar beets or sugarcane. ( Sec Processng ta es.)
ts:
Recovery of ta es
ccount stated, account setted
ocated to subsdary, no assessment
Cam for refund, res |udcata
Lmtaton perod. (.See Lmtaton perod: Suts.)
Ovcrasscssment credted aganst addtona ta es, new
cause of acton
Stamp ta , transferee s abty
Surta :
Corporaton utzed for evason of
Persona hodng companes, payment by stockhoders on
pro rata shares
Suspensons. (See ttorneys and agents.)
Symbos, correspondence, ureau of Interna Revenue
Syndcate, dstrbutve share of profts, when ncuded n ncome.
T.
Ta es:
cohoc beverages, Maryand
ssessment
ffated corporatons, aocaton of ta
Lmtaton perod. (See Lmtaton perod.)
Capta stock ta , accrua date
Cotton gnnng, deducton
Credt for. (See Credts.)
083 3 20
nc
No.
7240
17349
7392
727S
7471
742S
7485
7333
7259
7312
7401
(7351
7350
7357
7439
7500
7403
7508
7300
7314
7272
7533
7287
7299
7228
7: / I
7410
7484
7522
74 9
7559
7413
7398
7375
7351
7255
7484
7254
7407
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584
Ta es Contnued.
tenson of tme for payment
Persona hodng eompanes and mutua nsurance com-
panes, caendar year 1934
Rues governng appcatons for
na determnaton and assessment, cosng agreement,
sgned by actng offcas, vadty --
oregn, credt for. (See Credts.)
Gross ncome, South Dakota
Import dutes on sprts, wnes, etc
entucky saes ta
Lquor foor, consttutonaty
Oho saes ta
Payment
ocaton agreement of affated group
Treasury notes, Seres -1935, nstructons
Property
Nebraska
South Dakota
ea estate, Wsconsn, deducton by |ont tenants
Sver buon transfers, deducton
State-
Property ta , Mssour
Transfer ta , payment by estate, by whom deductbe-.
Tmber, contract to cut and remove, when profts reported
Tres and nner tu es. (Sec Manufacturers e cse ta es.)
Tobacco:
Processng of. (See Processng ta .)
Reguatons, processng ta , etc
Saes Ta ct of 1934. (See Msceaneous ta es Stamp
ta es Tobacco ct.)
Statement of manufactured, produced, by cashes
October, 1934
November, 1934
December, 1934
anuary, 1935
anuary and ebruary, 1935 and 1934
March, 1935 and 1934
Toet preparatons, etc. (See Manufacturers e cse ta es.)
Transferee, abty for stamp ta
Transferred assets, cams aganst:
greement to pay awfu debts, whether ncudng ta es
ssessment mtaton, transferee s wavers, estoppe
Treasury notes, Seres -1935, acceptance for ta payment,
nstructons
Trust companes, sae of stock, capta osses, mtaton
Trusts:
ssocatons dstngushed
Income
Dstrbutabe shares, ta abe to benefcares---
Payment n eu of amony, grantor s ta abty
U.
Unted States oard of Ta ppeas:
Concusveness of fndng, saes of undentfed shares of stock.
Decsons of
Lst of acquesccnces and aonacquescences
Res |udcata, ndentty of ssues
Dena of rehearng
No.
73
7441
7243
7270
7240
/7410
17411
7471
7421
7317
753
72 8
72 9
725
7553
7438
7481
7301
7377
ndngs of fact, evdence
Unted States obgatons, nterest on, credt, husband and wfe_
7235
7307
73 2
7418
7487
7540
7559
438
7344
352
738
355
753
379
7228
111
7275
240
7481
310
7274
228
7354
231
7545
1-41
738
355
7315
257
7482
3 0
7483
3 5
7295
72
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585
UntR
No.
Page.
.
nson ct, nava contracts under, e cess profts
rgna, State quor stores, proft, ta abty
W.
Wash saes, stock acqured through rghts, osses
Wneuakers, bonds
Wnes, mport dutes, deducton
Wsconsn:
Rea estate ta es, deducton by |ont tenants
Unempoyment reserves and compensaton act, empoyers
contrbutons to
Wthhodng ta at source:
Dvdends, reguatons amended
oregn corporatons, dvdend payment
Interest, bond
ont stock and banks, ownershp certfcates
Ta -free covenant
Labty of bondhoders commttee as assgnee
Scrp ssued n payment of bond nterest
7321
7439
7480
(7277
7502
7240
725
7339
7393
7494
7397
7238
7451
7340
529
103
225
537
538
57
142
54
118
119
123
122
154
152
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